---

UNITED STATESSECURITIES AND
EXCHANGE COMMISSIONWASHINGTON, D.C. 20549

FORM 20-F

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

OR

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

For the fiscal year ended January 31, 2015

OR

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

OR

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

Commission file number 001-32929

POLYMET MINING CORP.(Exact name of Registrant as specified in its charter)

British Columbia, Canada(Jurisdiction of
incorporation or organization)

Suite 5700  100 King Street West, Toronto, Ontario M5X 1C7(Address of principal executive offices)

Douglas Newby c/o Poly Met Mining Inc.444 Cedar
Street, Suite 2060 St Paul, Minnesota 55101 Tel:
651-389-4100 Fax: 651-389-4101E-mail: dnewby@polymetmining.com(Name,
telephone, e-mail and/or facsimile number and address of Company contact
person)

Securities registered or to be registered pursuant to Section
12(b) of the Act: Common Shares, without par value(Title of
Class)

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Name of each exchange on which registered

NYSE MKT TSX

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

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

Indicate the number of outstanding shares of each of the
issuer's classes of capital or common stock as of the close of the period
covered by the annual report. 276,351,374

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

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

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

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

Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated filer. See
definition of accelerated filer and large accelerated filer in Rule 12b-2 of
the Exchange Act. (Check one)

|Large accelerated filer [   ] | Accelerated filer [X] | Non-accelerated filer [   ]
|----------------------------- | --------------------- | ---------------------------

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

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

If Other has been checked in response to the previous
question, indicate by check mark which financial statement item the registrant
has elected to follow. Item 17 [   ]     
Item 18 [   ]

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

2

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TABLE OF CONTENTS

|Part I          |                                                                                         |   
|--------------- | --------------------------------------------------------------------------------------- | --
|                |                                                                                         |   
|ITEM
      1.   | IDENTITY
      OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS                             | 5 
|ITEM
      2.   | OFFER
      STATISTICS AND EXPECTED TIMETABLE                                           | 5 
|ITEM
      3.   | KEY
      INFORMATION                                                                   | 5 
|ITEM
      4.   | INFORMATION
      ON THE COMPANY                                                        | 13
|ITEM
      5.   | OPERATING
      AND FINANCIAL REVIEW AND PROSPECTS                                      | 27
|ITEM
      6.   | DIRECTORS,
      SENIOR MANAGEMENT AND EMPLOYEES                                        | 36
|ITEM
      7.   | MAJOR
      SHAREHOLDERS AND RELATED PARTY TRANSACTIONS                                 | 40
|ITEM
      8.   | FINANCIAL
      INFORMATION                                                             | 44
|ITEM
      9.   | THE
      OFFER AND LISTING                                                             | 45
|ITEM
      10.  | ADDITIONAL
      INFORMATION                                                            | 46
|ITEM
      11.  | QUANTITATIVE
      AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK                         | 56
|ITEM
      12.  | DESCRIPTION
      OF SECURITIES OTHER THAN EQUITY SECURITIES                            | 56
|                |                                                                                         |   
|Part II         |                                                                                         |   
|                |                                                                                         |   
|ITEM
      13.  | DEFAULT,
      DIVIDEND ARREARAGES AND DELINQUENCIES                                    | 57
|ITEM
      14.  | MATERIAL
      MODIFICATIONS TO THE RIGHT OF SECURITY HOLDERS AND USE OF
      PROCEEDS | 57
|ITEM
      15.  | CONTROLS
      AND PROCEDURES                                                           | 58
|ITEM
      16A. | AUDIT
      COMMITTEE FINANCIAL EXPERT                                                  | 59
|ITEM
      16B. | CODE
      OF ETHICS                                                                    | 59
|ITEM
      16C. | PRINCIPAL
      ACCOUNTANT FEES AND SERVICES                                            | 59
|ITEM
      16D. | EXEMPTIONS
      FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES                        | 60
|ITEM
      16E. | PURCHASES
      OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS            | 60
|ITEM
      16F. | CHANGES
      IN REGISTRANT'S CERTIFYING ACCOUNTANT                                     | 60
|ITEM
      16G. | CORPORATE
      GOVERNANCE                                                              | 60
|ITEM
      16H. | MINE
      SAFETY DISCLOSURE                                                            | 60
|                |                                                                                         |   
|Part III        |                                                                                         |   
|                |                                                                                         |   
|ITEM
      17.  | FINANCIAL
      STATEMENTS                                                              | 61
|ITEM
      18.  | FINANCIAL
      STATEMENTS                                                              | 61
|ITEM
      19.  | EXHIBITS                                                                                | 62

Financial Statements:

Management
      Report
    F-1Independent
      Auditor's Report
    F-2Consolidated Balance Sheets
    F-4Consolidated Statements of Loss and Comprehensive Loss
    F-5Consolidated Statements of Changes in Shareholders’
    Equity
    F-6Consolidated Statements of Cash Flows
    F-7Notes to Consolidated Financial Statements
    F-8


3

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

-
    completion of environmental review on the
      expected timeframe;-
    obtaining permits on a timely basis;-
    our ability to raise the funds necessary to
      develop the NorthMet Project;-
    our ability to execute prospective business
      plans;-
    changes in the general economic and business
      conditions, including changes in interest rates and exchange rates;-
    changes in the resources market, including
      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; and-
    future decisions by management in response to
      changing conditions.


All forward-looking statements included in this Annual Report
are based on information available to us on the date of this Annual Report. We
expressly disclaim any obligation to update publicly or otherwise these
statements, whether as a result of new information, future events or otherwise
except to the extent required by law, rule or regulation. You should not place
undue reliance on forward-looking statements. You should carefully review the
cautionary statements and risk factors contained in this and other documents
that we file from time to time with the Securities and Exchange Commission (the
SEC).

NOMENCLATURE

In this Annual Report, unless the context otherwise dictates,
we, our, us, PolyMet or the Company refers to PolyMet Mining Corp. and
its subsidiaries.

4

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PART I

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND
ADVISORS

Not required.

ITEM 2. OFFER STATISTICS AND EXPECTED
TIMETABLE

Not required.

ITEM 3. KEY INFORMATION

|A. | Selected Financial Data
|-- | -----------------------

The following selected financial data, as at January 31, 2015,
2014, 2013, 2012, and 2011 and for the years ended January 31, 2015, 2014, 2013,
2012, and 2011 are derived from our audited consolidated financial statements
included herein and filed previously. The selected financial data should be read
in conjunction with Item 5 - Operating and Financial Review and Prospects, the
consolidated financial statements and related notes of the Company included
under Item 18  Financial Statements" and other financial information included
elsewhere in this Annual Report.

Our consolidated financial statements have been prepared in
accordance with International Financial Reporting Standards (IFRS) as issued
by the International Accounting Standards Board (IASB), effective with our
transition to IFRS on February 1, 2010.

Unless otherwise indicated, all monetary amounts in this Annual
Report are expressed in United States dollars, our reporting currency.

Selected Financial Data  IFRS ($'000s, except loss per
share and weighted average shares)

Year
    
    
    Year
    
    
    Year
    
    
    Year
    
    
    YearEnded
    
    
    Ended
    
    
    Ended
    
    
    Ended
    
    
    Ended1/31/2015
    
    
    1/31/2014
    
    
    1/31/2013
    
    
    1/31/2012
    
    
    1/31/2011Operating Revenues
    $
    
    
    $
    
    
    $
    
    
    $
    
    
    $
    Income (loss) from Operations
    $
    
    
    $
    
    
    $
    
    
    $
    
    
    $
    Net Loss
    $
    (7,276
    )
    $
    (8,132
    )
    $
    (6,626
    )
    $
    (3,045
    )
    $
    (6,662
    )Basic & Diluted Loss Per Share
    $
    (0.03
    )
    $
    (0.04
    )
    $
    (0.04
    )
    $
    (0.02
    )
    $
    (0.04
    )Dividends Per Share
    $
    
    
    $
    
    
    $
    
    
    $
    
    
    $
    Weighted Average Shares
    
    275,726,953
    
    
    236,303,304
    
    
    178,949,306
    
    
    160,358,498
    
    
    149,444,955Working Capital
    $
    (31,672
    )
    $
    (1,872
    )
    $
    2,629
    
    $
    16,375
    
    $
    4,199Net Assets
    $
    192,376
    
    $
    196,332
    
    $
    142,912
    
    $
    132,366
    
    $
    102,417Total Assets
    $
    313,229
    
    $
    287,525
    
    $
    236,127
    
    $
    189,571
    
    $
    156,736Share Capital (includes Share Capital
      Premium)
    $
    244,496
    
    $
    243,337
    
    $
    184,222
    
    $
    170,566
    
    $
    143,248


|B. | Capitalization and
Indebtedness
|-- | -------------------------------

Not Applicable

|C. | Reasons for the Offer and Use of
  Proceeds
|-- | -------------------------------------------

Not Applicable

5

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|D. | Risk Factors
|-- | ------------

Our business is subject to many risks and uncertainties,
which may affect our future financial performance. If any of the events or
circumstances described below occurs, our business and financial performance
could be harmed, our actual results could differ materially from our
expectations and the market value of our securities could decline. The risks and
uncertainties discussed below are not the only ones we face. There may be
additional risks and uncertainties not currently known to us or that we
currently do not believe are material that may harm our business and financial
performance.

RISKS RELATING TO OUR BUSINESS

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

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

| | we may encounter delays or higher than expected
      costs completing the environmental review process necessary before
      construction and operating permits can be issued;
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | delays in the issuance of permits after
      completion of the environmental review process;                                                                                   
| | delays or higher than expected costs in
      obtaining the necessary equipment or services to build and operate our
      projects; and                                        
| | adverse mining conditions may delay and hamper
      our ability to produce the expected quantities of minerals.                                                                

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

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

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

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

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

6

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Compliance with statutory environmental quality requirements
described above may require significant capital outlays, significantly affect
our earning power, or cause material changes in our intended activities.
Environmental standards imposed by federal, state, or local governments may be
changed or become more stringent in the future, which could materially and
adversely affect our proposed activities.

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

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

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

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

We are dependent on our key personnel.

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

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

We will need to seek additional financing to complete our
development and construction of the NorthMet Project. Sources of such external
financing include future equity and debt offerings, advance payments by
potential customers to secure long-term supply contracts, grants and low-cost
debt from certain state financial institutions, and commercial debt secured by
the NorthMet Project. If we cannot raise the money necessary to continue to
explore and develop our property, we will have to suspend or cease operations.

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

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

The development of mineral deposits involves uncertainties,
which careful evaluation, experience, and knowledge cannot eliminate. Few
properties explored are ultimately developed into producing mines. It is
impossible to ensure that the current development program we have planned will
result in a profitable commercial mining operation.

7

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We are subject to all the risks inherent to the mining
industry, which may have an adverse affect on our business operations.

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

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

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

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

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

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

8

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

While we were incorporated in 1981, we have no history of
producing minerals. We have not developed or operated any mines and we have no
operating history upon which an evaluation of our future success or failure can
be made. We currently have no mining operations of any kind. Our ability to
achieve and maintain profitable mining operations is dependent upon a number of
factors, including our ability to successfully build and operate mines,
processing plants and related infrastructure ourselves. We may not successfully
establish mining operations or profitably produce metals at any of our
properties. As such, we do not know if we will ever generate revenues.

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

As a development stage company with no holdings in any
producing mines, we continue to incur losses and expect to incur losses in the
future. As at January 31, 2015, we had an accumulated deficit of $103.8 million.
We may not be able to achieve or sustain profitability in the future. If we do
not begin to generate revenues we may either have to suspend or cease
operations.

We have prepared our consolidated financial statements on a
going concern basis, which contemplates the realization of assets and the
settlement of liabilities in the normal course of operations.

We currently have negative cash flow from operating activities
and cannot predict if or when we will operate profitably to generate positive
cash flows. We have taken steps to fund our operations through the issuance of
equity and debt. We plan to meet our financial obligations to the point at which
all regulatory approvals for our NorthMet Project have been obtained and which
will allow us to raise capital to construct our mine and commence commercial
production.

Since transitioning to a development stage entity in September
2006 we have raised $177 million in equity, $45 million of initial principal
debt of which $25 million is exchangeable into equity upon receipt of permits
necessary to build and operate our NorthMet Project, $4 million is secured by
land acquired with proceeds from the loan and $16 million initial draw under a
$30 million loan facility secured by our assets.

We will need to raise sufficient funds to meet our current
obligations as well as fund ongoing development, capital expenditures and
administration expenses, in accordance with our spending plans for the next
year. While in the past the Company has been successful in closing financing
agreements with Glencore AG, a wholly owned subsidiary of Glencore plc (together
Glencore) and other parties, there can be no assurance it will be able to do
so again in the future. Factors that could affect the availability of financing
include the state of international debt and equity markets, investor perceptions
and expectations and the global metals markets.

We anticipate that we will be able to reach an agreement with Glencore  to either extend the term of $25 million initial principal debentures convertible into our common shares at $1.2920 per share that are currently due on September 30, 2015 or convert on or before that date even if the conditions under which we could call for conversion have not been met.  If, however, no such agreement is reached, we would have to repay approximately $34 million (including capitalized interest) and we do not currently have sufficient working capital to cover repayment and therefore would have to raise additional funding.

9

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

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

| | industrial accidents;                      
|- | -------------------------------------------
| | railroad accidents;                        
| | labor disputes;                            
| | environmental hazards;                     
| | electricity stoppages;                     
| | equipment failures; and                    
| | severe weather and other natural phenomena.

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

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

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

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

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

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

Market events and conditions in recent years, including
disruptions in the international credit markets and other financial systems and
the deterioration of global economic conditions could impede our access to
capital or increase the cost of capital. These disruptions in the credit and
financial markets have had a significant material adverse impact on a number of
financial institutions and have limited access to capital and credit for many
companies, including us. These disruptions could, among other things, make it
more difficult for us to obtain, or increase our cost of obtaining capital and
financing for our operations.

10

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RISKS RELATED TO THE OWNERSHIP OF OUR COMMON SHARES

We may experience volatility in our share price.

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

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

Our shares that are eligible for future sale may have an
adverse effect on the price of our common shares. As at January 31, 2015 there
were 276,351,374 of our common shares outstanding. The average trading volume
for the three months prior to January 31, 2015 was approximately 21,000 shares
per day on the TSX and 163,000 shares per day on the NYSE MKT. Sales of
substantial amounts of our common shares, or a perception that such sales could
occur, and the existence of options or warrants to purchase common shares and
debt convertible into common shares at prices that may be below the then current
market price of our common shares, could adversely affect the market price of
our common shares and could impair our ability to raise capital through the sale
of our equity securities.

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

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

Under our 2007 Omnibus Share Compensation Plan, as amended and
restated (Omnibus Plan), the aggregate number of share options, restricted
shares, restricted share units, and other share-based awards is restricted to
10% of our issued and outstanding common shares on the grant date, excluding
2,500,000 common shares pursuant to an exemption approved by the Toronto Stock
Exchange.

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

A Shareholders Rights Plan was approved in May 2004, modified
and further ratified and reconfirmed by shareholders most recently in July 2013.
Under the Shareholders Rights Plan, if a shareholder individually or in concert
with other shareholders acquires 20% or more of our outstanding common shares
without complying with the Shareholders Rights Plan or without the approval of
our Board of Directors, all holders of record will have a right to one common
share for each common share owned. We have also entered into agreements with
certain key employees and officers that contain severance provisions in the
event of a take-over bid. The Shareholders Rights Plan and the preceding
agreements may make it more difficult for a third party to acquire control of
us, even if such a change of control is more beneficial to shareholders.

11

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

Because we believe that we will be classified as a PFIC, U.S.
holders of our common shares may be subject to United States federal income tax
consequences that are worse than those that would apply if we were not a PFIC,
such as ordinary income treatment plus a charge in lieu of interest upon a sale
or disposition of our common shares even if the shares were held as a capital
asset. See further discussion in Item 10(E).

Absence of Dividends.

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

12

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ITEM 4. INFORMATION ON THE COMPANY

|A. | History and Development of the
  Company
|-- | ----------------------------------------

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

Our corporate office is located at 100 King Street West, Suite
5700, Toronto, ON M5X 1C7, Canada and our principal executive office of our
wholly owned Minnesota subsidiary, Poly Met Mining, Inc. (PMI), is located at
444 Cedar Street, Suite 2060, St. Paul, MN 55101, USA. Our registered and
records office is located at our legal counsels offices situated at 2500  700
West Georgia Street, Vancouver, B.C. V7Y 1B3, Canada. Our operational
headquarters is located at 6500 County Road 666, Hoyt Lakes, MN 55750-0475,
USA.

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

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

During the years ended January 31, 2015, 2014, and 2013 we made
net cash investments of $27.253 million, $25.523 million, and $18.404 million,
respectively to acquire property, and advance the environmental review and
permitting of our NorthMet Project.

All of these expenses were incurred at our NorthMet Project and
were funded from the proceeds of equity and debenturefinancings.
Since completion of the Definitive Feasibility Study (DFS) in September 2006,
these expenditures and the Erie Plant acquisition have been capitalized.

|B. | Business Overview
|-- | -----------------

We are a development stage company engaged in the exploration
and development of natural resource properties. Currently our sole mineral
property is the NorthMet Project, which comprises the NorthMet
copper-nickel-precious metals ore body and the Erie Plant, a large processing
facility located approximately six miles from the ore body in the established
mining district of the Mesabi Iron Range in northeastern Minnesota, USA.

In the years ended January 31, 2015, 2014, and 2013, we
conducted exploration, development and acquisition activities only and did not
conduct any operations that generated revenues. Thus, we rely principally on
equity or debt to fund our projects and expenditures.

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

Advancing the NorthMet ore body.
The NorthMet ore body is at the western end of a series of known
copper-nickel-precious metals deposits in the Duluth Complex, Completion of the
DFS in 2006 established proven and probable reserves, positioning NorthMet as
the most advanced of the four advanced projects in the Duluth Complex: namely,
from west to east NorthMet, Mesaba, Serpentine, and Nokomis.

Acquisition of the Erie Plant.
The Erie Plant is a large processing facility and associated infrastructure
located approximately six miles west of our NorthMet ore body that we acquired
through three Contracts for Deed with Cliffs Erie LLC, a subsidiary of Cliffs
Natural Resources Inc. (Cliffs). The Erie
Plant facility comprises a 100,000 ton-per-day crushing and milling facility, a
railroad and railroad access rights connecting the Erie Plant to the NorthMet
ore body, tailings facilities, 120 railcars, locomotive fueling and maintenance
facilities, water rights and pipelines, large administrative offices on site and
approximately 6,000 acres to the east and west of and contiguous to the existing
tailing facilities. As partial consideration, we have agreed to indemnify Cliffs
for the reclamation and remediation obligations of the acquired property. See
additional discussion in section 4(D)(c)(ii).

13

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Environmental Review and
Permitting. We are seeking to obtain permits to construct and operate our
NorthMet Project. Our NorthMet Project is subject to extensive environmental
review under both state and federal regulations before permits can be issued to
allow construction and operation of the Project. The environmental review
process started in 2004 and we believe it is nearing completion.

The environmental review and permitting process is managed by the regulatory agencies and, therefore, timelines are not under our control.  We anticipate that the final EIS will be published in the state Environmental Quality Board (EQB) Monitor and the Federal Register in the summer of 2015 and we expect to submit permit applications around the same time.  We further expect that, under state guidelines, there should be decisions on state permits within 150 days of the applications being submitted and Records of Decision on the federal 404 Wetland Permit and the land exchange before the end of 2015.

See additional discussion in section
4(D)(d).

Engineering and feasibility.In
September 2006 Bateman Engineering Pty Ltd of Brisbane, Australia (Bateman)
published a DFS that confirmed the economic and technical viability of our
NorthMet Project, enabling us to transition to a development stage entity.

Since 2006 we have made numerous
process and project improvements, including extensive environmental controls
designed to reduce and mitigate the environmental impact of the Project. Our
plan is to develop a new open pit mine at our NorthMet ore body, use existing
rail infrastructure to move the run-of-mine rock to the Erie Plant, where we
will reuse existing and new equipment to produce a copper concentrate and a
nickel bulk concentrate. We are also seeking permits to build and operate a new
hydrometalurgical facility to upgrade the nickel bulk concentrate to
nickel-cobalt hydroxide and a precious metals precipitate, with copper
recombined into the copper concentrate.

We plan to complete a Definitive Cost
Estimate and Project Update in the next several months, which will incorporate
these changes. The Project Update will include detailed capital and operating
costs reflecting the advanced stage of engineering and design.

See additional discussion in section
4(D)(g).

Financing and corporate
development. Since transitioning to a development stage entity in September
2006 we have raised $177 million in equity, $45 million of initial principal
debt of which $25 million is exchangeable into equity upon receipt of permits
necessary to build and operate our NorthMet Project, $4 million is secured by
land acquired with proceeds from the loan and $16 million initial draw under a
$30 million loan facility secured by our assets.

Prior to receipt of permits, we will
seek to secure construction debt financing that would be available upon receipt
of key permits, with construction and ramp-up to commercial production
anticipated to take approximately 21 months.

See additional discussion in section
5(b).

14

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|C. | Organizational Structure
|-- | ------------------------

Poly Met Mining, Inc., incorporated in Minnesota, USA on
February 16, 1989, is our only material, wholly owned operating subsidiary.

|D. | Property, Plant and
Equipment
|-- | -----------------------------

Mineral Property - NorthMet Project, Minnesota, USA

Our primary mineral property is the NorthMet Project, which
comprises the NorthMet copper-nickel-precious metals ore body and the nearby
Erie Plant facilities.

In the years ended January 31, 2015, 2014, and 2013, we
conducted exploration, development and acquisition activities only and did not
conduct any operations.

|(a) | History
|--- | -------

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

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

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

In the mid-90s, we began investigating the use of alternative
metallurgical processes, including bio-leaching and pressure oxidation. In 1998
we focused on a hydrometallurgical technology that uses autoclaves, which are
vessels operating at high temperature, high pressure, and in an oxygen-enriched
environment, to oxidize the sulfidic ores and leach the metals therein. This
technology was developed in the 1950s and has been used commercially in the
copper, nickel, cobalt, and gold mining industries since the 1980s.

Following completion of metallurgical pilot plant work we
commissioned a pre-feasibility study on the Project that was completed in 2001.
The pre-feasibility study contemplated a 50,000 metric tonne-per-day (55,000
short tpd) operation and anticipated the construction of a new, stand-alone
processing plant to produce copper, nickel and cobalt metals on site. The study
found the economics of the NorthMet Project were unacceptably low owing to the
capital cost of building a new plant facility combined with low metal prices
prevailing at that time.

15

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In March 2003 a new management team took over our Company and
commenced a detailed review of the Project. The new management team believed
that acquisition of the Erie Plant had the potential to substantially reduce the
capital cost and to simplify the permitting process.

The Erie Plant facility includes land, crushing and milling
equipment, extensive spare parts, plant site buildings, real estate, tailings
impoundments and workshops, access to extensive mining infrastructure, a
railroad connection to the site of the NorthMet ore body, a 120-railcar fleet,
locomotive fueling and maintenance facilities, water rights and pipelines, large
administrative offices on site and approximately 6,000 acres to the east and
west of and contiguous to our existing tailings facilities. We also agreed to
indemnify Cliffs for the reclamation and remediation obligations of the acquired
property.

The consideration paid for the Erie Plant and associated
infrastructure was $18.9 million in cash and 9,200,547 shares at a fair value of
$13.953 million.

See additional discussion in section 4D(c)(ii).

Since inception, we have a cumulative deficit of $103.8
million, much of which has been incurred directly and indirectly in connection
with our NorthMet Project. These expenditures supported drilling, sampling,
assaying, environmental, metallurgical testing, and the pre-feasibility
studies.

Figure No. 1 NorthMet Project Location Map



16

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|(b) | Location / Access /
Climate
|--- | ---------------------------

The NorthMet Project covers a total of approximately 16,700
acres or 25.9 square miles comprising two areas: the NorthMet mine site totaling
approximately 4,300 acres or 6.5 square miles of leased mineral rights and the
Erie Plant site totaling approximately 12,400 acres or 19.4 square miles of
freehold land located approximately six miles west of the mine site. The
property is located in St. Louis County in the Mesabi Iron Range mining district
about 60 miles north of Duluth, Minnesota. The NorthMet Project is easily
accessible via state and county roads. The surfaced County Highway 666 links the
plant to the town of Hoyt Lakes, itself approximately 25 miles east of Virginia,
Minnesota which is located on State Highway 53. The mine site is accessible by
an all-season gravel road from the plant site and a private railroad crosses the
property immediately south of the deposit and runs to the plant site. The plant
site is serviced by commercial railroad which connects into the US national and
Trans-Canadian railroad systems, as well as a private railroad providing access
to port facilities located on Lake Superior. High-voltage power lines owned by
Minnesota Power supply the plant site and there is ready access to industrial
electric power at the mine site.

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

|(c) | Claims and ownership
|--- | --------------------

(i) NorthMet Leases

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

| |  | Pursuant to an agreement dated January 4, 1989,
      subsequently amended and assigned, we lease 4,162 acres from RGGS Land
      & Minerals Ltd., L.P (RGGS). The initial term of the perpetually
      renewable lease was 20 years and called for total lease payments of $1.475
      million. We can, at our option, terminate the lease at any time by giving
      written notice to the lessor not less than 90 days prior to the effective
      termination date or can indefinitely extend the term by continuing to make
      $150,000 annual lease payments on each successive anniversary date. All
      lease payments have been paid or accrued to January 31, 2015. The next
      payment is due in January 2016.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |   | 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 per ton received by the Company. Our recovery of $2.375 million in advance
      royalty payments is subject to the lessor receiving an amount not less
      than the amount of the annual lease payment due for that year.                                                                                                                                                                                                                                                                                       
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |  | Pursuant to an agreement effective December 1,
      2008, we lease 120 acres from LMC Minerals. The initial term of the
      renewable lease is 20 years and calls for minimum annual lease payments of
      $3,000 for the first four years after which the minimum annual lease
      payment increased to $30,000. The initial term may be extended for up to
      four additional five-year periods on the same terms. All lease payments
      have been paid or accrued to January 31, 2015. The next payment is due in
      November 2015.                                                                                                                                                                                  
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |   | The lease payments are considered advance
      royalty payments and will be deducted from future production royalties
      payable to the lessor, which range from 3% to 5% based on the net smelter
      return per ton received by the Company. Our recovery of $0.099 million in 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.                                                                                                                                                                                                                                                                                        

17

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| | Pursuant to these leases, we hold mineral
      rights and the right to mine upon receiving the required permits. We have
      proposed to acquire surface rights through a land exchange with the USFS.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

(ii) The Erie Plant

The Erie Plant comprises a large
crushing, grinding and milling facility that was built by a consortium of steel
companies in the mid-1950s and processed low grade iron ore known as taconite
that was transported to the facility by railroad from nearby mines. In the
mid-1980s, the consortium was consolidated into a single owner  LTV Steel.
Pickands, Mather and Company and its successor Cliffs operated the plant on
behalf of the owners, processing approximately 100,000 tons per day of taconite
ore. The plant was shut down in 2001 after LTV Steel filed for bankruptcy
protection. Since then it has been maintained initially by Cliffs and, since
November 15, 2005, by us. The plant did not operate during the 12 months ended
January 31, 2015.

