**FORM      20-F **

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

| þ | ANNUAL                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE                ACT OF                1934 |
|--------|-----------------------------------------------------------------------------------------------------------------------------------|

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

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

**POLYMET      MINING CORP.**

| Large                  accelerated filer  ̈ | Accelerated                  filer  ̈  | Non-accelerated                  filer þ |
|-------------------------------------------------|-------------------------------------------------|-----------------------------------------------|

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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**                                                                    | **19** |
| **ITEM                5.**   | **OPERATING                AND FINANCIAL REVIEW AND PROSPECTS**                                               | **19** |
| **ITEM                6.**   | **DIRECTORS,                SENIOR MANAGEMENT AND EMPLOYEES**                                                 | **28** |
| **ITEM                7.**   | **MAJOR                SHAREHOLDERS AND RELATED PARTY TRANSACTIONS**                                          | **33** |
| **ITEM                8.**   | **FINANCIAL                INFORMATION**                                                                      | **36** |
| **ITEM                9.**   | **THE                OFFER AND LISTING**                                                                      | **36** |
| **ITEM                10.**  | **ADDITIONAL                INFORMATION**                                                                     | **37** |
| **ITEM                11.**  | **QUANTITATIVE                AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK**                                  | **43** |
| **ITEM                12.**  | **DESCRIPTION                OF SECURITIES OTHER THAN EQUITY SECURITIES**                                     | **44** |
|                         |                                                                                                          |   |
|                         | **Part                II**                                                                                    |   |
|                         |                                                                                                          |   |
| **ITEM                13.**  | **DEFAULT,                DIVIDEND ARREARAGES AND DELINQUENCIES**                                             | **44** |
| **ITEM                14.**  | **MATERIAL                MODIFICATIONS TO THE RIGHT OF SECURITY HOLDERS AND USE OF                PROCEEDS** | **44** |
| **ITEM                15.**  | **CONTROLS                AND PROCEDURES**                                                                    | **44** |
| **ITEM                16A.** | **AUDIT                COMMITTEE FINANCIAL EXPERT**                                                           | **45** |
| **ITEM                16B.** | **CODE                OF ETHICS**                                                                             | **45** |
| **ITEM                16C.** | **PRINCIPAL              ACCOUNTANT FEES AND SERVICES**                                                       | **45** |
|                         |                                                                                                          |   |
|                         | **Part                III**                                                                                   |   |
|                         |                                                                                                          |   |
| **ITEM                17.**  | **FINANCIAL                STATEMENTS**                                                                       | **46** |
| **ITEM                18.**  | **FINANCIAL                STATEMENTS**                                                                       | **46** |
| **ITEM                19.**  | **EXHIBITS**                                                                                                  | **46** |

**Financial      Statements:**

| Management’s                Responsibility for the Financial Statements | F-1 |
|-------------------------------------------------------------------------------|-----|
| Report                of Independent Registered Public Accounting Firm        | F-2 |
| Consolidated                Balance Sheet                                     | F-3 |
| Consolidated                Statements of Shareholders’ Equity          | F-4 |
| Consolidated                Statements of Loss                                | F-5 |
| Consolidated                Statements of Cash Flows                          | F-6 |
| Consolidated                Schedules of Pre-Feasibility Costs                | F-7 |
| Notes                to Consolidates Financial Statements                     | F-8 |

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| - | general                  economic and business conditions, including changes in interest                  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. |
|---|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**ITEM      1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND      ADVISORS**
** **

**ITEM      2. OFFER STATISTICS AND EXPECTED TIMETABLE**

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**ITEM      3. KEY INFORMATION**

**A.**
**Selected      Financial Data**

|                                                        |   | **Year****Ended****1/31/06** |       | **Year****Ended****1/31/05** |   | **Year****Ended****1/31/04** |   | **Year****Ended****1/31/03** |       | **Year****Ended****1/31/02** |   |
|-------------------------------------------------------------|--------|------------------------------|------------|------------------------------|--------|------------------------------|--------|------------------------------|------------|------------------------------|--------|
| Revenue                                                     |   | $                            | —    |                         | $      | —                      |   | $                            | —    |                         | $      | — |   | $ | — |   |
| Income                (loss) from Operations                |   | $                            | —    |                         | $      | —                      |   | $                            | —    |                         | $      | — |   | $ | — |   |
| Net                Loss                                     |   | $                            | (15,930    | )                            | $      | (3,776                       | )      | $                            | (147       | )                            | $      | (472 | ) | $ | (1,156 | ) |
| US                GAAP Net Loss1                            |   | $                            | (15,930    | )                            | $      | (3,776                       | )      | $                            | (147       | )                            | $      | (469 | ) | $ | (1,226 | ) |
| Loss                Per Share                               |   | $                            | (0.22      | )                            | $      | (0.07                        | )      | $                            | —    |                         | $      | (0.04 | ) | $ | (0.04 | ) |
| US                GAAP Loss Per Share                       |   | $                            | (0.22      | )                            | $      | (0.07                        | )      | $                            | —    |                         | $      | (0.04 | ) | $ | (0.04 | ) |
| Diluted                Net Loss Per Share                   |   | $                            | (0.22      | )                            | $      | (0.07                        | )      | $                            | —    |                         | $      | (0.01 | ) | $ | (0.04 | ) |
| Dividends                Per Share                          |   | $                            | —    |                         | $      | —                      |   | $                            | —    |                         | $      | — |   | $ | — |   |
| Weighted                Average Shares1                     |   |                         | 73,484,000 |                         |   | 51,946,000                   |   |                         | 32,452,000 |                         |   | 32,658,000 |   |   | 31,925,000 |   |
| Working                Capital                              |   | $                            | 9,071      |                         | $      | 1,274                        |   | $                            | 424        |                         | $      | (73 | ) | $ | 322 |   |
| Total                Assets                                 |   | $                            | 26,035     |                         | $      | 2,350                        |   | $                            | 1,025      |                         | $      | 52 |   | $ | 504 |   |
| US                GAAP Total Assets3                        |   | $                            | 26,035     |                         | $      | 2,350                        |   | $                            | 1,025      |                         | $      | 52 |   | $ | 504 |   |
| Long-Term                Debt                               |   | $                            | 1,421      |                         | $      | —                      |   | $                            | —    |                         | $      | — |   | $ | — |   |
| Shareholders’                Equity                   |   | $                            | 19,387     |                         | $      | 2,019                        |   | $                            | 926        |                         | $      | (31 | ) | $ | 441 |   |
| US                GAAP Shareholders’ Equity3          |   | $                            | 19,387     |                         | $      | 2,019                        |   | $                            | 926        |                         | $      | (29 | ) | $ | 441 |   |
| Capital                Stock                                |   | $                            | 53,453,739 |                         | $      | 20,156,740                   |   | $                            | 15,286,816 |                         | $      | 14,183,450 |   | $ | 14,285,450 |   |
|                                                        |   |                         |       |                         |   |                         |   |                         |       |                         |   |   |   |   |   |   |
| US                GAAP Mineral Properties2                3 |   | $                            | —    |                         | $      | —                      |   | $                            | —    |                         | $      | — |   | $ | — |   |

| 1 | Under                US GAAP, contingently-cancelable (and escrowed) common shares would                not                have been included in the calculation of the weighted average number                of                shares used to determine EPS. We have no such                shares. |
|---|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 2 | Under                Canadian GAAP, mineral properties may be carried at cost and written-off                or written-down if the properties are abandoned, sold, or if management                decides not to pursue the properties. Under US GAAP, mineral properties                are carried at the lesser of cost and net realizable value based                on                periodic review supported by independent reports. In 2003, we changed                our                accounting policy to conform to the US GAAP method and therefore                there are                no differences between our presentation under Canadian and US GAAP                and SEC                regulations in our financial                statements. |
|---|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 3 | Under                US GAAP, long-term investments would be written down to market value                on an                individual basis and charged to a contra-equity account for unrealized                losses on investments. |
|---|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**D.**
**Risk      Factors **

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**RISKS      RELATING TO OUR BUSINESS**

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

| ·   | 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 establish proven and probable ore reserves                through drilling, to determine metallurgical processes to extract                the                metals from the ore and, in the case of new properties, to construct                mining and processing facilities;                and |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | If                we proceed to 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. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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**We      have had no production history and we do not know if we will generate revenues      in the future. If we do not, you may lose your investment.**

| ·   | our                ability to locate an economically feasible mineral property;                and |
|--------------------|----------------------------------------------------------------------------------------------------|

| ·   | our                ability to either attract a partner to operate, or to successfully                build                and operate mines, processing plants and related infrastructure                ourselves. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**We      have a history of losses which we expect to continue into the future. If we      do      not begin to generate revenues or find alternate sources of capital, we will      either have to suspend or cease operations, in which case you will lose your      investment.**

**We      may not be able to raise the funds necessary to explore our mineral properties.      If we are unable to raise such additional funds, we will have to suspend or      cease operations in which case you will lose your      investment.**

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

**There      is no assurance that any of our mineral resources will ever be classified as      reserves under the disclosure standards of the SEC.**

**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 and you could lose your investment.      **

|  | · | to                protect the environment, including the quality of the air and water                in the                vicinity of exploration,                development, and mining operations; |
|--|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | · | to                remediate the environmental impacts of those exploration, development,                and                mining operations; |
|--|--------|-----------------------------------------------------------------------------------------------------------------------------------------------|

|  | · | to                protect and preserve wetlands and endangered species;                and |
|--|--------|--------------------------------------------------------------------------------------------|

|  | · | to                mitigate negative impacts on certain archeological and cultural                sites. |
|--|--------|---------------------------------------------------------------------------------------------------------|

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**Because      the price of metals fluctuate, if the price of metals for which we are exploring      decreases below a specified level, it may no longer be profitable to explore      for      those metals and we will cease operations. **

| · | 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. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------|

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

| · | industrial                  accidents; |
|--------|----------------------------------------|

| · | railroad                  accidents; |
|--------|--------------------------------------|

| · | labor                  disputes; |
|--------|----------------------------------|

| · | environmental                  hazards; |
|--------|-----------------------------------------|

| · | electricity                  stoppages; |
|--------|-----------------------------------------|

| · | equipment                  failure; and |
|--------|-----------------------------------------|

| · | severe                  weather and other natural                  phenomena. |
|--------|-------------------------------------------------------------------------------|

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

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

|  | · | 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. |
|--|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------|

**RISKS      RELATED TO THE OWNERSHIP OF OUR STOCK**

**We      may experience volatility in our stock price, which could negatively affect      your      investment, and you may not be able to resell your shares at or above the price      you purchased your shares. **

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

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

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

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

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**ITEM          4. INFORMATION ON THE COMPANY**

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

**B.**
**Business      Overview**

| 1.   | Acquiring                a large processing facility and associated infrastructure located                approximately six miles west of our NorthMet deposit.                Under an agreement dated February 14, 2004, we paid Cliffs Erie LLC,                a                subsidiary of Cleveland Cliffs, Inc. of Cleveland, Ohio (“Cliffs”),                $500,000 and 1,000,000 of our common shares to acquire the exclusive                option to purchase the Erie Plant, including certain property, plant                and                equipment from Cliffs at any time until June 30, 2006 subject to                the                payment of an additional $5.0 million within six months of completion                of                the Definitive Feasibility Study.** **                During the fiscal year ended January 31, 2006, we and Cliffs agreed                to                expand the scope of the assets to be acquired from Cliffs and on                November                15, 2005, we exercised this revised option by paying Cliffs an additional                6,200,547 of our common shares, $1.0 million in cash, and a promissory                note for $2.4 million. |
|----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 2.   | Environmental                permitting.                To                commence commercial production at NorthMet, various regulatory approvals                are needed. Thus, on January 11, 2005, we submitted initial documentation                to the Minnesota Department of Natural Resources (the “Minnesota DNR”),                the United States Forest Service (the “USFS”) and the United States Army                Corps of Engineers (the “USACE”). These documents and data provided the                information required for preparation of a Draft Scoping Environmental                Assessment Worksheet (the “EAW”). |
|----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| 3.   | Engineering                and feasibility.                We                retained Bateman Engineering Pty. of Brisbane, Australia (“Bateman”) to                complete a review of the Scoping Study for the NorthMet Project and                to                lead the Definitive Feasibility Study (the “DFS”) as the coordinating                consultant. As part of the DFS, Bateman is responsible for: |
|----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |   |
|--------|--------|
| ·   | Completing                the process design and detail engineering and estimates for the plant                and                infrastructure, |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Reviewing                environmental permitting, |
|--------------------|----------------------------------------------------|

| ·   | Geo-statistical                review of the ore body, |
|--------------------|--------------------------------------------------------|

| ·   | Mine                planning and scheduling of ore and waste,                and; |
|--------------------|-----------------------------------------------------------------------------------|

| ·   | Assessing                marketing of the metals to be                mined. |
|--------------------|------------------------------------------------------------------------------|

| ·   | provide                a bulk sample for metallurgical pilot plant test                work, |
|--------------------|----------------------------------------------------------------------------------------------|

| ·   | gather                geotechnical information for pit                design, |
|--------------------|-------------------------------------------------------------------------------|

| ·   | enhance                the geological model through in-fill                drilling, |
|--------------------|--------------------------------------------------------------------------------------|

| ·   | collect                data to support environmental permitting,                and |
|--------------------|-------------------------------------------------------------------------------------|

| ·   | increase                confidence in the resource estimate categorization resulting from                reduced                drill hole and sample spacing. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| 4.   | Financing                and corporate development.                During the fiscal year ended January 31, 2006, we completed a series                of                equity private placements that raised $22.2 million, net of expenses.                Subsequent to the fiscal year end, we obtained approximately $12                million                from the exercise of stock options and stock purchase warrants. These                funds will be used to complete our DFS, acquisition of the plant                facilities from Cliffs, and for general corporate purposes, including                detailed engineering prior to starting construction on our NorthMet                Project. |
|----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**C.**
**Organizational      Structure**

**D.**
**Property,      Plant and Equipment**

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| ***Cautionary                  Note to U.S.                  Investors*** |
|---------------------------------------------------------------------------|

| **TO                CLARIFY, WE HAVE NO PROPERTIES THAT CONTAIN “RESERVES” AS DEFINED BY THE                SEC AND WE HAVE PROVIDED THE FOLLOWING PROPERTY INFORMATION IN ACCORDANCE                WITH NATIONAL INSTRUMENT                43-101.** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**(a)      **
**History**

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**(b)**
**Location/Access/Climate**

**(c)**
**Claims      and ownership**

| **(i)  ** | **NorthMet                Lease** |
|---------------------|-----------------------------------|

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| **(ii)  ** | **The                Erie Plant** |
|----------------------|-----------------------------------|

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**(d)      **
**Permitting      and Environmental**

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**(e)**
**History      of Exploration**

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**Cautionary      Note to United States Investors      Concerning Estimates of Measured, Indicated and Inferred      Resources**

**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.**
**United        States investors are cautioned not to assume that part or all of an inferred        resource exists, or is economically or legally        mineable.**

|                                                     |   |   | Ktonnes  |   |   | %           |   |   | Average                  Grades  |   |
|----------------------------------------------------------|--------|--------|---------------|--------|--------|-------------|--------|--------|---------------------------------------|--------|
|                                                     |   |   | Above    |   |   | Of          |   |   | NSR                                   |   |   | CuEq |   |   | Cu |   |   | Ni |   |   | Co |   |   | Pd |   |   | Pt |   |   | Au |   |
| Geological                  Resource Above $7.42 cuttoff |   |   | Cutoff   |   |   | Total  |   |   | US$/t                            |   |   | %  |   |   | %  |   |   | %  |   |   | g/t  |   |   | g/t  |   |   | %  |   |   | g/t  |   |
| Measured                                                 |   |   | 201,653       |   |   | 46.8        | %      |   | 11.97                                 |   |   | 0.878 |   |   | 0.364 |   |   | 0.099 |   |   | 71.20 |   |   | 0.354 |   |   | 0.095 |   |   | 0.049 |   |
| Indicated                                                |   |   | 133,853       |   |   | 31.0        | %      |   | 12.41                                 |   |   | 0.939 |   |   | 0.379 |   |   | 0.096 |   |   | 66.77 |   |   | 0.384 |   |   | 0.110 |   |   | 0.055 |   |
| Inferred                                                 |   |   | 95,653        |   |   | 22.2        | %      |   | 12.74                                 |   |   | 0.998 |   |   | 0.387 |   |   | 0.095 |   |   | 62.76 |   |   | 0.424 |   |   | 0.123 |   |   | 0.059 |   |
| Total                                                    |   |   | 431,159       |   |   |        |   |   | 12.27                                 |   |   | 0.924 |   |   | 0.374 |   |   | 0.097 |   |   | 67.95 |   |   | 0.379 |   |   | 0.106 |   |   | 0.053 |   |

**(f)      **
**Geology      and Mineralization**

| ·   | Unit                7 and Unit 6 –                texturally                homogeneous plagioclase-rich troctolite, each with a persistent ultramafic                base. Unit 6 contains a mineralized horizon in the southwestern portion                of                NorthMet which is relatively enriched in PGM’s relative to copper. Units 6                and 7 are each about 400 ft. thick and form the shallowest                units. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| ·   | 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 4 and 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. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | 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 absent                entirely. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | 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 bearing unit. Two ultramafic                layers are generally present. Unit 1 is probably the result of multiple                pulses of magma injection. Average thickness is about 450                ft. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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**(g)**
**Exploration      and Development Plans**

**(h)**
**Regulations      and Government Rules**

**ITEM      4A. UNRESOLVED STAFF COMMENTS**

**ITEM      5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS**

**(a)      **
**Operating      Results**

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| ·   | a                40 ton bulk sample for metallurgical pilot plant test work representing                the 10 year mining envelope was successfully processed at SGS Lakefield                Laboratories in Ontario during the latter part of 2005; |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | compilation                of geotechnical information for pit slope design and pit slope stability                studies by Golder Associates; |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | enhancement                of the comprehensive geological model through in-fill drilling, a                new                detailed geological and assay model which incorporates all completed                work                from 2005, the results of which continue to contribute to the ongoing                resource evaluation and pit design work; |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | confirmation                of continuity of metal grades; |
|--------------------|------------------------------------------------------------|

| ·   | collection                of data supporting the environmental permitting; and |
|--------------------|--------------------------------------------------------------------------------|

| ·   | the                improvement in the confidence of the resource estimate categorization,                resulting from reduced drill hole and sampling space. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

** **

|                                                       |   | **NorthMet                Project inU.S.** |       | **Other                reconciling adjustments** |   |   **Consolidated** |   |
|----------------------------------------------------------------------|--------|--------------------------------------------|------------|--------------------------------------------------|--------|------------------------------|--------|
| **2006**                                                             |   |                                       |       |                                             |   |                         |   |   |   |   |
| Segment                operating loss                                |   | $                                          | 11,406,553 |                                             | $      | 4,522,984                    |   | $ | 15,929,537 |   |
| Purchase                property, plant and equipment                |   | $                                          | 2,201      |                                             | $      | 8,142                        |   | $ | 10,343 |   |
| Other                assets                                          |   | $                                          | 13,495,647 |                                             | $      | —                      |   | $ | 13,495,647 |   |
| Identifiable                assets                                   |   | $                                          | 14,381,120 |                                             | $      | 11,654,116                   |   | $ | 26,035,236 |   |
| **2005**                                                             |   |                                       |       |                                             |   |                         |   |   |   |   |
| Segment                operating loss                                |   | $                                          | 1,855,631  |                                             | $      | 1,920,706                    |   | $ | 3,776,337 |   |
| Purchase                property, plant and equipment                |   | $                                          | 12,028     |                                             | $      | 3,810                        |   | $ | 15,838 |   |
| Other                assets                                          |   | $                                          | 729,320    |                                             | $      | —                      |   | $ | 729,320 |   |
| Identifiable                assets                                   |   | $                                          | 986,065    |                                             | $      | 1,364,099                    |   | $ | 2,350,164 |   |
| **2004**                                                             |   |                                       |       |                                             |   |                         |   |   |   |   |
| Segment                operating loss                                |   | $                                          | 124,473    |                                             | $      | 22,327                       |   | $ | 146,800 |   |
| Purchase                property, plant and equipment                |   | $                                          | —    |                                             | $      | 2,061                        |   | $ | 2,061 |   |
| Other                assets                                          |   | $                                          | 500,000    |                                             | $      | —                      |   | $ | 500,000 |   |
| Proceeds                on sale of resource property                 |   | $                                          | —    |                                             | $      | 219,925                      |   | $ | 219,925 |   |
| Proceeds                on disposal of property, plant and equipment |   | $                                          | 33,331     |                                             | $      | —                      |   | $ | 33,331 |   |
| Identifiable                assets                                   |   | $                                          | 505,500    |                                             | $      | 519,437                      |   | $ | 1,024,937 |   |

----

** **

** **

** **

** **

** **

----

** **

** **

** **

** **

----

** **

** **

**(b)**
**Liquidity      And Capital Resources**

|   | · | a                non-brokered private placement for 3,544,657 units at a price of                CDN$1.40                per unit. Each unit consisted of one common share and one half of                one                share purchase warrant. One full warrant entitles the holders, on                exercise, to purchase one additional common share of ours at a price                of                CDN$2.00 per warrant share at any time until the close of business                on the                day which is 18 months from the date of closing, provided that if                the                closing price of the our shares as traded on the Toronto Stock Exchange                (the “Exchange”) is over CDN$2.50 per share for 20 consecutive trading                days, the Warrants will terminate 30 days                thereafter; |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | · | a                non brokered private placement for 6,672,219 units at a price of                CDN$0.90                per unit. Each unit consisted of one common share and one half of                one                share purchase warrant. One full warrant entitles the holders, on                exercise, to purchase one additional common share of ours at a price                of                CDN$1.25 per warrant share at any time until the close of business                on the                day which is 30 months from the date of closing, provided that if                the                closing price of our shares as traded on the Exchange is over CDN$2.50                per                share for 20 consecutive trading days, the warrants will terminate                30 days                thereafter; and |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | a                brokered private placement for 9,277,777 units at a price of CDN$0.90                per                unit. Each unit consisted of one common share and one half of one                share                purchase warrant. One full warrant entitles the holders, on exercise,                to                purchase one additional common share of ours at a price of CDN$1.25                per                warrant share at any time until the close of business on the day                which is                30 months from the date of closing, provided that if the closing                price of                our shares as traded on the Exchange is over CDN$2.50 per share for                20                consecutive trading days, the warrants will terminate 30 days                thereafter. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | a                  non brokered private placement for 9,000,000 units at a price of                  CDN$0.55                  per unit. Each unit consisted of one common share and one half                  of one                  share purchase warrant. One full warrant entitles the holders,                  on                  exercise, to purchase one additional common share of ours at a                  price of                  $0.70 per warrant share at any time until the close of business                  on the day                  which is 24 months from the date of closing, provided that if the                  closing                  price of the our shares as traded on the Exchange at or exceed                  $1.00 per                  share for 30 consecutive trading days, the Warrants will terminate                  30 days                  thereafter; |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | 5,700,628                shares pursuant to the exercise of 5,700,628, share purchase warrants                for                total proceeds of $3,296,143; and |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | 1,795,852                shares pursuant to the exercise of stock options for total proceeds                of                $196,988. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------|

|   | · | 5,277,574                share purchase warrants were exercised at exercise prices between                CDN$0.10                - CDN$0.25 for proceeds of                $828,554; |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | stock                options in the amount of 1,088,400 were exercised at prices between                CDN$0.08 - CDN$0.13 per share for proceeds of                $81,383; |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | a                private placement for 1,550,000 units at a price of CDN$0.80 per                unit and                a private placement for 1,250,000 units at a price of CDN$0.80 per                unit                for total proceeds of $1,733,984;                and |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | subsequent                to our year-end, a private placement for 9,000,000 units at CDN$0.55                per                unit for net proceeds of $3,831,795 was completed of which $762,804                was                deposited prior to January 31,                2005. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

| Note                payable         |   | $      | 2,400,000  |   |
|-------------------------------------|--------|--------|------------|--------|
| Accrued                interest     |   |   | 20,515     |   |
| Total                debt           |   |   | 2,420,515  |   |
| Less                current portion |   |   | (1,000,000 | )      |
|                                |   |   |            |   |
| Long                term debt       |   | $      | 1,420,515  |   |

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

**(d)**
**Trend      Information**

**(e)**
**Off-Balance      Sheet Arrangements**

----

**(f)**
**Tabular        Disclosure of Contractual Obligations**

|                                      |   | **Payments                due Period** |      |
|-------------------------------------------|--------|----------------------------------------|-----------|
|                                      |   | **Less                than 1 Year**    |      | **1                –3                Years** |   | **3                – 5 Years** |   | **More                than 5 years** |   |
| **Note                Payable****1**      |   | $                                      | 1,000,000 |   | $ | 1,500,000 |   | $ | — |   | $ | — |   |
| **Lease                Obligations****2** |   | $                                      | —   |   | $ | 150,000                - 450,000 |   | $ | 150,000                - 450,000 |   | $ | 150,000                per annum |   |

|   | 1 | Pursuant                to the Asset Purchase Agreement between Cliffs and our wholly owned                subsidiary Poly Met Mining Inc., dated September 15, 2005, Poly Met                Mining, Inc. signed a note payable to Cliffs in the amount of $2,400,000.                The note is interest bearing at the annual simple rate of four percent                (4%) and will be paid in quarterly installments equal to $250,000                for                total repayment of $2,500,000. |
|--------|---|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 2 | By                an agreement dated January 4, 1989 and a subsequent amendment, we                entered                into a lease agreement with US Steel on certain lands in St. Louis                County, Minnesota. The current term of the lease is 20 years and                calls for                total lease payments of $1,475,000. All lease payments have been                paid or                accrued to January 31, 2005. The agreement requires future annual                lease                payments of $150,000 from January 4, 2006 to 2009. |
|--------|---|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**ITEM      6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES**

**A.**
**Directors      and Senior Management**

| **Name**                         |   | **Age** |   | **Position**                                                    |
|----------------------------------|--------|---------|--------|-----------------------------------------------------------------|
| William                Murray    |   | 57      |   | Director,                President, and Chief Executive Officer |
| Douglas                J. Newby  |   | 47      |   | Chief                Financial Officer                          |
| Graham                Scott      |   | 59      |   | Secretary                                                       |
| David                Dreisinger  |   | 48      |   | Director                                                        |
| W.                Ian L. Forrest |   | 68      |   | Director,                Chairman of the Board                  |
| George                Molyviatis |   | 43      |   | Director                                                        |
| James                Swearingen  |   | 62      |   | Director                                                        |

----

**William      Murray**

**Douglas      J. Newby **

**Graham      Scott**

**Dr.      David Dreisinger **

**W.      Ian L. Forrest **

----

**George      Molyviatis**

**James      Swearingen **

**B.      **
**Statement      of Executive Compensation**

|  | (a) | William                  Murray, the President and Chief Executive                  Officer; |
|--|-----|----------------------------------------------------------------------------------------------|

|  | (b) | Douglas                  Newby, Chief Financial Officer |
|--|-----|---------------------------------------------------------|

|                                                 |         | **Annual                  Compensation** | **Long                  Term Compensation** |                                                                        |
|------------------------------------------------------|--------------|------------------------------------------|---------------------------------------------|-----------------------------------------------------------------------------|
|                                                 |         |                                     |                                        |                                                                        | **Awards** | **Payouts** |   |
| **NEO                  Name and Principal Position** | **Year**(1)  | **Salary                  ($)****(US$)** | **Bonus                  ($)****(US$)**     | **Other                  Annual Compen-****sation                  ($)**(3) | **Securities                  Under Options/****SARs                  granted****(#)** | **Shares                  or Units subject to Resale Restrictions****($)**(2) | **LTIP                  payouts ($)** | **All                  Other Compen-****sation                  ($)**(4) |
| William                  Murray, President & CEO | 200420052006 | $52,388$141,270(6)$129,480(7)            | Nil$93,519(8)Nil                            | NilNilNil                                                                   | 656,600100,000300,000 | NilNilNil | NilNilNil | NilNilNil |
| Douglas                  Newby, CFO(5)               | 200420052006 | N/AN/A$18,750                            | N/AN/ANil                                   | N/AN/ANil                                                                   | N/AN/A350,000(9) | N/AN/ANil | N/AN/ANil | N/AN/ANil |
| Terese                  Gieselman, Former CFO(5)     | 200420052006 | $5,820$12,781$21,703                     | NilNilNil                                   | NilNilNil                                                                   |  60,00080,000 | NilNilNil | NilNilNil | NilNilNil |

| (1) | February                  1 to January 31. |
|-----|--------------------------------------------|

| (2) | Includes                  the dollar value (net of consideration paid by the NEO) calculated                  by                  multiplying the closing market price of the Company’s freely trading                  shares on the date of grant by the number of stock or stock units                  awarded. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3) | Perquisites                  and other personal benefits, securities or property for the most                  three                  most recently completed financial years do not exceed the lesser                  of CDN                  $50,000 and 10% of the total annual salary and                  bonus. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (4) | Including,                  but not limited to, amount paid, payable or accrued upon resignation,                  retirement or other termination of employment or change in control                  and                  insurance premiums with respect to term life                  insurance. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (5) | On                  November 14, 2005 Terese Gieselman was replaced as the Company’s CFO by                  Douglas Newby. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------|

| (6) | Comprising                  of management fees payable to Group 4 Ventures Ltd. (“Group 4”), a                  non-reporting company owned by William Murray in the amount of                  CDN $11,000                  per month for the period February 1, 2005 to September 30, 2005                  and                  thereafter at a rate of CDN $17,000 per month and management fees                  paid to                  William Murray in the amount of CDN $5,000 per month, commencing                  February                  1, 2005. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (7) | Comprising                  of management fees payable to Group 4 in the amount of CDN $17,000                  per                  month and management fees paid to William Murray in the amount                  of CDN                  $5,000 per month. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (8) | Pursuant                  to the Bonus Share Incentive Plan (as summarized below), 600,000                  common                  shares were accrued at a deemed price of (CDN) $0.19 per share.  By                  treasury order dated March 8, 2005 and amended March 23, 2005,                  the shares                  were issued to Group 4. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (9) | 250,000                  of these options are held in the name of Proteus Capital Corp.                  a                  non-reporting company owned by Douglas                  Newby. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Option/SAR        Grants During the Most Recently Completed Financial Year**

| **Name**                      | **Securities****Under                  Options/****SARs                  Granted****(#)** | **%                  of Total****Options/SARs****Granted                  to****Employees                  in****Financial                  Year****(1)** | **Exercise                  or****Base                  Price****(CDN$/Security)** | **Market                  Value****of                  Securities****Underlying****Options/SARs****on                  the****Date****of                  Grant****(CDN$/Security)** | **Expiration****Date**                                                                  |
|-------------------------------|-------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------|
| T.                  Gieselman | 40,00080,000                                                                              | 1.12%2.23%                                                                                                                                                | $0.65$1.36                                                                         | $0.65$1.75                                                                                                                                                                           | March                  30/2010Sept.                  19/2010                            |
| W.                  Murray    | 300,000                                                                                   | 8.38%                                                                                                                                                     | $1.36                                                                              | $1.75                                                                                                                                                                                | Sept.                  19/2010                                                          |
| D.                  Newby     | 40,000210,000100,000                                                                      | 1.12%5.87%2.79%                                                                                                                                           | $0.94$1.36$1.15                                                                    | $0.95$1.75$1.43                                                                                                                                                                      | June                  15/2010Sept.                  19/2010Dec.                  5/2010 |

| (1) | Reflected                  as a percentage of the total number of options to purchase common                  shares                  granted (3,580,000) during the Financial                  Period. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Aggregate        Option/SAR Exercises During the Most Recently Completed Financial Year and        Financial Year-End Option/SAR Values”**

| **NEO                  Name** | **Securities                  Acquired on Exercise** | **Aggregate                  Value Realized (CDN $)****(2)** | **Unexercised                  Options/SARs at Jan. 31, 2006****(#)****Exercisable/****Unexercisable** | **Value                  of Unexercised in-the-money****(1)**** Options/SARs                  at Jan. 31, 2006****($)****Exercisable/****Unexercisable** |
|-------------------------------|------------------------------------------------------|--------------------------------------------------------------|--------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------|
| T.                  Gieselman | 60,000                                               | $39,950                                                      | 120,000/0                                                                                              | $194,000/0                                                                                                                                                    |
| W.                  Murray    | 656,600                                              | $1,674,330                                                   | 700,000/0                                                                                              | $1,405,000/0                                                                                                                                                  |

| (1) | "In-the-money"                  means the excess of the market value of the common shares of the                  Company                  on January 31, 2006 ($2.74), over the base price of the options.  In                  the case of Ms. Gieselman, the base price was $0.40 with respect                  to 60,000                  options.  In the case of Mr. Murray, the base price was $0.10 with                  respect to 656,600 options. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2) | "Aggregate                  Value Realized" means the excess of the market value at                  exercise. |
|-----|----------------------------------------------------------------------------------------------------------------|

***Pension        Plan***

***Compensation        of Directors***

| (a) | in                  their capacity as directors, including any amounts payable for                  committee                  participation or special assignments pursuant to any standard or                  other                  arrangements; or |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (b) | as                  consultants or experts. |
|-----|---------------------------------------------|

| **Name                  of Director** | **Consulting                  Fees** |
|---------------------------------------|--------------------------------------|
| George                  Molyviatis    | CDN                  $46,799 (1)     |
| W.                  Ian L. Forrest    | CDN                  $46,799 (1)     |
| David                  Dreisinger     | CDN                  $36,779 (2)     |

| (1) | Pursuant                  to the Bonus Plan (as summarized below), 300,000 common shares                  were                  accrued at January 31, 2005 to Messrs. Molyviatis and Forrest at                  a deemed                  price of $0.19 per share.  The Shares were issued on March 15,                  2005.  See Other Remuneration. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2) | Consulting                  Fees paid in connection with the Company’s NorthMet Project |
|-----|-----------------------------------------------------------------------------------------------|

| **Name                  of Optionee** | **Date                  of Grant** | **No.                  of Shares** | **Exercise                  Price Per Share** | **Expiry                  Date** |
|---------------------------------------|------------------------------------|------------------------------------|-----------------------------------------------|----------------------------------|
| James                  Swearingen     | March                  30, 2005    | 350,000                            | CDN                  $0.65                    | March                  30, 2010  |
| Ian                  Forrest          | Sept.                  19, 2005    | 150,000                            | CDN                  $1.36                    | Sept.                  19, 2010  |
| David                  Dreisinger     | Sept.                  19, 2005    | 150,000                            | CDN                  $1.36                    | Sept.                  19, 2010  |
| James                  Swearingen     | Sept.                  19, 2005    | 150,000                            | CDN                  $1.36                    | Sept.                  19, 2010  |
| George                  Molyviatis    | Sept.                  19, 2005    | 150,000                            | CDN                  $1.36                    | Sept.                  19, 2010  |

| **No.                  of Shares** | **Exercise                  Price Per Share** | **Date                  of Exercise** | **Closing                  Price per Share on Exercise Date** | **Aggregate                  Net Value****(1)** |
|------------------------------------|-----------------------------------------------|---------------------------------------|---------------------------------------------------------------|-------------------------------------------------|
| 328,200                            | CDN                  $0.10                    | Sept.                  8, 2005        | CDN                  $1.32                                    | CDN                  $400,404                   |
| 150,000                            | CDN                  $0.13                    | Sept.                  8, 2005        | CDN                  $1.32                                    | CDN                  $178,500                   |
| 200,000                            | CDN                  $0.13                    | Jan.                  27, 2006        | CDN                  $2.65                                    | CDN                  $504,000                   |

| (1) | Aggregate                  net value represents the market value at exercise less the exercise                  price                  at the date of exercise. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|