The plant is located approximately six
miles west of our NorthMet ore body, about five miles north-northwest of the
town of Hoyt Lakes, itself located about 25 miles west of Virginia, Minnesota.
The plant site covers approximately 12,400 acres, or 19.4 square miles, and is
powered by electricity from local power lines. Established plant infrastructure
includes a 225 MVA high voltage electrical substation, water supply, roads,
tailings basins and rail facilities. We also acquired a 120-railcar fleet,
locomotive fueling and maintenance facilities, water rights and pipelines, and
large administrative offices on site.

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

By a Memorandum of Understanding in
December 2003 and an option agreement in February 2004, we obtained the right to
acquire certain property, plant, and equipment located near our NorthMet ore
body from Cliffs, including the Erie Plant. As consideration for the option, we
paid $0.500 million and issued to Cliffs 1,000,000 of our common shares valued
at $0.229 million to maintain our exclusive rights until June 30, 2006.

In November 2005 we exercised our
option and agreed to pay Cliffs $1.0 million in cash, 6,200,547 million of our
common shares valued at $7.564 million, and $2.4 million plus interest at 4% per
annum in quarterly payments of $250,000 starting in March 2006.

In September 2006, we entered into an
agreement through two separate contracts for deed with Cliffs whereby we would
acquire additional property and associated rights (Cliffs II) for 2,000,000 of
our common shares valued at $6.160 million, $1.0 million in cash and two notes
each for $7.0 million. We repaid the two $7 million notes plus accrued interest
in December 2011.

As set forth under the Asset Purchase
Agreement, we have indemnified Cliffs for reclamation and remediation
obligations in connection with acquired property. Once we obtain our permit to
mine and Cliffs is released from its obligations by certain state agencies, we
will be directly obligated to comply with applicable obligations. Until
operating permits are granted to us, Cliffs remains the Regulated Party for
such obligations.

On January 28, 2010, Cliffs received a
notice of intent to sue pursuant to Section 505 of the Clean Water Act on behalf
of the Center for Biological Diversity, Save Lake Superior Association and the
Indigenous Environmental Network. Pursuant to the notice, these environmental
groups intended to file a lawsuit in Federal court for alleged violations by
Cliffs of National Pollutant Discharge Elimination System ("NPDES") permits at
three separate locations on the Cliffs Erie property.

In 2010 Cliffs entered a consent decree
with the Minnesota Pollution Control Agency (MPCA) under which it is obligated
to proceed with both short and long-term mitigation of the alleged violations.
As the indemnifying party, we are working closely with Cliffs on fulfillment of
Cliffs obligations under the consent decree. Field study activities were
completed in 2010 and 2011 and short-term mitigations were initiated in 2011, as
outlined in the plans and approved by the MPCA. Long-term mitigation plans were
submitted to the MPCA in April of 2012. In October 2012, a response was received
from the MPCA approving plans for pilot tests of various treatment options to
determine the best course of action.

18

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As at January 31, 2015 we estimate the
total reclamation and remediation liability to be approximately $72.6 million in
present day costs and, based on the expected timing of such payments, our cost
of capital, and anticipated inflation rates, we made a provision of $72.3
million in our financial statements at that date.

This is our best estimate of the future
liability. However, there is substantial uncertainty related to the long-term
mitigation plan implementation cost as a result of uncertainty about applicable
water quality standards, engineering scope, and responsibility for the financial
liability. Outcomes that are unfavorable to us could result in material
additional liability.

|(d) | Environmental Review and
  Permitting
|--- | -------------------------------------

Under the Minnesota Environmental Policy Act (MEPA) and the
National Environmental Policy Act (NEPA), state and federal agencies are
required to complete an EIS with periods for public review and comment before
permits to construct and operate can be issued.

We commenced the environmental review and permitting process in
2004. In 2005, the Minnesota Department of Natural Resources (MDNR) published
its Environmental Assessment Worksheet Decision Document establishing the MDNR
as the lead state agency and the U.S. Army Corp of Engineers (USACE) as the
lead federal agency for preparation of an EIS for the NorthMet Project.

In November 2009, the Co-lead Agencies published the NorthMet
Draft EIS, which marked the start of a 90-day period for public review and
comment including two public meetings. The U.S. Environmental Protection Agency
(EPA) issued an extensive comment letter and rating of the Project and the
draft EIS in its role as reviewer of projects that could impact the environment.

In June 2010 the Co-lead Agencies announced that they intended
to complete the EIS process by preparing a supplemental draft EIS ("SDEIS)
incorporating a proposed land exchange with the U.S. Forest Service (USFS) and
expanding government agency cooperation. The USFS joined the USACE as a federal
Co-lead Agency and, in June 2011, the EPA joined as a Cooperating Agency.

On December 6, 2013 the Co-lead Agencies published the SDEIS, which started a new 90-day period for public review and comment, including three public meetings, which ended on March 13, 2014.  The EPA issued comments on the SDEIS, which included an EC-2 rating.  The EC-2 rating is the highest rating for a proposed mining project, so far as we are aware.  The highest rating LO (Lack of Objections) is typically applied to non-industrial projects such as the Upper Mississippi National Wildlife and Fish Refuge Comprehensive Conservation Plan Implementation.  The EC-2 (Environmental Concerns) rating is the same as received by some other notable Minnesota projects including the Central Corridor Light Rail Project in the Twin Cities and the St. Croix River Crossing, which have been built or are in the process of being constructed.

The SDEIS received approximately 58,000 comments, of which several thousand were substantive.  The Co-lead Agencies have made substantial progress in their analysis of all of the comments and assessment of modifications to the EIS in order to respond appropriately to each of those comments.

Under NEPA, the preliminary final EIS incorporating appropriate responses to the comments will be reviewed by the Co-operating Agencies prior to publication of the final EIS.  In October 2014 the Commissioner of the MDNR stated that the Co-lead Agencies expect to complete preparation of the final EIS in the spring of 2015.

19

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Publication of the final EIS and a subsequent adequacy decision
by the MDNR and Records of Decision by the federal agencies are necessary before
the land exchange can occur and various permits required to construct and
operate the NorthMet Project can be issued.

The environmental review and permitting process is managed by the regulatory agencies and, therefore, timelines are not under our control.  We anticipate that the final EIS will be published in the state Environmental Quality Board (EQB) Monitor and the Federal Register in the summer of 2015 and we expect to submit permit applications around the same time.  We further expect that, under state guidelines, there should be decisions on state permits within 150 days of the applications being submitted and Records of Decision on the federal 404 Wetland Permit and the land exchange before the end of 2015.

The major permits are:

U.S. Army Corps of Engineers

| |  | Section 404 Individual Permit for Impacted
      Wetlands
| | - | ---------------------------------------------------------

Minnesota Department of Natural
Resources

| |  | Permit to Mine             
| | - | ---------------------------
| |  | Water Appropriations Permit
| |  | Dam Safety Permit          
| |  | Wetland Replacement Plan   

Minnesota Pollution Control
Agency

| |  | National Pollutant Discharge Elimination System
      (NPDES) Permit (storm water)
| | - | ----------------------------------------------------------------------------------
| |  | State Disposal System (SDS) Permit                                                
| |  | Air Emissions Permit                                                              

As at January 31, 2015, we had spent approximately $85.4 million on environmental review and permitting activities comprising $6.5 million expensed prior to October 2006 and $78.9 million since October 2006.

See discussion of development plans in section 4(D)(g).

20

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|(e) | History of Exploration
|--- | ----------------------

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

Prospectors first discovered copper and nickel near Ely,
Minnesota about 20 miles north of NorthMet in the 1940s. Subsequently, the Bear
Creek Mining Company conducted a regional exploration program resulting in the
discovery of the Babbitt deposit (northeast of NorthMet). US Steel began an
exploration program in the Duluth Complex in the late 1960s and over the next
few years drilled 112 core holes into the NorthMet property (then called Dunka
Road) to an average depth of 1,200 feet. In 1991, Nerco drilled an additional 2
shallow holes.

Since 1998 we have conducted a series of drilling programs
totaling 323 holes for approximately 172,000 feet of core and reverse
circulation drilling. These holes, combined with recompilation of all prior
work, for a total of 437 diamond and reverse circulation holes aggregating to
approximately 306,000 feet, were the basis of our December 2007 resource and
reserve estimates summarized in our most recent Technical Report under NI 43-101
filed on EDGAR and SEDAR.

21

---

The historic drilling was conducted using industry standard
procedures of the time. The core was retained and has been resampled by PolyMet.
More recent work by PolyMet has been conducted using standard industry
protocols, including Quality Assurance/Quality Control procedures under the
supervision of Qualified Persons. We believe that the resulting drill hole
database is reliable and can be confidently used in the estimation of the
NorthMet resource and reserves.

Mineral Resources and Mineral Reserves

Within the overall mineralized envelope defined by these
exploration programs, the DFS defined measured and indicated mineral resources
above the 500-foot elevation (approximately 1,120 feet below surface.) The
results of additional drilling through October 2007 resulted in a further
increase in measured and indicated mineral resources to 694 million short tons
from the 422 million short tons reported in the DFS. The 2008 updated mineral
resource estimates are based on the same cut-off grades used in the DFS  namely
a Net Metal Value (NMV) of $7.42 per ton, reflecting mine planning at a copper
price of $1.25 per pound and a nickel price of $5.60 per pound  see notes to
the following table.

Details of the mineral resources are set out in the following
table:

2008 Updated Mineral Resources compared with 2006 DFS Mineral
Resources

Short Tons
    Copper
    Nickel
    Cobalt
    Precious
      Metals(million)
    (%)
    (%)
    (%)
    (oz/st)
    (g/mt)2008 Updated Mineral Resource EstimateMeasured (M)
    202.5
    0.29
    0.08
    0.01
    0.010
    0.359Indicated (I)
    491.7
    0.26
    0.08
    0.01
    0.009
    0.325Measured & Indicated (M&I)
    694.2
    0.27
    0.08
    0.01
    0.010
    0.334Inferred
    229.7
    0.27
    0.08
    0.01
    0.011
    0.3852006 DFS Mineral Resource EstimateMeasured (M)
    133.7
    0.30
    0.09
    0.01
    0.011
    0.371Indicated (I)
    288.4
    0.27
    0.08
    0.01
    0.010
    0.330Measured & Indicated (M&I)
    422.1
    0.28
    0.08
    0.01
    0.010
    0.343Inferred
    120.6
    0.25
    0.07
    0.01
    0.009
    0.315


The increase in mineral resources reflects two changes:

| | Data from the 2007 drill program which
      confirmed the continuity of the main mineralized zone and the size of the
      Magenta Zone, which was extended down dip and to the west.                       
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Extension of the overall mineral envelope to
      approximately 1,620 feet below surface (0  elevation), compared with the
      prior cutoff at approximately 1,120 feet below surface (500  elevation).

The mineral resource estimate update was completed by Pierre
Desautels of AGP Mining Consultants in Toronto working closely with PolyMets
chief geologist, at the time, Richard Patelke. A NI 43-101 Technical Report
describing this increase is filed on EDGAR and SEDAR.

The 2006/2007 drill program also increased proven and probable
mineable reserves at the NorthMet Project. Reserves are constrained to mineable
blocks associated with material contained in the measured and indicated resource
blocks in the DFS for which detailed mining cost estimates, infrastructure
planning, and waste rock stockpile locations were prepared as part of a larger
study supporting the DFS. It should be noted that the inferred resources were
not included in the DFS or in this interim reserve update.

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

22

---

Details of the mineral reserves are set out in the following
table:

Updated Mineral Reserves compared with DFS Mineral Reserves

Short Tons
    Copper
    Nickel
    Cobalt
    Precious
      Metals(millions)
    (%)
    (%)
    (%)
    (oz/st)
    (g/mt)2008 Updated ReservesProven
    118.1
    0.30
    0.09
    0.008
    0.011
    0.368Probable
    156.5
    0.27
    0.08
    0.008
    0.010
    0.327Proven and Probable
    274.7
    0.28
    0.08
    0.008
    0.010
    0.337Waste
    401.2Strip Ratio
    1.462006 DFS ReservesProven
    80.4
    0.32
    0.09
    0.008
    0.012
    0.406Probable
    101.3
    0.30
    0.08
    0.007
    0.011
    0.385Proven and
      Probable
    181.7
    0.31
    0.08
    0.008
    0.012
    0.395Waste
    302.3Strip Ratio
    1.66


The reserve estimate update was completed by Gordon Zurowski of
AGP Mining Consultants (formerly Wardrop) in Toronto working closely with our
then team of Don Hunter and Richard Patelke. Gordon Zurowski of AGP Mining
Consultants and Don Hunter of PolyMet were the Qualified Persons.

While we believe that we have completed sufficient exploration
work required for the initial phases of production, we plan to conduct further
in-fill drilling during construction and operations.

|(f) | Geology and Mineralization
|--- | --------------------------

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

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

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

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

23

---

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

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

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

The metals of interest at NorthMet are copper, nickel, cobalt,
platinum, palladium, gold, and silver with lesser amounts of rhodium and
ruthenium. With the exception of cobalt, the metals are generally positively
correlated with copper mineralization. Unit 1 mineralization is found throughout
the deposit. A shallow dipping, near surface though less extensively mineralized
zone that is copper-rich relative to sulfur is found in Units 4, 5, and 6 in the
western part of the deposit.

Sulfide mineralization consists of chalcopyrite, cubanite,
pyrrhotite and pentlandite with minor bornite, violarite, pyrite, sphalerite,
galena, talnakhite, mackinawite and valleriite. Sulfide minerals occur mainly as
blebs interstitial with plagioclase, olivine and augite grains, but also occur
within plagioclase and augite grains, as intergrowths with silicates, or as fine
veinlets. The percentage of sulfides average less than 1%, varying from trace to
about 5%. Precious metals are associated with the sulfides.

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

|(g) | Development Plans
|--- | -----------------

The DFS prepared by Bateman contemplated the development of a
new open pit mine at our NorthMet ore body, using existing rail infrastructure
to transport ore from the mine site to our Erie Plant, where we would use our
existing facilities to crush and mill the rock. The finely ground material would
then pass to a new flotation circuit with waste material sent to existing
tailings facilities. The 2006 plan contemplated a hydrometallurgical plant to
recover value-added metals from the concentrate.

In 2008 we reported revised plans that included the sale of
concentrate during the construction and commissioning of the autoclaves
resulting in a shorter pre-production construction period and reduced capital
costs prior to first revenues, with the new metallurgical facilities to be
constructed during initial production and sales of concentrate and funded from
cash flow from initial operations.

In 2011 we further simplified the proposed metallurgical
process and we announced that we planned to build the Project in two phases:

| | Phase I: produce and market concentrates
      containing copper, nickel, cobalt and precious metals;                                                                                                                             
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  | and                                                                                                                                                                                                                               
| | Phase II: process the nickel concentrate
      through an autoclave, resulting in production and sale of high grade
      copper concentrate, value added nickel-cobalt hydroxide, and precious
      metals precipitate products.

In 2013, we announced further improvements to the NorthMet
Project that we anticipate will reduce the NorthMet Projects environmental
impacts. The reduced environmental impacts include: reductions in sulfur
dioxide, mercury and greenhouse gas emissions at the plant site, capture of
groundwater and surface seepage with the construction of an in ground
containment system to the north and west of the existing tailings basin, and all
contact water discharged from the NorthMet Project will be treated through
reverse osmosis plants.

24

---

We plan to complete a Definitive Cost Estimate and Project
Update prior to commencement of construction. The Project Update will
incorporate numerous process and project improvements, environmental controls
described in the SDEIS and subsequent changes that will be reflected in the
final EIS. The Project Update will include detailed capital and operating costs
reflecting the advanced stage of engineering and design.

Saleable Products Prior to construction and
commissioning of the hydrometallurgical plant, we anticipate that we will sell
copper concentrate and a nickel bulk concentrate. Once the hydrometallurgical
plant is operational, our products will comprise copper concentrate, a mixed
hydroxide of nickel and cobalt that will be shipped to a third-party processor
to produce nickel and cobalt metals, and a precious metals precipitate that will
be shipped to a third-party refiner for production of palladium, platinum and
gold.

In October 2008 we entered into an agreement with Glencore
whereby Glencore will purchase our production of concentrates, metals, or
intermediate products at prevailing market terms at the time of delivery for at
least the first 5 years of production.

Capital Costs Our 2008 DFS Update set out total
capital cost of $601.9 million, reflecting both cost inflation and design scope
changes since the DFS, including facilities needed to ship concentrate during
the construction and commissioning of the new hydrometallurgical plant. This
staged approach shortened the initial construction period, makes the project
less sensitive to the delivery schedule for long lead time equipment such as
autoclave vessels, and means that we can commence operations of the mine, the
existing crushing and milling plant, the existing tailings disposal facilities,
and the new flotation circuit, before starting the new hydrometallurgical plant.

Further simplification of the metallurgical process reported in
2011 eliminated the planned copper solvent-extraction/electro-winning circuit.

25

---

|h) | Regulations and Government
Rules
|-- | --------------------------------

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

Disclosure Pursuant to Section 219 of the Iran Threat
Reduction & Syria Human Rights Act

Section 219 of the Iran Threat Reduction and Syria Human Rights
Act of 2012 (ITRA), effective August 10, 2012, added a new subsection (r) to
Section 13 of the Exchange Act, which requires issuers that file periodic
reports with the SEC to disclose in their annual and quarterly reports whether,
during the reporting period, they or any of their affiliates (as defined in
Rule 12b-2 under the Exchange Act) have knowingly engaged in specified
activities or transactions relating to Iran, including activities not prohibited
by U.S. law and conducted outside the U.S. by non-U.S. affiliates in compliance
with applicable laws. Issuers must also file a notice with the SEC if any
disclosable activity under ITRA has been included in an annual or quarterly
report.

Because the SEC defines the term affiliate broadly, our
largest shareholder may be considered an affiliate of the Company despite the
fact that the Company has no control over our largest shareholders actions or
the actions of its affiliates. As such, pursuant to Section 13(r)(1)(D)(iii) of
the Exchange Act, the Company hereby discloses the following information
provided by our largest shareholder regarding transactions or dealings with
entities controlled by the Government of Iran (the GOI):

During the period from February 1, 2014
until January 31, 2015, a non-U.S. affiliate of the largest shareholder of the
Company (the non-U.S. Shareholder Affiliate) entered into sales contracts for
agricultural products for delivery to Iranian entities wholly or majority owned
by the GOI. The non-U.S. Shareholder Affiliate performed its obligations under
the contracts in compliance with applicable sanction laws and, where required,
with the necessary prior approvals by the relevant governmental authorities.

The gross revenue of the non-U.S
Shareholder Affiliate related to these contracts did not exceed the value of
$119 million for the twelve months ended January 31, 2015. The non-U.S.
Shareholder Affiliate does not allocate net profit on a country-by-country or
activity-by-activity basis, but estimates that the net profit attributable to
the contracts would not exceed a small fraction of the gross revenue from such
contracts. It is not possible to determine accurately the precise net profit
attributable to such contracts.

The contracts disclosed above do not
violate applicable sanctions laws administered by the U.S. Department of the
Treasury, Office of Foreign Assets Control, and are not the subject of any
enforcement action under Iran sanction laws.

In compliance with applicable economic
sanctions and in conformity with U.S. secondary sanctions, the non-U.S.
Shareholder Affiliate expects to continue to engage in similar activities in the
future.

Neither the Company nor any of its subsidiaries (i) engaged in
any transactions or activities requiring disclosure under ITRA nor (ii) were
involved in the transactions described in this section. As of the date of this
report, the Company is not aware of any other activity, transaction or dealing
by us or any of its affiliates during the fiscal year ended January 31, 2015
that requires disclosure in this report under Section 13(r) of the Exchange
Act.

ITEM 4A. UNRESOLVED STAFF COMMENTS

None.

26

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ITEM 5. OPERATING AND FINANCIAL REVIEW AND
PROSPECTS

|(a) | Operating Results
|--- | -----------------

This discussion and analysis should be read in conjunction with
our consolidated financial statements and related notes for the years ended
January 2015, 2014, and 2013 appearing under Item 18  Financial Statements and
listed under Item 19  Exhibits.

Our functional currency is the United States dollar and our
financial statements have been prepared in accordance with International
Financial Reporting Standards (IFRS) as issued by the International Accounting
Standards Board (IASB).

Summary of Key Developments During the Fiscal Year Ended
January 31, 2015

During the year ended January 31, 2015, and through the date of
the filing of this Annual Report, we continued to advance our NorthMet Project
including the activities noted below:


    Completion of the public review and comment period on the SDEIS on March 13, 2014.;
    EPA review of the SDEIS, including an EC-2 rating.  The EC-2 rating is the highest rating for a proposed mining project, so far as we are aware;
    The Co-lead Agencies made substantial progress responding to approximately 58,000 comments received on the SDEIS.  In October 2014, the Commissioner of the MDNR indicated at a public meeting that he thought preparation of the EIS would be completed in the spring of 2015;
    PolyMet advanced its Definitive Cost Estimate and Project Update; and
    PolyMet secured a $30 million loan facility from Glencore to fund the company through fiscal 2016. PolyMet received the first tranche of $8 million prior to January 31, 2015 and the second tranche of $8 million on April 15, 2015. The remaining $14 million is scheduled to be drawn in two further tranches on or before July 1, 2015 and October 1, 2015.  Glencore also agreed a one-year extension of $25 million initial principal convertible debentures, originally issued in 2008, that were due September 30, 2014.


Net cash used in operating and investing activities was $31.449
million, of which approximately $19 million was spent on environmental review
and permitting as PolyMet pays its own engineering and legal consultants and
also reimburses the state of Minnesota for its internal staff costs and the cost
of the EIS Contractor. Other spending relates to maintaining existing
infrastructure, engineering, and general corporate purposes.

See discussion of subsequent event in section 8(B).

Summary of Operating Results (All figures in
Thousands of U.S. dollar except Loss per share)

|                                          |  | Year Ended
      January 31, |  
|----------------------------------------- |  | ---------------------------- | -
|                                          |  | 2015                         |  
|Revenue                                   |  | -                            |  
|Loss
      for the Year                   |  | (7,276                       | )
|Basic and Diluted Loss per Share          |  | (0.03                        | )
|Total Assets                              |  | 313,229                      |  
|Long-Term Debt including Convertible Debt |  | 41,306                       |  
|Total Shareholders Equity                |  | 192,376                      |  

27

---

Year ended January 31, 2015 compared with the year ended
January 31, 2014

Overall:Our focus for the fiscal year ended January 31,
2015 was to provide the Co-lead Agencies with input into the final EIS and
permit work at our NorthMet Project, and obtain additional financing.

Loss for the year:During the year ended January 31,
2015, we incurred a loss of $7.276 million ($0.03 loss per share) compared to a
loss of $8.132 million ($0.04 loss per share) during the year ended January 31,
2014. The decrease in the net loss for the year was primarily attributable to a
decrease in investor and public relations in the current year to $1.276 million
(prior year - $2.075 million) relating to the Rights Offering in the prior year.
This was partially offset by an increase in finance costs in the current year to
$1.816 million, (prior year - $1.465 million) relating to an increase in the
accretion of the environmental rehabilitation provision.

Year ended January 31, 2014 compared with the year ended
January 31, 2013

Overall:Our focus for the fiscal year ended January 31,
2014 was to provide the Co-lead Agencies with input into the SDEIS and permit
work at our NorthMet Project, and obtain additional financing.

Loss for the year:During the year ended January 31,
2014, we incurred a loss of $8.132 million ($0.04 loss per share) compared to a
loss of $6.626 million ($0.04 loss per share) during the year ended January 31,
2013. The increase in the net loss for the year was primarily attributable to an
increase in investor and public relations in the current year to $2.075 million
(prior year - $0.571 million) relating to the Rights Offering and an increase in
finance costs in the current year to $1.465 million (prior year - $0.821
million) relating to an increase in the accretion of the environmental
rehabilitation provision. These items were partially offset by a decrease in
share-based compensation in the current year to $1.697 million (prior year -
$2.255 million) primarily due to a shareholder approved modification of the
expiry dates of outstanding share options in the prior year.

Goals and Outlook for fiscal 2016 Under NEPA, the preliminary final EIS incorporating appropriate responses to the comments will be reviewed by the Co-operating Agencies prior to publication of the final EIS in the Minnesota EQB Monitor and the Federal Register.

Publication of the final EIS and a subsequent adequacy decision
by the MDNR and Records of Decision by the federal agencies are necessary before
the land exchange can occur and various permits required to construct and
operate the NorthMet Project can be issued.

The environmental review and permitting process is managed by the regulatory agencies and, therefore, timelines are not under our control. Understanding that, our objectives include:

| | Publication of the final EIS, which we anticipate will be in the summer of 2015;                                                                                
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Submission of permit applications around the same time as publication of the final EIS;                                                                         
| | Decision on state permits within 150 days of application under state guidelines;                                                                                
| | Records of Decision on the federal 404 Wetland Permit and the Land Exchange;                                                                                    
| | Completion of the Definitive Cost Estimate and Project Update; and                                                                                              
| | Construction finance plan including commitment of debt prior to the issuance of permits but subject to typical conditions precedent, such as receipt of permits.

We expect to spend approximately $30 million in the year to
January 31, 2016. The primary focus remains completion of the environmental
review and permitting process, which is anticipated to cost approximately $16
million. Other areas of focus include engineering and completion of the
definitive cost estimates, which is anticipated to cost approximately $3
million.

28

---

We are in discussion with Glencore regarding a further
extension of the $25 million initial principal convertible debentures and
anticipate that either the term will be extended or Glencore will convert on or
before September 30, 2015.

Prior to receipt of permits, we will seek to secure
construction financing that would be available upon receipt of key permits, with
construction and ramp-up to commercial production anticipated to take
approximately 21 months.

We are in discussion with commercial banks and other financial
institutions regarding construction finance.

See additional discussion of environmental review and
permitting in section 4(D)(d) and development plans in section 4(D)(g).

|(b) | Liquidity and Capital
Resources
|--- | -------------------------------

Liquidity risk is the risk the Company will not be able to meet
its financial obligations as they become due and arises through the excess of
financial obligations over available financial assets due at any point in time.
The Companys objective in managing liquidity risk is to maintain sufficient
readily available reserves in order to meet its liquidity requirements at any
point in time. The Company achieves this by maintaining sufficient cash and cash
equivalents.

Our capital management objective is to safeguard our ability to
continue as a going concern in order to pursue the development of our mineral
property. In the management of capital, we include the components of
shareholders equity, convertible debt and non-convertible debt. We manage the
capital structure and make adjustments to it depending on economic conditions
and the rate of anticipated expenditures. To maintain or adjust the capital
structure, we may attempt to issue new shares, issue new debt, acquire or
dispose of assets. We have no externally imposed capital requirements.

In order to assist in management of our capital requirements,
we prepare budgets that are updated as necessary depending on various factors.
The budgets are approved by our Board of Directors.

Although we plan to have the resources to carry out our plans
and operations through January 31, 2016, we do not currently have sufficient
capital to meet our estimated project capital expenditure requirements and are
currently in discussions to arrange sufficient capital to meet these
requirements. During the upcoming fiscal year, our objective is to identify the
source or sources from which we will obtain the capital required to complete the
Project.

Year Ended January 31, 2015 compared with the year ended
January 31, 2014

As at January 31, 2015 we had a working capital deficiency of
$31.672 million compared with working capital of $1.872 million as at January
31, 2014 consisting primarily of cash and cash equivalents of $9.301 million
(January 31, 2014 - $32.790 million), amounts receivable of $0.381 million
(January 31, 2014 - $1.420 million), prepaid expenses of $1.108 million (January
31, 2014 - $1.195 million), accounts payable and accrued liabilities of $2.673
million (January 31, 2014 - $3.806 million), convertible debt of $33.451 million
(January 31, 2014 - $31.967), non-convertible debt of $4.614 million (January
31, 2014 - $nil), and the current portion of environmental rehabilitation
provision of $1.724 million (January 31, 2014 - $1.504 million).