*Summary        of Bonus Plan*

**Milestone      1:**

| **Name                of Director**  |   |   | **No.                of Common Shares** |   |
|--------------------------------------|--------|--------|-----------------------------------------|--------|
| William                Murray        |   |   | 600,000                                 |   |
| P.                Terry O’Kane |   |   | 300,000                                 |   |
| George                Molyviatis     |   |   | 300,000                                 |   |
| W.                Ian L. Forrest     |   |   | 300,000                                 |   |

----

**Milestone      2: **

| **Name                of Director** |   | **No.                of Common Shares** |    |
|-------------------------------------|--------|-----------------------------------------|---------|
| William                Murray       |   |                                    | 300,000 |   |
| James                Swearingen     |   |                                    | 150,000 |   |
| George                Molyviatis    |   |                                    | 150,000 |   |
| W.                Ian L. Forrest    |   |                                    | 150,000 |   |
| David                Dreisinger     |   |                                    | 150,000 |   |

| **Name                  of Employee** |   | **No.                  of Common Shares** |        |
|---------------------------------------|--------|-------------------------------------------|-------------|
| Douglas                  Newby        |   |                                      | 100,000     |   |
| Gaston                  Reymenants    |   |                                      | 125,000     |   |
| Warren                  Hudelson      |   |                                      | 50,000      |   |
| Jim                  Scott            |   |                                      | 125,000     |   |
| **TOTAL**                             |   |                                      | **400,000** |   |

**Milestone      3:**

| **Name                of Director** |   | **No.                of Common Shares** |          |
|-------------------------------------|--------|-----------------------------------------|---------------|
| William                Murray       |   |                                    | 500,000       |   |
| George                Molyviatis    |   |                                    | 250,000       |   |
| James                Swearingen     |   |                                    | 250,000       |   |
| W.                Ian L. Forrest    |   |                                    | 250,000       |   |
| Dave                Dreisinger      |   |                                    | 250,000       |   |
| **TOTAL**                           |   |                                    | **1,500,000** |   |

| **Name                of Employee** |   | **No.                of Common Shares** |        |
|-------------------------------------|--------|-----------------------------------------|-------------|
| Douglas                Newby        |   |                                    | 200,000     |   |
| Gaston                Reymenants    |   |                                    | 200,000     |   |
| Warren                Hudelson      |   |                                    | 125,000     |   |
| Jim                Scott            |   |                                    | 125,000     |   |
| Don                Hunter           |   |                                    | 200,000     |   |
| **TOTAL**                           |   |                                    | **850,000** |   |

**Milestone      4:**

| **Name                of Director** |   | **No.                of Common Shares** |          |
|-------------------------------------|--------|-----------------------------------------|---------------|
| William                Murray       |   |                                    | 800,000       |   |
| George                Molyviatis    |   |                                    | 400,000       |   |
| James                Swearingen     |   |                                    | 400,000       |   |
| W.                  Ian L. Forrest  |   |                                    | 400,000       |   |
| Dave                Dreisinger      |   |                                    | 400,000       |   |
| **TOTAL**                           |   |                                    | **2,400,000** |   |

| **Name                of Employee** |   | **No.                of Common Shares** |          |
|-------------------------------------|--------|-----------------------------------------|---------------|
| Gaston                Reymenants    |   |                                    | 400,000       |   |
| Warren                Hudelson      |   |                                    | 240,000       |   |
| Jim                Scott            |   |                                    | 200,000       |   |
| Don                Hunter           |   |                                    | 400,000       |   |
| **TOTAL**                           |   |                                    | **1,240,000** |   |

----

**C.      **
**Board      Practices**

**Term**

**Employment      Agreements **

*Securities      Act *

|   | (a) | if                the implied market capitalization is at least CDN$50,000,000                but less than CDN$75,000,000, Mr. Murray will                receive a Severance Allowance of                CDN$200,000; |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (b) | if                the implied market capitalization is at least CDN$75,000,000                but less than CDN$100,000,000, Mr. Murray will                receive a Severance Allowance of CDN$400,000; and                thereafter; |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (c) | for                every increase in the implied market capitalization of CDN$25,000,000,                the                Severance Allowance will increase by an additional                CDN$400,000. |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

*Securities        Act *

|   | (a) | if                  the implied market capitalization is at least CDN$50,000,000                  but less than CDN$75,000,000, Mr. Newby will receive a Severance                  Allowance                  of CDN$50,000; |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (b) | if                  the implied market capitalization is at least CDN$75,000,000 but                  less than                  CDN$100,000,000, Mr. Newby will receive a Severance Allowance of                  CDN$100,000; and thereafter; |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (c) | for                  every increase in the implied market capitalization of CDN$25,000,000,                  the                  Severance Allowance will increase by an additional                  CDN$100,000. |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Audit      Committee**

----

**Compensation      Committee**

**Statement      of Corporate Governance Practices**

**D.      Employees**

*.*

**E.      Share Ownership**

**ITEM      7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS**

**A.**
**Major      Shareholders**

----

| **Name                and Address of****Beneficial                Owner**(1)                  |   | **Amount                and Nature****of****Beneficial Ownership** |       | **Percent                of****Outstanding                Shares****of                Common Stock** |   |
|-----------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------|--------|
| William                Murray (2)                                                             |   |                                                               | 2,452,276  |                                                                                                 |   | 2.1 | % |
|                                                                                          |   |                                                               |       |                                                                                                 |   |   |   |
| Douglas                J. Newby (3)                                                           |   |                                                               | 850,000    |                                                                                                 |   | * |   |
|                                                                                          |   |                                                               |       |                                                                                                 |   |   |   |
| Graham                Scott (4)                                                               |   |                                                               | 75,000     |                                                                                                 |   | * |   |
|                                                                                          |   |                                                               |       |                                                                                                 |   |   |   |
| David                Dreisinger (5)                                                           |   |                                                               | 890,700    |                                                                                                 |   | * |   |
|                                                                                          |   |                                                               |       |                                                                                                 |   |   |   |
| W.                  Ian L. Forrest (6)                                                   |   |                                                               | 2,855,680  |                                                                                                 |   | 2.4 | % |
|                                                                                          |   |                                                               |       |                                                                                                 |   |   |   |
| George                Molyviatis (7)                                                          |   |                                                               | 8,335.020  |                                                                                                 |   | 7.1 | % |
|                                                                                          |   |                                                               |       |                                                                                                 |   |   |   |
| James                Swearingen (8)                                                           |   |                                                               | 660,900    |                                                                                                 |   | * |   |
|                                                                                          |   |                                                               |       |                                                                                                 |   |   |   |
| All                executive officers and directors as a group (7 persons)                (9) |   |                                                               | 16,120,476 |                                                                                                 |   | 13.3 | % |
|                                                                                          |   |                                                               |       |                                                                                                 |   |   |   |
| **5%                or more shareholders:**                                                   |   |                                                               |       |                                                                                                 |   |   |   |
|                                                                                          |   |                                                               |       |                                                                                                 |   |   |   |
| Cleveland-Cliffs,              Inc. (10)                                                      |   |                                                               | 7,200,547  |                                                                                                 |   | 6.2 | % |
| 1100                Superior AvenueCleveland,                OH 44114-2589               |   |                                                               |       |                                                                                                 |   |   |   |

| * | Less                than 1%. |
|---|------------------------------|

| 1. | The                address of each person, unless otherwise noted, is c/o PolyMet Mining                Corp., Suite 2350-1177 West Hastings Street, Vancouver, British Columbia                V6E2K3. |
|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 2. | Includes                300,000 shares of common stock issuable upon exercise of currently                exercisable options, at an exercise price of CDN$0.13 per share set                to                expire on October 3, 2008, 100,000 shares of common stock 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,                and 450,000 shares of common stock issuable upon exercise of currently                exercisable options, at an exercise price of CDN$2.76 per share set                to                expire on March 20, 2011. Mr. Murray directly owns 815,000 shares                and has                voting and dispositive control over 487,176 shares owned in the name                of                Group 4 Ventures of which he is the sole                stockholder. |
|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 3. | Includes                100,000 shares of common stock 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 shares of common stock issuable                upon                exercise of currently exercisable options, at an exercise price of                CDN$2.76 per share set to expire on July 5, 2009 held in Mr. Newby’s name;                and 40,000 shares of common stock 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 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 March 20, 2011 held in the name                of                Proteus Capital Corp. of which he is the President and controlling                shareholder. |
|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 4. | Includes 75,000 shares of common                stock                held by Vector Corporate Financial Law Partners of which Graham Scott                is a partner.  |
|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 5. | Includes                300,000 shares of common stock 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 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, and 250,000                shares                of common stock issuable upon exercise of currently exercisable options,                at an exercise price of CDN$2.76 per share set to expire on March                20,                2011. Dr. Dreisinger directly owns 190,700 shares. |
|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| 6. | Includes                328,300 shares of common stock issuable upon exercise of currently                exercisable options, at an exercise price of CDN$0.10 per share set                to                expire on July 18, 2008, 150,000 shares of common stock issuable                upon                exercise of currently exercisable options, at an exercise price of                CDN$0.13 per share set to expire on October 3, 2008, 350,000 shares                of                common stock 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 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, and 250,000 shares of common stock                issuable                upon exercise of currently exercisable options, at an exercise price                of                CDN$2.76 per share set to expire on March 20, 2011. Mr. Forrest has                voting                and dispositive control with respect to 300,000 shares owned in the                name                of Micor Trading SA of which he is a director, 375,000 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 952,380 shares. |
|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 7. | Includes                100 shares of common stock issuable upon exercise of currently exercisable                options, at an exercise price of CDN$0.10 per share set to expire                on July                18, 2008, 150,000 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, and 250,000 shares of common                stock                issuable upon exercise of currently exercisable options, at an exercise                price of CDN$2.76 per share set to expire on March 20, 2011. Mr.                Molyviatis directly owns 7,934,920 shares. |
|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 8. | Includes                150,000 shares of common stock issuable upon exercise of currently                exercisable options, at an exercise price of CDN$0.65 per share set                to                expire on October 3, 2008, 150,000 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, and 250,000                shares                of common stock issuable upon exercise of currently exercisable options,                at an exercise price of CDN$2.76 per share set to expire on March                20,                2011. Mr. Swearingen directly owns 110,000 shares and Sandra J.                Swearingen, Mr. Swearingen’s wife, directly owns 900 shares. |
|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 9. | Includes                4,878,400 shares of common stock issuable upon exercise of currently                exercisable options. |
|----|----------------------------------------------------------------------------------------------------------------------------------|

| 10. | This                shareholder held no shares as of January 31, 2004, 1,000,000 shares                as of                January 31, 2005, and 7,200,547 as of January 31, 2006. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**B.      Related Party Transactions**

|                                                               |   | **2006** | ** ** | ** 2005** | ** ** | **2004** |   |
|--------------------------------------------------------------------|--------|----------|------------|----------------|------------|----------|--------|
| Management                fees paid to a company controlled        |   |     |            |           |       |          |   |   |  |   |
| by                the president 1                                  |   | $        | 129,480    |           | $          | 141,270  |   | $ | 52,388 |   |
| Consulting                fees paid to our officers, directors and |   |     |            |           |       |          |   |   |  |   |
| companies                controlled by our directors 2             |   |     | 327,110    |           |       | 336,448  |   |   | — |   |
| Legal                fees paid to an officer 3                     |   |     | 84,089     |           |       | 59,700   |   |   | — |   |
| Office                facilities charges paid to a director 4      |   |     | 39,604     |           |       | 23,070   |   |   | — |   |
|                                                               |   | $        | 580,283    |           | $          | 560,488  |   | $ | 52,388 |   |

----

**ITEM      8. FINANCIAL INFORMATION**

**A.**
**Consolidated      Statements and Other Financial Information**

**Legal      Proceedings**

**Dividend      Policy**

**B.**
**Significant      Changes**

**ITEM      9. THE OFFER AND LISTING**

**A.**
**The      Offer and Listing Details**

|                                  |   | **Toronto                Stock Exchange** |     | **Over-the-Counter                Bulletin Board** |   |
|---------------------------------------|--------|-------------------------------------------|----------|----------------------------------------------------|--------|
| **Fiscal                  Year**Ended |   |                                      | **High** |                                               |   | **Low** |   |   | **High** |   |   | **Low** |   |
| January                31, 2006       |   |                                      | CDN$2.74 |                                               |   | CDN$0.51 |   |   | US$2.42 |   |   | US$0.42 |   |
| January                31, 2005       |   |                                      | CDN$1.20 |                                               |   | CDN$0.27 |   |   | US$0.90 |   |   | US$0.20 |   |
| January                31, 2004       |   |                                      | CDN$0.30 |                                               |   | CDN$0.05 |   |   | US$0.30 |   |   | US$0.04 |   |
| January                31, 2003       |   |                                      | CDN$0.80 |                                               |   | CDN$0.04 |   |   | US$0.22 |   |   | US$0.02 |   |
| January                31, 2002       |   |                                      | CDN$0.75 |                                               |   | CDN$0.10 |   |   | US$0.50 |   |   | US$0.05 |   |

----

|                                     |   | **Toronto                Stock Exchange** |     | **Over-the-Counter                Bulletin Board** |   |
|------------------------------------------|--------|-------------------------------------------|----------|----------------------------------------------------|--------|
| **Fiscal                  Quarter**Ended |   | **High**                                  |     | **Low**                                            |   | **High** |   | **Low** |   |
| July                31, 20061            |   |                                      | CDN$5.34 |                                               |   | CDN$2.58 |   |   | US$4.85 |   |   | US$2.30 |   |
| April                30, 2006            |   |                                      | CDN$4.00 |                                               |   | CDN$2.29 |   |   | US$3.56 |   |   | US$2.00 |   |
| January                31, 2005          |   |                                      | CDN$2.74 |                                               |   | CDN$1.31 |   |   | US$2.42 |   |   | US$1.12 |   |
| October                31, 2004          |   |                                      | CDN$1.91 |                                               |   | CDN$0.87 |   |   | US$1.62 |   |   | US$0.72 |   |
| July                31, 2004             |   |                                      | CDN$1.03 |                                               |   | CDN$0.82 |   |   | US$0.85 |   |   | US$0.65 |   |
| April                30, 2005            |   |                                      | CDN$0.85 |                                               |   | CDN$0.51 |   |   | US$0.68 |   |   | US$0.42 |   |
| January                31, 2005          |   |                                      | CDN$0.73 |                                               |   | CDN$0.51 |   |   | US$0.61 |   |   | US$0.41 |   |
| October                31, 2004          |   |                                      | CDN$0.92 |                                               |   | CDN$0.66 |   |   | US$0.71 |   |   | US$0.50 |   |
| July                31, 2004             |   |                                      | CDN$0.98 |                                               |   | CDN$0.64 |   |   | US$0.72 |   |   | US$0.48 |   |
| April                30, 2004            |   |                                      | CDN$1.20 |                                               |   | CDN$0.27 |   |   | US$0.90 |   |   | US$0.20 |   |

|                                     |   | **Toronto                Stock Exchange** |     | **Over-the-Counter                Bulletin Board****2** |   |
|------------------------------------------|--------|-------------------------------------------|----------|---------------------------------------------------------|--------|
| **Fiscal                  Quarter**Ended |   | **High**                                  |     | **Low**                                                 |   | **High** |   | **Low** |   |
| June                30, 2006             |   |                                      | CDN$4.24 |                                                    |   | CDN$2.58 |   |   | US$3.85 |   |   | US$2.30 |   |
| May                31, 2006              |   |                                      | CDN$5.34 |                                                    |   | CDN$3.60 |   |   | US$4.85 |   |   | US$2.86 |   |
| April                30, 2006            |   |                                      | CDN$4.00 |                                                    |   | CDN$3.01 |   |   | US$3.56 |   |   | US$2.54 |   |
| March                31, 2006            |   |                                      | CDN$3.14 |                                                    |   | CDN$2.35 |   |   | US$2.67 |   |   | US$2.03 |   |
| February                28, 2006         |   |                                      | CDN$2.78 |                                                    |   | CDN$2.29 |   |   | US$2.45 |   |   | US$2.00 |   |
| January                31, 2006          |   |                                      | CDN$2.74 |                                                    |   | CDN$1.68 |   |   | US$2.42 |   |   | US$1.38 |   |

**C.**
**Markets**

**ITEM      10. ADDITIONAL INFORMATION**

**B.**
**Memorandum      and Articles of Association**

***Incorporation ***

----

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 are not required by the corporate laws of the Province ofBritish 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***

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; |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (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 *

*Alteration      of Share Rights *

*Annual      General Meetings *

*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 *

*Change      of Control *

*Share      Ownership Reporting Obligations *

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. 

**C.      **
**Material      Contracts**

**Cleveland      Cliffs Option, Minnesota, U.S.A.**

**D.**
**Exchange      Controls**

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 common shares      of the Corporation. 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.”

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      ofCanada      or the      Province of British Columbia      or in      the charter documents of the Corporation. 

**E.**
**Taxation**

----

----

----

----

**H.**
**Documents      on Display**

**ITEM      11. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET      RISK**
** **

----

**ITEM      12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY      SECURITIES**

**ITEM      13. DEFAULT, DIVIDEND ARREARAGES AND DELINQUENCIES -**
** **

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

**Shareholder      Rights Plan**

**ITEM      15. CONTROLS AND PROCEDURES**

**A.      Evaluation of Disclosure Controls and Procedures**

**B.      Changes in Internal Controls**

----

|   | (1) | Pertain                to the maintenance of records that in reasonable detail accurately                and                fairly reflect our transactions and dispositions of assets; |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (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 our receipts and expenditures are                being                made only in accordance with authorizations of management and directors                of                the registrant; and |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (3) | Provide                reasonable assurance regarding prevention or timely detection of                unauthorized acquisition, use or disposition of our assets that could                have                a material effect on the financial                statements. |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**ITEM      16A. AUDIT COMMITTEE FINANCIAL EXPERT**

**ITEM      16B. CODE OF ETHICS**

**ITEM      16C.**
**PRINCIPAL      ACCOUNTANT FEES AND SERVICES**

| *Financial                Year Ending* |   | *Audit                Fees* |                       | *Audit                Related Fees* |   | *Tax                Fees**1* |   | *All                Other Fees* |                      |
|----------------------------------------|--------|-----------------------------|----------------------------|-------------------------------------|--------|------------------------------|--------|---------------------------------|---------------------------|
| January                31, 2006        |   |                        | CDN                $22,600 |                                |   | Nil                          |   |                            | CDN                $3,725 |   |   | CDN                $588 |   |
| January                31, 2005        |   |                        | CDN                $18,200 |                                |   | Nil                          |   |                            | CDN                $800   |   |   | CDN                $450 |   |

|   | 1 | Represents                the fees billed in each of the last two fiscal years for U.S. and                Canadian                tax returns prepared by Staley, Okada &                Partners. |
|--------|---|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | 2 | Fees                paid to the Canadian Public Accountability                Board. |
|--------|---|--------------------------------------------------------------------------------------|

**Pre-Approval      Policies and Procedures**

**PART      III**

**ITEM      17. FINANCIAL STATEMENTS**

| **Description**                                                               |   | **Page** |
|-------------------------------------------------------------------------------|--------|----------|
| Management’s                Responsibility for the Financial Statements |   | F-1      |
| Report                of Independent Registered Public Accounting Firm        |   | F-2      |
| Consolidated                Balance Sheet                                     |   | F-3      |
| Consolidated                Statements of Shareholders’ Equity          |   | F-4      |
| Consolidated                Statements of Loss                                |   | F-5      |
| Consolidated                Statements of Cash Flows                          |   | F-6      |
| Consolidated                Schedules of Pre-Feasibility Costs                |   | F-7      |
| Notes                to Consolidates Financial Statements                     |   | F-8      |

**ITEM      18. FINANCIAL STATEMENTS**
** **

**ITEM      19. EXHIBITS**

| **Exhibit                No.** |   | **Description**                                                       |   | **Footnote                Ref.** |
|--------------------------------|--------|-----------------------------------------------------------------------|--------|----------------------------------|
|                           |   |                                                                  |   |                             |
| 1.1                            |   | Certificate              of              Incorporation.               |   | *                                |
|                           |   |                                                                  |   |                             |
| 1.2                            |   | Certificate              of              Change of Name.              |   | *                                |
|                           |   |                                                                  |   |                             |
| 1.3                            |   | Articles of                Incorporation of PolyMet Mining Corp. |   | *                                |
|                           |   |                                                                  |   |                             |
| 4.1                            |   | Incentive                Stock Option Plan.                           |   | *                                |

----

| 4.2    |   | Shareholder                Rights Plan Agreement.                                                                                                                      |   | *      |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|
|   |   |                                                                                                                                                                   |   |   |
| 4.3    |   | Contract                for Deed between us and Cleveland Cliffs of Cleveland, Ohio, dated                November 15, 2005.                                      |   | *      |
|   |   |                                                                                                                                                                   |   |   |
| 8.1    |   | List                of Subsidiaries.                                                                                                                                   |   | *      |
|   |   |                                                                                                                                                                   |   |   |
| 11.1   |   | Code                of Ethics.                                                                                                                                         |   | (1)    |
|   |   |                                                                                                                                                                   |   |   |
| 11.2   |   | Statement                of Corporate Governance Practices, including Audit Mandate and                Charter.                                                        |   | (2)    |
|   |   |                                                                                                                                                                   |   |   |
| 12.1   |   | Certification                of the Principal Executive Officer pursuant to 17 C.F.R.                240.13a-14(a).                                                    |   | *      |
|   |   |                                                                                                                                                                   |   |   |
| 12.2   |   | Certification                of the Principal Financial Officer pursuant to 17 C.F.R.                240.13a-14(a).                                                    |   | *      |
|   |   |                                                                                                                                                                   |   |   |
| 13.1   |   | Certification                of the Principal Executive Officer and Principal Financial Officer                pursuant to 17 C.F.R. 240.13a-14(b) and 18 U.S.C. 1350. |   | *      |
|   |   |                                                                                                                                                                   |   |   |
| 15.1   |   | Technical                Report on the NorthMet Project by P. Downey and Associates, dated                July                2004.                                    |   | (3)    |

----

| 15.2   |   | Subscription                Agreement dated as of July 19, 2004, between us and certain                investor(s).                                       |   | *      |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|
|   |   |                                                                                                                                                      |   |   |
| 15.3   |   | Subscription                Agreement dated as of February 11, 2005, between us and certain                investor(s).                                   |   | *      |
|   |   |                                                                                                                                                      |   |   |
| 15.4   |   | Subscription                Agreement closing                on August 29, 2005, between us and certain investor(s).                            |   | *      |
|   |   |                                                                                                                                                      |   |   |
| 15.5   |   | Subscription                Agreement dated as of September 21, 2005, between us and certain                investors.                                    |   | *      |
|   |   |                                                                                                                                                      |   |   |
| 15.6   |   | Lease                Agreement between us and U.S. Steel Corporation dated January 4,                1989.                                                |   | *      |
|   |   |                                                                                                                                                      |   |   |
| 15.7   |   | Notice                of Assignment of the Lease Agreement from U.S. Steel Corporation                to RGGS                Land and Minerals, Ltd. L.P. |   | *      |
|   |   |                                                                                                                                                      |   |   |
| 15.8   |   | Nominating                Committee Charter                                                                                                               |   | *      |
|   |   |                                                                                                                                                      |   |   |
| 15.9   |   | Consent                of Staley, Okada & Partners, Chartered Accountants                                                                             |   | *      |

| **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, 2004, filed on July 7,                2005. |

| (2)    |   | Incorporated                  by reference to our Annual Report on Form 20-F for the fiscal year                  ended                  January 31, 2005, filed on July 25, 2005.                  |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                |
| (3)    |   | Incorporated                  by reference to our Annual Report on Form 20-F for the fiscal year                  ended                  January 31, 2004, filed on July 30,                  2004. |

----

**SIGNATURES**

|         |                                                                                                                               |               |
|--------------|------------------------------------------------------------------------------------------------------------------------------------|--------------------|
|         | POLYMET                MINING                CORP.                                                                                 |
|    |                                                                                                                          |          |
|         |                                                                                                                          | /s/ William Murray |
|         | Name:                   William                  MurrayTitle:                   Chief                  Executive Officer |
|         |                                                                                                                               |

----

**POLYMET      MINING CORP. **

**CONSOLIDATED      FINANCIAL STATEMENTS **

**January      31, 2006, 2005 and 2004 **

**U.S.      Funds **

----

**MANAGEMENT’S      RESPONSIBILITY FOR THE FINANCIAL STATEMENTS**

|                                                                               |   |
|------------------------------------------------------------------------------------|--------|
| /s/                William Murray                                             |   |
| William                Murray President                and Chief Executive Officer |   |
|                                                                               |   |
| Vancouver,                Canada 4                April 2006                       |   |

----

|  |   |  |
|--|--------|--|

| **Report                of Independent Registered Public Accounting                Firm** |
|-------------------------------------------------------------------------------------------|
|                                                                                      |

**To      the Shareholders of PolyMet Mining Corp.: **

|                         |                                            |
|------------------------------|-------------------------------------------------|
|                         |                                            |
|                         | /s/                Staley, Okada & Partners |
| Vancouver,                BC | STALEY,                OKADA & PARTNERS     |
| 4                April 2006  | CHARTERED                ACCOUNTANTS            |
|                         |                                            |

----

| **PolyMet                Mining Corp.**        | Statement                1 |
|------------------------------------------------|----------------------------|
| **Consolidated                Balance Sheets** |                       |
| **As                at January 31**            |                       |
| *U.S.                Funds*                    |                       |

| **ASSETS**                                                                                      |   |   | 2006         |   |   | 2005         |   |
|-------------------------------------------------------------------------------------------------|--------|--------|--------------|--------|--------|--------------|--------|
| **Current**                                                                                     |   |   |              |   |   |              |   |
|                     Cash                                                         |   | $      | 11,671,427   |   | $      | 510,871      |   |
|                     Term deposit                                                 |   |   | —      |   |   | 807,200      |   |
|                     Taxes and miscellaneous receivables                          |   |   | 40,986       |   |   | 45,005       |   |
|                     Prepaid expenses                                             |   |   | 75,562       |   |   | 241,596      |   |
|                                                                                            |   |   | 11,787,975   |   |   | 1,604,672    |   |
| **Investments*****(Note                4)***                                                    |   |   | 253          |   |   | 253          |   |
| **Property,                Plant and Equipment*****(Note                6, 7, 10)***            |   |   | 14,247,008   |   |   | 745,239      |   |
|                                                                                            |   | $      | 26,035,236   |   | $      | 2,350,164    |   |
|                                                                                            |   |   |              |   |   |              |   |
| **LIABILITIES**                                                                                 |   |   |    |   |   |    |   |
| **Current**                                                                                     |   |   |              |   |   |              |   |
|                     Accounts payable                                             |   | $      | 1,717,420    |   | $      | 331,012      |   |
|                     Current portion of long term debt *(Note                7)*  |   |   | 1,000,000    |   |   | —      |   |
|                                                                                            |   |   | 2,717,420    |   |   | 331,012      |   |
|                                                                                            |   |   |              |   |   |              |   |
| **Long                term**                                                                    |   |   |              |   |   |              |   |
|                     Long term debt *(Note                7)*                     |   |   | 1,420,515    |   |   | —      |   |
|                     Asset retirement obligation *(Note                8)*        |   |   | 2,510,687    |   |   | —      |   |
|                                                                                            |   |   | 6,648,622    |   |   | —      |   |
|                                                                                            |   |   |              |   |   |              |   |
| **Contingent                Liabilities and Commitments***(Note                16)*             |   |   |              |   |   |              |   |
|                                                                                            |   |   |              |   |   |              |   |
| **SHAREHOLDERS’                EQUITY**                                                   |   |   |         |   |   |         |   |
| **Share                Capital*****-****Statement                2 (Note 9)*                    |   |   | 49,022,606   |   |   | 18,388,194   |   |
| **Share                Subscriptions Received*****-****Statement                2 (Note 9a(ii)* |   |   | —      |   |   | 762,804      |   |
| **Contributed                Surplus*****-****Statement                2 (Note 9d)*             |   |   | 4,431,133    |   |   | 1,005,742    |   |
| **Deficit*****-****Statement                2*                                                  |   |   | (34,067,125  | )      |   | (18,137,588  | )      |
|                                                                                            |   |   | 19,386,614   |   |   | 2,019,152    |   |
|                                                                                            |   | $      | 26,035,236   |   | $      | 2,350,164    |   |

| **ON                BEHALF OF THE BOARD:** |                                |
|--------------------------------------------|-------------------------------------|
|                                       |                                |
| /s/                William Murray          | **,                Director**       |
|                                       |                                |
| /s/                David Dreisinger        |  **,                Director** |

----

| **PolyMet                Mining Corp.**                                  | Statement                2 |
|--------------------------------------------------------------------------|----------------------------|
| **Consolidated                Statements of Shareholders’ Equity** |                       |
| ***U.S.                Funds***                                          |                       |

|                                                                                                               |   |                                    **Common                Shares**   |          |         |   |    |   |
|--------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------------------------|---------------|--------------|--------|--------------|--------|
|                                                                                                               |   |                                                                                           |          |    |   |    |   | **Share** |   |    |   |   |   |    |   |
|                                                                                                               |   | **Authorized**                                                                                 |          |    |   |    |   | **Subscriptions** |   | **Contributed** |   |   |   |    |   |
|                                                                                                               |   | **Shares**                                                                                     |          | **Shares**   |   | **Amount**   |   | **Received** |   | **Surplus** |   | **Deficit** |   | **Total** |   |
| Balance                - 31 January 2004                                                                           |   |                                                                                           | 1,000,000,000 |         |   | 44,992,054   |   | $ | 15,231,768 |   | $ | — |   | $ | 55,048 |   | $ | (14,361,251 | ) | $ | 925,565 |   |
|                     Loss for the year                                                               |   |                                                                                           | —       |         |   | —      |   |   | — |   |   | — |   |   | — |   |   | (3,776,337 | ) |   | (3,776,337 | ) |
|                     Shares issued for cash:                                                         |   |                                                                                           |               |         |   |              |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |
|                           Private placements (Note 9a (v))                           |   |                                                                                           | —       |         |   | 2,800,000    |   |   | 1,733,984 |   |   | — |   |   | — |   |   | — |   |   | 1,733,984 |   |
|                           Share subscriptions received (Note 9a                (ii)) |   |                                                                                           | —       |         |   | —      |   |   | — |   |   | 762,804 |   |   | — |   |   | — |   |   | 762,804 |   |
|                           Share issuance costs                                       |   |                                                                                           | —       |         |   | —      |   |   | (18,752 | ) |   | — |   |   | — |   |   | — |   |   | (18,752 | ) |
|                           Exercise of warrants (Note 9a (vi))                        |   |                                                                                           | —       |         |   | 5,277,573    |   |   | 828,554 |   |   | — |   |   | — |   |   | — |   |   | 828,554 |   |
|                           Exercise of options (Note 9a (vii))                        |   |                                                                                           | —       |         |   | 1,088,400    |   |   | 81,383 |   |   | — |   |   | — |   |   | — |   |   | 81,383 |   |
|                   Shares issued for finders’ fee (Note 10)                                         |   |                                                                                           | —       |         |   | 155,626      |   |   | 96,375 |   |   | — |   |   | — |   |   | — |   |   | 96,375 |   |
|                   Non-cash share issuance costs (Note 10)                                                |   |                                                                                           | —       |         |   | —      |   |   | (96,375 | ) |   | — |   |   | — |   |   | — |   |   | (96,375 | ) |
|                   Shares issued for property (Note 10h)                                                  |   |                                                                                           | —       |         |   | 1,000,000    |   |   | 229,320 |   |   | — |   |   | — |   |   | — |   |   | 229,320 |   |
|                   Stock-based compensation (Notes 9c and 9d)                                             |   |                                                                                           | —       |         |   | —      |   |   | — |   |   | — |   |   | 992,658 |   |   | — |   |   | 992,658 |   |
|                   Fair value of stock options exercised (Note 9d)                                        |   |                                                                                           | —       |         |   | —      |   |   | 41,964 |   |   | — |   |   | (41,964 | ) |   | — |   |   | — |   |
| Balance                - 31 January 2005 - Shares issued                                                      |   |                                                                                           | Unlimited     |         |   | 55,313,653   |   |   | 18,128,221 |   |   | 762,804 |   |   | 1,005,742 |   |   | (18,137,588 | ) |   | 1,759,179 |   |
|                     Shares allotted for exercise of warrants                                        |   |                                                                                           | —       |         |   | 224,925      |   |   | 26,117 |   |   | — |   |   | — |   |   | — |   |   | 26,117 |   |
|                     Shares allotted for bonus (Note 10)                                             |   |                                                                                           | —       |         |   | 1,590,000    |   |   | 233,856 |   |   | — |   |   | — |   |   | — |   |   | 233,856 |   |
| Balance                - 31 January 2005 - Shares issued and allotted                                              |   |                                                                                           | Unlimited     |         |   | 57,128,578   |   | $ | 18,388,194 |   | $ | 762,804 |   | $ | 1,005,742 |   | $ | (18,137,588 | ) | $ | 2,019,152 |   |
|                     Loss for the year                                                               |   |                                                                                           | —       |         |   | —      |   |   | — |   |   | — |   |   | — |   |   | (15,929,537 | ) |   | (15,929,537 | ) |
|                     Reverse shares allotted for exercise of warrants                                |   |                                                                                           | —       |         |   | (224,925     | )      |   | (26,117 | ) |   | — |   |   | — |   |   | — |   |   | (26,117 | ) |
|                     Reverse shares allotted for bonus (Note 10)                                     |   |                                                                                           | —       |         |   | (1,590,000   | )      |   | (233,856 | ) |   | — |   |   | — |   |   | — |   |   | (233,856 | ) |
|                     Issuance of shares for exercise of warrants                                     |   |                                                                                           |               |         |   |              |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |
|                       (Note 8a (i))                                                            |   |                                                                                           | —       |         |   | 224,925      |   |   | 26,117 |   |   | — |   |   | — |   |   | — |   |   | 26,117 |   |
|                     Issuance of shares for bonus (Notes 10 and 16)                                  |   |                                                                                           | —       |         |   | 1,590,000    |   |   | 233,856 |   |   | — |   |   | — |   |   | — |   |   | 233,856 |   |
|                     Shares issued for cash:                                                         |   |                                                                                           |               |         |   |              |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |
|                           Private placements (Note 9a (ii))                          |   |                                                                                           | —       |         |   | 28,494,653   |   |   | 20,387,824 |   |   | (762,804 | ) |   | — |   |   | — |   |   | 19,625,020 |   |
|                           Share issuance costs                                       |   |                                                                                           | —       |         |   | —      |   |   | (908,920 | ) |   | — |   |   | — |   |   | — |   |   | (908,920 | ) |
|                           Exercise of warrants (Note 9a (iii))                       |   |                                                                                           | —       |         |   | 5,700,628    |   |   | 3,296,143 |   |   | — |   |   | — |   |   | — |   |   | 3,296,143 |   |
|                           Exercise of options (Note 9a (iv))                         |   |                                                                                           | —       |         |   | 1,795,852    |   |   | 196,988 |   |   | — |   |   | — |   |   | — |   |   | 196,988 |   |
|                     Shares issued for finders’ fee (Note 10)                                  |   |                                                                                           | —       |         |   | 852,915      |   |   | 616,770 |   |   | — |   |   | — |   |   | — |   |   | 616,770 |   |
|      Non-cash                share issuance costs (Note 10)                               |   |                                                                                           | —       |         |   | —      |   |   | (616,770 | ) |   | — |   |   | — |   |   | — |   |   | (616,770 | ) |
|                     Shares issued for property (Note 10)                                            |   |                                                                                           | —       |         |   | 6,200,547    |   |   | 7,564,444 |   |   | — |   |   | — |   |   | — |   |   | 7,564,444 |   |
|                     Stock-based compensation (Notes 9c and 9d)                                      |   |                                                                                           | —       |         |   | —      |   |   | — |   |   | — |   |   | 3,523,324 |   |   | — |   |   | 3,523,324 |   |
|                     Fair value of stock options exercised (Note 10)                                 |   |                                                                                           | —       |         |   | —      |   |   | 97,933 |   |   | — |   |   | (97,933 | ) |   | — |   |   | — |   |
| Balance -                31 January 2006                                                                      |   |                                                                                           | Unlimited     |         |   | 100,173,173  |   | $ | 49,022,606 |   | $ | — |   | $ | 4,431,133 |   | $ | (34,067,125 | ) | $ | 19,386,614 |   |