Cash used in operating activities in the year ended January 31,
2015 was $4.196 million compared to cash used in the year ended January 31, 2014
of $8.034 million. The variance in cash is primarily due to changes in non-cash
working capital balances and the above noted operating variances.

Cash provided by financing activities for the year ended
January 31, 2015 was $7.977 million compared to cash provided in the year ended
January 31, 2014 of $58.269 million. The current year includes funding of the
non-convertible loan and proceeds from share option exercises. The prior year
includes proceeds from the rights offering, funding of the Glencore bridge loan,
and repayment of the Glencore bridge loan.

29

---

Cash used in investing activities for the year ended January
31, 2015 was $27.253 million compared to cash used in the year ended January 31,
2014 of $25.523 million. The increase was primarily due to increased efforts
surrounding the SDEIS public comment period and review of comments received.

Including the effect of foreign exchange, total cash for the
year ended January 31, 2015 decreased by $23.489 million for a balance of $9.301
million compared to the year ended January 31, 2014 where cash increased $24.702
million for a balance of $32.790 million.

Year Ended January 31, 2014 compared with the year ended
January 31, 2013

As at January 31, 2014 we had a working capital deficiency of
$1.872 million compared with working capital of $2.629 million as at January 31,
2013 consisting primarily of cash and cash equivalents of $32.790 million
(January 31, 2013 - $8.088 million), amounts receivable of $1.420 million
(January 31, 2013 - $0.830 million), prepaid expenses of $1.195 million (January
31, 2013 - $0.771 million), accounts payable and accrued liabilities of $3.806
million (January 31, 2013 - $5.269 million), convertible debt of $31.967 million
(January 31, 2013 - $nil) and the current portion of environmental
rehabilitation provision of $1.504 million (January 31, 2013 - $1.808 million).

Cash used in operating activities in the year ended January 31,
2014 was $8.034 million compared to cash used in the year ended January 31, 2013
of $1.116 million. The variance in cash is primarily due to changes in non-cash
working capital balances and the above noted operating variances.

Cash provided by financing activities for the year ended
January 31, 2014 was $58.269 million compared to cash provided in the year ended
January 31, 2013 of $10.130 million. The current year includes funding from the
Rights Offering. The prior year includes exercise of share options and funding
from share issuances to Glencore.

Cash used in investing activities for the year ended January
31, 2014 was $25.523 million compared to cash used in the year ended January 31,
2013 of $18.404 million. The increase was primarily due to increased spending on
permitting prior to publication of the supplement draft EIS in December
2013.

Including the effect of foreign exchange, total cash for the
year ended January 31, 2014 increased by $24.702 million for a balance of
$32.790 million compared to the year ended January 31, 2013 where cash decreased
$9.390 million to a balance of $8.088 million.

Financing Activities

The universal shelf registration on Form F-3 and short form
base shelf prospectus were renewed in January 2013 for the same offering limit
and covering the same securities. These documents allow us the option to offer
and sell, from time to time in one or more offerings, up to $500 million of our
debt securities, common shares, warrants and units in the United States for 36
months and Canada for 25 months. The Company is currently evaluating the renewal
of the universal shelf registration in Canada. Unless otherwise specified the
net proceeds from the offering of the securities will be used for construction
finance for our copper, nickel, precious metals development project located in
Minnesota and for working capital. There were no issuances of securities under
these registrations during the years ended January 31, 2015 or 2014.

30

---

Glencore Financing Since October 31, 2008 Glencore
has entered into a series of financing agreements and a marketing agreement with
us whereby Glencore committed to purchase all of our production of concentrates,
metal, or intermediate products on market terms at the time of delivery, for at
least the first five years of production. As part of the 2013 financing
agreement, we entered into a Corporate Governance Agreement whereby from January
1, 2014, as long as Glencore holds 10% or more of our shares (on a fully diluted
basis), Glencore shall have the right, but not obligation to designate at least
one director and not more than the number of directors proportionate to
Glencore's fully diluted ownership of us, rounded down to the nearest whole
number, such number to not exceed 49% of the total board.

The financing agreements comprise $25.0 million initial principal debentures in calendar 2008 drawn in four tranches (Tranches A through D, together the 2008 Debenture), $25.0 million placement of our common shares in calendar 2009 in two tranches, $30.0 million placement of our common shares in calendar 2010 in three tranches, $20.0 million placement of our common shares in calendar 2011 in one tranche, $20.960 million purchase of our common shares in the Rights Offering (the Rights Offering), and $30.0 million initial principal debentures in calendar 2015 drawn and to be drawn in four tranches.  As a result of the series of financing transactions and the purchase by Glencore of our common shares previously owned by Cliffs, Glencore's current and potential ownership of us comprises:

| | 78,724,821 shares representing 28.5% of our
      issued and outstanding common shares;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | $25.0 million initial principal floating rate
      secured debentures due September 30, 2015. Including capitalized and
      accrued interest as at January 31, 2015, these debentures are exchangeable
      at $1.2920 per share into 25,891,843 of our common shares upon us giving
      Glencore notice that we have received permits necessary to start
      construction of NorthMet and availability of senior construction finance
      in a form reasonably acceptable to Glencore or are repayable on September
      30, 2015. The exercise price of the exchange warrants and the number of
      warrants are subject to conventional anti-dilution provisions which were
      triggered upon close of the Rights Offering; and
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | Glencore holds warrants to purchase 6,458,001
      common shares at $1.3007 per share at any time until December 31, 2015,
      subject to mandatory exercise if the 20-day Value Weighted Average Price
      (VWAP) of our common shares is equal to or greater than 150% of the
      exercise price and we provides notice to Glencore that we have received
      permits necessary to start construction of NorthMet and availability of
      senior construction finance, in a form reasonably acceptable to Glencore.
      The exercise price of the purchase warrants and the number of warrants are
      subject to conventional anti-dilution provisions which were triggered upon
      close of the Rights Offering.          

If Glencore were to exercise all of its rights and obligations
under these agreements, it would own 111,074,665 of our common shares,
representing 36.0% on a partially diluted basis, that is, if no other options or
warrants were exercised or 33.3% on a fully diluted basis, if all other options
and warrants were exercised, whether they are currently in-the-money or not.

On April 10, 2013, we amended our previous financing
arrangement and issued a Tranche E debenture (2013 Debenture) with the
principal amount of $20.0 million to Glencore and Glencore agreed to a Standby
Purchase Agreement (Standby) related to a proposed $60.480 million Rights
Offering by the Company. Under the Standby, Glencore agreed to purchase any
common shares offered under the Rights Offering that were not subscribed for by
holders of the rights, subject to certain conditions and limitations. The 2013
Debenture carried a fixed interest rate of 4.721% per annum payable in cash
monthly and was repaid upon the closing of the Rights Offering on July 5, 2013.
We provided security by way of a guarantee and by our assets and our
wholly-owned subsidiary. The 2013 Debenture was issued on April 11, 2013. We
accounted for the 2013 Debenture issued initially at fair value and subsequently
at its amortized cost. Transaction costs for the financing were $0.103
million.

Glencore purchased 31,756,979 of our common shares for $20.960
million upon closing of the Rights Offering on July 5, 2013.

31

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On April 25, 2014 we and Glencore extended the term of the 2008
Debentures and the expiration date of the associated Exchange Warrants to the
earlier of the Early Maturity Event (as defined above) or September 30, 2015.
All other terms of both the debentures and the warrants described above are
unchanged.

On January 28, 2015, we amended our previous financing
arrangement and agreed to issue to Glencore new Tranche F, G, H, and I
debentures with the total principal amount of $30.0 million. Tranche F in the
amount of $8.0 million was issued on January 30, 2015. Tranche G in the amount
of $8.0 million was issued subsequent to year end on April 15, 2015. Tranches H
and I in the amounts of $8 million and $6 million respectively are to be issued
on or before July 1 and October 1, 2015 respectively. The 2015 Debentures bear
interest at 12-month US dollar LIBOR plus 8.0% per annum payable in cash upon
maturity and matures on the earlier of (i) the availability of at least $100
million of finance provided we demonstrate repayment is prudent or (ii) March
31, 2016. We provided security by way of a guarantee and a pledge of our assets
and our wholly-owned subsidiary. We recognized the Tranche F Debenture initially
at fair value and subsequently accounted for the debenture at its amortized
cost. Transaction costs for the financing were $0.150 million.

Iron Range Resources & Rehabilitation Board ("IRRRB")
Financing On June 30, 2011 we closed a $4.000 million loan from the
IRRRB, a development agency created by the State of Minnesota to stabilize and
enhance the economy of northeastern Minnesota. At the same time, we exercised
our options to acquire two tracts of land as part of the proposed land exchange
with the USFS. The loan is secured by the land acquired, carries a fixed
interest rate of 5% per annum, compounded annually if not paid, and is repayable
on the earlier of June 30, 2016 or the date which the related land is exchanged
with the USFS (expected to occur within 12 months from January 31, 2015). We
issued warrants giving the IRRRB the right to purchase 461,286 of our common
shares at $2.1678 per share at any time until the earlier of June 30, 2016 and
one year after permits are received.

AG for Waterfowl, LLP ("AG") Financing In March 2012
we acquired a secured interest in land (AG Land) owned by AG that is permitted
for restoration to wetland. AG subsequently assigned the agreement to EIP
Minnesota, LLC (EIP) in September 2012. EIP will restore the wetlands and,
upon completion, wetland credits are to be issued by the proper governmental
authorities. In April 2015 we entered into a revised agreement with EIP whereby
EIP will seek to sell to third parties credits that we do not need and, over
time, reimburse us for our costs.

As part of the initial consideration, AG holds warrants to
purchase 1,249,315 common shares at $1.3007 per share at any time until December
31, 2015, subject to mandatory exercise if the 20-day volume weighted average
price (VWAP) of our shares is equal to or greater than $3.00 and we provide
notice to AG that we have received permits necessary to start construction of
the NorthMet Project. The exercise price of the purchase warrants and the number
of warrants are subject to conventional anti-dilution provisions.

Rights Offering Financing On May 24, 2013, we filed
the final prospectus for an offering of rights ("Rights") to holders of our
common shares to raise up to $60.480 million in gross proceeds (the "Rights
Offering"). Every shareholder received one Right for each common share owned on
June 4, 2013, the Record Date, and two Rights entitled the holder to acquire one
new common share at $0.66 per share.

Upon the closing of the Rights Offering on July 5, 2013, we
issued a total of 91,636,202 common shares for gross proceeds of $60.480
million. Expenses and fees relating to the Rights Offering were $2.108 million,
including the $1.061 million standby commitment fee paid to Glencore, and
reduced the gross proceeds recorded as share capital. The closing of the Rights
Offering triggered customary anti-dilution provisions for outstanding warrants,
share options, and unissued restricted share units.

32

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Other Financings During the year ended January 31,
2015 we issued 75,000 shares (prior year nil) upon exercise of options for
proceeds of $0.081 million (prior year - $nil).

During the year ended January 31, 2015, we also issued 143,130
shares (prior year 140,123) as partial payment for options to purchase land.

Escrowed Securities As at January 31, 2015, we had
the following outstanding securities held in escrow:

Number of SecuritiesDesignation of Class
    held in Escrow
    Percentage of ClassCommon shares (1)
    371,854
    0.01%Common shares (2)
    350,353
    0.01%


|(1) | Common shares held by Andersen & Butterworth, P.A.
      were issued in connection with purchase of the Wetland Credit Intangible
      and have subsequently been released from escrow.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                         
|(2) | Common shares held by Farris, Vaughan, Wills & Murphy
      LLP and were issued as restricted shares to U.S.
  employees.                                                               

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

We are engaged in the exploration and development of mineral
properties. See Item 5(a) and 5(b) above for a discussion of the expenditures
incurred in connection with our business activities.

We hold a royalty-free license to use the PLATSOL technology
originally developed for our NorthMet deposit by International PGM Technologies
to recover precious metals from a hydrometallurgical circuit. Separately, we
have filed for patents related to copper concentrate enrichment technology that
we have developed. PLATSOL and the copper concentrate enrichment technology will
not be used in Phase I of the project development but we do plan to use them in
Phase II upgrading of the nickel-PGM concentrate.

|(d) | Trend Information
|--- | -----------------

There are no major trends anticipated to have a material effect
on our financial condition and results of operations in the near future.

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

None.

33

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|(f) | Tabular Disclosure of Contractual
    Obligations
|--- | -------------------------------------------------

The following table lists as at January 31, 2015 information
with respect to our known contractual obligations and environmental rehabilitation provision:

Less than
    
    
    1  3
    
    
    3  5
    
    
    More thanContractual Obligations (in 000s)
    
    Total
    
    
    1 year
    
    
    years
    
    
    years
    
    
    5 yearsAccounts payable and accrued
      liabilities
    $
    2,673
    
    $
    2,673
    
    $
    -
    
    $
    -
    
    $
    -Convertible debt
    
    34,493
    
    
    34,493
    
    
    -
    
    
    -
    
    
    -Non-convertible debt
    
    13,747
    
    
    5,111
    
    
    8,636
    
    
    -
    
    
    -Environmental rehabilitation provision
    
    72,563
    
    
    1,724
    
    
    6,972
    
    
    25,734
    
    
    38,133Commitments
    
    3,900
    
    
    2,964
    
    
    616
    
    
    204
    
    
    116Total
    $
    127,376
    
    $
    46,965
    
    $
    16,224
    
    $
    25,938
    
    $
    38,249


|(g) | Critical Accounting
Policies
|--- | ----------------------------

Our consolidated financial statements have been prepared in
accordance with IFRS as issued by the IASB, which requires the use of certain
critical accounting estimates. These critical accounting estimates require
management to make judgments and estimates that affect the reported amounts of
assets and liabilities and disclosures of contingent assets and liabilities as
at the date of the financial statements.

Critical accounting estimates and judgments made in the
preparation of these consolidated financial statements are as follows:

(i) Determination of mineral
reserves

Reserves are estimates of the amount of
product that can be economically and legally extracted from our property. In
order to estimate reserves, estimates are required about a range of geological,
technical and economic factors, including quantities, production techniques,
production costs, capital costs, transport costs, demand, prices and exchange
rates. Estimating the quantity of reserves requires the size, shape and depth of
deposits to be determined by analyzing geological data. This process may require
complex and difficult geological judgments to interpret the data. In addition,
management will form a view of forecast sales prices, based on current and
long-term historical average price trends. Changes in the proven and probable
reserves estimates may impact the carrying value of property, plant and
equipment, rehabilitation provisions, recognition of deferred tax amounts and
depreciation, depletion and amortization.

(ii) Impairment of non-financial
assets

The carrying amounts of our
non-financial assets, including mineral property, plant and equipment, and
wetland credit intangible are reviewed at each reporting date or when events or
changes in circumstances occur that indicate the asset may not be recoverable to
determine whether there is any indication of impairment. If any such indication
exists, the assets recoverable amount is estimated at the greater of its value
in use and its fair value less costs of disposal. In assessing value in use, the
estimated future cash flows are discounted to their present value using a
pre-tax discount rate that reflects current market assessments of the time value
of money and the risks specific to the asset. An impairment loss is recognized
if the carrying amount of an asset exceeds its estimated recoverable amount. An
impairment loss previously recorded is reversed if there has been a change in
the estimates used to determine the recoverable amount resulting in an increase
in the estimated service potential of an asset.

For its mineral property interest the
Company considers both external and internal sources of information in assessing
whether there are any indications of impairment. External sources of information
the Company considers include changes in the market, economic and legal
environment in which the Company operates that are not within its control and
affect the recoverable amount of mineral property interests. Internal sources of
information the Company considers include indications of economic performance of
the asset. No impairment loss for of the mineral property interests was recorded
for the year ended January 31, 2015 or January 31, 2014.

34

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(iii) Provisions for Environmental
Rehabilitation Costs

Provisions for environmental
rehabilitation costs associated with mineral property, plant and equipment, are
recognized when the Company has a present legal or constructive obligation that
can be estimated reliably, and it is probable an outflow of economic benefits
will be required to settle the obligation. Provisions are determined by
discounting the expected future cash flows at a pre-tax rate that reflects
current market assessments of the time value of money and the risks specific to
the liability.

It is possible that our estimates of
our ultimate environmental rehabilitation liabilities could be affected by
changes in regulations, changes in the extent of environmental rehabilitation
required, changes in the means of rehabilitation, changes in the extent of
responsibility for the financial liability or changes in cost estimates. Our
operations 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 us may vary greatly and are not predictable.

Our provision for environmental
rehabilitation cost obligations represents managements best estimate of the
present value of the future cash outflows required to settle the liability.

35

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ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND
EMPLOYEES

|A. | Directors and Senior
Management
|-- | -------------------------------

Each Director serves until the next annual general meeting of
shareholders or until his/her successor is duly elected, unless his/her office
is vacated in accordance with our Articles of Incorporation. Vacancies on the
Board of Directors are filled by election from nominees chosen by the remaining
Directors and the persons filling those vacancies will hold office until the
next annual general meeting of shareholders, at which time they may be
re-elected or replaced.

The following is a list of the names and ages of our directors
and senior management:

| | Name              | Age | Position                                                            
| | ----------------- | --- | --------------------------------------------------------------------
| | W. Ian L. Forrest | 76  | Chairman, Director                                                  
| | Jonathan Cherry   | 45  | Director, President, and Chief Executive
      Officer              
| | Matthew Daley     | 36  | Director                                                            
| | David Dreisinger  | 57  | Director                                                            
| | Alan R. Hodnik    | 55  | Director                                                            
| | William Murray    | 66  | Director                                                            
| | Stephen Rowland   | 53  | Director                                                            
| | Michael M. Sill   | 53  | Director                                                            
| | Douglas J. Newby  | 56  | Chief Financial Officer                                             
| | Bradley Moore     | 54  | Executive Vice President, Environmental &
      Governmental Affairs

W. Ian L. Forrest has served as a member of our board of
directors since October 2003 and our Chairman since July 2012. Mr. Forrest
previously served as Chairman of our board until from May 2004 to February 2008
and Co-Chairman from January 2011 to July 2012. He also serves as the Chair on
both our Business Development and Risk Management and our Nominating and
Corporate Governance committees and serves on our Audit, our Compensation, and
our Capital Finance committees. Mr. Forrest played an important role in our
revival in 2003. Mr. Forrest is a member of the Institute of Chartered
Accountants of Scotland. Mr. Forrest has more than 40 years of experience with
public companies in the resource sector. His experience encompasses the areas of
promotion, financing, exploration, production and company management. He has
also participated in several notable projects including Gulfstream's North Dome
gas discovery, Qatar, Reunion Mining's Scorpion zinc, Namibia, which was
subsequently developed by Anglo American, and Ocean Diamond Mining, which
pioneered the independent diamond dredging industry off the west coast of
southern Africa. He also served as a director of Tanager Energy Inc. (formerly
MGold Resources Inc.) until October, 2011 and Belmore Resources (Holdings) plc
until July, 2011 when it was acquired by Lundin Mining Ltd. He currently serves
on the boards of Georex SA and Poros SAS. Mr. Forrest was a director of Viatrade
plc, which was put into receivership in August 2009. Mr. Forrest currently
resides in Vaud, Switzerland.

Jonathan Cherry has served as our President and Chief
Executive Officer and as a member of our board of directors since July 2012. He
also serves as the Chair on both our Safety, Health and Environmental and our
Capital Finance committees and serves on our Technical Steering committee. Prior
to July 2012, Mr. Cherrys career spanned more than 20 years with Rio Tinto
where he worked in a number of positions, including general manager, where he
was responsible for permitting and the initial development of the Eagle Mine in
Michigans Upper Peninsula. His last position was Vice President with Rio Tinto,
responsible for strategic direction in environmental permitting and compliance,
legal matters and external relations related to mine development of the
Resolution copper project in Arizona. Mr. Cherry is a licensed Professional
Engineer. Mr. Cherry currently resides in Minnesota, United States.

Matthew Daley has served as a member of our board of
directors since July 2014. He also serves on both our Technical Steering and our
Safety, Health and Environmental committees. Mr. Daley started his career with
Mount Isa Mines in Australia, then held senior management positions with Xstrata
plc in Australia, Asia and South America before joining Glencore Xstrata plc in
Canada in 2013. He is responsible for technical and project support for
Glencores copper assets in Australia, Asia and the Americas. Mr. Daley
currently resides in Ontario, Canada.

36

---

Dr. David Dreisinger has served as a member of our board
of directors since October 2003. He serves on our Safety, Health and
Environmental, our Audit, our Technical Steering and on our Nominating and
Corporate Governance committees. Since 1988, Dr. Dreisinger has been a member of
the faculty at the University of British Columbia in the Department of Materials
Engineering and is currently Professor and Chairholder of the Industrial
Research and Chair in Hydrometallurgy. He has published over 250 papers and has
been extensively involved as a process consultant in industrial research
programs with metallurgical companies. Dr. Dreisinger has participated in 19
U.S. patents for work in areas such as pressure leaching, ion exchange removal
of impurities from process solutions, use of thiosulfate as an alternative to
cyanide in gold leaching, and leach-electrolysis treatment of copper recovery
from sulfide ores, and the Sepon Copper Process for copper recovery from
sulfidic-clayey ores. Dr. Dreisinger serves as a director of Search Minerals,
Inc. and as Vice President  Metallurgy for each of Baja Mining Corp, Search
Minerals Inc., and TriMetals Mining Inc. Dr. Dreisinger currently resides in
British Columbia, Canada.

Alan R. Hodnik has served as a member of our board of
directors since March 2011. He also serves as the Chair on our Compensation
Committee and serves on our Safety, Health and Environmental, our Business
Development and Risk Management and our Nominating and Corporate Governance
committees. Mr. Hodnik was named President of ALLETE, Inc. in May 2009, CEO in
May 2010, and Chairman of that company in May 2011. Since joining ALLETE in
1982, Mr. Hodnik has served as Vice President-Generation Operations, Senior Vice
President of Minnesota Power Operations, and Chief Operating Officer. As Chief
Operating Officer, he led BNI Coal Mining, Superior Water Light & Power
(SWLP) and transmission, distribution, generation, customer service and
engineering for all aspects of Minnesota Power. Mr. Hodnik also serves on the
Edison Electric Institute (EEI) Board of Directors. Mr. Hodnik was elected and
served as Mayor of the City of Aurora, Minnesota from 1987-1998. The cities of
Aurora and Hoyt Lakes co-host our PolyMet Erie Mine site location. He is a
member of the board of Essentia Health-East Region and the Area Partnership for
Economic Expansion (APEX). Mr. Hodnik currently resides in Minnesota, United
States.

William Murray served as our Executive Chairman from
February 2008 to December 2010 and has served as a member of our board of
directors since March 2003. He previously served as our President and Chief
Executive Officer from March 2003 until February 2008. He also serves as the
Chair of our Technical Steering Committee and serves on our Business Development
and Risk Management and our Compensation committees. Mr. Murray is an engineer
in the mining industry with more than 35 years of experience in construction
management, project evaluation in North America and Africa. From April 1993 to
2003, Mr. Murray provided consulting services to the mining industry as a
principal of Optimum Project Services Ltd. Prior to that, Mr. Murray was
employed by Fluor Daniel, a large U.S. Engineering & Construction
contractor, as the Director of New Business from October 1989 to April 1993.
From September 1981 to May 1986, Mr. Murray was a Director of Project Services
at Denison Mines where he was part of the core team than built the $1.2 billion
Quintette Coal project. From September 1970 to August 1981, Mr. Murray held a
number of positions at Anglo American Corp in South Africa, principally in the
Gold Division. Mr. Murray is also a director of Aura Minerals, Inc., and
Prospero Silver Corp. Mr. Murray currently resides in British Columbia, Canada.

Stephen Rowlandhas served as a member of our board of
directors since October 2008. He also serves on our Technical Steering Committee
and as an ex-officio member of our Nominating and Corporate Governance
Committee. Mr. Rowland has been an executive with Glencore, a diversified
natural resources company, since 1988. Mr. Rowland has held various positions
with responsibility for international trading in metals and minerals in London,
Switzerland, and the United States. Prior to joining Glencore, Mr. Rowland
started his career in 1985 with Cargill, Inc. in Minneapolis. Mr. Rowland
currently resides in Connecticut, United States.

Michael M. Sill has served as a member of our board of
directors since March 2011. He also serves as the Chair on our Audit Committee
and serves on our Capital Finance, our Safety, Health and Environmental and our
Compensation committees. Mr. Sill has served as President and CEO of Road
Machinery & Supplies Co. since 1994, having joined the company in 1988. Road
Machinery is a distributor of construction, mining and forestry equipment.
Educated at Dartmouth College and J.L. Kellogg Graduate School of Management,
Mr. Sill started his career as a financial analyst and commercial lending
officer with The Northern Trust Company. He has served on the boards of the
Associated Equipment Distributors, Associated General Contractors of Minnesota,
the Twin Cities Regional Board of US Bank, and Dunwoody College of Technology.
Mr. Sill currently resides in Minnesota, United States.

37

---

Douglas J. Newby has served as our Chief Financial
Officer since November 2005. Mr. Newby has more than 30 years of experience in
the evaluation and financing of mining companies and projects around the world.
Before coming to PolyMet, Mr. Newby served variously as a Director, Executive
Vice President, interim Chairman, President and Chief Executive Officer of
Western Goldfields, Inc. (now New Gold, Inc.) a US-based gold mining company.
Mr. Newby has also been President of Proteus Capital Corp., a corporate advisory
firm that specializes in the natural resource industries, since July 2001. Mr.
Newby served as Managing Director of Proteus Consultants Ltd. from January 1991
to July 2001. Prior to January 1991, Mr. Newby held senior positions with the
investment banking firms of S.G. Warburg & Co., Inc., Morgan Grenfell &
Co., and James Capel & Co. From June 2011 to August 2014 Mr. Newby served as
a director of Coronet Metals, Inc., a Canadian company developing a gold mine in
Peru. Mr. Newby currently resides in New York, United States.

Bradley Moore has served as our Executive Vice
President, Environmental & Government Affairs since January 2011. Mr. Moore
has nearly 30 years experience in regulatory and government relation positions.
He served as Commissioner of the Minnesota Pollution Control Agency from 2006 to
2008, and as Assistant Commissioner for Operations of the Minnesota Department
of Natural Resources (MDNR) from January 1999 to August 2006. Prior to that,
he worked in leadership and policy analyst positions with the MDNR and the
Minnesota Department of Public Service (now the Department of Commerce). In
December 2008, Mr. Moore joined Barr Engineering as Senior Advisor, Public and
Governmental Affairs where he advised several companies on environmental
strategy. Mr. Moore currently resides in Minnesota, United States.

|B. | Statement of Executive
  Compensation
|-- | -------------------------------------

During the fiscal year ended January 31, 2015, we had five
Named Executive Officers (NEOs) (for the purposes of applicable securities
legislation): Jonathan Cherry, President and Chief Executive Officer; Douglas
Newby, Chief Financial Officer; Bradley Moore, Executive Vice President,
Environmental & Governmental Affairs; Andrew Ware, Chief Geologist; and
Bruce Richardson, Vice President, Corp Communications and External Affairs. Mr.
Ware and Mr. Richardson are not executive officers (for the purposes of
applicable securities legislation) but constitute NEOs.