|   |   |
|--------|--------|

**-        **
** **

----

| **PolyMet                Mining Corp.**            | Statement                3 |
|----------------------------------------------------|----------------------------|
| **Consolidated                Statements of Loss** |                       |
| **For                the Years Ended 31 January**  |                       |
| *U.S.                Funds*                        |                       |

|                                                                                    |       | 2006   |       | 2005   |   | 2004       |   |
|-----------------------------------------------------------------------------------------|------------|--------|------------|--------|--------|------------|--------|
| **General                and Administrative**                                           |       |   |            |   |   |            |   |   |  |   |
|                   Administration fees and wages                               |       | $      | 207,650    |   | $      | 105,449    |   | $ | 32,120 |   |
|                   Amortization                                                |       |   | 4,220      |   |   | 1,705      |   |   | 275 |   |
|                   Consulting fees                                             |       |   | 388,900    |   |   | 370,815    |   |   | 21,278 |   |
|                   Conferences                                                 |       |   | 26,138     |   |   | —    |   |   | — |   |
|                   Insurance                                                   |       |   | 29,858     |   |   | 31,199     |   |   | — |   |
|                   Interest expense (income), *net*                            |       |   | (148,036   | )      |   | (2,221     | )      |   | 380 |   |
|                   Investor relations and financing                            |       |   | 89,542     |   |   | 95,669     |   |   | — |   |
|                   Management fees                                             |       |   | 129,483    |   |   | 141,270    |   |   | 52,388 |   |
|                   Office and telephone                                        |       |   | 101,127    |   |   | 47,175     |   |   | 9,106 |   |
|                   Professional fees                                           |       |   | 150,606    |   |   | 98,624     |   |   | 58,806 |   |
|                   Rent                                                        |       |   | 61,516     |   |   | 58,713     |   |   | 8,767 |   |
|                   Shareholders’ information                             |       |   | 53,364     |   |   | 35,277     |   |   | 5,032 |   |
|                   Stock-based compensation expense *(Note                9c)* |       |   | 3,523,324  |   |   | 992,658    |   |   | 55,048 |   |
|                   Transfer agent and filing fees                              |       |   | 64,914     |   |   | 24,765     |   |   | 20,221 |   |
|                   Travel and automotive                                       |       |   | 348,244    |   |   | 220,530    |   |   | 25,278 |   |
| **Loss                Before the Undernoted**                                           |       |   | 5,030,850  |   |   | 2,221,628  |   |   | 288,699 |   |
|                                                                                    |       |   |            |   |   |            |   |   |  |   |
| **Other                Expenses (Income)**                                              |       |   |            |   |   |            |   |   |  |   |
|                   Pre-feasibility costs - *Schedule                1*         |       |   | 11,120,145 |   |   | 1,622,983  |   |   | 91,616 |   |
|                   Gain on foreign exchange conversion                         |       |   | (221,458   | )      |   | (68,274    | )      |   | (22,230 | ) |
|                   Gain on sale of resource properties                         |       |   | —    |   |   | —    |   |   | (219,925 | ) |
|                   Loss on sale of property, plant and equipment               |       |   | —    |   |   | —    |   |   | 8,640 |   |
|                                                                                    |       |   | 10,898,687 |   |   | 1,554,709  |   |   | (141,899 | ) |
|                                                                                    |       |   |            |   |   |            |   |   |  |   |
| **Loss                for the Year**                                                    |       | $      | 15,929,537 |   | $      | 3,776,337  |   | $ | 146,800 |   |
|                                                                                    |       |   |            |   |   |            |   |   |  |   |
| **Deficit                Beginning of the Year**                                        |       |   | 18,137,588 |   |   | 14,361,251 |   |   | 14,214,451 |   |
|                                                                                    |       |   |            |   |   |            |   |   |  |   |
| **Deficit                End of Year**                                                  |       |   | 34,067,125 |   |   | 18,137,588 |   |   | 14,361,251 |   |
|                                                                                    |       |   |            |   |   |            |   |   |  |   |
| **Loss                per Share**                                                       | ** ** | $      | (0.22      | )      | $      | (0.07      | )      | $ | (0.00 | ) |
|                                                                                    |       |   |            |   |   |            |   |   |  |   |
|                                                                                    |       |   |            |   |   |            |   |   |  |   |
| **Weighted                Average Number of Shares**                                    |       |   | 73,484,490 |   |   | 51,946,290 |   |   | 35,452,260 |   |

----

| **PolyMet                Mining Corp.**                  | Statement                4 |
|----------------------------------------------------------|----------------------------|
| **Consolidated                Statements of Cash Flows** |                       |
| **For                the Years Ended 31 January**        |                       |
| *U.S.                Funds*                              |                       |

|                                                                                                                 |   | 2006   |        | 2005   |   | 2004       |   |
|----------------------------------------------------------------------------------------------------------------------|--------|--------|-------------|--------|--------|------------|--------|
| **Operating                Activities**                                                                              |   |   |             |   |   |            |   |   |  |   |
|                                                                                                                 |   |   |             |   |   |            |   |   |  |   |
|                     Loss for the year                                                                 |   | $      | (15,929,537 | )      | $      | (3,776,337 | )      | $ | (146,800 | ) |
|                     Adjustments to reconcile loss to net cash                                         |   |   |             |   |   |            |   |   |  |   |
|                         Consulting - bonus shares                                           |   |   | —     |   |   | 233,856    |   |   | — |   |
|                         Amortization                                                        |   |   | 4,220       |   |   | 1,705      |   |   | 275 |   |
|                         Stock-based compensation expense                                    |   |   | 3,523,324   |   |   | 992,658    |   |   | 55,048 |   |
|                         Gain on sale of resource properties                                 |   |   | —     |   |   | —    |   |   | (219,925 | ) |
|                           Loss on sale of property, plant and                equipment |   |   | —     |   |   | —    |   |   | 8,640 |   |
|                     Changes in current assets and liabilities                                         |   |   |             |   |   |            |   |   |  |   |
|                         Miscellaneous receivables                                           |   |   | 4,019       |   |   | (23,124    | )      |   | (15,665 | ) |
|                           Prepaid expenses                                             |   |   | 166,034     |   |   | (236,130   | )      |   | (5,466 | ) |
|                           Accounts payable                                             |   |   | 1,386,408   |   |   | 231,640    |   |   | 20,378 |   |
|                                                                                                                 |   |   |             |   |   |            |   |   |  |   |
|                     Net cash used in operating activities                                             |   |   | (10,845,532 | )      |   | (2,575,732 | )      |   | (303,515 | ) |
|                                                                                                                 |   |   |             |   |   |            |   |   |  |   |
| **Investing                Activities**                                                                              |   |   |             |   |   |            |   |   |  |   |
|                     Term deposit                                                                      |   |   | 807,200     |   |   | (807,200   | )      |   | — |   |
|                     Purchase of property, plant and equipment (Note 6, 7, 10)                         |   |   | (1,000,000  | )      |   | —    |   |   | (500,000 | ) |
|                     Purchase of equipment                                                             |   |   | (10,343     | )      |   | (15,838    | )      |   | (2,061 | ) |
|                     Proceeds on disposal of equipment                                                 |   |   | —     |   |   | —    |   |   | 33,331 |   |
|                     Proceeds on sale of resource property                                             |   |   | —     |   |   | —    |   |   | 219,925 |   |
|                     Net cash used in investing activities                                             |   |   | (203,143    | )      |   | (823,038   | )      |   | (248,805 | ) |
|                                                                                                                 |   |   |             |   |   |            |   |   |  |   |
| **Financing                Activities**                                                                              |   |   |             |   |   |            |   |   |  |   |
|                     Share capital - for cash                                                          |   |   | 22,209,231  |   |   | 2,651,286  |   |   | 1,044,684 |   |
|                     Share subscriptions received                                                      |   |   | —     |   |   | 762,804    |   |   | — |   |
|                     Net cash provided by financing activities                                         |   |   | 22,209,231  |   |   | 3,414,090  |   |   | 1,044,684 |   |
|                                                                                                                 |   |   |             |   |   |            |   |   |  |   |
| **Net                Increase in Cash Position**                                                                     |   |   | 11,160,556  |   |   | 15,320     |   |   | 492,364 |   |
|      Cash                Position - Beginning of Year                                       |   |   | 510,871     |   |   | 495,551    |   |   | 3,187 |   |
| **Cash                Position - End of Year**                                                                  |   | $      | 11,671,427  |   | $      | 510,871    |   | $ | 495,551 |   |
|                                                                                                                 |   |   |             |   |   |            |   |   |  |   |
|                                                                                                                 |   |   |             |   |   |            |   |   |  |   |
| **Cash                Position Consists of:**                                                                        |   |   |             |   |   |            |   |   |  |   |
| **Cash                on deposit**                                                                                   |   | $      | 11,671,427  |   | $      | —    |   | $ | 495,551 |   |
|                     Bank overdraft covered by term deposit                                            |   |   | —     |   |   | (251,933   | )      |   | — |   |
|                     Restricted cash from share subscriptions received                                 |   |   | —     |   |   | 762,804    |   |   | — |   |
|                                                                                                                 |   | $      | 11,671,427  |   | $      | 510,871    |   | $ | 495,551 |   |
|                                                                                                                 |   |   |             |   |   |            |   |   |  |   |
|                     Cash paid during the year for interest expense                                    |   | $      | —     |   | $      | —    |   | $ | — |   |
|                     Cash paid during the year for income taxes                                        |   | $      | —     |   | $      | —    |   | $ | — |   |

**Supplemental      disclosure with respect to cash flows (Note 10) **

----

| **PolyMet                Mining Corp.**                            | Schedule                1 |
|--------------------------------------------------------------------|---------------------------|
| **Consolidated                Schedules of Pre-Feasibility Costs** |                      |
| **For                the Years Ended 31 January**                  |                      |
| *U.S.                Funds*                                        |                      |

|                                                              |   | 2006   |       | 2005         |   | 2004         |   |
|-------------------------------------------------------------------|--------|--------|------------|--------------|--------|--------------|--------|
|                                                              |   |   |       |    |   |    |   |
| **Direct**                                                        |   |   |            |         |   |              |   |   |  |   |
|                     Camp and general               |   | $      | 100,987    |         | $      | 5,337        |   | $ | 4,750 |   |
|                     Consulting fees                |   |   | 690,075    |         |   | 336,770      |   |   | — |   |
|                     Drilling                       |   |   | 3,075,034  |         |   | 441          |   |   | — |   |
|                     Engineering                    |   |   | 578,310    |         |   | 220,729      |   |   | — |   |
|                     Environmental                  |   |   | 2,420,531  |         |   | 406,524      |   |   | — |   |
|                     Geological and geophysical     |   |   | 74,689     |         |   | 172,675      |   |   | — |   |
|                     Land lease, taxes and licenses |   |   | 187,205    |         |   | 78,605       |   |   | 76,154 |   |
|                     Metallurgical                  |   |   | 1,894,096  |         |   | 66,984       |   |   | 10,712 |   |
|                     Mine planning                  |   |   | 1,312,392  |         |   | 48,769       |   |   | — |   |
|                     Permitting                     |   |   | 137,013    |         |   | 181,751      |   |   | — |   |
|                     Plant maintenance and repair   |   |   | 43,691     |         |   | —      |   |   | — |   |
|                     Sampling                       |   |   | 606,122    |         |   | —      |   |   | — |   |
|                     Scoping study                  |   |   | —    |         |   | 104,398      |   |   | — |   |
|                                                              |   |   |            |         |   |              |   |   |  |   |
| **Total                Costs for the Year**                       |   | $      | 11,120,145 |         | $      | 1,622,983    |   | $ | 91,616 |   |

|   |   |
|--------|--------|

----

| **PolyMet                Mining Corp.**                               |
|-----------------------------------------------------------------------|
| **Notes                to Consolidated Financial Statements**         |
| **For                the years ended 31 January 2006, 2005 and 2004** |
| ***U.S.                Funds***                                       |
|                                                                  |
| **1.**                                                                | **Nature                of Business** |
|                                                                  |   |   |
|                                                                  | 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 dependant 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. |
|                                                                  |   |   |
| **2.**                                                                | **Significant                Accounting Policies** |
|                                                                  |   |   |
|                                                                  | a) | **Consolidation** |
|                                                                  |   |   |
|                                                                  |   | These                consolidated financial statements include the accounts of the Company                and                its wholly-owned subsidiaries, PolyMet Mining Inc. and Fleck Minerals                Inc.                The purchase method of accounting is used to consolidate these                subsidiaries. |
|                                                                  |   |   |
|                                                                  |   | PolyMet                Mining Inc. was incorporated in Minnesota, U.S.A. to hold the NorthMet                Lease (Note 5). Fleck Minerals Inc. is currently                inactive. |
|                                                                  |   |   |
|                                                                  | b) | **Mineral                Operations** |
|                                                                  |   |   |
|                                                                  |   | The                Company is in the pre-feasibility stage of developing its mineral                properties and has not yet determined whether these properties contain                ore                reserves that are economically recoverable. |
|                                                                  |   |   |
|                                                                  |   | Exploration                expenses incurred prior to determination of the feasibility of a                mining                operation, periodic option payments and administrative expenses are                expended as incurred. Mineral property acquisition costs and exploration                and development expenditures incurred subsequent to the determination                of                the feasibility of mining operation are deferred until the property                is                placed into production, sold, allowed to lapse or abandoned. Acquisition                costs include cash and fair market value of common shares. These                capitalized costs will be amortized over the estimated life of the                property following commencement of commercial production or written                off if                the property is sold, allowed to lapse or abandoned or when an impairment                of values has occurred. |
|                                                                  |   |   |
|                                                                  |   | 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. |

----

| **PolyMet                Mining Corp.**                               |
|-----------------------------------------------------------------------|
| **Notes                to Consolidated Financial Statements**         |
| **For                the years ended 31 January 2006, 2005 and 2004** |
| ***U.S.                Funds***                                       |
|                                                                  |
| **2.**                                                                | **Significant                Accounting Policies -*****Continued*** |
|                                                                  |   |   |
|                                                                  | c) | **Amortization** |
|                                                                  |   |   |
|                                                                  |   | The                Company provides for amortization of its property, plant and equipment                as                follows: |
|                                                                  |   |   |
|                                                                  |   | Leasehold                improvements - Straight-line over 10 years Furniture and equipment                -                Straight-line over 10 years Computers - Straight-line over 5                years |
|                                                                  |   |   |
|                                                                  |   | Property,                plant and equipment related to the NorthMet Project will begin to                be                amortized at the time the project commences operations and will be                over                the life of the mine. |
|                                                                  |   |   |
|                                                                  | d) | **Investments** |
|                                                                  |   |   |
|                                                                  |   | The                Company carries its long-term portfolio investments at lower of cost                or                net realizable value. Investments are written down to net realizable                value                when there has been a loss in value of the investment, which is other                than                a temporary decline. |
|                                                                  |   |   |
|                                                                  | e) | **Loss                Per Share** |
|                                                                  |   |   |
|                                                                  |   | Basic                earnings (loss) per share is computed by dividing income (loss) available                to common shareholders by the weighted average number of common shares                outstanding during the year. The computation of diluted earnings                per share                assumes the conversion, exercise or issuance would have a dilutive                effect                on earnings per share. The dilutive effect of convertible securities                is                reflected in diluted earnings per share by application of the “if                converted” method. The dilutive effect of outstanding options and warrants                and their equivalents is reflected in diluted earnings per share                by                application of the treasury stock method. |
|                                                                  |   |   |
|                                                                  | f) | **Conversion                of Foreign Currency** |
|                                                                  |   |   |
|                                                                  |   | The                accounts of the Company are prepared in U.S. funds and the company’s                Canadian operations are translated into U.S. dollars as                follows: |
|                                                                  |   |   |
|                                                                  |   | · Monetary                assets and liabilities at year-end rates, · All                other assets and liabilities at historical rates, and · Revenue                and expense items at the average rate of exchange prevailing during                the                year. |
|                                                                  |   |   |
|                                                                  |   | Exchange                gains and losses arising from these transactions are reflected in                income                or expense in the year**.** |
|                                                                  |   |   |
|                                                                  | g) | **Environmental                Expenditures** |
|                                                                  |   |   |
|                                                                  |   | 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 vary                greatly                and are not predictable. The Company’s policy is to meet or, if possible,                surpass standards set by relevant legislation, by application of                technically proven and economically feasible measures**.** |

----

| **PolyMet                Mining Corp.**                               |
|-----------------------------------------------------------------------|
| **Notes                to Consolidated Financial Statements**         |
| **For                the years ended 31 January 2006, 2005 and 2004** |
| ***U.S.                Funds***                                       |

| **2.** | **Significant                Accounting Policies -*****Continued*** |
|--------|---------------------------------------------------------------------|
|   |                                                                |   |   |
|   | h)                                                                  | **Management’s                Estimates** |
|   |                                                                |   |   |
|   |                                                                | The                preparation of financial statements in conformity with Canadian generally                accepted accounting principles requires management to make estimates                and                assumptions that affect the reported amounts of assets and liabilities                and                disclosure of contingent assets and liabilities at the dates of the                financial statements and the reported amounts of revenues and expenses                during the reported years. Actual results could differ from those                estimates. |
|   |                                                                |   |   |
|   | i)                                                                  | **Share                Capital** |
|   |                                                                |   |   |
|   |                                                                | i) | The                proceeds from the exercise of stock options and warrants are recorded                as                share capital in the amount for which the option or warrant enabled                the                holder to purchase a share in the Company. |
|   |                                                                |   |   |
|   |                                                                | ii) | Share                capital issued for non-monetary consideration is recorded at an amount                based on fair market value. |
|   |                                                                |   |   |
|   | j)                                                                  | **Stock-Based                Compensation** |
|   |                                                                |   |   |
|   |                                                                | All                stock-based awards made to employees and non-employees are measured                and                recognized using a fair value based method. For 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 employees                and                non-employees, the fair value of the options is accrued and charged                to                operations, with the offsetting credit to contributed surplus, on                a                straight- line basis over the vesting period. If and when the stock                options are ultimately exercised, the applicable amounts of contributed                surplus are transferred to share capital. |
|   |                                                                |   |   |
|   | k)                                                                  | **Cash                and Cash Equivalents** |
|   |                                                                |   |   |
|   |                                                                | For                purposes of reporting cash flows, 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. The Company places its cash and cash investments with                institutions of high credit worthiness. At times, such investments                may be                in excess of insurance limits. |

----

| **PolyMet                Mining Corp.**                               |
|-----------------------------------------------------------------------|
| **Notes                to Consolidated Financial Statements**         |
| **For                the years ended 31 January 2006, 2005 and 2004** |
| ***U.S.                Funds***                                       |

| **2.** | **Significant                Accounting Policies -*****Continued*** |
|--------|---------------------------------------------------------------------|
|   |                                                                |   |
|   | l)                                                                  | **Asset                Retirement Obligations** |
|   |                                                                |   |
|   |                                                                | The                recommendations of Canadian Institute of Chartered Accountants (“CICA”)                Handbook Section 3110, *Asset                Retirement Obligations*(“CICA                3110”), became effective on 1 February 2004. This section 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. Changes in estimates are accounted                for                prospectively commencing in the year the estimate is                revised. |
|   |                                                                |   |
|   | m)                                                                  | **Variable                Interest Entities** |
|   |                                                                |   |
|   |                                                                | Effective                1 February 2005, the Company adopted the recommendations of CICA                Handbook                Accounting Guideline 15 (AcG-15), Consolidation of Variable Interest                Entities, effective for annual and interim periods beginning on or                after 1                November 2004. Variable interest entities (VIEs) refer to those entities                that are subject to control on a basis other than ownership of voting                interests. AcG-15 provides guidance for identifying VIEs and criteria                for                determining which entity, if any, should consolidate them. Adoption                of                this accounting policy has not affected the Company’s financial                statements. |
|   |                                                                |   |
|   | n)                                                                  | **Impairment                of Long-Lived Assets** |
|   |                                                                |   |
|   |                                                                | The                Company has adopted CICA Section 3063 “Impairment of Long-Lived Assets”.                This statement establishes standards for the recognition, measurement                and                disclosure or the impairment of non-monetary long-lived assets, included                property, plant and equipment, intangible assets with finite useful                lives,                deferred pre-operating costs and long-term prepaid assets. The adoption                of                this standard did not have a material impact on the Company’s financial                position or results of operations. |

|   | o)     | **Comparative                Figures**                                                                                                                        |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                          |
|   |   | Certain                of the comparative figures have been reclassified to conform with                the                current year’s presentation. |

----

| **PolyMet                Mining Corp.**                               |
|-----------------------------------------------------------------------|
| **Notes                to Consolidated Financial Statements**         |
| **For                the years ended 31 January 2006, 2005 and 2004** |
| ***U.S.                Funds***                                       |

| **3.** | **Financial                Instruments**   |
|--------|--------------------------------------------|
|   |                                       |   |
|   | a)                                         | **Fair                value** |
|   |                                       |   |
|   |                                       | The                carrying value of cash, miscellaneous receivable, investments *(Note                4)*accounts                payable and long-term debt approximates the fair value of these financial                instruments due to their short-term maturity or capacity of prompt                liquidation. |
|   |                                       |   |
|   | b)                                         | **Interest                rate risk** |
|   |                                       |   |
|   |                                       | The                Company is not exposed to significant interest rate risk due to the                short-term maturity of its monetary current assets and current                liabilities. |
|   |                                       |   |
|   | c)                                         | **Currency                risk** |
|   |                                       |   |
|   |                                       | The                Company is exposed to foreign currency fluctuations to the extent                primary                expenditures incurred by the Company are not denominated in Canadian                dollars. As at 31 January 2006, the Company had investments in mineral                properties that require the Company to make payments in US dollars                (Notes                6 and 7). The Company's ability to make these payments will be affected                by                currency fluctuations. |
|   |                                       |   |
| **4.** | **Investments**                            |
|   |                                       |   |
|   | Details                are as follows**:** |

|                                  |   | **Market                Value** |    | **31                  January****2006** |   | **31                  January****2005** |   |
|---------------------------------------|--------|---------------------------------|---------|-----------------------------------------|--------|-----------------------------------------|--------|
| American                Platinum Inc. |   | $                               | — |                                    | $      | 1                                       |   | $ | 1 |   |
| Aloak                Corp.            |   |                            | 25      |                                    |   | 252                                     |   |   | 252 |   |
|                                  |   | $                               | 25      |                                    | $      | 253                                     |   | $ | 253 |   |

|   | These                investments represent minority interests of less than 10% in the                respective companies. |
|--------|----------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                       |

----

| **PolyMet                Mining Corp.**                               |
|-----------------------------------------------------------------------|
| **Notes                to Consolidated Financial Statements**         |
| **For                the years ended 31 January 2006, 2005 and 2004** |
| ***U.S.                Funds***                                       |

| **5.** | **Resource                Property Agreements**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|   | **NorthMet,                Minnesota, U.S.A. - Lease**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|   | By                an agreement dated 4 January 1989 and a subsequent amendment and                assignment, 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 or accrued to 31 January 2006. The                agreement                requires future annual lease payments of $150,000 from 4 January                2006 to                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.                                                                                                                                                                                                                                             |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| **6.** | **Property,                Plant and Equipment**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|   | Details                are as follows**:**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |

| **31                January 2006**     | ** ** | ** ** | **Cost**   |   |   | **Accumulated****Amortization** |   |   | **Net                  Book****Value**  |   |
|----------------------------------------|------------|------------|------------|--------|--------|---------------------------------|--------|--------|----------------------------------------------|--------|
| NorthMet                Project        |       | $          | 14,224,967 |   | $      | —                         |   | $      | 14,224,967                                   |   |
| Leasehold                improvements  |       |       | 624        |   |   | 27                              |   |   | 597                                          |   |
| Furniture                and equipment |       |       | 9,663      |   |   | 2,315                           |   |   | 7,348                                        |   |
| Computers                              |       |       | 17,855     |   |   | 3,759                           |   |   | 14,096                                       |   |
|                                   |       | $          | 14,253,109 |   | $      | 6,101                           |   | $      | 14,247,008                                   |   |
|                                   |       |       |            |   |   |                                 |   |   |                                              |   |
|                                   |       |       |       |   |   |                            |   |   |                                         |   |
| **31                January 2005**     |       |       | **Cost**   |   |   | **Accumulated****Amortization** |   |   | **Net                  Book****Value**  |   |
| NorthMet                Project        |       | $          | 729,320    |   | $      | —                         |   | $      | 729,320                                      |   |
| Leasehold                improvements  |       |       | —    |   |   | —                         |   |   | —                                      |   |
| Furniture                and equipment |       |       | 1,888      |   |   | 172                             |   |   | 1,716                                        |   |
| Computers                              |       |       | 15,908     |   |   | 1,705                           |   |   | 14,203                                       |   |
|                                   |       | $          | 747,116    |   | $      | 1,877                           |   | $      | 745,239                                      |   |

----

| **PolyMet                Mining Corp.**                               |
|-----------------------------------------------------------------------|
| **Notes                to Consolidated Financial Statements**         |
| **For                the years ended 31 January 2006, 2005 and 2004** |
| ***U.S.                Funds***                                       |

| **6.** | **Property,                Plant and Equipment -*****Continued***                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   | **Cleveland                Cliffs Option, Minnesota, U.S.A.**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   | By                a Memorandum of Understanding dated 5 December 2003 and an option                agreement dated 14 February 2004, the Company obtained an option                (“Cliffs                Option”) to acquire certain property, plant and equipment (“Cliffs                Assets”) from Cleveland Cliffs of Cleveland, Ohio (“Cliffs”) located near                the Company’s NorthMet Project. Under the terms of the agreement, Cliffs                will maintain available designated elements of the facility while                the                Company develops its feasibility study on the NorthMet                project.                                                                                                                                                                                  |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   | As                consideration for the exclusive Cliffs Option, the Company paid $500,000                prior to 31 January 2004 as required and issued to Cliffs 1,000,000                common                shares on 30 March 2004, valued at $229,320 to maintain the exclusive                rights until 30 June 2006.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   | On                14 September 2005 the Company reached an agreement in principle with                Cliffs on the terms for the early exercise of the Company’s 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”).                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   | On                15 November 2005 the Company completed the acquisition under the                Asset                Purchase Agreement (“Purchase Agreement”). The property, plant and                equipment assets now owned by the Company include land, crushing,                milling                and flotation capacity, complete spare parts, plant site buildings,                real                estate, tailings impoundments and mine work shops, as well as access                to                extensive mining infrastructure. The final allocation of the purchase                price has not been agreed to between the parties. As the assets are                not in                use no amortization of these assets has been recorded to 31 January                2006.                                                            |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   | The                consideration for the Asset Purchase was $3.4 million in cash ($1,000,000                paid) and the issuance of 6,200,547 common shares (issued on 15 November                2005 at fair market value of $7,564,444) in the capital stock of                the                Company. The remaining cash component of the payment of $2.4 million                will                be paid in quarterly instalments of US$250,000 for a total of $2.5                million, which includes interest of $100,000 (Note 7). Interest accrued                in                the amount of $20,515 has been capitalized as part of the cost of                the                NorthMet Project assets.                                                                                                                                                      |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   | The                Company has assumed certain ongoing site-related environmental and                reclamation obligations. These environmental and reclamation obligations                are presently contracted under the terms of the Purchase Agreement                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                $2,510,687 (Note 8) 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. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   | Under                the terms of the agreement Cliffs will have the right to participate                on a                pro-rata basis in future cash equity financings.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |

----

| **PolyMet                Mining Corp.**                               |
|-----------------------------------------------------------------------|
| **Notes                to Consolidated Financial Statements**         |
| **For                the years ended 31 January 2006, 2005 and 2004** |
| ***U.S.                Funds***                                       |

| **7.** | **Long                Term Debt**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   | Pursuant                to the Asset Purchase Agreement (Note 6) the Company’s wholly owned                subsidiary PolyMet Mining Inc. signed a note payable to Cliffs in                the                amount of $2,400,000. The note is interest bearing at the annual                simple                rate of four percent (4%) and shall be paid in quarterly instalments                equal                to $250,000 for total repayment of $2,500,000. As at 31 January 2006                the                outstanding long term debt was as follows: |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |

| Note                payable         |   | $      | 2,400,000  |   |
|-------------------------------------|--------|--------|------------|--------|
| Accrued                interest     |   |   | 20,515     |   |
| Total                debt           |   |   | 2,420,515  |   |
| Less                current portion |   |   | (1,000,000 | )      |
|                                |   |   |            |   |
| Long                term debt       |   | $      | 1,420,515  |   |

| **8.** | **Asset                Retirement Obligation**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|   | As                part of the consideration for the Cliffs Purchase Agreement (Note                6), the                Company assumed, under contract to Cliffs, the liability for final                reclamation and closure of the mine.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|   | 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 January 31,                2006                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 estimates are based upon a 31 January 2006 liability estimate of                $12,444,478, an annual inflation rate of 3.80%, a discount rate of                9.00%                and a mine life of 28.5 years, commencing in mid-2008 and a reclamation                period of 3 years. Accretion of the liability until the commencement                of                commercial production will be capitalized to the NorthMet Project                assets.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |

----

| **PolyMet                Mining Corp.**                               |
|-----------------------------------------------------------------------|
| **Notes                to Consolidated Financial Statements**         |
| **For                the years ended 31 January 2006, 2005 and 2004** |
| ***U.S.                Funds***                                       |

| **9.** | **Share                Capital** |
|--------|----------------------------------|
|   |                             |   |   |
|   | a)                               | **Share                Issuances for Cash** |
|   |                             |   |   |
|   |                             | During                the year ended 31 January 2006 the Company issued the following shares                for                cash: |
|   |                             |   |   |
|   |                             | i) | 224,925                shares pursuant to the exercise of warrants allotted at 31 January                2005; |
|   |                             |   |   |
|   |                             | ii) | Four                private placements for a total of 28,494,653 shares at prices of                CDN$0.55                - CDN$1.40 for net proceeds of $20,387,824 ($762,804 was received                prior to                31 January 2005). Each of the private placements included share purchase                warrants (Note 9e). Cash share issue costs in the amount of $908,920                were                included in respect of these private placements; |
|   |                             |   |   |
|   |                             | iii) | 5,700,628                shares pursuant to the exercise of 5,700,628 share purchase warrants                for                total proceeds of $3,296,143 (Note 9e); |
|   |                             |   |   |
|   |                             | iv) | 1,795,852                shares pursuant to the exercise of stock options for total proceeds                of                $196,988 (Note 9b). |
|   |                             |   |   |
|   |                             | During                the year ended 31 January 2005, the Company increased its authorized                share                capital from 1,000,000,000 common shares to an unlimited number of                common                shares and issued the following shares: |
|   |                             |   |   |
|   |                             | v) | Two                private placements for a total of 2,800,000 shares at CDN$0.80 per                share                for net proceeds of $1,733,984. Each of the private placements included                share purchase warrants (Note 9e). Cash share issuance costs in the                amount                of $18,752 were incurred in respect of these private                placements; |
|   |                             |   |   |
|   |                             | vi) | 5,277,573                shares pursuant to the exercise of 5,277,573, share purchase warrants                for                total proceeds of $828,554; |
|   |                             |   |   |
|   |                             | vii) | 1,088,400                shares pursuant to the exercise of stock options for total proceeds                of                $81,383. |

----

| **PolyMet                Mining Corp.**                               |
|-----------------------------------------------------------------------|
| **Notes                to Consolidated Financial Statements**         |
| **For                the years ended 31 January 2006, 2005 and 2004** |
| ***U.S.                Funds***                                       |

| **9.** | **Share                Capital -*****Continued*** |
|--------|---------------------------------------------------|

|   | b) | **Stock                Options** |
|--------|----|----------------------------------|

|                                           |   | 31                      January 2006                      Options  |       | Weighted                          Average                          Exercise                          Price                          (CDN$) |   |                  31                      January  2005                      Options |   | Weighted                          Average                          Exercise                          Price                          (CDN$) |       |
|------------------------------------------------|--------|-------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------|------------|
|                                           |   |                                                                    |       |                                                                                                                                       |   |                                                                                          |   |                                                                                                                                       |       |
| Outstanding                - Beginning of year |   |                                                                    | 4,999,552  |                                                                                                                                       |   | 0.32                                                                                          |   |                                                                                                                                       | 3,542,952  |   |   | 0.11 |   |
|                   Granted            |   |                                                                    | 3,580,000  |                                                                                                                                       |   | 1.13                                                                                          |   |                                                                                                                                       | 2,545,000  |   |   | 0.52 |   |
|                   Exercised          |   |                                                                    | (1,795,852 | )                                                                                                                                          |   | 0.13                                                                                          |   |                                                                                                                                       | (1,088,400 | ) |   | 0.10 |   |
|                                           |   |                                                                    |            |                                                                                                                                       |   |                                                                                               |   |                                                                                                                                       |            |   |   |  |   |
| Outstanding                - End of year       |   |                                                                    | 6,783,700  |                                                                                                                                       |   | 0.80                                                                                          |   |                                                                                                                                       | 4,999,552  |   |   | 0.32 |   |

| Expiry                  Date     |   |   | Exercise                    Price (CDN) |   |   | Number    |   |
|----------------------------------|--------|--------|-----------------------------------------|--------|--------|-----------|--------|
| 12                February 2006  |   | $      | 0.21                                    |   |   | 500,000   |   |
| 18                July 2008      |   | $      | 0.10                                    |   |   | 328,700   |   |
| 3                October 2008    |   | $      | 0.13                                    |   |   | 450,000   |   |
| 9                March 2009      |   | $      | 0.40                                    |   |   | 500,000   |   |
| 28                April 2009     |   | $      | 0.75                                    |   |   | 200,000   |   |
| 5                July 2009       |   | $      | 0.66                                    |   |   | 1,175,000 |   |
| 18                October 2009   |   | $      | 0.79                                    |   |   | 50,000    |   |
| 30                March 2010     |   | $      | 0.65                                    |   |   | 765,000   |   |
| 1                May 2010        |   | $      | 0.85                                    |   |   | 350,000   |   |
| 15                June 2010      |   | $      | 0.94                                    |   |   | 40,000    |   |
| 19                September 2010 |   | $      | 1.36                                    |   |   | 1,870,000 |   |
| 24                October 2010   |   | $      | 1.20                                    |   |   | 280,000   |   |
| 5                December 2010   |   | $      | 1.15                                    |   |   | 275,000   |   |
|                             |   |   |                                         |   |   | 6,783,700 |   |