The following table sets forth the compensation paid to our
Named Executive Officers for the fiscal year ended January 31, 2015:

Pension,Salaries
    
    
    Options /
    
    
    RetirementCommissions
    
    
    Restricted
    
    
    and Similar
    
    
    TotalNamed Executive Officer
    
    and Bonuses
    
    
    Share Units
    
    
    **Benefits(1)**
    
    
    CompensationJonathan Cherry, Director,
      President and Chief Executive Officer
    $
    509,500
    
    $
    488,800
    
    $
    21,000
    
    $
    1,019,300Douglas Newby, Chief Financial Officer
    
    317,700
    
    
    207,100
    
    
    7,500
    
    
    532,300Bradley Moore, Executive Vice
      President, Environmental and Governmental Affairs
    
    241,500
    
    
    134,800
    
    
    12,000
    
    
    388,300Andrew Ware, Chief Geologist
    
    184,600
    
    
    104,000
    
    
    9,000
    
    
    297,600Bruce Richardson, Vice President,
      Corp Communications and External Affairs
    $
    184,000
    
    $
    102,000
    
    $
    9,000
    
    $
    295,000


(1) Balances represent Company contributions under
401k pension plans.

38

---

The Company has no pension plan or other arrangement for
non-cash compensation to the NEOs.

Other than the arrangements noted in the tables above and
below, during the fiscal year ended January 31, 2015, no compensation was paid
or is payable by us to the directors of the Company, or our subsidiaries, if
any, for their services in their capacity as directors, including any amounts
payable for committee participation or special assignments;

Options/Restricted
    
    
    TotalDirector
    
    Directors Fees
    
    
    Share Units
    
    
    CompensationW. Ian L. Forrest
    $
    50,000
    
    $
    25,500
    
    $
    75,500David Dreisinger
    
    40,000
    
    
    25,500
    
    
    65,500Alan R. Hodnik
    
    40,000
    
    
    25,500
    
    
    65,500William Murray
    
    40,000
    
    
    25,500
    
    
    65,500Stephen Rowland
    
    40,000
    
    
    25,500
    
    
    65,500Michael M. Sill
    
    40,000
    
    
    25,500
    
    
    65,500Matthew Daley
    $
    20,000
    
    $
    109,500
    
    $
    129,500


Other than the President and Chief Executive Officer, none of
our other directors has a service contract with us providing for benefits upon
termination of his employment.

|C. | Board Practices
|-- | ---------------

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

Our Audit Committee consists of Michael M. Sill (Chair), W. Ian
L. Forrest, and Dr. David Dreisinger, all of whom are independent directors. Mr.
Forrest meets the criteria of an Audit Committee Financial Expert under the
applicable rules and regulations of the SEC and such designation has been
ratified by the Board of Directors. The Audit Committee oversees our auditing
procedures, receives and accepts the reports of our independent chartered
accountants, oversees our internal systems of accounting and management
controls, and makes recommendations to the Board of Directors as to the
selection and appointment of our auditors.

Our Compensation Committee consists of Alan R. Hodnik (Chair),
W. Ian L. Forrest, William Murray and Michael M. Sill, all of whom are
independent directors. The function of the Compensation Committee is to
administer the 2007 PolyMet Omnibus Share Compensation Plan and to have
authority over the salaries, bonuses, and other compensation arrangements of our
executive officers.

Our Nominating and Corporate Governance Committee consists of
W. Ian L. Forrest (Chair), Alan R. Hodnik, and David Dreisinger, all of whom are
independent directors. Stephen Rowland is an ex-officio member as he is not
considered independent. The committee (1) identifies individuals qualified to
become members of the Board, (2) selects, or recommends to the Board, the
director nominees for the next annual shareholders meeting, (3) selects
candidates to fill any vacancies on the Board, and (4) develops and recommends
to the Board a set of corporate governance principles applicable to PolyMet.

|D. | Employees
|-- | ---------

As at January 31, 2015 we had 24 full-time employees, with 1
located in our Toronto office, 15 located in our Hoyt Lakes office, and 8
located in our St. Paul office.None of our employees are covered by a
collective bargaining agreement. We believe that our relations with our
employees are good.

|E. | Share Ownership
|-- | ---------------

See Item 7(A) for shareholdings of persons listed in Item 6(B).

39

---

ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

|A. | Major Shareholders
|-- | ------------------

The following table sets forth certain information that has
been provided to us regarding the beneficial ownership of our common shares as
of April 14, 2015 by those known to our management to be (i) the beneficial
owner of more than 5% of our outstanding common shares, (ii) our directors,
(iii) our current executive officers identified under Item 6(A), and (iv) all
directors and executive officers as a group.

|Name and Address of                                         |  | Amount and Nature of     |  | Percent of       
|----------------------------------------------------------- |  | ------------------------ |  | -----------------
|Beneficial Owner(1)                                         |  | Beneficial Ownership (2) |  | Common Shares (3)
|William Murray (4)                                          |  | 3,837,854                |  | 1.4%             
|W. Ian L. Forrest (5)                                       |  | 3,629,500                |  | 1.3%             
|Jonathan Cherry (6)                                         |  | 3,486,115                |  | 1.3%             
|David Dreisinger (7)                                        |  | 2,314,450                |  | *                
|Douglas J. Newby (8)                                        |  | 1,975,750                |  | *                
|Michael M. Sill (9)                                         |  | 1,030,201                |  | *                
|Stephen Rowland (10)                                        |  | 900,000                  |  | *                
|Alan R. Hodnik(11)                                          |  | 850,500                  |  | *                
|Bradley Moore (12)                                          |  | 685,176                  |  | *                
|Matthew Daley (13)                                          |  | 250,000                  |  | *                
|Total directors and executive
      officers as a group(14) |  | 18,959,546               |  | 6.8%             
|5% or more shareholders:                                    |  |                          |  |                  
|Glencore (15)                                               |  | 111,373,135              |  | 36.0%            
|Baarermattstrasse 3                                         |  |                          |  |                  
|CH-6341 Baar, Switzerland                                   |  |                          |  |                  

*Less than 1.0%

|(1) | The address of each person, unless otherwise noted, is
      c/o PolyMet Mining Corp., 100 King Street West, Suite 5700, Toronto,
      Ontario M5X 1C7.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|(2) | The number of shares beneficially owned by each person or
      group includes common shares that such person or group had the right to
      acquire on or within 60 days after that date, including, but not limited
      to, upon the exercise of options and vesting and release of restricted
      stock units. To our knowledge, except as otherwise indicated in the
      footnotes to this table and subject to applicable community property laws,
      each shareholder named in the table has the sole power to vote or direct
      the voting of (voting power) and the sole power to sell or otherwise
      direct the disposition of (dispositive power) the shares set forth
      opposite such shareholders name.                                                                                                                                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|(3) | For each person and group included in the table,
      percentage ownership is calculated by dividing the number of shares
      beneficially owned by such person or group as described above by the sum
      of the 276,467,262 common shares outstanding on April 14, 2015 and the
      number of common shares that such person or group had the right to acquire
      on or within 60 days of that date, including, but not limited to, upon the
      exercise of options and upon vesting and payment of restricted stock
      units.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|(4) | Includes 1,007,090 common shares directly owned by Mr.
      Murray and 1,430,764 common shares held in the name of Group 4 Ventures of
      which he is the sole shareholder, 300,000 common shares issuable upon
      exercise of options at an exercise price of CDN$1.1793 per share set to
      expire on September 19, 2015, 450,000 common shares issuable upon exercise
      of options at an exercise price of CDN$2.3932 per share set to expire on
      March 20, 2016, 200,000 common shares issuable upon exercise of options at
      an exercise price of $0.7110 per share set to expire on February 17, 2019,
      150,000 common shares issuable upon exercise of options at an exercise
      price of $0.8237 per share set to expire July 11, 2022 and 300,000 common
      shares issuable upon exercise of options at an exercise price of $0.9800
      per share set to expire December 16, 2023. In addition, Mr. Murray has the
      right, upon certain milestones, to receive 93,825 common shares issuable
      under Restricted Share Units for which he currently has neither voting nor
      dispositive rights.

40

---

|(5) | Includes 2,217,000 common shares owned in the name of
      Micor Trading SA of which Mr. Forrest is a director and has voting and
      dispositive control, 562,500 common shares owned in the name of Panares
      Resources Inc. of which he is a director and has voting and dispositive
      control, 150,000 common shares issuable upon exercise of options at an
      exercise price of CDN$1.1793 per share set to expire on September 19,
      2015, 250,000 common shares issuable upon exercise of options at an
      exercise price of CDN$2.3932 per share set to expire on March 20, 2016,
      150,000 common shares issuable upon exercise of options at an exercise
      price of $0.7110 per share set to expire on February 17, 2019 and 300,000
      common shares issuable upon exercise of options at an exercise price of
      $0.9800 per share set to expire December 16, 2023. In addition, Mr.
      Forrest has the right, upon certain milestones, to receive 53,571 common
      shares issuable under Restricted Share Units for which he currently has
      neither voting nor dispositive rights.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|(6) | Includes 664,095 common shares directly owned by Mr.
      Cherry, 91,353 restricted common shares for which he has voting power but
      does not currently have dispositive control, 1,666,667 common shares
      issuable upon exercise of options at an exercise price of $0.7613 per
      share set to expire on June 21, 2022, 562,000 common shares issuable upon
      exercise of options at an exercise price of $0.98 set to expire January
      17, 2024, and 502,000 common shares issuable upon exercise of options at
      an exercise price of $1.0700 set to expire January 5, 2020. In addition,
      Mr. Cherry holds currently un-exercisable options to acquire 833,333
      common shares at an exercise price of $0.7613 per share set to expire on
      June 21, 2022 and has the right, upon certain milestones, to receive
      347,625 common shares issuable under Restricted Share Units for which he
      currently has neither voting nor dispositive rights.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|(7) | Includes 1,314,450 common shares directly owned by Dr.
      Dreisinger, 150,000 common shares issuable upon exercise of options at an
      exercise price of CDN$1.1793 per share set to expire on September 19,
      2015, 250,000 common shares issuable upon exercise of options at an
      exercise price of CDN$2.3932 per share set to expire on March 20, 2016,
      150,000 common shares issuable upon exercise of options at an exercise
      price of $0.7110 per share set to expire on February 17, 2019, 150,000
      common shares issuable upon exercise of options at an exercise price of
      $0.7977 per share set to expire on January 7, 2023 and 300,000 common
      shares issuable upon exercise of options at an exercise price of $0.9800
      per share set to expire December 16, 2023. Mr. Dreisinger has the right,
      upon certain milestones, to receive 53,571 common shares issuable under
      Restricted Share Units for which he currently has neither voting nor
      dispositive rights.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|(8) | Includes 65,000 common shares held in the name of Proteus
      Capital Corp. of which Mr. Newby is the President and controlling
      shareholder, 323,750 common shares directly owned by Mr. Newby, 45,000
      restricted common shares for which he has voting power but does not
      currently have dispositive control, 100,000 common shares issuable upon
      exercise of options at an exercise price of CDN$0.9972 per share set to
      expire on December 5, 2015, 500,000 common shares issuable upon exercise
      of options at an exercise price of CDN$2.3932 per share set to expire on
      March 20, 2016, 200,000 common shares issuable upon exercise of options at
      an exercise price of $1.0318 per share set to expire on March 8, 2022,
      100,000 common shares issuable upon exercise of options at an exercise
      price of $0.7977 per share set to expire on January 7, 2023, 219,000
      common shares issuable upon exercise of options at an exercise price of
      $0.9800 set to expire January 17, 2024, and 213,000 common shares issuable
      upon exercise of options at an exercise price of $1.0700 set to expire
      January 5, 2020 in Mr. Newbys name; and 210,000 common shares issuable
      upon exercise of options at an exercise price of CDN$1.1793 per share set
      to expire on September 19, 2015 held in the name of Proteus Capital Corp.
      In addition, Mr. Newby has the right, upon certain milestones, to receive
      140,803 common shares issuable under Restricted Share Units for which he
      currently has neither voting nor dispositive
rights.

41

---

|(9)  | Includes 251,500 common shares directly owned by Mr.
      Sill, 6,201 common shares held in the name of Matthew Sill, 22,500 common
      shares held in the name of Michael R. Sill Family Trust, of which Mr. Sill
      is a trustee, 250,000 common shares issuable upon exercise of options by
      Mr. Sill at an exercise price of USD $1.7689 per share set to expire on
      March 10, 2021, 200,000 common shares issuable upon exercise of options at
      an exercise price of $1.0318 per share set to expire on March 8, 2022 and
      300,000 common shares issuable upon exercise of options at an exercise
      price of $0.9800 per share set to expire December 16, 2023. In addition,
      Mr. Sill has the right, upon certain milestones, to receive 53,571 common
      shares issuable under Restricted Share Units for which he currently has
      neither voting nor dispositive rights.                                                                                                                              
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|(10) | Includes 150,000 common shares directly owned by Mr.
      Rowland, 250,000 common shares issuable upon exercise of options by Mr.
      Rowland at an exercise price of $1.0318 per share set to expire on March
      8, 2022, 300,000 common shares issuable upon exercise of options at an
      exercise price of $0.9800 per share set to expire December 16, 2023 and
      200,000 common shares issuable upon exercise of options at an exercise
      price of $0.9300 per share set to expire January 9, 2024. In addition, Mr.
      Rowland has the right, upon certain milestones, to receive 53,571 common
      shares issuable under Restricted Share Units for which he currently has
      neither voting nor dispositive rights.                                                                                                                                                                                                                                                                                                    
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|(11) | Includes 100,500 common shares directly owned by Mr.
      Hodnik, 250,000 common shares issuable upon exercise of options by Mr.
      Hodnik at an exercise price of USD $1.7689 per share set to expire on
      March 10, 2021, 200,000 common shares issuable upon exercise of options at
      an exercise price of $1.0318 per share set to expire on March 8, 2022 and
      300,000 common shares issuable upon exercise of options at an exercise
      price of $0.9800 per share set to expire December 16, 2023. In addition,
      Mr. Hodnik has the right, upon certain milestones, to receive 53,571
      common shares issuable under Restricted Share Units for which he currently
      has neither voting nor dispositive rights.                                                                                                                                                                                                                                                                                                 
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|(12) | Includes 87,176 common shares directly owned by Mr.
      Moore, 200,000 common shares issuable upon exercise of options at an
      exercise price of $1.8816 per share set to expire on January 25, 2021,
      100,000 common shares issuable upon exercise of options at an exercise
      price of $1.0318 per share set to expire on March 8, 2022, 160,000 common
      shares issuable upon exercise of options at an exercise price of $0.9800
      per share set to expire January 17, 2024, and 138,000 common shares
      issuable upon exercise of options at an exercise price of $1.0700 per
      share set to expire on January 5, 2020. In addition, Mr. Moore holds
      currently un-exercisable options to acquire 100,000 common shares at an
      exercise price of $1.8816 per share set to expire on January 25, 2021 and
      has the right, upon certain milestones, to receive 55,720 common shares
      issuable under Restricted Share Units for which he currently has neither
      voting nor dispositive rights.
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|(13) | Includes 250,000 common shares issuance upon exercise of
      options at an exercise price of $1.0700 per share set to expire on July 9,
      2024. In addition, Mr. Daley has the right, upon certain milestones, to
      receive 23,809 common shares issuable under Restricted Share Units for
      which he currently has neither voting nor dispositive rights.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|(14) | Includes 8,202,526 common shares owned, 10,620,667 common
      shares issuable upon exercise of options, and 136,353 restricted common
      shares for which the holder has voting power but does not currently have
      dispositive control. Does not include 929,637 common shares issuable under
      Restricted Share Units for which the holder currently has neither voting
      nor dispositive rights nor currently un-exercisable options to acquire
      933,333 common shares.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|(15) | Includes 78,724,821 common shares owned, $25.0 million
      initial principal debentures exchangeable into 26,190,313 of our common
      shares (including interest capitalized as at March 31, 2015) and warrants
      to acquire 6,458,001 of our common shares at $1.3007 per
  share.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

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

As at April 14, 2015, there were 335 holders of record of our
common shares of which 261 were U.S. residents owning 24.0% of our outstanding
common shares.

42

---

|B. | Related Party Transactions
|-- | --------------------------

We conducted transactions with senior management, directors and
persons or companies related to these individuals, and paid or accrued amounts
as follows:

Year ended
      January 31,(in $000s)
    
    2015
    
    
    2014
    
    
    2013Salaries and other short-term
      benefits
    $
    1,509
    
    $
    1,718
    
    $
    1,468Other long-term benefits
    
    49
    
    
    60
    
    
    54Termination benefits
    
    -
    
    
    -
    
    
    279Share-based payments (1)
    
    1,093
    
    
    2,366
    
    
    2,102Total
    $
    2,651
    
    $
    4,144
    
    $
    3,903


(1) Share-based payment represents the fair value
determined at grant date to be expensed over the vesting period.

There are agreements with key employees that contain severance
provisions for termination without cause or in the event of a take-over bid.
Other than the President and Chief Executive Officer, none of PolyMets other
directors has a service contract with the Company providing for benefits upon
termination of his employment.

As a result of Glencores ownership of 28.5% of the Company it
is also a related party. Transactions with Glencore are described in Item 5(b)
above.

To the knowledge of the Company, except as disclosed above,
none of the directors, executive officers or other insiders, as applicable, of
the Company or any affiliate of the Company has or has had any material
interest, direct or indirect, in any transaction within the three most recently
completed financial years or during the current financial year that has
materially affected or will materially affect the Company.

|C. | Interests of experts and
counsel.
|-- | ---------------------------------

Not applicable.

43

---

ITEM 8. FINANCIAL INFORMATION

|A. | Consolidated Statements and Other Financial
      Information
|-- | -------------------------------------------------------------

See Item 18.

Legal Proceedings and Regulatory Actions

To the knowledge of Companys management, there are no material
legal proceedings or regulatory actions outstanding to which the Company is a
party, or to which any of its property is subject to during the financial year
ended January 31, 2015, and no such proceedings or regulatory actions are known
to the Company to be threatened or pending, as of the date hereof.

Dividend Policy

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

|B. | Significant Changes
|-- | -------------------

On April 15, 2015, the Company issued to Glencore a Tranche G
Debenture in the initial principal amount of $8.0 million. The debenture bears
interest at 12-month US dollar LIBOR plus 8.0% . The Company has provided
security on the debenture covering all of the assets of PolyMet and PolyMet US,
including a pledge of PolyMets 100% shareholding in PolyMet US. The due date of
the Tranche G Debenture is the earlier of (i) the availability of at least $100
million of finance provided we demonstrate repayment is prudent or (ii) March
31, 2016, on which date all principal and interest accrued to such date will be
due and payable.

44

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ITEM 9. THE OFFER AND LISTING

|A. | The Offer and Listing
Details
|-- | -----------------------------

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

TSX
    NYSE MKTFiscal Year
    High
    Low
    High
    LowEnded
    (CDN$)
    (CDN$)
    (US$)
    (US$)January 31, 2015
    1.66
    1.08
    1.50
    1.00January 31, 2014
    1.34
    0.69
    1.28
    0.67January 31, 2013
    1.37
    0.73
    1.37
    0.70January 31, 2012
    2.61
    1.00
    2.65
    0.97January 31, 2011
    3.56
    1.33
    3.38
    1.26


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

TSX
    NYSE MKTFiscal Quarter
    High
    Low
    High
    LowEnded
    (CDN$)
    (CDN$)
    (US$)
    (US$)January 31, 2015
    1.38
    1.17
    1.18
    1.01October 31, 2014
    1.36
    1.14
    1.25
    1.04July 31, 2014
    1.38
    1.08
    1.26
    1.00April 30, 2014
    1.66
    1.13
    1.50
    1.02January 31, 2014
    1.34
    0.77
    1.28
    0.74October 31, 2013
    0.91
    0.69
    0.88
    0.67July 31, 2013
    1.21
    0.74
    1.19
    0.68April 30, 2013
    1.27
    1.02
    1.25
    0.99


The following table outlines the high and low market prices for
the periods indicated:

TSX
    NYSE MKTHigh
    Low
    Total Volume
    High
    Low
    Total VolumeMonth Ended
    (CDN$)
    (CDN$)
    (#)
    (US$)
    (US$)
    (#)April 1  14, 2015
    1.61
    1.56
    109,400
    1.29
    1.25
    1,427,000March 31, 2015
    1.70
    1.35
    642,900
    1.33
    1.09
    6,982,000February 28, 2015
    1.38
    1.26
    516,900
    1.10
    1.04
    3,209,400January 31, 2015
    1.38
    1.23
    505,700
    1.18
    1.05
    3,652,200December 31, 2014
    1.24
    1.19
    450,900
    1.08
    1.01
    3,429,100November 30, 2014
    1.28
    1.17
    281,800
    1.13
    1.05
    2,856,900October 31, 2014
    1.21
    1.14
    266,100
    1.08
    1.04
    3,440,600September 30, 2014
    1.32
    1.20
    173,700
    1.21
    1.04
    3,999,800August 30, 2014
    1.36
    1.26
    181,200
    1.25
    1.15
    2,626,00July 31, 2014
    1.36
    1.11
    311,000
    1.24
    1.06
    4,205,100June 30, 2014
    1.25
    1.08
    349,000
    1.17
    1.00
    4,638,900May 31, 2014
    1.38
    1.25
    320.600
    1.26
    1.15
    3,611,500April 30, 2014
    1.55
    1.25
    574,600
    1.41
    1.15
    7,438,900March 31, 2014
    1.66
    1.26
    1,341,800
    1.50
    1.14
    14,285,100February 28, 2014
    1.31
    1.13
    751,400
    1.19
    1.02
    7,334,700


45

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|B. | Plan of Distribution
|-- | --------------------

Not applicable.

|C. | Markets
|-- | -------

On April 13, 1984, our common shares commenced trading on what
is now the TSX Venture Exchange under the symbol "POM. On February 1, 2007, our
common shares graduated to trading on the TSX under the symbol POM. In August
2000, our common shares began trading on the OTCBB under the symbol POMGF. On
June 26, 2006, our common shares commenced trading on what is now the NYSE MKT
under the symbol PLM.

|D. | Selling Shareholders
|-- | --------------------

Not applicable.

|E. | Dilution
|-- | --------

Not applicable.

|F. | Expenses of the Issue
|-- | ---------------------

Not applicable.

ITEM 10. ADDITIONAL INFORMATION

|A. | Share Capital
|-- | -------------

Not Applicable.

|B. | Memorandum and Articles of
  Association
|-- | ----------------------------------------

Incorporation

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

Powers and Functions of the Directors

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

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

46

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

Rights and Restrictions Attached to the Shares

As all of our authorized and issued shares are of one class of
common shares, there are no special rights or restrictions of any nature or kind
attached to any of the shares, including any dividend rights. All authorized and
issued shares rank equally in respect to the declaration and receipt of
dividends and rights to share in any profits or surplus upon our liquidation,
dissolution or winding-up. Each share has attached to it one non-cumulative
vote. Shareholders are not liable to further capital calls made by us. There is
no specific sinking fund provision or any provision discriminating against any
existing or prospective holder of shares as a result of such shareholder owning
a substantial number of shares. See further discussion of Shareholder Rights
Plan in Item 14.

Alteration of Share Rights

The rights of holders of our issued common shares may be
altered by special resolution, which requires the approval of the holders of
two-thirds or more of the votes cast at a meeting of our shareholders called and
held in accordance with applicable law. See further discussion of Shareholder
Rights Plan in Item 14.

Annual General Meetings

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

Foreign Ownership Limitations

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

Change of Control

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

Share Ownership Reporting Obligations

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

Securities legislation in Canada requires that shareholder
ownership must be disclosed once a person owns beneficially or has control or
direction, directly or indirectly, over greater than 10% of the issued voting
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.

47

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|C. | Material Contracts
|-- | ------------------

The following is a summary of each material contract, other
than contracts entered into in the ordinary course of business, to which we are
a party, for the two years preceding the date of this document:

| | Acquisition of the mine site lease, see Item
      4(D)(c)(i) for a complete description.                                                                                   
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Acquisition of the Erie Plant and associated
      infrastructure acquired in the Asset Purchase Agreements I and II, see
      Item 4(D)(c)(ii) for a complete description.
| | Share purchase agreement entered into with
      Glencore, see Item 5(B) for a complete description.                                                                        

|D. | Exchange Controls
|-- | -----------------

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

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

|E. | Taxation
|-- | --------

This summary is not exhaustive of all possible income tax
consequences. It is not intended as legal or tax advice to any particular holder
of our common shares and should not be so construed. The tax consequences to any
particular holder of common shares will vary according to the status of that
holder as an individual, trust, corporation, or member of a partnership, the
jurisdiction in which that holder is subject to taxation, the place where that
holder is resident and, generally, according to that holders particular
circumstances. Each holder should consult his own tax advisor with respect to
the income tax consequences applicable to him in his own particular
circumstances.

Certain Canadian Federal Income Tax
ConsequencesThe following is a summary of the material Canadian
federal income tax considerations generally applicable to a holder of our common
shares who, at all relevant times for the purposes of the Income Tax Act
(Canada) and the regulations thereunder (collectively, the Tax Act), is not,
and is not deemed to be, resident in Canada, deals at arms length with and is
not affiliated with us, holds their common shares as capital property and has
not and will not enter into a derivative forward transaction (as defined in
the Tax Act) with respect to the common shares of the Company.

Common shares of the Company will generally be considered to be
capital property of a holder unless such common shares are held in the course of
carrying on a business in Canada or were acquired in one or more transactions
considered to be an adventure in the nature of trade for the purposes of the Tax
Act. Special rules, which are not discussed in this summary, may apply to a
non-resident holder that is an insurer that carries on business in Canada and
elsewhere.

This summary is based on the current provisions of the Tax Act,
all specific proposals to amend the Tax Act publicly announced by or on behalf
of the Minister prior to the date hereof (the Tax Proposals), and the current
published administrative policies and assessing practices of the Canada Revenue
Agency (CRA). This summary assumes that all Tax Proposals will be enacted in
the form proposed; however no assurance can be given that the Tax Proposals will
be enacted in the form proposed or at all. This summary does not otherwise take
into account or anticipate any changes in law, whether by judicial,
administrative or legislative decision or action or changes in CRAs
administrative and assessing policies and practices, nor does it take into
account provincial, territorial or foreign income tax legislation or
considerations, which may differ from those described herein. The provisions of
the Tax Act are subject to income tax treaties to which Canada is a party,
including the Canada-United States Income Tax Convention (1980), as amended (the
Convention). This summary is of a general nature only and is not, and is
not intended to be, legal or tax advice to any particular holder. This summary
is not exhaustive of all possible Canadian federal income tax consequences that
may affect holders of common shares. Accordingly, holders should consult their
own tax advisors with respect to their particular circumstances.

48

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Dividends on Common SharesUnder the Tax Act, a
non-resident of Canada is generally subject to Canadian withholding tax at the
rate of 25 percent on dividends paid or credited, or deemed to have been paid or
credited, by the Company. We are responsible for withholding this tax at source.
The Convention generally limits the rate of withholding tax on dividends to 15
percent if the shareholder is a resident of the U.S., the dividends are
beneficially owned by and paid to such shareholder, and such shareholder is
entitled to benefits under the Convention. The rate of withholding tax may be
reduced to 5 percent if, in addition to the above, the shareholder is a company
that beneficially owns at least 10 percent of the voting stock of the
Company.

Disposition of Common SharesUnder the Tax Act, a
taxpayers capital gain or capital loss from a disposition of a share of the
Company is the amount, if any, by which the taxpayers proceeds of disposition
exceed (or are exceeded by, respectively) the aggregate of the taxpayers
adjusted cost base of the share and reasonable expenses of disposition. The
capital gain or loss is generally computed in Canadian currency using a weighted
average adjusted cost base for identical properties.