----

| **PolyMet                Mining Corp.**                               |
|-----------------------------------------------------------------------|
| **Notes                to Consolidated Financial Statements**         |
| **For                the years ended 31 January 2006, 2005 and 2004** |
| ***U.S.                Funds***                                       |

| **9.** | **Share                Capital -*****Continued*** |
|--------|---------------------------------------------------|

|   | c) | **Stock-Based                Compensation** |
|--------|----|---------------------------------------------|

|   | i) | During                the year ended 31 January 2006, the Company issued 3,580,000 options                to                directors, officers, consultants and employees with exercise prices                of                CDN$0.65 - CDN$1.36 per option. The fair value of stock-based compensation                in the amount of $3,523,324 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         |   |   | 3.66 | %      |
|------------------------------------------------|--------|--------|------|--------|
| Expected                dividend yield         |   |   | Nil  |   |
| Expected                stock price volatility |   |   | 131  | %      |
| Expected                option life in years   |   |   | 5    |   |

|   | ii) | During                the year ended 31 January 2005, the Company issued 2,545,000 options                to                directors, officers, consultants and employees with exercise prices                ranging from CDN$0.21 - CDN$0.79 per option. The fair value of stock-based                compensation in the amount of $992,658 has been recorded in the accounts                of the Company as an expense with the offsetting entry to contributed                surplus. This amount includes the expense for the 950,000 options                at                CDN$0.13, granted on 3 October 2003, which were approved by the Company’s                shareholders on May 24, 2004. 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         |   |   | 3.25 | %      |
|------------------------------------------------|--------|--------|------|--------|
| Expected                dividend yield         |   |   | Nil  |   |
| Expected                stock price volatility |   |   | 143  | %      |
| Expected                option life in years   |   |   | 4.78 |   |

|   | d)     | **Contributed                Surplus**                                                                                                                                              |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                |
|   |   | Contributed                surplus represents accumulated stock-based compensation expense,                reduced                by the fair value of the stock options exercised. |
|   |   |                                                                                                                                                                                |
|   |   | Details                are as follows:                                                                                                                                              |

|                                                                                                                                |   | January                    31  2006 |      | January                    31 2005 |   |
|-------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------|-----------|-----------------------------------------|--------|
| Balance                - Beginning of year                                                                                          |   | $                                        | 1,005,742 |                                    | $      | 55,048 |   |
| Current                year fair value of stock-based compensation                                                                  |   |                                     | 3,523,324 |                                    |   | 992,658 |   |
| Fair                value of stock options exercised during the year and transferred                to share                capital |   |                                     | (97,933   | )                                       |   | (41,964 | ) |
| Balance                - End of year                                                                                                |   | $                                        | 4,431,133 |                                    | $      | 1,005,742 |   |

----

| **PolyMet                Mining Corp.**                               |
|-----------------------------------------------------------------------|
| **Notes                to Consolidated Financial Statements**         |
| **For                the years ended 31 January 2006, 2005 and 2004** |
| ***U.S.                Funds***                                       |
|                                                                  |
| **9.**                                                                | **Share                Capital -*****Continued*** |

|   | e)     | **Share                Purchase Warrants**                                                                                                                                          |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                |
|   |   | The                Company’s share purchase warrants as at 31 January 2006 and 2005 and the                changes during the years then ended are as                follows: |

|                                           |   | **2006**     |       | 2005                                               |   |
|------------------------------------------------|--------|--------------|------------|----------------------------------------------------|--------|
|                                           |   | **Warrants** |       | **Weighted                Average Exercise Price** |   | Warrants |   | Weighted                    Average  Exercise                    Price |   |
|                                           |   |         |       | **(CDN)**                                          |   |    |   | (CDN) |   |
| Warrants                outstanding and        |   |         |            |                                               |   |  |   |   |  |   |   |  |   |
| exercisable                - beginning of year |   |         | 5,841,278  |                                               | $      | 0.42 |   |   | 9,718,852 |   | $ | 0.19 |   |
|  Issued                                   |   |         | 15,175,104 |                                               |   | 1.17 |   |   | 1,400,000 |   |   | 1.20 |   |
|  Exercised                                |   |         | (5,925,553 | )                                                  |   | (0.66 | ) |   | (5,277,574 | ) |   | (0.20 | ) |
|  Expired                                  |   |         | (428,124   | )                                                  |   | (1.20 | ) |   |   |   |   |   |   |
|                                           |   |         |            |                                               |   |  |   |   |  |   |   |  |   |
| Warrants                outstanding and        |   |         |            |                                               |   |  |   |   |  |   |   |  |   |
| exercisable                - end of year       |   |         | 14,662,705 |                                               | $      | 1.07 |   |   | 5,841,278 |   | $ | 0.42 |   |

|                             |   |   |                              | **Number                of Shares** |   |
|----------------------------------|--------|--------|-----------------------------------|-------------------------------------|--------|
|                             |   |   | **Exercise                Price** |                                |   | **2006** |   |   | **2005** |   |
| **Expiry                  Date** |   |   | (CDN)                        |                                |   |   |   |   |   |   |
| 23                September 2005 |   | $      | 0.17                              |                                |   | — |   |   | 1,012,355 |   |
| 4                December 2005   |   | $      | 1.20                              |                                |   | — |   |   | 775,000 |   |
| 1                March 2006      |   | $      | 1.20                              |                                |   | 625,000 |   |   | 625,000 |   |
| 16                November 2006  |   | $      | 0.20                              |                                |   | 3,428,923 |   |   | 3,428,923 |   |
| 28                February 2008  |   | $      | 1.25                              |                                |   | 3,336,110 |   |   | — |   |
| 22                March 2008     |   | $      | 1.25                              |                                |   | 4,572,566 |   |   | — |   |
| 9                May 2007        |   | $      | 2.00                              |                                |   | 1,772,328 |   |   | — |   |
| 6                September 2007  |   | $      | 1.25                              |                                |   | 927,778 |   |   | — |   |
|                             |   |   |                                   |                                |   |  |   |   |  |   |
|                             |   |   |                                   |                                |   | 14,662,705 |   |   | 5,841,278 |   |

|   | (i) | A                non-brokered private placement for 9,000,000 units at a price of                CDN$0.55                per unit. Each unit consisted of one common share and one half of                one                share purchase warrant. One full Warrant entitles the holders, on                exercise, to purchase one additional common share of the Company                at a                price of CDN$0.70 per Warrant Share at any time until the close of                business on the day which is 24 months from the date of Closing,                provided                that if the closing price of the Issuer’s shares as traded on the Exchange                at or exceed CDN$1.00 per share for 30 consecutive trading days,                the                Warrants will terminate 30 days thereafter. As at 31 January 2006                all                Warrants had been exercised. |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| **PolyMet                Mining Corp.**                               |
|-----------------------------------------------------------------------|
| **Notes                to Consolidated Financial Statements**         |
| **For                the years ended 31 January 2006, 2005 and 2004** |
| ***U.S.                Funds***                                       |

| **9.** | **Share                Capital -*****Continued*** |
|--------|---------------------------------------------------|

|   | e) | **Share                Purchase Warrants -*****Continued*** |
|--------|----|-------------------------------------------------------------|

|   | (ii) | A                non-brokered private placement for 6,672,219 units at a price of                CDN$0.90                per unit. Each unit consisted of one common share and one half of                one                share purchase warrant. One full Warrant entitles the holders, on                exercise, to purchase one additional common share of the Company                at a                price of CDN$1.25 per Warrant Share at any time until the close of                business on the day which is 30 months from the date of Closing,                provided                that if the closing price of the Issuer’s shares as traded on the Exchange                is over CDN$2.50 per share for 20 consecutive trading days, the Warrants                will terminate 30 days thereafter. |
|--------|------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (iii) | A                brokered private placement for 9,277,777 units at a price of CDN$0.90                per                unit. Each unit consisted of one common share and one half of one                share                purchase warrant. One full Warrant entitles the holders, on exercise,                to                purchase one additional common share of the Company at a price of                CDN$1.25                per Warrant Share at any time until the close of business on the                day which                is 30 months from the date of Closing, provided that if the closing                price                of the Issuer’s shares as traded on the Exchange is over CDN$2.50 per                share for 20 consecutive trading days (Accelerated Expiry), the Warrants                will terminate 30 days thereafter. In addition 927,777, share purchase                warrants were issued as finders fee at a price of CDN$1.25 for a                period of                two years from the date of Closing and include the Accelerated Expiry                provision. |
|--------|-------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | iv) | A                non-brokered private placement for 3,544,657 units at a price of                CDN$1.40                per unit. Each unit consisted of one common share and one half of                one                share purchase warrant. One full Warrant entitles the holders, on                exercise, to purchase one additional common share of the Company                at a                price of CDN$2.00 per Warrant Share at any time until the close of                business on the day which is 18 months from the date of Closing,                provided                that if the closing price of the Issuer’s shares as traded on the Exchange                is over CDN$2.50 per share for 20 consecutive trading days, the Warrants                will terminate 30 days thereafter. |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | vi)    | A                non-brokered private placement for 1,500,000 units at a price of                CDN$0.80                per unit. Each unit consisted of one common share and one half of                one                share purchase warrant. One full Warrant entitles the holders, on                exercise, to purchase one additional common share of the Company                at a                price of CDN$1.20 per Warrant Share at any time until the close of                business on the day which is 18 months from the date of Closing.                On 4                December 2005, 428,124 warrants expired, without being                exercised. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   | vii)   | A                non-brokered private placement for 625,000 units at a price of CDN$0.80                per unit. Each unit consisted of one common share and one half of                one                share purchase warrant. One full Warrant entitles the holders, on                exercise, to purchase one additional common share of the Company                at a                price of CDN$1.20 per Warrant Share at any time until the close of                business on the day which is 18 months from the date of                Closing.                                                                                                                       |

----

| **PolyMet                Mining Corp.**                               |
|-----------------------------------------------------------------------|
| **Notes                to Consolidated Financial Statements**         |
| **For                the years ended 31 January 2006, 2005 and 2004** |
| ***U.S.                Funds***                                       |

| **9.** | **Share                Capital -*****Continued*** |
|--------|---------------------------------------------------|

|   | f)     | **Shareholder                Rights Plan**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   |   | Effective                4 December 2003, the Company adopted a Shareholder Rights Plan (“Rights                Plan”), which was approved by the Company’s shareholders’ on 27 May 2004.                All common shares 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, upon certain events occurring (as defined in the Rights                Plan), 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.                                        |

| **10.** | **Supplemental                Disclosure With Respect To Cash Flows**                                                                                                                                   |
|---------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |                                                                                                                                                                                                    |
|    | During                the years ended 31 January 2006, 2005 and 2004, the Company entered                into                the following non-cash investing and financing activities                : |

|                                                                       |   |   | 2006      |   |   | 2005    |   |   | 2004   |   |
|----------------------------------------------------------------------------|--------|--------|-----------|--------|--------|---------|--------|--------|--------|--------|
| Issued                    6,200,547 (2005 - 1,000,000; 2004- Nil)          |   |   |      |   |   |    |   |   |   |   |
| shares                    to Cliffs pursuant to the Company’s        |   |   |      |   |   |    |   |   |   |   |
| exercise                    of the Cliffs Option to purchase the Cliffs    |   |   |      |   |   |    |   |   |   |   |
| Assets                                                                     |   | $      | 7,564,444 |   | $      | 229,320 |   | $      |        |   |
| Issued                    a promissory note payable to Cliffs              |   |   |      |   |   |    |   |   |   |   |
| pursuant                    to the Company’s exercise of the Cliffs  |   |   |      |   |   |    |   |   |   |   |
| Option                    to purchase the Cliffs Assets                    |   | $      | 2,400,000 |   | $      | — |   | $      |        |   |
| 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                              |   | $      | 2,510,687 |   | $      | — |   | $      |        |   |
| Transfer                    from contributed surplus to capital stock      |   |   |      |   |   |    |   |   |   |   |
| on                    exercise of stock options                            |   | $      | 97,933    |   | $      | 41,964  |   | $      |        |   |
| Transfer                    from share subscriptions to share capital      |   |   |      |   |   |    |   |   |   |   |
| on                    issuance of the related shares                       |   | $      | 762,804   |   | $      | — |   | $      |        |   |
| Capitalized                    accrued interest on the promissory          |   |   |      |   |   |    |   |   |   |   |
| note                    payable to Cliffs                                  |   | $      | 20,515    |   | $      | — |   | $      |        |   |
| Issued                    852,915 (2005 - 155,626; 2004 - 60,000)          |   |   |      |   |   |    |   |   |   |   |
| shares                    for finders’ fees on private placements    |   | $      | 616,770   |   | $      | 96,375  |   | $      | 6,541  |   |
| Issued                    Nil (2005 - Nil; 2004 - 50,000) shares in        |   |   |      |   |   |    |   |   |   |   |
| settlement                    of debt                                      |   | $      | —   |   | $      | — |   | $      | 3,634  |   |

----

| **PolyMet                Mining Corp.**                               |
|-----------------------------------------------------------------------|
| **Notes                to Consolidated Financial Statements**         |
| **For                the years ended 31 January 2006, 2005 and 2004** |
| ***U.S.                Funds***                                       |

| **11.** | **Related                Party Transactions**                                                                                                                                                                                                                                                                   |
|---------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |                                                                                                                                                                                                                                                                                                            |
|    | In                addition to transactions disclosed elsewhere in these financial                statements, the Company has conducted transactions with officers,                directors and persons or companies related to directors and paid                or                accrued amounts as follows: |

|                                                               |   | 2006   |    | 2005   |   | 2004    |   |
|--------------------------------------------------------------------|--------|--------|---------|--------|--------|---------|--------|
| Management                fees paid to a company controlled        |   |   |         |   |   |         |   |   |  |   |
| by                the president                                    |   | $      | 129,480 |   | $      | 141,270 |   | $ | 52,388 |   |
| Consulting                fees paid to officers, directors and     |   |   |         |   |   |         |   |   |  |   |
| companies                controlled by directors of the Company    |   |   | 327,110 |   |   | 336,448 |   |   | — |   |
| Legal                fees paid to an officer of the Company        |   |   | 84,089  |   |   | 59,700  |   |   | — |   |
| Office                facilities charges paid to a director of the |   |   |         |   |   |         |   |   |  |   |
| Company                                                            |   |   | 39,604  |   |   | 23,070  |   |   | — |   |
|                                                               |   |   |         |   |   |         |   |   |  |   |
|                                                               |   | $      | 580,283 |   | $      | 560,488 |   | $ | 52,388 |   |

|    |                                                                                                                                                                                                                                                                                |
|---------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **12.** | **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: |

|                                                              |   | 2006   |       | 2005   |   |
|-------------------------------------------------------------------|--------|--------|------------|--------|--------|
| Provision                for recovery of taxes at statutory rates |   | $      | (5,553,036 | )      | $      | (1,372,240 | ) |
| Tax                benefit not recognized on current year losses  |   |   | 1,174,113  |   |   | 747,890 |   |
| Differences                in foreign tax rates                   |   |   | (358,166   | )      |   | (58,267 | ) |
| Non-deductible                items and other                     |   |   | 4,737,089  |   |   | 682,617 |   |
|                                                              |   |   |            |   |   |  |   |
|                                                              |   | $      | —    |   | $      | — |   |

|                                                                    |   | 2006   |        | 2005   |   |
|-------------------------------------------------------------------------|--------|--------|-------------|--------|--------|
| Non-capital                loss carry forwards                          |   | $      | 4,113,715   |   | $      | 2,891,339 |   |
| Unutilized                exploration expenses                          |   |   | 6,438,780   |   |   | 3,910,289 |   |
| Capital                assets                                           |   |   | (6,552      | )      |   | (3,806 | ) |
|                     Total gross future income tax assets |   |   | 10,545,943  |   |   | 6,797,822 |   |
| Less:                valuation allowance                                |   |   | (10,545,943 | )      |   | (6,797,822 | ) |
|                                                                    |   |   |             |   |   |  |   |
|                     Net future income tax allowance      |   | $      | —     |   | $      | — |   |

----

| **PolyMet                Mining Corp.**                               |
|-----------------------------------------------------------------------|
| **Notes                to Consolidated Financial Statements**         |
| **For                the years ended 31 January 2006, 2005 and 2004** |
| ***U.S.                Funds***                                       |

| **12.** | **Income                Taxes -*****Continued***                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|---------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|    | The                Company has income tax loss carry forwards of approximately $4.3                million                in Canada, which may be used to reduce future income taxes otherwise                payable and which expire in the years 2007 to 2016.                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|    | The                Company has income tax loss carry forwards of approximately $6.2                million                in the United States, which may be used to reduce future income taxes                otherwise payable and which expire in the years 2007 to                2026.                                                                                                                                                                                                                                                                                                                                                                                                         |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|    | The                tax benefit of the above noted tax assets have been offset by recognition                of a valuation allowance in these financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| **13.** | **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                companies 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)     | Under                Canadian generally accepted accounting principles, long-term portfolio                investments may be reported at a cost that is in excess of market                value                where it is reasonable to assume that the decline in market value                may be                of a temporary nature. Under U.S. generally accepted accounting                principles, the investments are carried at market value on an individual                basis and the adjustment is credited or charged to comprehensive                income.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|   | b)     | Under                Canadian generally accepted accounting principles, mineral properties                may                be carried at cost and written-off or written-down if the properties                are                abandoned, sold or if management decides not to pursue the properties.                Under U.S. generally accepted accounting principles, the Company                would                periodically review and obtain independent reports in determining                adjustments to the mineral properties and records properties at net                realizable value. The Company has not yet obtained an independent                report                and accordingly for U.S. purposes, the properties have been written                off.                In the past the Company followed the method described above. During                2003,                the Company changed the accounting policy *(Note                2)*,                therefore there are no differences between Canadian and United States                generally accepted accounting                principles. |

----

| **PolyMet                Mining Corp.**                               |
|-----------------------------------------------------------------------|
| **Notes                to Consolidated Financial Statements**         |
| **For                the years ended 31 January 2006, 2005 and 2004** |
| ***U.S.                Funds***                                       |
|                                                                  |
| **13.**                                                               | **Differences                Between Canadian and United States Generally Accepted Accounting                Principles -*****Continued*** |
|                                                                  |   |
|                                                                  | The                effects of the differences in accounting principles on investments,                net                loss and comprehensive loss are as                follows: |

| Investments:                                                              |   |   | 2006       |   |   | 2005       |   |   | 2004       |   |
|---------------------------------------------------------------------------|--------|--------|------------|--------|--------|------------|--------|--------|------------|--------|
| Investments                - Canadian GAAP basis                          |   | $      | 253        |   | $      | 253        |   | $      | 253        |   |
| Adjustment                to market                                       |   |   | (228       | )      |   | (228       | )      |   | (228       | )      |
| Investments                - U.S. GAAP basis                              |   | $      | 25         |   | $      | 25         |   | $      | 25         |   |
|                                                                      |   |   |            |   |   |            |   |   |            |   |
| Accumulated                Comprehensive Loss:                            |   |   |            |   |   |            |   |   |            |   |
| Contra-equity                account for unrealized gains (losses) on     |   |   |            |   |   |            |   |   |            |   |
|                     investments                            |   |   |            |   |   |            |   |   |            |   |
|                   - Canadian GAAP basis                         |   | $      | —    |   | $      | —    |   | $      | —    |   |
| Unrealized                holding gain (loss) on investments              |   |   |            |   |   |            |   |   |            |   |
|                   - Prior years                                 |   |   | (228       | )      |   | (228       | )      |   | (228       | )      |
|                   - Current year                                |   |   | —    |   |   | —    |   |   | —    |   |
| Contra-equity                account for unrealized gains (losses) on     |   |   |            |   |   |            |   |   |            |   |
|                     investments - U.S. GAAP basis          |   | $      | (228       | )      | $      | (228       | )      | $      | (228       | )      |
|                                                                      |   |   |            |   |   |            |   |   |            |   |
| Net                Loss and Comprehensive Loss:                           |   |   |            |   |   |            |   |   |            |   |
|                                                                      |   |   |            |   |   |            |   |   |            |   |
| Net                loss - Canadian and U.S. GAAP basis                    |   | $      | 15,929,537 |   | $      | 3,776,337  |   | $      | 146,800    |   |
| Adjustment                of portfolio investments to market              |   |   | —    |   |   | —    |   |   | —    |   |
| Net                loss and comprehensive loss - U.S. GAAP basis          |   | $      | 15,929,537 |   | $      | 3,776,337  |   | $      | 146,800    |   |
|                                                                      |   |   |            |   |   |            |   |   |            |   |
| Weighted                average number of shares computed under U.S. GAAP |   |   | 73,484,490 |   |   | 53,784,877 |   |   | 38,452,260 |   |
| Loss                per share following U.S. GAAP                         |   | $      | (0.22      | )      | $      | (0.07      | )      | $      | (0.00      | )      |

|   | c)     | Recent                U.S. Accounting Pronouncements, which relate to the Company’s current                operations are summarized as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   |   | In                May 2003, the FASB issued SFAS 150, *"Accounting                for Certain Financial Instruments with Characteristics of both Liabilities                and Equity"*.                SFAS No. 150 establishes standards for classifying and measuring                as                liabilities certain financial instruments that embody obligations                of the                issuer and have characteristics of both liabilities and equity. The                adoption of SFAS 150 did not have a material impact on the Company’s                financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   |   | In                December 2004, the FASB issued SFAS No. 123R, *“Share                Based Payment”*.                SFAS 123R is a revision of SFAS No. 123 *“Accounting                for Stock-Based Compensation”*,                and supersedes APB Opinion No. 25, *“Accounting                for Stock Issued to Employees”*and                its related implementation guidance. SFAS 123R establishes standards                for                the accounting for transactions in which an entity exchanges its                equity                instruments for goods or services. It also addresses transactions                in which                an entity incurs liabilities in exchange for goods or services that                are                based on the fair value of the entity’s equity instruments or that may be                settled by the issuance of those equity instruments. Public entities                that                file as small business issuers will be required to apply SFAS 123R                in the                first interim or annual reporting period that begins after December                15,                2005. The adoption of this standard is not expected to have a material                effect on the Company’s results of operations or financial                position. |

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| **PolyMet                Mining Corp.**                               |
|-----------------------------------------------------------------------|
| **Notes                to Consolidated Financial Statements**         |
| **For                the years ended 31 January 2006, 2005 and 2004** |
| ***U.S.                Funds***                                       |

| **13.** | **Differences                Between Canadian and United States Generally Accepted Accounting                Principles -*****Continued*** |
|---------|--------------------------------------------------------------------------------------------------------------------------------------------|

*“Exchanges      of Non-monetary Assets - An Amendment of APB Opinion No. 29”*
*“Accounting      for Non-monetary Transactions”*
** **

*“Accounting      Changes and Error Corrections,” *
*“Accounting      Changes,” *
*“Reporting      Accounting Changes in Interim Financial Statements - an amendment of APB Opinion      No. 28.” SFAS 154 requires retrospective application to prior periods’ financial      statements of changes in accounting principle, unless it is impracticable to      determine either the period-specific effects or the cumulative effect of the      change. When it is impracticable to determine the period-specific effects of      an      accounting change on one or more individual prior periods presented, SFAS 154      requires that the new accounting principle be applied to the balances of assets      and liabilities as of the beginning of the earliest period for which      retrospective application is practicable and that a corresponding adjustment      be      made to the opening balance of retained earnings for that period rather than      being reported in an income statement. When it is impracticable to determine      the      cumulative effect of applying a change in accounting principle to all prior      periods, SFAS 154 requires that the new accounting principle be applied as      if it      were adopted prospectively from the earliest date practicable. SFAS 154 shall      be      effective for accounting changes and corrections of errors made in fiscal years      beginning after December 15, 2005. The Company does not expect the provisions      of      SFAS 154 will have a significant impact on its results of      operations.*

*Accounting      for Certain Hybrid Financial Instruments, an amendment of FASB Statements No.      133 and 140.” *

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| **PolyMet                Mining Corp.**                               |
|-----------------------------------------------------------------------|
| **Notes                to Consolidated Financial Statements**         |
| **For                the years ended 31 January 2006, 2005 and 2004** |
| ***U.S.                Funds***                                       |

| **13.** | **Differences                Between Canadian and United States Generally Accepted Accounting                Principles -*****Continued*** |
|---------|--------------------------------------------------------------------------------------------------------------------------------------------|

|   | In                March 2006, the FASB issued SFAS 156, *“Accounting                for Servicing of Financial Assets—an amendment of FASB Statement No.                140”*.                This statement amends FASB Statement No. 140, *“Accounting                for Transfers and Servicing of Financial Assets and Extinguishments                of                Liabilities”*,                with respect to the accounting for separately recognized servicing                assets                and servicing liabilities. This statement: (1) requires an entity                to                recognize a servicing asset or servicing liability each time it undertakes                an obligation to service a financial asset by entering into a servicing                contract in any of the following situations: (a) a transfer of the                servicer’s financial assets that meets the requirements for sale                accounting, (b) a transfer of the servicer’s financial assets to a                qualifying special-purpose entity in a guaranteed mortgage securitization                in which the transferor retains all of the resulting securities and                classifies them as either available-for-sale securities or trading                securities in accordance with FASB Statement No. 115, “*Accounting                for Certain Investments in Debt and Equity Securities”, (c)                a*n                acquisition or assumption of an obligation to service a financial                asset                that does not relate to financial assets of the servicer or its                consolidated affiliates; (2) requires all separately recognized servicing                assets and servicing liabilities to be initially measured at fair                value,                if practicable; (3) permits an entity to choose either of the following                subsequent measurement methods for each class of separately recognized                servicing assets and servicing liabilities: (a) *Amortization                method*—Amortize                servicing assets or servicing liabilities in proportion to and over                the                period of estimated net servicing income or net servicing loss and                assess                servicing assets or servicing liabilities for impairment or increased                obligation based on fair value at each reporting date, or (b) *Fair                value measurement method*—Measure                servicing assets or servicing liabilities at fair value at each reporting                date and report changes in fair value in earnings in the period in                which                the changes occur; (4) at its initial adoption, permits a one-time                reclassification of available-for-sale securities to trading securities                by                entities with recognized servicing rights, without calling into question                the treatment of other available-for-sale securities under Statement                115,                provided that the available-for-sale securities are identified in                some                manner as offsetting the entity’s exposure to changes in fair value of                servicing assets or servicing liabilities that a servicer elects                to                subsequently measure at fair value; and (5) requires separate presentation                of servicing assets and servicing liabilities subsequently measured                at                fair value in the statement of financial position and additional                disclosures for all separately recognized servicing assets and servicing                liabilities. An entity should adopt this statement as of the beginning                of                its first fiscal year that begins after September 15, 2006. The adoption                of this standard is not expected to have a material effect on the                Company’s results of operations or financial position. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| **PolyMet                Mining Corp.**                               |
|-----------------------------------------------------------------------|
| **Notes                to Consolidated Financial Statements**         |
| **For                the years ended 31 January 2006, 2005 and 2004** |
| ***U.S.                Funds***                                       |

| **14.** | **Segmented                Information**                                                                                                                                                                                                                                                                                             |
|---------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |                                                                                                                                                                                                                                                                                                                                 |
|    | The                Company is in the pre-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: |

|                                  |   |   |   |   | **Canada** |   |   | **U.S.**   |   |   | **Consolidated** |   |
|---------------------------------------|--------|--------|--------|--------|------------|--------|--------|------------|--------|--------|------------------|--------|
| 2006                                  |   |   |   |   |       |   |   |       |   |   |             |   |
| Segment                operating loss |   |   |   | $      | 4,522,984  |   | $      | 11,406,553 |   | $      | 15,929,537       |   |
| Identifiable                assets    |   |   |   | $      | 11,654,116 |   | $      | 14,381,120 |   | $      | 26,035,236       |   |
|                                  |   |        |   |   |            |   |   |            |   |   |                  |   |
| 2005                                  |   |   |   |   |            |   |   |            |   |   |                  |   |
| Segment                operating loss |   |   |   | $      | 1,920,706  |   | $      | 1,855,631  |   | $      | 3,776,337        |   |
| Identifiable                assets    |   |   |   | $      | 1,364,099  |   | $      | 986,065    |   | $      | 2,350,164        |   |

| **15.** | **Subsequent                Events**                                                                                                                                                                        |
|---------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |                                                                                                                                                                                                        |   |
|    | In                addition to items disclosed elsewhere in these financial statements,                the                Company conducted the following transactions after 31 January                2006: |
|    |                                                                                                                                                                                                        |   |
|    | a)                                                                                                                                                                                                          | The                Company issued 6,141,573 common shares pursuant to the exercise of                share                purchase warrants at a prices between CDN$0.20 and CDN$1.25 per                share; |
|    |                                                                                                                                                                                                        |   |
|    | b)                                                                                                                                                                                                          | The                Company issued 1,045,000 common shares pursuant to the exercise of                stock                options at prices ranging from CDN$0.10 to CDN$1.36; |
|    |                                                                                                                                                                                                        |   |
|    | c)                                                                                                                                                                                                          | The                Company granted 3,200,000 stock options to directors, officers,                consultants and employees at a price of CDN$2.76; and |
|    |                                                                                                                                                                                                        |   |
|    | d)                                                                                                                                                                                                          | The                Company provided notice on 10 April 2006 to the outstanding warrants                holders of approximately 9.7 million warrants at prices between CDN$1.25                and CDN$2.00 that the accelerated expiry provision of their warrants                was                effectively triggered and all unexercised warrants as at the close                of                business on 10 May 2006 will have been deemed                cancelled. |

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| **PolyMet                Mining Corp.**                               |
|-----------------------------------------------------------------------|
| **Notes                to Consolidated Financial Statements**         |
| **For                the years ended 31 January 2006, 2005 and 2004** |
| ***U.S.                Funds***                                       |
|                                                                  |

| **16.** | **Contingent                Liabilities and Commitments** |
|---------|-----------------------------------------------------------|
|    |                                                      |   |
|    | a)                                                        | The                Company has instituted a share bonus plan as part of its employment,                management and consulting contracts for key management and project                personnel. This bonus plan adds incentive for key personnel to reach                certain prescribed milestones required to reach commercial production                at                the NorthMet Project. As at 31 July 2005, the Company had received                shareholder approval of the Bonus Shares for Milestones 1 - 4 and                regulatory approval for Milestones 1 and 2. Milestones 3 and 4 are                subject                to regulatory approval, which will be sought when the Company is                closer to                completing these Milestones. To date 1,590,000 shares have been issued                for                the achievement of Milestone 1. The bonus shares allocated for Milestones                1 thru 4 are valued using the Company’s closing trading price on 5                November 2003 of CDN$0.19 per share, the date of the approval of                the bonus                plan by the board of directors. |
|    |                                                      |   |
|    |                                                      | The                summary of the share bonus plan is as                follows: |

|   |                       | Bonus                Shares |                                                               |
|--------|----------------------------|-----------------------------|--------------------------------------------------------------------|
|   | Milestone                1 | 1,590,000                   | (i)                issued –*Statement                2* |
|   | Milestone                2 | 1,300,000                   | (ii)                                                               |
|   | Milestone                3 | 2,400,000                   | (iii)                                                              |
|   | Milestone                4 | 3,240,000                   | (iv)                                                               |

|   | (i)    | Milestone                1 –Completion of an agreement with Cliffs-Erie LLC for the option to                purchase of Cliffs-Erie facility to be used as a part of mining and                processing operations for the NorthMet Project. This milestone was                achieved on 16 February 2004 and therefore, during the year ended                31                January 2006, the Company accrued a CDN$302,100 (US$233,856) bonus                as                consulting fees and allotted 1,590,000 shares. These shares were                issued in                March 2005. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   | (ii)   | Milestone                2 – Negotiation and completion of an off-take agreement with a senior                metals producer for the purchase of raw materials to be produced                from the                NorthMet Project.                                                                                                                                                                                                                                                                                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   | (iii)  | Milestone                3 –Completion of a “bankable feasibility study” which indicates that                commercial production from the NorthMet Project is                viable.                                                                                                                                                                                                                                                                                                                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   | (iv)   | Milestone                4 – Commencement of commercial production at the NorthMet Project at                a time when the company has not less than 50% ownership                interest.                                                                                                                                                                                                                                                                                                                                                                                                            |

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| **PolyMet                Mining Corp.**                               |
|-----------------------------------------------------------------------|
| **Notes                to Consolidated Financial Statements**         |
| **For                the years ended 31 January 2006, 2005 and 2004** |
| ***U.S.                Funds***                                       |

| **16.** | **Contingent                Liabilities and Commitments*****Continued*** |
|---------|--------------------------------------------------------------------------|
|    |                                                                     |   |
|    | b)                                                                       | As                a part of certain employment and management contracts, the Company                has                agreed to severance allowances for key employees and management in                the                event of a take-over bid. |
|    |                                                                     |   |
|    |                                                                     | These                allowances are based upon the Company’s implied market capitalization at                the time of the take-over bid, calculated by multiplying the number                of                shares outstanding on a fully diluted basis by the take-over bid                price per                share. The severance payments would be as                follows: |

| Market                Capitalization              |   |   | Total                Severance Payments Required |   |
|---------------------------------------------------|--------|--------|--------------------------------------------------|--------|
| Less                than CDN$50 million           |   |   | CDN$Nil                                          |   |
| Between                CDN$50 and CDN$75 million  |   |   | CDN$200,000                                      |   |
| Between                CDN$75 and CDN$100 million |   |   | CDN$400,000                                      |   |

|   |   | Thereafter                severance payments increase by CDN$600,000 for every additional CDN$25                million of implied market capitalization, with no                maximum.                                                                                                                                                                                                                                                                                                                            |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   | c)     | Pursuant                to the Company’s Asset Purchase Agreement with Cliffs (Note 6), for as                long as Cliffs owns 1% or more of the Company’s issued shares, Cliffs will                have the right to participate on a pro-rata basis in future cash                equity                financings. This agreement will also include a first right of refusal                in                favour of the Company should Cliffs wish to dispose of its                interest. |

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