A non-resident of Canada is generally not subject to tax under
the Tax Act in respect of a capital gain realized upon the disposition or deemed
disposition of a share of a class that is listed on a designated stock
exchange (which includes the TSX) unless the share is taxable Canadian
property of the holder and the holder is not entitled to relief under an
applicable income tax convention between Canada and the country in which the
holder is resident.

Generally, provided that the common shares of the Company are
listed on a designated stock exchange (which includes the TSX) at the time of
disposition or deemed disposition, a common share will not constitute taxable
Canadian property of a holder, unless at any time during the 60-month period
immediately preceding the disposition or deemed disposition, (i) the
non-resident holder, persons with whom the non-resident holder did not deal at
arms length, or partnerships in which the holder or persons with whom the
holder did not deal at arms length holds a membership interest directly or
indirectly through one or more partnerships, or the holder together with any
such persons and partnerships, owned 25% or more of our issued shares of any
class or series of the Company; and (ii) more than 50% of the fair market value
of the common shares was derived, directly or indirectly, from one or any
combination of real or immovable property situated in Canada, Canadian resource
property (as defined in the Tax Act), timber resource property (as defined in
the Tax Act) and an option in respect of, an interest in, or for civil law
rights in, such property. Notwithstanding the foregoing, a common share may be
deemed to be taxable Canadian property in certain circumstances set out in the
Tax Act. Holders whose common shares may constitute taxable Canadian property
should consult with their own tax advisors.

49

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Certain United States Federal Income Tax
ConsequencesThe following discussion is a summary of certain U.S.
federal income tax consequences that may be relevant with respect to the
ownership and disposition of our common shares by a U.S. Holder (as hereinafter
defined). This discussion is based upon the provisions of the U.S. Internal
Revenue Code of 1986, as amended (the Code), Treasury Regulations promulgated
thereunder, administrative rulings and judicial decisions, in each case as of
the date hereof. These authorities are subject to differing interpretations and
may be changed, perhaps retroactively, resulting in U.S. federal income tax
consequences different from those discussed below. We have not sought any ruling
from the U.S. Internal Revenue Service (IRS) with respect to the statements
made and the conclusions reached in this discussion, and there can be no
assurance that the IRS will agree with such statements and conclusions.

For purposes of this discussion, a U.S. Holder means a holder
of our common shares who is (i) a citizen or an individual resident of the U.S.,
(ii) a corporation, or other entity treated as a corporation for U.S. federal
income tax purposes, created or organized in or under the laws of the U.S., any
state thereof or the District of Columbia, (iii) an estate the income of which
is subject to.US. federal income taxation regardless of its source, or (iv) a
trust if it is subject to the primary supervision of a court within the U.S. and
one or more U.S. persons, as defined in the Code, have the authority to
control all substantial decisions of the trust or (2) has a valid election in
effect under applicable Treasury regulations to be treated as a U.S. person.
This summary does not apply to you if you are not a U.S. Holder.

This summary applies to you only if you are a U.S. Holder (i)
that holds Common Shares as capital assets for tax purposes, and (ii) (a) that
is a resident of the United States for purposes of the current Convention
between the United States and Canada signed on September 26, 1980 (as amended by
the Protocols, the Treaty), (b) whose Common Shares are not, for purposes of
the Treaty, effectively connected with a permanent establishment in Canada and
(c) that otherwise qualifies for the full benefits of the Treaty.

In addition, this discussion does not address the U.S. federal
income tax consequences to certain categories of U.S. Holders subject to special
rules, including U.S. Holders that are (i) banks, financial institutions or
insurance companies; (ii) regulated investment companies or real estate
investment trusts; (iii) brokers or dealers in securities or currencies or
traders in securities that elect to use a mark-to-market method of accounting;
(iv) tax-exempt organizations, qualified retirement plans, individual retirement
accounts or other tax-deferred accounts; (v) holders that hold Common Shares as
part of a hedge, straddle, conversion transaction or a synthetic security or
other integrated transaction; (vi) holders that have a functional currency
other than the United States dollar; (vii) holders that own directly, indirectly
or constructively 10 percent or more of the voting power of the Corporation; and
(viii) United States expatriates. If a partnership (or any other entity treated
as a partnership for U.S. federal income tax purposes) holds our common shares,
the tax treatment of a partner in such partnership will generally depend on the
status of the partner and the activities of the partnership. Such a partner
should consult its own tax advisors as to the U.S. federal income tax
consequences of being a partner in a partnership that holds or disposes of our
common shares.

This discussion addresses only certain aspects of U.S. federal
income taxation to U.S. Holders. In addition, this discussion does not address
any U.S. federal alternative minimum tax, U.S. federal estate, gift, or other
non-income tax; or state, local or non-U.S. tax consequences of the acquisition,
ownership and disposition of Common Shares. U.S. Holders should consult their
own tax advisors regarding the U.S. federal, state, local, non-U.S. and other
tax consequences of the ownership and disposition of our common shares.

Distributions on Common Shares Subject to the
discussion below under Passive Foreign Investment Company, U.S. Holders
receiving dividend distributions (including constructive dividends) with respect
to our common shares generally are required to include in gross income for U.S.
federal income tax purposes the gross amount of such distributions (without
reduction for any Canadian income or other tax withheld from such
distributions), equal to the U.S. dollar value of such distributions on the date
of receipt (based on the exchange rate on such date), to the extent that we have
current or accumulated earnings and profits (as determined for U.S. federal
income tax purposes). To the extent that the amount of the distribution exceeds
our current and accumulated earnings and profits, it will be treated as a return
of capital to the extent of a U.S. Holders adjusted tax basis in our common
shares and thereafter as capital gain from the sale or exchange of such common
shares. We do not intend to calculate our earnings and profits under U.S.
federal income tax principles. Therefore, a U.S. Holder should expect that the
full amount of a distribution with respect to the common shares will be treated,
and reported by us, as a dividend.

50

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Dividends received by U.S. Holders that are individuals,
estates or trusts from a qualified foreign corporation, as defined in the
Code, generally are taxed at the same preferential tax rates applicable to
long-term capital gains. A corporation that is a passive foreign income
company as defined below under Passive Foreign Investment Company, for its
taxable year during which it pays a dividend, or for its immediately preceding
taxable year, however, is not a qualified foreign corporation. We believe we
will meet the definition of a PFIC, dividends received by U.S. Holders that are
individuals, estates or trusts generally will be subject to U.S. federal income
tax at ordinary income tax rates (and not at the preferential tax rates
applicable to long-term capital gains). Dividends paid on our common shares will
not be eligible for the dividends received deduction provided to corporations
receiving dividends from certain U.S. corporations.

In the case of foreign currency (such as Canadian dollars)
received as a dividend that is not converted by the recipient into U.S. dollars
on the date of receipt, a U.S. Holder will have a tax basis in the foreign
currency equal to its U.S. dollar value on the date of receipt. Generally any
gain or loss recognized upon a subsequent sale or other disposition of the
foreign currency, including the exchange for U.S. dollars, will be ordinary
income or loss.

The maximum rate of withholding tax on dividends paid to you
pursuant to the Treaty is 15 percent. You may be required to properly
demonstrate to the company and the Canadian tax authorities your entitlement to
the reduced rate of withholding under the Treaty.

Disposition of Common Shares Subject to the
discussion below under Passive Foreign Investment Company, U.S. Holders will
recognize gain or loss upon the sale of our common shares equal to the
difference, if any, between (i) the amount of cash plus the fair market value of
any property received, and (ii) the U.S. Holders tax basis in our common
shares. Any gain or loss on disposition of our common shares generally will be
U.S. source gain or loss and will be capital gain or loss. If, at the time of
the disposition, a U.S. holder is treated as holding the common shares for more
than one year, such gain or loss will be a long-term capital gain or loss.
Long-term capital gain recognized by a non-corporate U.S. holder is currently
subject to taxation at a reduced rate. The deductibility of capital losses is
subject to limitations.

Passive Foreign Investment CompanyWe believe
that we will meet the definition of passive foreign investment company under
Section 1297 of the Code. A U.S. Holder that holds shares in a non-U.S.
corporation during any year in which such corporation is a PFIC is subject to
numerous special U.S. federal income tax rules. A non-U.S. corporation is
considered to be a PFIC for any taxable year if either: at least 75% of its
gross income is passive income (the income test), or at least 50% of the value
of its assets (based on an average of the quarterly values of the assets during
a taxable year) is attributable to assets that produce or are held for the
production of passive income (the asset test).

For purposes of the income test and the asset test,
respectively, we will be treated as earning our proportionate share of the
income and owning our proportionate share of the assets of any other corporation
in which we own, directly or indirectly, 25% or more (by value) of the shares.
In addition, for purposes of the income test, passive income does not include
any interest, dividends, rents, or royalties received or accrued by us from
certain related persons, to the extent such items are properly allocable to
income of such related person that is not passive.

We must make a separate determination each year as to whether
or not we are a PFIC. As a result, our PFIC status may change. In particular,
because the total value of our assets for purposes of the asset test will be
calculated using the market price of our common shares (assuming that we
continue to be a publicly traded corporation for purposes of the PFIC rules),
our PFIC status will depend in large part on the market price of our common
shares. Accordingly, fluctuations in the market price of our common shares may
result in our being a PFIC for any year. If we are a PFIC for any year during
which a U.S. Holder holds our common shares, we generally will continue to be
treated as a PFIC for all succeeding years during which such U.S. Holder holds
the common shares, absent a special election. For instance, if we cease to be a
PFIC, a U.S. Holder may avoid some of the adverse effects of the PFIC regime by
making a deemed sale election with respect to its common shares pursuant to
which such U.S. Holder recognizes gain (which will be taxed under the default
PFIC tax rules discussed below) as if such common shares had been sold on the
last day of the last taxable year for which we were a PFIC. If a non-U.S.
corporation is a PFIC for any taxable year and any of its non-U.S. subsidiaries
is also a PFIC, a U.S. Holder would be treated as owning a proportionate amount
(by value) of the shares of the lower-tier PFIC for purposes of the application
of these rules.

51

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If we are a PFIC for any taxable year during which a U.S.
Holder holds our common shares, such U.S. Holder will be subject to special tax
rules with respect to any excess distribution that it receives and any gain it
realizes from a sale or other disposition (including a pledge) of the common
shares, unless the U.S. Holder makes a mark-to-market election, as discussed
below. Distributions received by a U.S. Holder in a taxable year that are
greater than 125% of the average annual distributions such U.S. Holder received
during the shorter of the three preceding taxable years and its holding period
for the common shares will be treated as an excess distribution. Under these
special tax rules, (a) the excess distribution or gain will be allocated ratably
over the U.S. Holders holding period, (b) the amount allocated to the current
taxable year and any taxable year prior to the first taxable year in which we
became a PFIC will be treated as ordinary income, and (c) the amount allocated
to each other taxable year will be subject to the highest tax rate in effect for
that year and the interest charge generally applicable to underpayments of tax
will be imposed on the resulting tax attributable to each such year. You will be
required to file IRS Form 8621 if you hold our Rights or Common Shares in any
year in which we are classified as a PFIC.

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

Alternatively, a U.S. Holder of marketable stock (as defined
below) in a PFIC may make a mark-to-market election with respect to shares of a
PFIC to elect out of the tax treatment discussed above. If a U.S. Holder makes a
valid mark-to-market election for the common shares, the U.S. Holder will
include in income each year an amount equal to the excess, if any, of the fair
market value of the common shares as of the close of its taxable year over its
adjusted basis in such common shares. The U.S. Holder is allowed a deduction for
the excess, if any, of the adjusted basis of the common shares over their fair
market value as of the close of the taxable year. However, deductions are
allowable only to the extent of any net mark-to-market gains on the common
shares included in the U.S. Holders income for prior taxable years. Amounts
included in a U.S. Holders income under a mark-to-market election, as well as
gain on the actual sale or other disposition of the common shares, are treated
as ordinary income. Ordinary loss treatment also applies to the deductible
portion of any mark-to-market loss on the common shares, as well as to any loss
realized on the actual sale or disposition of the common shares, to the extent
that the amount of such loss does not exceed the net mark-to-market gains
previously included for such common shares. A U.S. Holders basis in the common
shares will be adjusted to reflect any such income or loss amounts. If a U.S.
Holder makes such an election, the tax rules that ordinarily apply to
distributions by corporations that are not PFICs would apply to distributions by
us, except that the preferential tax rates applicable to long-term capital gains
on dividends received from a qualified foreign corporation discussed above
under Distributions on the Common Shares would not apply.

The mark-to-market election is available only for marketable
stock, which is stock that is traded in other than de minimis quantities on at
least 15 days during each calendar quarter on a qualified exchange, including
the TSX and the NYSE MKT, or other market, as defined in applicable U.S.
Treasury regulations. We cannot provide any assurances that our common shares
will continue to be listed on each of the TSX and the NYSE MKT on at least 15
days during each calendar quarter and traded in other than de minimis
quantities. You are urged to consult your own tax advisor concerning the
availability of the mark-to-market election.

52

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If a non-U.S. corporation is a PFIC, a holder of shares in that
corporation can avoid taxation under the rules described above by making a
qualified electing fund election to include the holders share of the
corporations income on a current basis in gross income. However, a U.S. Holder
can make a qualified electing fund election with respect to its common shares
only if we furnish the U.S. Holder annually with certain tax information, and we
do not intend to prepare or provide such information.

You are urged to consult your own tax advisors concerning the
U.S. federal income tax consequences of holding Common Shares if we are
considered a PFIC any taxable year.

Foreign Tax Credits Subject to certain conditions
and limitations, including potential limitations under the Treaty, Canadian
taxes paid on or withheld from distributions from us and not refundable to a
U.S. Holder may be, at the election of such U.S. Holder, either credited against
such U.S. Holders U.S. federal income tax liability or deducted from such U.S.
Holders taxable income. Generally, a credit will reduce a U.S. Holders U.S.
federal income tax liability on a dollar-for-dollar basis, whereas a deduction
will reduce a U.S. Holder s income subject to U.S. federal income tax. This
election is made on a year-by-year basis and applies to all foreign taxes paid
by or withheld from a U.S. Holder that year.

Complex limitations apply to the foreign tax credit, including
the general limitation that the credit cannot exceed the proportionate share of
a U.S. Holders U.S. federal income tax liability that such U.S. Holders
foreign source taxable income bears to such U.S. Holders worldwide taxable
income. In applying this limitation, a U.S. Holders various items of income and
deduction must be classified, under complex rules, as either foreign source or
U.S. source. In addition, this limitation is calculated separately with
respect to specific categories of income. Dividends paid by us generally will
constitute foreign source income and generally will be categorized as passive
category income.

Because the rules governing foreign tax credits are complex,
U.S. Holders should consult their own tax advisors regarding the availability of
foreign tax credits in their particular circumstances.

Additional Tax on Passive IncomeFor tax years
beginning after December 31, 2012, certain individuals, estates and trusts whose
income exceeds certain thresholds will be required to pay a 3.8% Medicare surtax
on net investment income including, among other things, dividends and net gain
from dispositions of property (other than property held in a trade or business).
U.S. Holders should consult with their own tax advisors regarding the effect, if
any, of this tax on their ownership and disposition of Common Shares.

Information Reporting; Backup Withholding Tax Under
U.S. federal income tax law and Treasury Regulations, certain categories of U.S.
Holders must file information returns with respect to their investment in, or
involvement in, a foreign corporation. For example, recently enacted legislation
generally imposes new U.S. return disclosure obligations (and related penalties)
on individuals who are U.S. Holders that hold certain specified foreign
financial assets in excess of $50,000. The definition of specified foreign
financial assets includes not only financial accounts maintained in foreign
financial institutions, but also, unless held in accounts maintained by a
financial institution, any stock or security issued by a nonU.S. person, any
financial instrument or contract held for investment that has an issuer or
counterparty other than a U.S. person and any interest in a foreign entity. U.S.
Holders may be subject to these reporting requirements unless their Common
Shares are held in an account at a domestic financial institution. Penalties for
failure to file certain of these information returns are substantial. U.S.
Holders should consult with their own tax advisors regarding the requirements of
filing information returns under these rules, including the requirement to file
an IRS Form 8938.

53

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In general, payments made in the U.S. or through certain U.S.
related financial intermediaries with respect to the ownership and disposition
of our common shares will be required to be reported to the IRS unless the U.S.
Holder is a corporation or other exempt recipient and, when required,
demonstrates this fact. In addition, a U.S. Holder may be subject to a backup
withholding (currently at a rate of 28%) on such payments unless the U.S. Holder
(i) is a corporation or other exempt recipient and when required, demonstrates
this fact or (ii) provides a taxpayer identification number and otherwise timely
complies with applicable certification requirements. U.S. Holders should consult
their own tax advisors regarding their qualification for an exemption from
backup withholding and the procedures for obtaining such an exemption, if
applicable. Backup withholding is not an additional tax. Amounts withheld as
backup withholding may be credited against a U.S. Holders U.S. federal income
tax liability and such U.S. Holder may obtain a refund of any excess amounts
withheld by filing the appropriate claim for refund with the IRS and furnishing
any required information in a timely manner.

THE U.S. FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS
FOR GENERAL INFORMATION PURPOSES ONLY, DOES NOT PURPORT TO BE A COMPLETE
DESCRIPTION OF THE POTENTIAL TAX CONSIDERATIONS RELATING TO OUR COMMON SHARES
AND IS NOT TAX ADVICE. U.S. HOLDERS ARE URGED TO CONSULT THEIR TAX ADVISORS
REGARDING THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE OWNERSHIP AND DISPOSITION
OF OUR COMMON SHARES.

54

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|F. | Dividends and Paying
Agents
|-- | ---------------------------

Not Applicable.

|G. | Statement by Experts
|-- | --------------------

None of the following companies, partnerships or persons, each
being persons or companies who have prepared or supervised the preparation of
reports relating to the Corporations mineral properties and whose profession or
business gives authority to such reports, or partner thereof, as applicable,
received or has received a direct or indirect interest in the property of the
Corporation or of any associate or affiliate of the Corporation. As of the date
hereof, the aforementioned persons and persons at the companies specified above
who participated in the preparation of such reports, as a group, beneficially
own, directly or indirectly, less than 1 % of our outstanding securities of any
class and less than 1% of the outstanding securities of any class of our
associates or affiliates, except for David Dreisinger and William Murray, who
are both directors of the Corporation:

| | Pierre Desautels, P. Geo., of AGP Mining
      Consultants Inc., of Barrie, ON;        
|- | ---------------------------------------------------------------------------------------
| | Gordon Zurowski, P. Eng., of AGP Mining
      Consultants Inc. , of Barrie, ON;        
| | Karl Everett, P. E., of Foth Infrastructure
      & Environment LLC; of Duluth, MN;    
| | David Dreisinger, Ph.D., P Eng., of Dreisinger
      Consulting Inc., of Delta, BC; and
| | William Murray, P. Eng., of Optimum Project
      Services Ltd., of Richmond, BC       

None of such persons, or any director, officer or employee, as
applicable of any such companies or partnerships, is currently expected to be
elected, appointed or employed as a director, officer or employee of the
Corporation or any of our associates or affiliates, except for David Dreisinger
and William Murray, who are both directors of the Corporation.

|H. | Documents on Display
|-- | --------------------

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

| | Farris LLP                             
| | ---------------------------------------
| | c/o Farris, Vaughan, Wills & Murphy LLP
| | 2500 - 700 W Georgia St                
| | Vancouver BC                           
| | Canada V7Y 1B3                         

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

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

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

55

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Additional financial information is provided in our financial
statements and MD&A, copies of which can be obtained by contacting our
Corporate Secretary in writing at 100 King Street West, Suite 5700, Toronto,
Ontario M5X 1C7 or by e-mail at info@polymetmining.com. Copies of such documents
will be provided to shareholders free of charge.

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

|I. | Subsidiary Information
|-- | ----------------------

Not Applicable

ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT
MARKET RISK

Currency Risk The Company incurs expenditures in
Canada and in the United States. The functional and reporting currency of the
Company and its subsidiary is the US dollar. Foreign exchange risk arises
because the amount of Canadian dollar cash and cash equivalents, amounts
receivable, or accounts payables and accrued liabilities will vary in US dollar
terms due to changes in exchange rates.

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

Based on net exposures as at January 31, 2015, a 10% change in
the Canadian / United States exchange rate would have impacted the Companys
loss by approximately $9,000.

Interest Rate Risk Interest rate risk arises from
interest paid on floating rate debt and interest received on cash and short-term
deposits. The Company has not hedged any of its interest rate risk. The Company
currently capitalizes the majority of interest charges, and therefore the risk
exposure is primarily on cash interest payable and net earnings in relation to
the subsequent depreciation of capitalized interest charges.

ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY
SECURITIES

Not Applicable.

56

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PART II

ITEM 13. DEFAULT, DIVIDEND ARREARAGES AND
DELINQUENCIES

None.

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

Shareholder Rights Plan

The Shareholder Rights Plan is designed to ensure that all
shareholders receive equal treatment and to maximize shareholder values in the
event of a take-over bid or other acquisition that could lead to a change in
control of the Company. It is not intended to deter take-over bids. The
Shareholder Rights Plan is intended to provide time for shareholders to properly
assess any take-over bid and to provide non-abstaining members of the Board of
Directors with sufficient time to explore and develop alternatives for
maximizing shareholder value, including, if considered appropriate, identifying
and locating other potential bidders.

Effective December 4, 2003, the Company adopted the Shareholder
Rights Plan (Rights Plan), which was approved by the Companys shareholders on
May 28, 2004, modified and further ratified and reconfirmed by the Companys
shareholders most recently on July 9, 2013. Under the Rights Plan, the Company
has issued one right for no consideration in respect of each outstanding common
share held by the shareholder of the Company on December 4, 2003. All common
shares subsequently issued by the Company during the term of the Rights Plan
will have one right represented for each common share held by the shareholder of
the Company. The Rights Plan expires if not reapproved at every third annual
shareholder meeting.

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 non-abstaining Board of
Directors. Each Right entitles the registered holder to purchase one common
share of the Company at the price of CDN$43.06 per share, subject to adjustment
which was triggered upon close of the Rights Offering (the Exercise Price).
However, if a Flip-in Event (as defined in the Rights Plan) occurs, each Right
would then entitle the registered holder to purchase that number of common
shares having a market value at the date of the Flip-in Event equal to twice the
Exercise Price upon payment of the Exercise Price.

The Amended and Restated Shareholder Rights Plan is included as
Exhibit 4.3.

57

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ITEM 15. CONTROLS AND PROCEDURES

A. Evaluation of Disclosure Controls and Procedures

The Company's Chief Executive Officer and Chief Financial
Officer have evaluated the effectiveness of the Company's disclosure controls
and procedures (as such term is defined in Rules 13(a)-15(e) and 15(d)-15(e)
under the "Exchange Act" as of the end of the period covered by this Annual
Report (the "Evaluation Date"). Based on such evaluation, such officers have
concluded that, as of the Evaluation Date, the Company's disclosure controls and
procedures are effective. Such disclosure controls and procedures are designed
to ensure that the information required to be disclosed by the Company in
reports that it files or submits to the Securities and Exchange Commission under
the Exchange Act is recorded, processed, summarized and reported within the time
periods specified in applicable rules and forms, and includes controls and
procedures designed to ensure information relating to the Company required to be
included in our reports filed or submitted under the Exchange Act is accumulated
and communicated to the Companys management to allow timely decision regarding
disclosure.

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

Our management is responsible for establishing and maintaining
adequate internal control over financial reporting. Internal control over
financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of the
Consolidated Financial Statements for external reporting purposes in accordance
with IFRS as issued by IASB.

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

Management has assessed the effectiveness of our internal
control over financial reporting as at January 31, 2015. In making its
assessment, management has used the criteria established in Internal Control
- Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) to evaluate our internal
control over financial reporting.

Based on its assessment, management has concluded that, as at
January 31, 2015, our internal control over financial reporting is
effective.

C. Attestation Report of the Registered Public Accounting
Firm

The effectiveness of the Company's internal control over
financial reporting as of January 31, 2015, has been audited by
PricewaterhouseCoopers LLP, independent auditors, as stated in their report
which appears herein.

D. Changes in Internal Controls

There have been no changes in the Companys internal control
over financial reporting during the period covered by this Annual Report that
have materially affected, or is reasonably likely to material affect, the
Companys internal control over financial reporting.

58

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ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT

The Company's Board of Directors has determined that there is
at least one audit committee financial expert, as defined under Item 16A of Form
20-F, serving on its audit committee, namely, W. Ian L. Forrest, whose
qualifications are set out in Item 6, above. Mr. Forrest is independent, as such
term is defined by the listing standards of the NYSE MKT. All other members of
the Audit Committee are also independent as defined by the listing standards of
the NYSE MKT.

ITEM 16B. CODE OF ETHICS

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

The Code of Ethics is included as Exhibit 11.1.

ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND
SERVICES

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

Financial Year
    
    Audit RelatedEnding
    Audit Fees
    Fees
    Tax Fees
    All Other FeesJanuary 31, 2015
    CDN $190,000
    CDN $52,500
    CDN $27,500
    CDN $NilJanuary 31, 2014
    CDN $185,000
    CDN $85,500
    CDN $22,300
    CDN $Nil


"Audit Fees" are the aggregate fees billed by
PricewaterhouseCoopers LLP for the audit of the Company's consolidated annual
financial statements.

"Audit-Related Fees" are fees billed by PricewaterhouseCoopers
LLP for services reasonably related to the performance of the audit or interim
review and services associated with registration statements and prospectuses.

"Tax Fees" are fees for professional services rendered by
PricewaterhouseCoopers LLP for tax compliance, tax advice on actual or
contemplated transactions.

Pre-Approval Policies and Procedures

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

59

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

Not applicable.

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

Not applicable.

ITEM 16F. CHANGES IN REGISTRANTS CERTIFYING
ACCOUNTANT

Not applicable.

ITEM 16G. CORPORATE GOVERNANCE

Our corporate governance practices do not differ in any
significant way from those followed by U.S. domestic companies listed on the
NYSE MKT.

ITEM 16H. MINE SAFETY DISCLOSURE

PolyMet is required to report certain mine safety violations or
other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall
Street Reform and Consumer Protection Act, and that required information is
included in Exhibit 16.1.

60

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PART III

ITEM 17. FINANCIAL STATEMENTS

Not applicable.

ITEM 18. FINANCIAL STATEMENTS

Our financial statements are stated in United States dollars
($) and are prepared in accordance with International Financial Reporting
Standards (IFRS) as issued by the International Accounting Standards Board
(IASB).

Index to Financial Statements

Description
    PageManagement
      Report
    F-1Independent
      Auditors Report
    F-2Consolidated Balance Sheets
    F-4Consolidated Statements of Loss and Comprehensive Loss
    F-5Consolidated Statements of Changes in Shareholders
    Equity
    F-6Consolidated Statements of Cash Flows
    F-7Notes to Consolidated Financial Statements
    F-8


61

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POLYMET MINING CORP.

CONSOLIDATED FINANCIAL STATEMENTS

As at January 31, 2015 and 2014And for the years
ended January 31, 2015, 2014, and 2013



---



Management Report

Managements Responsibility for Consolidated Financial
Statements

The accompanying Consolidated Financial Statements of PolyMet
Mining Corp. (the Company) are the responsibility of management. The
Consolidated Financial Statements have been prepared by management in accordance
with International Financial Reporting Standards (IFRS) as issued by the
International Accounting Standards Board (IASB) and include certain estimates
that reflect managements best judgments.

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

Managements Annual Report on Internal Control over
Financial Reporting

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

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

Management has assessed the effectiveness of the Companys
internal control over financial reporting as at January 31, 2015. In making its
assessment, management has used the criteria established in Internal Control
- Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) to evaluate the Companys
internal control over financial reporting. Based on this assessment, management
has concluded that the Companys internal control over financial reporting was
effective as at that date.

The effectiveness of the Companys internal control over
financial reporting as at January 31, 2015 has been audited by
PricewaterhouseCoopers LLP, our independent auditors, as stated in their report,
which appears herein.

|/S/ Jonathan
      Cherry             |  | /S/
      Douglas Newby
|------------------------------------- |  | -----------------------
|Jonathan Cherry                       |  | Douglas Newby          
|President and Chief Executive Officer |  | Chief Financial Officer

F-1

---

Independent Auditors Report

To the Shareholders of PolyMet Mining Corp.

We have completed integrated audits of PolyMet Mining Corp.s
2015, 2014 and 2013 consolidated financial statements and its internal control over
financial reporting as at January 31, 2015. Our opinions, based on our audits
are presented below.

Report on the consolidated financial statementsWe
have audited the accompanying consolidated financial statements of PolyMet
Mining Corp., which comprise the consolidated balance sheets as at January 31,
2015 and January 31, 2014 and the consolidated statements of loss and
comprehensive loss, changes in shareholders equity and cash flows for each of
the years in the three-year period ended January 31, 2015, and the related
notes, which comprise a summary of significant accounting policies and other
explanatory information.

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

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

An audit involves performing procedures to obtain audit
evidence, on a test basis, about the amounts and disclosures in the consolidated
financial statements. The procedures selected depend on the auditors judgment,
including the assessment of the risks of material misstatement of the
consolidated financial statements, whether due to fraud or error. In making
those risk assessments, the auditor considers internal control relevant to the
companys preparation and fair presentation of the consolidated financial
statements in order to design audit procedures that are appropriate in the
circumstances. An audit also includes evaluating the appropriateness of
accounting principles and policies used and the reasonableness of accounting
estimates made by management, as well as evaluating the overall presentation of
the consolidated financial statements.

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

OpinionIn our opinion, the consolidated financial
statements present fairly, in all material respects, the financial position of
PolyMet Mining Corp. as at January 31, 2015 and January 31, 2014 and its
financial performance and its cash flows for each of the three years in the
period ended January 31, 2015 in accordance with International Financial
Reporting Standards as issued by the International Accounting Standards Board.

Report on internal control over financial
reportingWe have also audited PolyMet Mining Corp.s internal control
over financial reporting as at January 31, 2015, based on criteria established
in Internal ControlIntegrated Framework (2013), issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO).

F-2

---

Managements responsibility for internal control over
financial reportingManagement is responsible for maintaining effective
internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting included in the
accompanying Managements Annual Report on Internal Control over Financial
Reporting.

Auditors responsibilityOur responsibility is to
express an opinion on the companys internal control over financial reporting
based on our audit. We conducted our audit of internal control over financial
reporting in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects.

An audit of internal control over financial reporting includes
obtaining an understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control, based on the assessed
risk, and performing such other procedures as we consider necessary in the
circumstances.

We believe that our audit provides a reasonable basis for our
audit opinion on the companys internal control over financial reporting.

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

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

OpinionIn our opinion, PolyMet Mining Corp.
maintained, in all material respects, effective internal control over financial
reporting as at January 31, 2015, based on criteria established in Internal
Control - Integrated Framework (2013) issued by COSO.

signed PricewaterhouseCoopers LLP

Chartered Accountants Vancouver, British Columbia

April 21, 2015

F-3

---

PolyMet Mining Corp.Consolidated Balance
Sheets All figures in thousands of U.S. Dollars

|                                                            |   | January 31, |   |   | January 31, |  
|----------------------------------------------------------- | - | ----------- | - | - | ----------- | -
|                                                            |   | 2015        |   |   | 2014        |  
|ASSETS                                                      |   |             |   |   |             |  
|                                                            |   |             |   |   |             |  
|Current                                                     |   |             |   |   |             |  
|Cash and cash equivalents                                   | $ | 9,301       |   | $ | 32,790      |  
|Amounts receivable                                          |   | 381         |   |   | 1,420       |  
|Prepaid
      expenses                                      |   | 1,108       |   |   | 1,195       |  
|                                                            |   | 10,790      |   |   | 35,405      |  
|Non-Current                                                 |   |             |   |   |             |  
|Mineral Property, Plant
      and Equipment (Notes 3 and 4) |   | 296,247     |   |   | 246,028     |  
|Wetland
      Credit Intangible (Note 5)                    |   | 6,192       |   |   | 6,092       |  
|                                                            |   |             |   |   |             |  
|Total Assets                                                | $ | 313,229     |   | $ | 287,525     |  
|                                                            |   |             |   |   |             |  
|LIABILITIES                                                 |   |             |   |   |             |  
|                                                            |   |             |   |   |             |  
|Current                                                     |   |             |   |   |             |  
|Accounts payable and
      accrued liabilities              | $ | 2,673       |   | $ | 3,806       |  
|Convertible debt (Notes 7 and 8)                            |   | 33,451      |   |   | 31,967      |  
|Non-convertible debt
      (Notes 7 and 9)                  |   | 4,614       |   |   | -           |  
|Environmental rehabilitation provision (Note 6)             |   | 1,724       |   |   | 1,504       |  
|                                                            |   | 42,462      |   |   | 37,277      |  
|Non-Current                                                 |   |             |   |   |             |  
|Non-convertible debt
      (Note 9)                         |   | 7,855       |   |   | 4,276       |  
|Environmental rehabilitation provision (Note 6)             |   | 70,536      |   |   | 49,640      |  
|                                                            |   |             |   |   |             |  
|Total Liabilities                                           |   | 120,853     |   |   | 91,193      |  
|                                                            |   |             |   |   |             |  
|SHAREHOLDERS EQUITY                                        |   |             |   |   |             |  
|                                                            |   |             |   |   |             |  
|Share Capital (Note
      10)                               |   | 241,489     |   |   | 240,330     |  
|Share Premium                                               |   | 3,007       |   |   | 3,007       |  
|Equity Reserves                                             |   | 51,704      |   |   | 49,543      |  
|Deficit                                                     |   | (103,824    | ) |   | (96,548     | )
|                                                            |   |             |   |   |             |  
|Total Shareholders Equity                                  |   | 192,376     |   |   | 196,332     |  
|                                                            |   |             |   |   |             |  
|Total Liabilities and Shareholders Equity                  | $ | 313,229     |   | $ | 287,525     |  

Nature of Business and Liquidity(Notes 1 and 16)Commitments and Contingencies (Note 14)Subsequent
Event (Note 16)

|ON BEHALF OF THE BOARD OF DIRECTORS:
|------------------------------------
|/S/ Jonathan Cherry                 

- See Accompanying Notes -

F-4

---

PolyMet Mining Corp. Consolidated Statements of
Loss and Comprehensive LossAll figures in thousands of U.S. Dollars,
except for number of shares and loss per share

|                                                                                            |   | For the years
      ended January 31, |  
|------------------------------------------------------------------------------------------- | - | ------------------------------------- | -
|                                                                                            |   | 2015                                  |  
|General and Administrative                                                                  |   |                                       |  
|Salaries
      and benefits                                                                 | $ | 1,422                                 |  
|Share-based compensation
      (Note 10)                                                    |   | 1,121                                 |  
|Director fees
      and expenses                                                            |   | 295                                   |  
|Professional fees                                                                           |   | 409                                   |  
|Filing and
      regulatory fees                                                            |   | 173                                   |  
|Investor and public relations                                                               |   | 1,276                                 |  
|Travel                                                                                      |   | 323                                   |  
|Rent and other office expenses                                                              |   | 247                                   |  
|Insurance                                                                                   |   | 191                                   |  
|Amortization                                                                                |   | 32                                    |  
|                                                                                            |   | 5,489                                 |  
|                                                                                            |   |                                       |  
|Other Expenses
      (Income)                                                               |   |                                       |  
|Finance costs (Note 11)                                                                     |   | 1,816                                 |  
|Loss / (gain) on
      foreign exchange                                                     |   | 11                                    |  
|Loss on sale of investment                                                                  |   | -                                     |  
|Rental income                                                                               |   | (40                                   | )
|                                                                                            |   | 1,787                                 |  
|                                                                                            |   |                                       |  
|Loss for the year                                                                           |   | 7,276                                 |  
|                                                                                            |   |                                       |  
|Other Comprehensive Loss                                                                    |   |                                       |  
|Components of other
      comprehensive loss that are
      reclassified to profit or loss: |   |                                       |  
|Unrealized loss (gain) on
      investment                                                  |   | -                                     |  
|Reclassification
      adjustment on sale of investment                                     |   | -                                     |  
|Total Comprehensive Loss for the Year                                                       | $ | 7,276                                 |  
|                                                                                            |   |                                       |  
|Basic and Diluted Loss per Share                                                            | $ | (0.03                                 | )
|                                                                                            |   |                                       |  
|Weighted Average Number of Shares                                                           |   | 275,726,953                           |  

- See Accompanying Notes -

F-5

---

PolyMetMining Corp.
Consolidated Statements of Changes
in Shareholders EquityAll figures inthousandsof U.S.Dollars,except fornumberof shares

Share Capital (authorized =
      unlimited)
    
    
    Equity ReservesPaid-in
    
    
    
    
    
    Warrants and
    
    
    Accumulated
    
    
    Total
    
    
    
    
    
    TotalIssued
    
    
    Share
    
    
    Share
    
    
    Share-based
    
    
    Other
    
    
    Equity
    
    
    
    
    
    Shareholders'Shares
    
    
    Capital
    
    
    Premium
    
    
    Payments
    
    
    Comp Loss
    
    
    Reserves
    
    
    Deficit
    
    
    EquityBalance - February 1, 2012
    
    174,738,124
    
    $
    168,434
    
    $
    2,132
    
    $
    43,632
    
    $
    (42
    )
    $
    43,590
    
    $
    (81,790
    )
    $
    132,366Loss and comprehensive loss for the year
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (13
    )
    
    (13
    )
    
    (6,626
    )
    
    (6,639
    )Equity offering and issuance
      costs
    
    5,000,000
    
    
    9,107
    
    
    875
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    9,982Purchase of wetland credit intangible
    
    2,788,902
    
    
    3,375
    
    
    -
    
    
    525
    
    
    -
    
    
    525
    
    
    -
    
    
    3,900Payment of land purchase
      options
    
    87,174
    
    
    89
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    89Exercise of share options
    
    185,000
    
    
    210
    
    
    -
    
    
    (62
    )
    
    -
    
    
    (62
    )
    
    -
    
    
    148Modification of share options
    
    -
    
    
    -
    
    
    -
    
    
    795
    
    
    -
    
    
    795
    
    
    -
    
    
    795Share-based compensation
    
    450,882
    
    
    -
    
    
    -
    
    
    1,884
    
    
    -
    
    
    1,884
    
    
    -
    
    
    1,884Bonus share cost amortization
    
    -
    
    
    -
    
    
    -
    
    
    387
    
    
    -
    
    
    387
    
    
    -
    
    
    387Balance - January 31, 2013
    
    183,250,082
    
    $
    181,215
    
    $
    3,007
    
    $
    47,161
    
    $
    (55
    )
    $
    47,106
    
    $
    (88,416
    )
    $
    142,912Loss and comprehensive loss
      for the year
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    55
    
    
    55
    
    
    (8,132
    )
    
    (8,077
    )Rights offering and issuance costs (Note
      10)
    
    91,636,202
    
    
    58,372
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    58,372Payment of land purchase
      options
    
    140,123
    
    
    125
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    125Share-based compensation (Note 10)
    
    548,985
    
    
    618
    
    
    -
    
    
    1,693
    
    
    -
    
    
    1,693
    
    
    -
    
    
    2,311Bonus share cost amortization (Note 10)
    
    -
    
    
    -
    
    
    -
    
    
    689
    
    
    -
    
    
    689
    
    
    -
    
    
    689Balance - January 31, 2014
    
    275,575,392
    
    $
    240,330
    
    $
    3,007
    
    $
    49,543
    
    $
    -
    
    $
    49,543
    
    $
    (96,548
    )
    $
    196,332Loss and comprehensive loss
      for the year
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (7,276
    )
    
    (7,276
    )Payment of land purchase options
    
    143,130
    
    
    157
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    157Exercise of share options
      (Note10)
    
    75,000
    
    
    161
    
    
    -
    
    
    (80
    )
    
    -
    
    
    (80
    )
    
    -
    
    
    81Share-based compensation (Note 10)
    
    557,852
    
    
    841
    
    
    -
    
    
    1,671
    
    
    -
    
    
    1,671
    
    
    -
    
    
    2,512Bonus share cost amortization (Note 10)
    
    -
    
    
    -
    
    
    -
    
    
    570
    
    
    -
    
    
    570
    
    
    -
    
    
    570Balance - January 31, 2015
    
    276,351,374
    
    $
    241,489
    
    $
    3,007
    
    $
    51,704
    
    $
    -
    
    $
    51,704
    
    $
    (103,824
    )
    $
    192,376


- See Accompanying Notes -

F-6

---

PolyMet Mining Corp.
Consolidated Statements of
Cash Flows All figures in thousands of U.S. Dollars

|                                                                        |   | For the years
      ended January 31, |  
|----------------------------------------------------------------------- | - | ------------------------------------- | -
|                                                                        |   | 2015                                  |  
|Operating Activities                                                    |   |                                       |  
|Loss for the year                                                       | $ | (7,276                                | )
|Items not involving
      cash                                          |   |                                       |  
|Amortization                                                            |   | 32                                    |  
|Environmental rehabilitation provision accretion (Note 6)               |   | 1,639                                 |  
|Share-based compensation (Note 10)                                      |   | 1,121                                 |  
|Loss on
      sale of investment                                        |   | -                                     |  
|Unrealized foreign exchange loss                                        |   | 17                                    |  
|Changes in non-cash working
      capital                               |   |                                       |  
|Amounts receivable                                                      |   | 1,039                                 |  
|Prepaid
      expenses                                                  |   | 87                                    |  
|Accounts payable and accrued liabilities                                |   | (855                                  | )
|Net cash used in operating activities                                   |   | (4,196                                | )
|                                                                        |   |                                       |  
|Financing Activities                                                    |   |                                       |  
|Share issuance proceeds, net of costs (Note 10)                         |   | 81                                    |  
|Debenture
      funding, net of costs (Notes 7 and 9)                   |   | 7,896                                 |  
|Debenture repayment (Notes 7 and 9)                                     |   | -                                     |  
|Net cash provided by financing
      activities                         |   | 7,977                                 |  
|                                                                        |   |                                       |  
|Investing Activities                                                    |   |                                       |  
|Property, plant and equipment purchases (Note 4)                        |   | (27,153                               | )
|Investment
      sale proceeds                                          |   | -                                     |  
|Interest and fees paid                                                  |   | -                                     |  
|Wetland
      credit intangible purchases (Note 5)                      |   | (100                                  | )
|Net cash used in investing
      activities                             |   | (27,253                               | )
|                                                                        |   |                                       |  
|Net Increase (Decrease) in
      Cash and Cash Equivalents              |   | (23,472                               | )
|Effect of foreign exchange on Cash and
      Cash Equivalents           |   | (17                                   | )
|Cash and Cash Equivalents
      - Beginning of year                     |   | 32,790                                |  
|Cash and Cash Equivalents - End of year                                 | $ | 9,301                                 |  
|                                                                        |   |                                       |  
|Reconciliation of Cash and Cash
      Equivalents:                      |   |                                       |  
|Cash at bank                                                            | $ | 9,301                                 |  
|Short-term
      deposits                                               |   | -                                     |  
|Total Cash and Cash Equivalents                                         | $ | 9,301                                 |  
|                                                                        |   |                                       |  
|Supplementary
      information:                                        |   |                                       |  
|Accounts
      payable and accrued liabilities related to PP&E          | $ | (325                                  | )
|Accretion and capitalized interest on debt (Notes 7, 8, and
      9)    |   | 1,827                                 |  
|Share-based
      compensation (Note 10)                                |   | 1,391                                 |  
|Milestone 4 Bonus Shares amortization (Note 10)                         |   | 570                                   |  
|Shares and
      warrants issued for Wetland Credit Intangible (Note 5) |   | -                                     |  
|Shares issued for land
      options                                    | $ | 157                                   |  

- See Accompanying Notes -

F-7

---

|PolyMet Mining Corp.                                                                                     
|---------------------------------------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                                               
|As at January 31, 2015 and 2014 and for the years ended
      January 31, 2015, 2014, and 2013           
|Tabular amounts
      in thousands of U.S. Dollars, except for number of shares and price per
      share
|                                                                                                         

|1. | Nature of Business and
Liquidity
|-- | --------------------------------

PolyMet Mining Corp. (PolyMet or the
Company) was incorporated in British Columbia, Canada on March 4, 1981 under
the name Fleck Resources Ltd. The Company changed its name from Fleck Resources
to PolyMet Mining Corp. on June 10, 1998. The Company is engaged in the
exploration and development of natural resource properties. The Companys
primary mineral property is the NorthMet Project (NorthMet or Project), a
polymetallic project in northeastern Minnesota, USA which comprises the NorthMet
copper-nickel-precious metals ore body and the Erie Plant, a large processing
facility located approximately six miles from the ore body. The realization of
the Companys investment in NorthMet and other assets is dependent upon various
factors, including the existence of economically recoverable mineral reserves,
the ability to complete the environmental review and obtain permits necessary to
construct and operate NorthMet, the ability to obtain financing necessary to
complete the exploration and development of NorthMet, and future profitable
operations or alternatively, disposal of the investment on an advantageous
basis.

On September 25, 2006, the Company received the results of a Definitive Feasibility Study (DFS) prepared by Bateman Engineering Pty Ltd and NorthMet moved from the exploration stage to the development stage.  An Updated Technical Report under National Instrument 43-101 incorporating numerous project improvements was filed in January 2013.

The corporate address and records
office of the Company are located at 100 King Street West, Suite 5700, Toronto,
Ontario, Canada M5X 1C7, and 700 West Georgia, 25th Floor, Vancouver,
British Columbia, Canada, V7Y 1B3, respectively. The executive office of Poly
Met Mining, Inc. (PolyMet US), the Companys wholly-owned subsidiary, is
located at 444 Cedar Street, Suite 2060, St. Paul, Minnesota, United States of
America, 55101.

The consolidated financial statements
have been prepared on a going concern basis, which contemplates the realization
of assets and the settlement of liabilities in the normal course of operations.

Liquidity risk is the risk the Company
will not be able to meet its financial obligations as they become due and arises
through the excess of financial obligations over available financial assets due
at any point in time. As at January 31, 2015, PolyMet had cash of $9.301 million
and a working capital deficiency of $31.672 million primarily due to the $33.451
million convertible debt due to Glencore AG, a wholly owned subsidiary of
Glencore plc (together Glencore) being classified as a current liability on
the basis it matures on September 30, 2015. If Glencore does not exchange the
convertible debt for common shares, PolyMet will need to renegotiate the
agreement or raise sufficient funds to repay the debt. While in the past the
Company has been successful in renegotiating debt and closing financing
agreements, there can be no assurance it will be able to do so again.

Management believes that, based upon
the underlying value of the NorthMet Project, the advanced stage of permitting,
the ongoing financing arrangements with Glencore (see Notes 7, 9, and 16) and
the ongoing discussions with numerous investment banks and investors including
Glencore regarding potential financing, that financing will continue to be
available from Glencore and/or other potential third party sources allowing the
Company to meet its current obligations, as well as fund ongoing development,
capital expenditures and administration expenses in accordance with the
Companys spending plans for the next twelve months.

F-8

---

|PolyMet Mining Corp.                                                                                     
|---------------------------------------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                                               
|As at January 31, 2015 and 2014 and for the years ended
      January 31, 2015, 2014, and 2013           
|Tabular amounts
      in thousands of U.S. Dollars, except for number of shares and price per
      share
|                                                                                                         

|2. | Summary of Significant Accounting
  Policies
|-- | --------------------------------------------

| | a) | Statement of Compliance
| | -- | -----------------------

The consolidated financial statements
of PolyMet Mining Corp. have been prepared in accordance with International
Financial Reporting Standards (IFRS) as issued by the International Accounting
Standards Board (IASB). The financial statements were approved by the Board of
Directors on April 21, 2015.

| | b) | Basis of Consolidation and
  Presentation
| | -- | -----------------------------------------

The consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiary.
Inter-company balances and transactions have been eliminated on consolidation.

The consolidated financial statements
have been prepared under the historical cost convention. All dollar amounts
presented are in United States (US) dollars unless otherwise specified.

| | c) | Critical Accounting Estimates and
  Judgments
| | -- | ---------------------------------------------

The preparation of the consolidated
financial statements in conformity with IFRS requires the use of certain
critical accounting estimates. These critical accounting estimates require
management to make judgments and estimates that affect the reported amounts of
assets and liabilities and disclosures of contingent assets and liabilities as
at the date of the financial statements.

Critical accounting estimates and
judgments used in the preparation of these consolidated financial statements are
as follows:

| | (i) | Determination of mineral
reserves
| | --- | ---------------------------------

Reserves are estimates of the amount of
product that can be economically and legally extracted from the Companys
property. In order to estimate reserves, estimates are required about a range of
geological, technical and economic factors, including quantities, production
techniques, production costs, capital costs, transport costs, demand, prices and
exchange rates. Estimating the quantity of reserves requires the size, shape and
depth of deposits to be determined by analyzing geological data. This process
may require complex and difficult geological judgments to interpret the data. In
addition, management will form a view of forecast sales prices, based on current
and long-term historical average price trends. Changes in the proven and
probable reserves estimates may impact the carrying value of property, plant and
equipment, rehabilitation provisions, recognition of deferred tax amounts and
depreciation, depletion and amortization.

F-9

---

|PolyMet Mining Corp.                                                                                     
|---------------------------------------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                                               
|As at January 31, 2015 and 2014 and for the years ended
      January 31, 2015, 2014, and 2013           
|Tabular amounts
      in thousands of U.S. Dollars, except for number of shares and price per
      share
|                                                                                                         

|2. | Summary of Significant Accounting Policies-
      Continued
|-- | -----------------------------------------------------------

| | c) | Critical Accounting Estimates and Judgments-
      Continued
| | -- | ------------------------------------------------------------

| | (ii) | Impairment of non-financial
  assets
| | ---- | ------------------------------------

The carrying amounts of the Companys
non-financial assets, including mineral property, plant and equipment, and
wetland credit intangible are reviewed at each reporting date or when events or
changes in circumstances occur that indicate the asset may not be recoverable to
determine whether there is any indication of impairment. If any such indication
exists, the assets recoverable amount is estimated at the greater of its value
in use and its fair value less costs of disposal. In assessing value in use, the
estimated future cash flows are discounted to their present value using a
pre-tax discount rate that reflects current market assessments of the time value
of money and the risks specific to the asset. An impairment loss is recognized
if the carrying amount of an asset exceeds its estimated recoverable amount. An
impairment loss previously recorded is reversed if there has been a change in
the estimates used to determine the recoverable amount resulting in an increase
in the estimated service potential of an asset.

For its mineral property interest the
Company considers both external and internal sources of information in assessing
whether there are any indications of impairment. External sources of information
the Company considers include changes in the market, economic and legal
environment in which the Company operates that are not within its control and
affect the recoverable amount of mineral property interests. Internal sources of
information the Company considers include indications of economic performance of
the asset. No impairment loss on the mineral property interest was recorded for
the year ended January 31, 2015 or January 31, 2014.

The carrying value of mineral property,
plant, and equipment, and wetland credit intangible at the balance sheet date is
disclosed in Note 4 and Note 5, respectively.

| | (iii) | Provision for Environmental Rehabilitation
      Costs
| | ----- | ------------------------------------------------------

Provisions for environmental
rehabilitation costs associated with mineral property, plant and equipment, are
recognized when the Company has a present legal or constructive obligation that
can be estimated reliably, and it is probable an outflow of economic benefits
will be required to settle the obligation. Provisions are determined by
discounting the expected future cash flows at a pre-tax rate that reflects
current market assessments of the time value of money and the risks specific to
the liability.

It is possible that the Companys
estimates of its ultimate environmental rehabilitation liabilities could be
affected by changes in regulations, changes in the extent of environmental
rehabilitation required, changes in the means of rehabilitation, changes in the
extent of responsibility for the financial liability or changes in cost
estimates. The operations of the Company may in the future be affected from time
to time in varying degrees by changes in environmental regulations, including
those for future removal and site restoration costs. Both the likelihood of new
regulations and their overall effect upon the Company may vary greatly and are
not predictable.

The Companys provision for
environmental rehabilitation cost obligations represents managements best
estimate of the present value of the future cash outflows required to settle the
liability. See additional discussion in Note 6.

F-10

---

|PolyMet Mining Corp.                                                                                     
|---------------------------------------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                                               
|As at January 31, 2015 and 2014 and for the years ended
      January 31, 2015, 2014, and 2013           
|Tabular amounts
      in thousands of U.S. Dollars, except for number of shares and price per
      share
|                                                                                                         

|2. | Summary of Significant Accounting Policies-
      Continued
|-- | -----------------------------------------------------------

| | d) | Foreign Currency
Translation
| | -- | ----------------------------

The US dollar is the functional
currency of the Company and its wholly-owned subsidiary. Amounts in these
consolidated financial statements are expressed in US dollars unless otherwise
stated. Transactions in foreign currencies are translated into the functional
currency at the exchange rates at the date of the transactions. Monetary assets
and liabilities of the Companys operations denominated in a currency other than
the U.S. dollar are translated using exchange rates prevailing at the balance
sheet date. Revenue and expense items are translated at the exchange rates in
effect at the date of the underlying transaction, except for amortization
related to non-monetary assets, which are translated at historical exchange
rates. Exchange differences are recognized in net loss in the year in which they
arise.

| | e) | Cash and Cash Equivalents
| | -- | -------------------------

The Company considers cash and cash
equivalents to include amounts held in banks and highly liquid investments with
maturities at point of purchase of three months or less.

| | f) | Financial Assets
| | -- | ----------------

All financial assets are initially
recorded at fair value and designated upon inception as one of the following
four categories: held to maturity, available for sale, loans and receivables or
at fair value through profit or loss (FVTPL). Financial assets classified as
FVTPL are measured at fair value with unrealized gains and losses recognized
through profit and loss. Financial assets classified as loans and receivables
and held to maturity are measured at amortized cost using the effective interest
method less any allowance for impairment. The effective interest method is a
method of calculating the amortized cost of a financial asset and of allocating
interest income over the relevant period. The effective interest rate is the
rate that discounts estimated future cash receipts through the expected life of
the financial asset, or, where appropriate, a shorter period. Financial assets
classified as available for sale are measured at fair value with unrealized
gains and losses recognized in other comprehensive loss except when there is
objective evidence that the asset is impaired, the cumulative loss that had been
recognized in other comprehensive loss shall be reclassified from equity to
profit or loss as a reclassification adjustment. Transactions costs associated
with FVTPL financial assets are expensed as incurred, while transaction costs
associated with all other financial assets are included in the initial carrying
amount of the asset. See additional discussion in Note 15.

F-11

---

|PolyMet Mining Corp.                                                                                     
|---------------------------------------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                                               
|As at January 31, 2015 and 2014 and for the years ended
      January 31, 2015, 2014, and 2013           
|Tabular amounts
      in thousands of U.S. Dollars, except for number of shares and price per
      share
|                                                                                                         

|2. | Summary of Significant Accounting Policies-
      Continued
|-- | -----------------------------------------------------------

| | g) | Mineral Property, Plant and
  Equipment
| | -- | ---------------------------------------

Mineral Property

Mineral property costs, aside from
mineral property acquisition costs, incurred prior to determination of the 2006
DFS are expensed as incurred and expenditures incurred subsequent to the DFS and
mineral property acquisition costs are capitalized until the property is placed
into production, sold, allowed to lapse or abandoned. As a result of the DFS,
NorthMet entered the development stage effective October 1, 2006. The Company
has capitalized mineral property development expenditures related to NorthMet
from that date.

Upon commencement of production,
mineral properties and acquisition costs relating to mines are amortized on a
unit of production basis over the estimated proven and probable mineral reserves
not to exceed the assets useful lives.

Plant and Equipment

Plant and equipment are recorded at
historical cost less accumulated depreciation and if applicable, accumulated
impairment losses. Subsequent costs are included in the assets carrying amount
or recognized as a separate asset, as appropriate, if it is probable that the
future economic benefits of the expenditure will flow to the Company and its
cost can be measured reliably. The carrying amount of a replaced part is
derecognized. All other repairs and maintenance are charged to the statement of
loss and comprehensive loss during the period in which they are incurred. Plant
and equipment is depreciated over the estimated life of the related assets
calculated on a unit of production or straight-line basis, as appropriate.

Depreciation of plant and equipment is
calculated using the cost of the asset, less its residual value, on a
straight-line basis over the estimated useful life of the asset. Estimated
useful lives are as follows:

Leasehold improvements
    Straight-line over the
      term of the leaseFurniture and equipment
    Straight-line over 10 yearsComputers
    Straight-line over 5
      yearsComputer software
    Straight-line over 1 year


| | h) | Wetland Credit Intangible
| | -- | -------------------------

Wetland Credit Intangible costs and
related acquisition costs are capitalized until the wetland credits are used,
sold, or abandoned. Wetland credits are used through offset with wetlands
disturbed during construction and operation of NorthMet. As such, costs are
amortized on a unit of production basis over the estimated proven and probable
mineral reserves not to exceed the assets useful lives. See additional
discussion in Note 5.

F-12

---

|PolyMet Mining Corp.                                                                                     
|---------------------------------------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                                               
|As at January 31, 2015 and 2014 and for the years ended
      January 31, 2015, 2014, and 2013           
|Tabular amounts
      in thousands of U.S. Dollars, except for number of shares and price per
      share
|                                                                                                         

|2. | Summary of Significant Accounting Policies-
      Continued
|-- | -----------------------------------------------------------

| | i) | Financial Liabilities
| | -- | ---------------------

All financial liabilities are initially
recorded at fair value and designated upon inception as FVTPL or other financial
liabilities. Financial liabilities classified as other financial liabilities are
initially recognized at fair value less directly attributable transaction costs.
After initial recognition, other financial liabilities are subsequently measured
at amortized cost using the effective interest method. The effective interest
method is a method of calculating the amortized cost of a financial liability
and of allocating interest expense over the relevant period. The effective
interest rate is the rate that discounts estimated future cash payments through
the expected life of the financial liability, or, where appropriate, a shorter
period. Financial liabilities classified as FVTPL include financial liabilities
held for trading and financial liabilities designated upon initial recognition
as FVTPL. Derivatives, including separated embedded derivatives, are also
classified as held for trading unless they are designated as effective hedging
instruments. Transaction costs on financial liabilities classified as FVTPL are
expensed as incurred. At the end of each reporting period subsequent to initial
recognition, financial liabilities at FVTPL are measured at fair value, with
changes in fair value recognized directly in profit or loss in the period in
which they arise. See additional discussion in Note 15.

| | j) | Borrowing costs
| | -- | ---------------

Borrowing costs directly attributable
to the acquisition, construction or production of a qualifying asset are
capitalized as part of the cost of that asset until such time as the asset is
substantially complete and ready for its intended use or sale. Where funds have
been borrowed specifically to finance an asset, the amount capitalized is the
actual borrowing costs incurred. Where the funds used to finance an asset form
part of general borrowings, the amount capitalized is calculated using a
weighted average of rates applicable to relevant borrowings of the Company
during the period. Other borrowing costs not directly attributable to a
qualifying asset are expensed in the year incurred.

| | k) | Share-Based Compensation
| | -- | ------------------------

All share-based compensation awards
made to directors, employees and non-employees are measured and recognized using
a fair value based method. For directors and employees, or those providing
services similar to employees, the fair value of options is determined using the
Black-Scholes option pricing model. The fair value of the bonus shares,
restricted shares, and restricted share units is calculated using the intrinsic
value of the shares at issuance, and is amortised straight-line over the vesting
period.

The fair value of the award is accrued
and charged either to operations or mineral property plant and equipment, with
the offsetting credit to warrants and share-based payment reserve, on a graded
method over the vesting period. If and when share options are ultimately
exercised or bonus shares, restricted shares, and restricted share units vest,
the applicable amounts from the warrants and share-based payment reserve are
transferred to share capital.

Certain awards vest upon achievement of
a specified performance condition. On a quarterly basis, management assesses the
probability of achieving those performance conditions using the best available
information, and estimates the appropriate vesting period.

When the Company amends the terms of
share options, the incremental change in the fair value of the options due to
the amendment, as determined using the Black-Scholes option pricing model, is
recognized over the vesting period in the statement of loss or capitalized as
appropriate.

F-13

---

|PolyMet Mining Corp.                                                                                     
|---------------------------------------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                                               
|As at January 31, 2015 and 2014 and for the years ended
      January 31, 2015, 2014, and 2013           
|Tabular amounts
      in thousands of U.S. Dollars, except for number of shares and price per
      share
|                                                                                                         

|2. | Summary of Significant Accounting Policies-
      Continued
|-- | -----------------------------------------------------------

| | l) | Share Purchase Warrants
| | -- | -----------------------

The Company issues share purchase
warrants in connection with certain equity transactions. The fair value of the
warrants, as determined using the Black-Scholes option pricing model or fair
value of goods or services received, is credited to the warrants and share-based
payment reserve. The recorded value of share purchase warrants is transferred to
share capital upon exercise.

| | m) | Loss Per Share
| | -- | --------------

Loss per share is computed by dividing
the loss for the year by the weighted average number of common shares
outstanding during the year. Basic and diluted loss per share for each year
presented are the same as the effect of potential issuances of shares under
warrant or share option agreements would, in total, be anti-dilutive.

| | n) | Income Taxes and Deferred
Taxes
| | -- | -------------------------------

The income tax expense or benefit for
the year consists of two components: current and deferred.

Current tax is the expected tax payable
or receivable on the taxable profit or loss for the year. Current tax is
calculated using tax rates and laws that were enacted or substantively enacted
at the balance sheet date in each of the jurisdictions and include any
adjustments for taxes payable or recovery in respect of prior periods.

Taxable profit or loss differs from
profit or loss as reported in the Consolidated Statements of Comprehensive Loss
because of items of income or expense that are taxable or deductible in other
years, and items that are never taxable or deductible.

Deferred tax is recognized on temporary
differences between the carrying amounts of assets and liabilities in the
financial statements and the corresponding tax basis used in the computation of
taxable profit. Deferred tax liabilities are generally recognized for all
taxable temporary differences not eligible for offset. Deferred tax assets are
generally recognized for all deductible temporary differences, loss carry
forwards and tax credit carry forwards to the extent that it is probable that
taxable profits will be available against which they can be utilized. To the
extent that the Company does not consider it to be probable that taxable profits
will be available against which deductible temporary differences, loss carry
forwards, and tax credit carry forwards can be utilized, a deferred tax asset is
not recognized.

F-14

---

|PolyMet Mining Corp.                                                                                     
|---------------------------------------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                                               
|As at January 31, 2015 and 2014 and for the years ended
      January 31, 2015, 2014, and 2013           
|Tabular amounts
      in thousands of U.S. Dollars, except for number of shares and price per
      share
|                                                                                                         

|2. | Summary of Significant Accounting Policies-
      Continued
|-- | -----------------------------------------------------------

| | o) | Adoption of New or Amended
IFRS
| | -- | -------------------------------

On February 1, 2014, the Company
adopted the following new or amended accounting standards previously issued by
the IASB, which did not have a significant impact on the Companys consolidated
financial statements.

IFRIC 21  Levies

IFRIC 21 is an interpretation of IAS 37
and addresses the accounting for an obligation to pay a levy that is not an
income tax. IFRIC 21 is effective for annual periods beginning on or after
January 1, 2014.

| | p) | Future Accounting Changes
| | -- | -------------------------

The Company anticipates that all of the
relevant pronouncements will be adopted in the Companys accounting policy for
the first period beginning after the effective date of the pronouncement.
Information on new standards, amendments and interpretations that are expected
to be relevant to the Companys financial statements is provided below. Certain
other new standards and interpretations have been issued but are not expected to
have a material impact on the Companys financial statements and are therefore
not discussed below.

IFRS 15  Revenue from Contracts
with Customers

IFRS 15 establishes principles for
reporting the nature, amount, timing, and uncertainty of revenue and cash flows
arising from an entitys contract with customers and is effective for annual
periods beginning on or after January 1, 2017 with early adoption permitted. The
Company is currently assessing the impact of adopting IFRS 15 on its
consolidated financial statements.

IFRS 9  Financial Instruments -
Classification and Measurement

IFRS 9 provides a revised model for
recognition, measurement and impairment of financial instruments and is
effective for annual periods beginning on or after January 1, 2018 with early
adoption permitted. The Company is currently assessing the impact of adopting
IFRS 9 on its consolidated financial statements, including the applicability of
early adoption.

F-15

---

|PolyMet Mining Corp.                                                                                     
|---------------------------------------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                                               
|As at January 31, 2015 and 2014 and for the years ended
      January 31, 2015, 2014, and 2013           
|Tabular amounts
      in thousands of U.S. Dollars, except for number of shares and price per
      share
|                                                                                                         

|3. | Mineral Property
Agreements
|-- | ---------------------------

NorthMet, Minnesota, U.S.A.

Pursuant to an agreement dated January
4, 1989, subsequently amended and assigned, the Company leases certain property
in St. Louis County, Minnesota from RGGS Land & Minerals Ltd., L.P. The
initial term of the perpetually renewable lease was 20 years and called for
total lease payments of $1.475 million. 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 term by continuing to make $150,000 annual lease payments on each successive
anniversary date. All lease payments have been paid or accrued to January 31,
2015. The next payment is due in January 2016.

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 per ton
received by the Company. The Companys recovery of $2.375 million in advance
royalty payments is subject to the lessor receiving an amount not less than the
amount of the annual lease payment due for that year.

Pursuant to an agreement effective
December 1, 2008, the Company leases certain property in St. Louis County,
Minnesota from LMC Minerals. The initial term of the renewable lease is 20 years
and calls for minimum annual lease payments of $3,000 for the first four years
after which the minimum annual lease payment increased to $30,000. The initial
term may be extended for up to four additional five-year periods on the same
terms. All lease payments have been paid or accrued to January 31, 2015. The
next payment is due in November 2015.

The lease payments are considered
advance royalty payments and will be deducted from future production royalties
payable to the lessor, which range from 3% to 5% based on the net smelter return per ton
received by the Company. The Companys recovery of $0.099 million in advance
royalty payments is subject to the lessor receiving an amount not less than the
amount of the annual lease payment due for that year.

Pursuant to the leases, PolyMet holds
mineral rights and the right to mine upon receiving the required permits.
PolyMet has proposed to acquire surface rights through a land exchange with the
United States Forest Service (see Note 9).

F-16

---

|PolyMet Mining Corp.                                                                                     
|---------------------------------------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                                               
|As at January 31, 2015 and 2014 and for the years ended
      January 31, 2015, 2014, and 2013           
|Tabular amounts
      in thousands of U.S. Dollars, except for number of shares and price per
      share
|                                                                                                         

|4. | Mineral Property, Plant and
  Equipment
|-- | ---------------------------------------

Details of Mineral Property, Plant, and
Equipment are as follows:

| |                                                                        |   |          |   |   | Other fixed |   |   |         |  
| | ---------------------------------------------------------------------- | - | -------- | - | - | ----------- | - | - | ------- | -
| | Net Book
      Value                                                   |   | NorthMet |   |   | assets      |   |   | Total   |  
| | Balance at January 31, 2013                                            | $ | 220,293  |   | $ | 136         |   | $ | 220,429 |  
| | Additions                                                              |   | 27,937   |   |   | 38          |   |   | 27,975  |  
| | Changes to
      environmental rehabilitation provision
      (Note 6) |   | (2,350   | ) |   | -           |   |   | (2,350  | )
| | Amortization                                                           |   | -        |   |   | (26         | ) |   | (26     | )
| | Balance at January 31, 2014                                            | $ | 245,880  |   |   | 148         |   |   | 246,028 |  
| | Additions                                                              |   | 29,768   |   |   | 29          |   |   | 29,797  |  
| | Changes to
      environmental rehabilitation provision (Note 6)       |   | 20,454   |   |   | -           |   |   | 20,454  |  
| | Amortization                                                           |   | -        |   |   | (32         | ) |   | (32     | )
| | Balance at January 31, 2015                                            | $ | 296,102  |   |   | 145         |   |   | 296,247 |  

| |                                                       |   | January 31, |  |   | January 31, | 
| | ----------------------------------------------------- | - | ----------- |  | - | ----------- | 
| | NorthMet                                              |   | 2015        |  |   | 2014        | 
| |                                                       |   |             |  |   |             | 
| | Mineral property acquisition and
      interest costs | $ | 48,051      |  | $ | 46,334      | 
| | Mine plan and development                             |   | 40,451      |  |   | 38,065      | 
| | Environmental                                         |   | 78,866      |  |   | 61,866      | 
| | Consulting and wages                                  |   | 41,247      |  |   | 34,630      | 
| | Reclamation and remediation (Note 6)                  |   | 69,454      |  |   | 49,000      | 
| | Site activities                                       |   | 17,084      |  |   | 15,036      | 
| | Mine equipment                                        |   | 949         |  |   | 949         | 
| | Total                                                 | $ | 296,102     |  | $ | 245,880     | 

Erie Plant, Minnesota, U.S.A.

In February 2004, the Company entered
into an option with Cliffs Natural Resources Inc. (Cliffs) to purchase 100%
ownership of large parts of the former LTV Steel Mining Company ore processing
plant in northeastern Minnesota (the Erie Plant). The Company exercised this
option on November 15, 2005 under the Asset Purchase Agreement with Cliffs.

On December 20, 2006, the Company
closed a transaction in which it acquired, from Cliffs, property and associated
rights sufficient to provide it with a railroad connection linking the mine
development site and the Erie Plant. The transaction also included a railcar
fleet, locomotive fuelling and maintenance facilities, water rights and
pipelines, large administrative offices on site and an additional 6,000 acres to
the east and west of and contiguous to its existing tailing facilities.

The consideration paid for the Erie
Plant and associated infrastructure was $18.9 million in cash and 9,200,547
shares at a fair market value of $13.953 million.

The Company indemnified Cliffs for
reclamation and remediation obligations as a result of the above purchases (see
Note 6). These obligations are presently contractual in nature under the terms
of the purchase agreements with Cliffs. Once the Company obtains its permit to
mine and Cliffs is released from its obligations by the State Agencies, the
Companys obligations will be direct with the governing bodies.

F-17

---

|PolyMet Mining Corp.                                                                                     
|---------------------------------------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                                               
|As at January 31, 2015 and 2014 and for the years ended
      January 31, 2015, 2014, and 2013           
|Tabular amounts
      in thousands of U.S. Dollars, except for number of shares and price per
      share
|                                                                                                         

|4. | Mineral Property, Plant and Equipment-
      Continued
|-- | ------------------------------------------------------

During the year ended January 31, 2015,
the Company capitalized 100% of the borrowing costs on the convertible debt (see
Note 8) and non-convertible debt (see Note 9) in the amount of $1.931 million
(January 31, 2014 - $2.111 million) as part of the cost of NorthMet assets. As
NorthMet assets are not in use or capable of operating in a manner intended by
management, no amortization of these assets has been recorded to January 31,
2015.

|5. | Wetland Credit Intangible
|-- | -------------------------

Details of Wetland Credit Intangibles
are as follows:

| |                                                     |   | January 31, |  |   | January 31, | 
| | --------------------------------------------------- | - | ----------- |  | - | ----------- | 
| |                                                     |   | 2015        |  |   | 2014        | 
| | Wetland Credit Intangible 
      Exercised options | $ | 1,579       |  | $ | 1,579       | 
| | Wetland Credit Intangible  Unexercised options     |   | 4,613       |  |   | 4,513       | 
| | Total                                               | $ | 6,192       |  | $ | 6,092       | 

In March 2012 the Company acquired a
secured interest in land owned by AG for Waterfowl, LLP ("AG") that is permitted
for wetland restoration. AG subsequently assigned the agreement to EIP
Minnesota, LLC (EIP) in September 2012. EIP will restore the wetlands and,
upon completion, wetland credits are to be issued by the relevant governmental
authorities.

As part of the initial consideration,
AG holds warrants to purchase 1,249,315 common shares at $1.3007 per share at
any time until December 31, 2015, subject to mandatory exercise if the 20-day
volume weighted average price (VWAP) of PolyMet shares is equal to or greater
than $3.00 and PolyMet provides notice to AG that it has received permits
necessary to start construction of the NorthMet Project. The exercise price of
the purchase warrants and the number of warrants are subject to conventional
anti-dilution provisions.

F-18

---

|PolyMet Mining Corp.                                                                                     
|---------------------------------------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                                               
|As at January 31, 2015 and 2014 and for the years ended
      January 31, 2015, 2014, and 2013           
|Tabular amounts
      in thousands of U.S. Dollars, except for number of shares and price per
      share
|                                                                                                         

|6. | Environmental Rehabilitation
  Provision
|-- | ----------------------------------------

Details of Environmental Rehabilitation
Provision are as follows:

| |                                                                  |   | Year ended  |   |   | Year ended  |  
| | ---------------------------------------------------------------- | - | ----------- | - | - | ----------- | -
| |                                                                  |   | January 31, |   |   | January 31, |  
| |                                                                  |   | 2015        |   |   | 2014        |  
| | Environmental Rehabilitation Provision 
      beginning of year | $ | 51,144      |   | $ | 53,488      |  
| | Change in estimated liability                                    |   | 9,867       |   |   | 2,430       |  
| | Liabilities discharged                                           |   | (977        | ) |   | (1,515      | )
| | Accretion expense                                                |   | 1,639       |   |   | 1,521       |  
| | Change in risk-free interest
      rate                          |   | 10,587      |   |   | (4,780      | )
| | Environmental Rehabilitation Provision  end of year             |   | 72,260      |   |   | 51,144      |  
| | Less current portion                                             |   | (1,724      | ) |   | (1,504      | )
| |                                                                  |   |             |   |   |             |  
| | Non-current portion                                              | $ | 70,536      |   | $ | 49,640      |  

Federal, state and local laws and
regulations concerning environmental protection affect the Companys NorthMet
assets. As part of the consideration for the Cliffs Purchase Agreements (see
Note 4), the Company indemnified Cliffs for reclamation and remediation
obligations of the acquired property. The Companys provisions are based upon
existing laws and regulations. It is not currently possible to estimate the
impact on operating results, if any, of future legislative or regulatory
developments.

In April 2010, Cliffs entered into a
consent decree with the Minnesota Pollution Control Agency (MPCA) relating to
alleged violations on the Cliffs Erie Property. This consent decree required
both short-term and long-term mitigation. Field study activities were completed
in 2010 and 2011 and short-term mitigations were initiated in 2011 as outlined
in the plans and approved by the MPCA. In April 2012, long-term mitigation plans
were submitted to the MPCA for its review and approval. In October 2012, a
response was received from the MPCA approving plans for pilot tests of various
treatment options to determine the best course of action. Although there is
substantial uncertainty related to applicable water quality standards,
engineering scope, and responsibility for the financial liability, the October
2012 response from the MPCA and subsequent communication provides clarification
to the potential liability for the long-term mitigation included in the
Companys environmental rehabilitation provision. This resulted in a $9.9
million increase to the provision during the year ended January 31, 2015 and a
$2.4 million increase to the provision during the year ended January 31, 2014.

The Companys best estimate of the
environmental rehabilitation provision at January 31, 2015 was $72.3 million
(January 31, 2014 - $51.1 million) based on estimated cash flows required to
settle this obligation in present day costs of $72.6 million (January 31, 2014 -
$60.4 million), an annual inflation rate of 2.00% (January 31, 2014  2.00%) and
a risk-free interest rate of 2.04% (January 31, 2014  3.35%) . Payments are
expected to occur over a period of approximately 31 years.

F-19

---

|PolyMet Mining Corp.                                                                                     
|---------------------------------------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                                               
|As at January 31, 2015 and 2014 and for the years ended
      January 31, 2015, 2014, and 2013           
|Tabular amounts
      in thousands of U.S. Dollars, except for number of shares and price per
      share
|                                                                                                         

|7. | Glencore Financing
|-- | ------------------

Since October 31, 2008 the Company and
Glencore have entered into a series of financing agreements and a marketing
agreement whereby Glencore committed to purchase all of the Companys production
of concentrates, metal, or intermediate products on market terms at the time of
delivery for at least the first five years of production. As part of the 2013
financing agreement, PolyMet and Glencore entered into a Corporate Governance
Agreement whereby from January 1, 2014 as long as Glencore holds 10% or more of
PolyMet's shares (on a fully diluted basis) Glencore shall have the right, but
not obligation to designate at least one director and not more than the number
of directors proportionate to Glencore's fully diluted ownership of PolyMet,
rounded down to the nearest whole number, such number to not exceed 49% of the
total board.

The financing agreements comprise $25.0
million initial principal debentures in calendar 2008 drawn in four tranches
(Tranches A through D, together the 2008 Debentures), $25.0 million placement
of PolyMet common shares in calendar 2009 in two tranches, $30.0 million
placement of PolyMet common shares in calendar 2010 in three tranches (the 2010
Agreement), $20.0 million placement of PolyMet common shares in calendar 2011
in one tranche (the 2011 Agreement), $20.960 million purchase of PolyMet
common shares in the Rights Offering (the 2013 Agreement), and $30.0 million
initial principal debentures in calendar 2015 drawn and to be drawn in four trances (the 2015
Debentures). As a result of the series of financing transactions and the
purchase by Glencore of PolyMet common shares previously owned by Cliffs,
Glencore's current ownership and ownership rights of PolyMet comprises:

| |  | 78,724,821 shares representing 28.5% of PolyMet's issued
      shares;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  | $25.0 million initial principal floating rate secured
      debentures due September 30, 2015 (see Note 8). Including capitalized and
      accrued interest as at January 31, 2015, these debentures are exchangeable
      at $1.2920 per share into 25,891,843 common shares of PolyMet upon PolyMet
      giving Glencore ten days notice that it has received permits necessary to
      start construction of NorthMet and availability of senior construction
      finance in a form reasonably acceptable to Glencore (Early Maturity
      Event) or are repayable on September 30, 2015. The exercise price of the
      exchange warrants and the number of warrants are subject to conventional
      anti-dilution provisions; and
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  | Glencore holds warrants to purchase 6,458,001 million
      common shares at $1.3007 per share at any time until December 31, 2015,
      subject to mandatory exercise if the 20-day volume weighted average price
      (VWAP) of PolyMet common shares is equal to or greater than 150% of the
      exercise price and occurrence of the Early Maturity Event. The exercise
      price of the purchase warrants and the number of warrants are subject to
      conventional anti-dilution provisions.                                                                                                                                                                                                                                     

If Glencore were to exercise all of its
rights and obligations under these agreements, it would own 111,074,665 common
shares of PolyMet, representing 36.0% on a partially diluted basis, that is, if
no other options or warrants were exercised or 33.3% on a fully diluted basis,
if all other options and warrants were exercised, whether they are in-the-money
or not.

F-20

---

|PolyMet Mining Corp.                                                                                     
|---------------------------------------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                                               
|As at January 31, 2015 and 2014 and for the years ended
      January 31, 2015, 2014, and 2013           
|Tabular amounts
      in thousands of U.S. Dollars, except for number of shares and price per
      share
|                                                                                                         

|7. | Glencore Financing-
  Continued
|-- | -------------------------------

2013 Agreement On April 10,
2013, the Company amended its previous financing arrangement and issued a
Tranche E debenture (2013 Debenture) with the principal amount of $20.0
million to Glencore and Glencore agreed to a Standby Purchase Agreement
(Standby) related to the $60.480 million Rights Offering by the Company (see
Note 10). Under the Standby, Glencore agreed to purchase any common shares
offered under the Rights Offering that were not subscribed for by holders of the
rights, subject to certain conditions and limitations. The 2013 Debenture
carried a fixed interest rate of 4.721% per annum payable in cash monthly. The
Company provided security by way of a guarantee and by the assets of the Company
and its wholly-owned subsidiary. The 2013 Debenture was issued on April 11,
2013. The Company recognized the 2013 Debenture issued initially at fair value
and subsequently accounted for the debenture at its amortized cost. Transaction
costs for the financing were $0.103 million. The 2013 Debenture was repaid upon
the closing of the Rights Offering on July 5, 2013. All borrowing costs were
eligible for capitalization and 100% of these costs were capitalized during the
year ended January 31, 2014.

Glencore purchased 31,756,979 common
shares of the Company for $20.960 million upon closing of the Rights Offering on
July 5, 2013 (see Note 10).

2014 Agreement On April 25,
2014, the Company amended its previous financing arrangement and extended the
term of the 2008 Debentures and the expiration date of the associated Exchange
Warrants to the earlier of the Early Maturity Event or September 30, 2015. All
other terms of both the debentures and the warrants described above are
unchanged.

2015 Agreement On January
28, 2015, the Company amended its previous financing arrangement and agreed to
issue to Glencore new Tranche F, G, H, and I debentures with the total principal
amount of $30.0 million. Tranche F in the amount of $8.0 million was issued on
January 30, 2015 (see Note 9). Tranche G in the amount of $8.0 million was
issued subsequent to year end on April 15, 2015 (see Note 16). Tranches H and I
in the amounts of $8 million and $6 million respectively are to be issued on or
before July 1 and October 1, 2015 respectively. The 2015 Debentures bear
interest at 12-month US dollar LIBOR plus 8.0% per annum payable in cash upon
maturity and mature on the earlier of (i) the availability of at least $100
million of finance provided the Company demonstrates repayment is prudent or
(ii) March 31, 2016. The Company provided security by way of a guarantee and a
pledge of the assets of the Company and its wholly-owned subsidiary. The Company
recognized the Tranche F Debenture initially at fair value and subsequently
accounted for the debenture at amortized cost. Transaction costs for the
financing were $0.150 million.

F-21

---

|PolyMet Mining Corp.                                                                                     
|---------------------------------------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                                               
|As at January 31, 2015 and 2014 and for the years ended
      January 31, 2015, 2014, and 2013           
|Tabular amounts
      in thousands of U.S. Dollars, except for number of shares and price per
      share
|                                                                                                         

|8. | Convertible Debt
|-- | ----------------

Details of the Convertible Debt are as
follows:

| |                                      |   | Year ended  |   |   | Year ended  |  
| | ------------------------------------ | - | ----------- | - | - | ----------- | -
| |                                      |   | January 31, |   |   | January 31, |  
| |                                      |   | 2015        |   |   | 2014        |  
| | Convertible Debt  beginning of year | $ | 31,967      |   | $ | 30,508      |  
| | Accretion and capitalized interest   |   | 1,484       |   |   | 1,459       |  
| | Convertible Debt  end of year       |   | 33,451      |   |   | 31,967      |  
| | Less current portion                 |   | (33,451     | ) |   | (31,967     | )
| |                                      |   |             |   |   |             |  
| | Non-current
      portion            | $ | -           |   | $ | -           |  

On October 31, 2008, the Company issued
$25.0 million of Debentures to Glencore that bear interest at 12-month US dollar
LIBOR plus 4.0%, compounded quarterly. Interest is payable in cash or by
increasing the principal amount of the Debentures, at Glencores option. At
January 31, 2015, $8.451 million (January 31, 2014 - $6.967 million) of interest
had been accreted and capitalized to the principal amount of the debt since
inception. The Company has provided security on the Debentures covering all of
the assets of PolyMet and PolyMet US, including a pledge of PolyMets 100%
shareholding in PolyMet US. The due date of the Debentures is the earlier of (i)
the Early Maturity Event (see Note 7), and (ii) September 30, 2015, on which
date all principal and interest accrued to such date will be due and payable.
Upon occurrence of the Early Maturity Event and at the Companys option, the
initial principal and capitalized interest are exchangeable into common shares
of PolyMet at $1.2920 per share. Glencore has the right to exchange some or all
of the debentures at any time under the same conversion terms. All borrowing
costs were eligible for capitalization and 100% of these costs were capitalized
during the year ended January 31, 2015.

F-22

---

|PolyMet Mining Corp.                                                                                     
|---------------------------------------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                                               
|As at January 31, 2015 and 2014 and for the years ended
      January 31, 2015, 2014, and 2013           
|Tabular amounts
      in thousands of U.S. Dollars, except for number of shares and price per
      share
|                                                                                                         

|9. | Non-Convertible Debt
|-- | --------------------

Details of Non-Convertible Debt are as
follows:

| |                            |   | January 31, |   |   | January 31, | 
| | -------------------------- | - | ----------- | - | - | ----------- | 
| |                            |   | 2015        |   |   | 2014        | 
| | IRRRB debt (Note 9a)       | $ | 4,614       |   | $ | 4,276       | 
| | Glencore debt (Note 9b)    |   | 7,855       |   |   | -           | 
| | Total Non-Convertible Debt |   | 12,469      |   |   | 4,276       | 
| | Less current portion       |   | (4,614      | ) |   | -           | 
| |                            |   |             |   |   |             | 
| | Non-current portion        | $ | 7,855       |   | $ | 4,276       | 

| | a) | IRRRB debt
| | -- | ----------

On June 30, 2011, the Company closed a
$4.0 million loan from Iron Range Resources & Rehabilitation Board
("IRRRB"), a development agency created by the State of Minnesota to stabilize
and enhance the economy of northeastern Minnesota. At the same time, the Company
exercised its options to acquire two tracts of land as part of the proposed land
exchange with the U.S. Forest Service (USFS). The loan is secured by the land
acquired, carries a fixed interest rate of 5% per annum, compounded annually,
and is repayable on the earlier of June 30, 2016 or the date which the related
land is exchanged with the USFS. The loan is classified as current as the land
exchange is expected to occur within 12 months from January 31, 2015. The
Company has issued warrants giving the IRRRB the right to purchase 461,286
shares of its common shares at $2.1678 per share at any time until the earlier
of June 30, 2016 and one year after permits are received (IRRRB Warrants). All
borrowing costs were eligible for capitalization and 100% of these costs were
capitalized during the year ended January 31, 2015.

| | b) | Glencore debt
| | -- | -------------

On January 30, 2015, the Company
issued $8.0 million Tranche F debentures to Glencore that bear interest at
12-month US dollar LIBOR plus 8.0% . The Company has provided security on the
debentures covering all of the assets of PolyMet and PolyMet US, including a
pledge of PolyMets 100% shareholding in PolyMet US. The due date of the
debentures is the earlier of (i) the availability of at least $100 million of
finance provided the Company demonstrates repayment is prudent or (ii) March 31,
2016, on which date all principal and interest accrued to such date will be due
and payable. All borrowing costs were eligible for capitalization and 100% of
these costs were capitalized during the year ended January 31, 2015.

On April 15, 2015, the Company
received an additional $8.0 million under Tranche G of the debenture (see Note
16).

F-23

---

|PolyMet Mining Corp.                                                                                     
|---------------------------------------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                                               
|As at January 31, 2015 and 2014 and for the years ended
      January 31, 2015, 2014, and 2013           
|Tabular amounts
      in thousands of U.S. Dollars, except for number of shares and price per
      share
|                                                                                                         

|10. | Share Capital
|--- | -------------

| | a) | Share Issuances for Cash
| | -- | ------------------------

On May 24, 2013, the Company filed the
final prospectus for an offering of rights ("Rights") to holders of common
shares of the Company (the "Rights Offering"). Every shareholder received one
Right for each common share owned on June 4, 2013, the Record Date, and two
Rights entitled the holder to acquire one new common share of the Company at
$0.66 per share.

Upon the closing of the Rights
Offering on July 5, 2013, the Company issued a total of 91,636,202 common shares
for gross proceeds of $60.480 million. Expenses and fees relating to the Rights
Offering were $2.108 million, including the $1.061 million standby commitment
fee paid to Glencore, and reduced the gross proceeds recorded as share capital.
The closing of the Rights Offering triggered customary anti-dilution provisions
for outstanding warrants, share options, and unissued restricted share units.

During the year ended January 31, 2015
the Company issued 75,000 shares (January 31, 2014  nil) pursuant to the
exercise of share options for total proceeds of $0.081 million (January 31, 2014
- $nil).

| | b) | Share-Based Compensation
| | -- | ------------------------

The Omnibus Share Compensation Plan
(Omnibus Plan) was created to align the interests of the Companys employees,
directors, officers and consultants with those of shareholders. Effective May
25, 2007, the Company adopted the Omnibus Plan, which was approved by the
Companys shareholders on June 27, 2007, modified and further ratified and
reconfirmed by the Companys shareholders most recently on July 10, 2012. The
Omnibus Plan restricts the award of share options, restricted shares, restricted
share units, and other share-based awards to 10% of the common shares issued and
outstanding on the grant date, excluding 2,500,000 common shares pursuant to an
exemption approved by the Toronto Stock Exchange. Options granted may not exceed
a term of ten years and expire if the grantee ceases to be qualified to receive
options from the Company.

During the year ended January 31,
2015, the Company recorded $2.512 million for share-based compensation (January
31, 2014 - $2.311 million) with $1.121 million expensed to share-based
compensation (January 31, 2014 - $1.697 million) and $1.391 million capitalized
to mineral property, plant and equipment (January 31, 2014 - $0.614 million).
The offsetting entries were to warrants and share-based payment reserve and
share capital. Total share-based compensation for the year comprised $1.033
million for share options (January 31, 2014 - $1.405 million), $0.953 million
for restricted shares and restricted share units (January 31, 2014 - $0.368
million), and $0.526 million for issuance of unrestricted shares (January 31,
2014 - $0.538 million). Exercise of share options and vesting of restricted
shares and restricted share units resulted in $0.395 million being transferred
from warrants and share-based payment reserve to share capital (January 31, 2014
- $0.080 million).

F-24

---

|PolyMet Mining Corp.                                                                                     
|---------------------------------------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                                               
|As at January 31, 2015 and 2014 and for the years ended
      January 31, 2015, 2014, and 2013           
|Tabular amounts
      in thousands of U.S. Dollars, except for number of shares and price per
      share
|                                                                                                         

|10. | Share Capital-
Continued
|--- | ------------------------

| | c) | Share Options
| | -- | -------------

Details of share options are as
follows:

| |                                   |  | Year ended       |   |  | Year ended       | 
| | --------------------------------- |  | ---------------- | - |  | ---------------- | 
| |                                   |  | January 31, 2015 |   |  | January 31, 2014 | 
| |                                   |  |                  |   |  | Weighted         | 
| |                                   |  |                  |   |  | Average          | 
| |                                   |  | Number of        |   |  | Exercise         | 
| |                                   |  | Options          |   |  | Price (1)        | 
| | Outstanding  beginning of period |  | 18,659,000       |   |  | 1.41             | 
| | Granted                           |  | 2,701,002        |   |  | 1.17             | 
| | Exercised                         |  | (75,000          | ) |  | 1.08             | 
| | Expired                           |  | (200,000         | ) |  | 1.02             | 
| | Forfeited                         |  | -                |   |  | -                | 
| | Anti-dilution price adjustment    |  | -                |   |  | -                | 
| | Outstanding  end of period       |  | 21,085,002       |   |  | 1.33             | 

| | (1) | For information purposes, those share options granted with an exercise price in Canadian dollars (CDN$) have been translated to the Companys reporting currency using the exchange rate as at January 31, 2015 of US$1.00 = CDN$1.2660.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Effective July 5, 2013, the Company
reduced the exercise price of all options that were outstanding prior to the
Rights Offering, to reflect the dilutive effect of the 91.6 million common
shares that were issued at $0.66 per share in connection with the Rights
Offering. The adjustment did not impact the financial statements.

The weighted average share price when
stock options were exercised in the year ended January 31, 2015 was $1.39.

The fair value of share options
granted was estimated at the date of grant using the Black-Scholes Option
Pricing Model with the following weighted average assumptions:

| |                                                  |  | Year ended       |  |  | Year ended       | 
| | ------------------------------------------------ |  | ---------------- |  |  | ---------------- | 
| |                                                  |  | January 31, 2015 |  |  | January 31, 2014 | 
| | Risk-free interest rate                          |  | 0.51% to 0.76%   |  |  | 0.23% to 0.44%   | 
| | Expected dividend yield                          |  | Nil              |  |  | Nil              | 
| | Expected forfeiture rate                         |  | Nil              |  |  | Nil              | 
| | Expected volatility                              |  | 50.97% to 57.08% |  |  | 76.04% to 90.43% | 
| | Expected life in years                           |  | 2.00 to 3.00     |  |  | 1.62 to 2.00     | 
| | Weighted
      average fair value of each option |  | $0.20 to $0.41   |  |  | $0.28            | 

The expected volatility reflects the
Companys expectation that historical volatility over a period similar to the
life of the option is indicative of future trends, which may or may not
necessarily be the actual outcome.

F-25

---

|PolyMet Mining Corp.                                                                                     
|---------------------------------------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                                               
|As at January 31, 2015 and 2014 and for the years ended
      January 31, 2015, 2014, and 2013           
|Tabular amounts
      in thousands of U.S. Dollars, except for number of shares and price per
      share
|                                                                                                         

|10. | Share Capital-
Continued
|--- | ------------------------

| | c) | Share Options-
Continued
| | -- | ------------------------

Details of share options outstanding
as at January 31, 2015 are as follows:

| |                   |  | Number of   |  |  | Number of   |  |  |                   |  |  |                  | 
| | ----------------- |  | ----------- |  |  | ----------- |  |  | ----------------- |  |  | ---------------- | 
| | Range of Exercise |  | options     |  |  | options     |  |  | Weighted Average  |  |  | Weighted Average | 
| | Prices(1)         |  | outstanding |  |  | exercisable |  |  | Exercise Price(1) |  |  | Remaining Life   | 
| | 0.7110 to 0.8671  |  | 5,045,000   |  |  | 4,161,667   |  |  | 0.75              |  |  | 6.03             | 
| | 0.9300 to 1.1500  |  | 8,822,002   |  |  | 8,722,002   |  |  | 1.00              |  |  | 6.06             | 
| | 1.5000 to 1.8904  |  | 3,583,000   |  |  | 3,483,000   |  |  | 1.80              |  |  | 3.19             | 
| | 2.0342 to 2.4886  |  | 1,565,000   |  |  | 1,215,000   |  |  | 2.26              |  |  | 1.80             | 
| | 2.5059 to 3.3990  |  | 2,070,000   |  |  | 1,107,500   |  |  | 2.66              |  |  | 2.24             | 
| |                   |  | 21,085,002  |  |  | 18,689,169  |  |  | 1.33              |  |  | 4.88             | 

| | (1) | For information purposes, those share options granted
      with an exercise price in Canadian dollars (CDN) have been translated to
      the Companys reporting currency using the exchange rate as at January 31,
      2015 of 1.00 US$ = 1.2660 CDN$.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

As at January 31, 2015 all outstanding
share options had vested and were exercisable, with the exception of 2,395,833,
which were scheduled to vest upon completion of specific targets (EIS  160,000;
Permits  1,113,333; Construction  662,500; Production  300,000; Other 
160,000). The outstanding share options have expiry periods between 0.26 and
9.44 years.

| | d) | Restricted Shares and Restricted Share
  Units
| | -- | ----------------------------------------------

Details of restricted shares and
restricted share units are as follows:

| |                                   |  | Year ended       |   |  | Year ended       |  
| | --------------------------------- |  | ---------------- | - |  | ---------------- | -
| |                                   |  | January 31, 2015 |   |  | January 31, 2014 |  
| | Outstanding - beginning of period |  | 1,615,510        |   |  | 785,882          |  
| | Issued                            |  | 849,522          |   |  | 909,574          |  
| | Vested                            |  | (334,746         | ) |  | (91,353          | )
| | Anti-dilution quantity adjustment |  | -                |   |  | 11,407           |  
| | Outstanding - end of period       |  | 2,130,286        |   |  | 1,615,510        |  

Effective July 5, 2013, the Company
increased the number of common shares issuable for all restricted stock units
outstanding prior to the Rights Offering, to reflect the dilutive effect of the
91.6 million common shares that were issued at $0.66 per share in connection
with the Rights Offering. The adjustment did not impact the financial
statements.

During the year ended January 31,
2015, the Company issued 849,522 restricted share units which had a fair value
of $0.909 million to be expensed and capitalized over the vesting periods
compared with the year ended January 31, 2014 when the Company issued 909,574
restricted share units which had a fair value of $0.881 million to be expensed
and capitalized over the vesting periods.

As at January 31, 2015 outstanding
restricted shares and restricted share units were scheduled to vest upon
completion of specific targets (EIS  91,353; Permits  168,891; Production 
168,890; December 2015  909,574; December 2016  559,802; Other  231,776).

F-26

---

|PolyMet Mining Corp.                                                                                     
|---------------------------------------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                                               
|As at January 31, 2015 and 2014 and for the years ended
      January 31, 2015, 2014, and 2013           
|Tabular amounts
      in thousands of U.S. Dollars, except for number of shares and price per
      share
|                                                                                                         

|10. | Share Capital-
Continued
|--- | ------------------------

| | e) | Bonus Shares
| | -- | ------------

Details of bonus shares are as
follows:

| |                                   |  | Year ended       |   |  | Year ended       | 
| | --------------------------------- |  | ---------------- | - |  | ---------------- | 
| |                                   |  | January 31, 2015 |   |  | January 31, 2014 | 
| |                                   |  |                  |   |  | Authorized       | 
| |                                   |  | Allocated        |   |  | & Unissued       | 
| | Outstanding  beginning of period |  | 3,540,000        |   |  | 3,640,000        | 
| | Allocated                         |  | -                |   |  | -                | 
| | Forfeited                         |  | (390,000         | ) |  | -                | 
| | Outstanding  end
      of period |  | 3,150,000        |   |  | 3,640,000        | 

The bonus share incentive plan was
established for the Companys directors and key employees and was approved by
the disinterested shareholders at the Companys shareholders meeting held on
May 28, 2004. The Company has authorized 3,640,000 bonus shares for the
achievement of Milestone 4 representing commencement of commercial production at
NorthMet at a time when the Company has not less than 50% ownership interest in
NorthMet. At the Companys Annual General Meeting of shareholders held on June
17, 2008, the disinterested shareholders approved the bonus shares for Milestone
4. Regulatory approval is required prior to issuance of these shares. The
current year period includes forfeiture by individuals upon ceasing to be a
director or key employee of the Company.

The fair value of these unissued bonus
shares is being amortized until the estimated date of issuance. During the year
ended January 31, 2015, the Company recorded $0.570 million amortization related
to Milestone 4 bonus shares (January 31, 2014  $0.689 million), which was
capitalized to Mineral Property, Plant and Equipment.

| | f) | Share Purchase Warrants
| | -- | -----------------------

Details of share purchase warrants are
as follows:

| |                                   |  | Year ended       |  |  | Year ended       | 
| | --------------------------------- |  | ---------------- |  |  | ---------------- | 
| |                                   |  | January 31, 2015 |  |  | January 31, 2014 | 
| |                                   |  |                  |  |  | Weighted         | 
| |                                   |  |                  |  |  | Average          | 
| |                                   |  |                  |  |  | Exercise         | 
| |                                   |  | Warrants         |  |  | Price            | 
| | Outstanding  beginning of period |  | 8,168,602        |  |  | 1.35             | 
| | Anti-dilution price adjustment    |  | -                |  |  | -                | 
| | Anti-dilution quantity adjustment |  | -                |  |  | -                | 
| | Outstanding  end
      of period |  | 8,168,602        |  |  | 1.35             | 

Effective July 5, 2013, the Company
increased the number of common shares issuable and reduced the exercise price of
all warrants that were outstanding prior to the Rights Offering, to reflect the
dilutive effect of the 91.6 million common shares that were issued in connection
with the Rights Offering. The adjustment did not impact the financial
statements.

F-27

---

|PolyMet Mining Corp.                                                                                     
|---------------------------------------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                                               
|As at January 31, 2015 and 2014 and for the years ended
      January 31, 2015, 2014, and 2013           
|Tabular amounts
      in thousands of U.S. Dollars, except for number of shares and price per
      share
|                                                                                                         

|11. | Finance Costs
|--- | -------------

Details of finance costs are as
follows:

| |                                                              |   | Year ended
      January 31, | 
| | ------------------------------------------------------------ | - | ---------------------------- | 
| |                                                              |   | 2015                         | 
| | Interest and financing
      costs, net                      | $ | 177                          | 
| | Accretion of environmental rehabilitation provision (Note 6) |   | 1,639                        | 
| | Finance costs                                                | $ | 1,816                        | 

|12. | Related Party Transactions
|--- | --------------------------

The Company conducted transactions with
senior management, directors and persons or companies related to these
individuals, and paid or accrued amounts, as follows:

| |                                        |   | Year ended January 31, | 
| | -------------------------------------- | - | ---------------------- | 
| |                                        |   | 2015                   | 
| | Salaries and other short-term benefits | $ | 1,509                  | 
| | Other long-term benefits               |   | 49                     | 
| | Termination benefits                   |   | -                      | 
| | Share-based payment (1)                |   | 1,093                  | 
| | Total                                  | $ | 2,651                  | 

| | (1) | Share-based payment represents the fair value determined
      at grant date to be expensed over the vesting period. Share-based payments
      are described in Note 10.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------

There are agreements with key employees
that contain severance provisions for termination without cause or in the event
of a take-over bid. Other than the President and Chief Executive Officer, none
of PolyMets other directors has a service contract with the Company providing
for benefits upon termination of his employment.

As a result of Glencores ownership of
28.5% of the Company it is also a related party. Transactions with Glencore are
described in Notes 7, 8, 9, and 10.

|13. | Income Taxes
|--- | ------------

| | a) | Effective tax rate
| | -- | ------------------

The effective tax rate differs from
the cumulative Canadian federal and provincial income tax rate due to the
following:

| |                                                           |   | Year ended January 31, |  
| | --------------------------------------------------------- | - | ---------------------- | -
| |                                                           |   | 2015                   |  
| | Loss for the year before taxes                            | $ | (7,276                 | )
| | Canadian statutory tax rate                               |   | 26.0%                  |  
| | Expected tax recovery                                     |   | (1,892                 | )
| | Difference in foreign tax rates                           |   | (407                   | )
| | Non-deductible items                                      |   | 291                    |  
| | Change in
      unrecognized deferred tax and other items |   | 2,008                  |  
| | Income Tax Expense / (Recovery)                           | $ | -                      |  

F-28

---

|PolyMet Mining Corp.                                                                                     
|---------------------------------------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                                               
|As at January 31, 2015 and 2014 and for the years ended
      January 31, 2015, 2014, and 2013           
|Tabular amounts
      in thousands of U.S. Dollars, except for number of shares and price per
      share
|                                                                                                         

|13. | Income Taxes-
Continued
|--- | -----------------------

| | b) | Deferred income tax assets and
  liabilities
| | -- | --------------------------------------------

Deferred income tax assets and
liabilities have been recognized in respect of the following items:

| |                                                                       |   | Year ended January 31, |  
| | --------------------------------------------------------------------- | - | ---------------------- | -
| |                                                                       |   | 2015                   |  
| | Non-capital loss carry forward
      assets                           | $ | 25,952                 |  
| | Mineral property acquisition, exploration and
      development costs |   | (25,952                | )
| | Other                                                                 |   | -                      |  
| | Net deferred
      income tax liabilities                             | $ | -                      |  

Deferred income tax assets have not
yet been recognized in respect of the following items:

| |                                             |   | Year ended January 31, | 
| | ------------------------------------------- | - | ---------------------- | 
| |                                             |   | 2015                   | 
| | Non-capital loss carry forward
      assets | $ | 21,022                 | 
| | Capital loss carry forward assets           |   | 347                    | 
| | Intercompany receivable assets              |   | 2,031                  | 
| | Other assets                                |   | 1,056                  | 
| | Unrecognized deferred income tax assets     | $ | 24,456                 | 

In each period since our inception, we have recorded a valuation allowance for the full amount of our deferred tax asset, as the realization of the deferred tax asset is uncertain.

As of January 31, 2015, the Company
  has Canadian non-capital loss carry forwards of approximately $20.4 million
  (January 31, 2014 - $16.6 million) and US non-capital loss carry forwards of
  approximately $100.6 million (January 31, 2014 - $89.4 million). The non-capital
  loss carry forwards are available to reduce future income for tax purposes and
  expire between 2019 and 2035.

Under IRS Section 382 substantial changes in our ownership (generally greater than 50% change in ownership) may limit the amount of US non-capital loss carry forwards that could be utilized annually to offset future taxable income. Any such annual limitation may reduce the Companys ability to utilize US non-capital losses before they expire. The Company has not yet completed a 382 limitation study and the amount of such limitation cannot be reasonably quantified as at January 31, 2015.

|14. | Commitments and
Contingencies
|--- | -----------------------------

In addition to items described
elsewhere in these financial statements:

| | a) | As at January 31, 2015, the Company had firm commitments
      related to the environmental review process, land options, wetland credit
      intangibles, consultants, and rent of approximately $3. million with the
      majority due over the next year and the remainder due over seven
    years.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                          
| | b) | As at January 31, 2015, the Company had non-binding
      commitments to maintain its mineral lease rights of $0.180 million with
      all due in the next year.                                                                                                                                        
| |    |                                                                                                                                                                                                                                                                                                          
| | c) | The following table lists the known contractual
      obligations as at January 31, 2015:                                                                                                                                                                                                                

Less than
    
    
    1  3
    
    
    3  5
    
    
    More thanContractual Obligations
    
    Total
    
    
    1 year
    
    
    years
    
    
    years
    
    
    5 yearsAccounts payable and accrued
      liabilities
    $
    2,673
    
    $
    2,673
    
    $
    -
    
    $
    -
    
    $
    -Convertible debt (Note 8)
    
    34,493
    
    
    34,493
    
    
    -
    
    
    -
    
    
    -Non-convertible debt (Note 9)
    
    13,747
    
    
    5,111
    
    
    8,636
    
    
    -
    
    
    -Commitments
    
    3,900
    
    
    2,964
    
    
    616
    
    
    204
    
    
    116Total
    $
    54,813
    
    $
    45,241
    
    $
    9,252
    
    $
    204
    
    $
    116


F-29

---

|PolyMet Mining Corp.                                                                                     
|---------------------------------------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                                               
|As at January 31, 2015 and 2014 and for the years ended
      January 31, 2015, 2014, and 2013           
|Tabular amounts
      in thousands of U.S. Dollars, except for number of shares and price per
      share
|                                                                                                         

|15. | Financial Instruments and Risk
  Management
|--- | -------------------------------------------

The Companys financial instruments are
classified as loans and receivables and other financial liabilities.

The carrying values of each
classification of financial instrument at January 31, 2015 are:

| |                                          |   |             |  |   | Other       |  |   |                | 
| | ---------------------------------------- | - | ----------- |  | - | ----------- |  | - | -------------- | 
| |                                          |   | Loans and   |  |   | financial   |  |   | Total carrying | 
| |                                          |   | receivables |  |   | liabilities |  |   | value          | 
| | Financial assets                         |   |             |  |   |             |  |   |                | 
| | Cash and cash
      equivalents          | $ | 9,301       |  | $ | -           |  | $ | 9,301          | 
| | Amounts receivable                       |   | 381         |  |   | -           |  |   | 381            | 
| | Total financial assets                   | $ | 9,682       |  | $ | -           |  | $ | 9,682          | 
| |                                          |   |             |  |   |             |  |   |                | 
| | Financial liabilities                    |   |             |  |   |             |  |   |                | 
| | Accounts payable and accrued liabilities | $ | -           |  | $ | 2,673       |  | $ | 2,673          | 
| | Convertible debt                         |   | -           |  |   | 33,451      |  |   | 33,451         | 
| | Non-convertible debt                     |   | -           |  |   | 12,469      |  |   | 12,469         | 
| | Total financial liabilities              | $ | -           |  | $ | 48,593      |  | $ | 48,593         | 

The carrying values of each
classification of financial instrument at January 31, 2014 are:

| |                                          |   |             |  |   | Other       |  |   |                | 
| | ---------------------------------------- | - | ----------- |  | - | ----------- |  | - | -------------- | 
| |                                          |   | Loans and   |  |   | financial   |  |   | Total carrying | 
| |                                          |   | receivables |  |   | liabilities |  |   | value          | 
| | Financial assets                         |   |             |  |   |             |  |   |                | 
| | Cash and cash equivalents                | $ | 32,790      |  | $ | -           |  | $ | 32,790         | 
| | Amounts receivable                       |   | 1,420       |  |   | -           |  |   | 1,420          | 
| | Total financial assets                   | $ | 34,210      |  | $ | -           |  | $ | 34,210         | 
| |                                          |   |             |  |   |             |  |   |                | 
| | Financial liabilities                    |   |             |  |   |             |  |   |                | 
| | Accounts payable and accrued liabilities | $ | -           |  | $ | 3,806       |  | $ | 3,806          | 
| | Convertible debt                         |   | -           |  |   | 31,967      |  |   | 31,967         | 
| | Non-convertible debt                     |   | -           |  |   | 4,276       |  |   | 4,276          | 
| | Total financial liabilities              | $ | -           |  | $ | 40,049      |  | $ | 40,049         | 

Fair Value Measurements

The fair value hierarchy prioritizes
the inputs to valuation techniques used to measure fair value. The hierarchy
gives the highest priority to unadjusted quoted prices in active markets for
identical assets or liabilities (Level 1 measurements) and the lowest priority
to unobservable inputs (Level 3 measurements). The three levels of the fair
value hierarchy are described below:

Level 1  Quoted prices (unadjusted) in
active markets for identical assets or liabilities. Level 2  Inputs other
than quoted prices included in Level 1 that are observable for the asset or
liability, either directly or indirectly. Level 3  Inputs for the asset or
liability that are not based on observable market data.

F-30

---

|PolyMet Mining Corp.                                                                                     
|---------------------------------------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                                               
|As at January 31, 2015 and 2014 and for the years ended
      January 31, 2015, 2014, and 2013           
|Tabular amounts
      in thousands of U.S. Dollars, except for number of shares and price per
      share
|                                                                                                         

|15. | Financial Instruments and Risk Management-
      Continued
|--- | ----------------------------------------------------------

The fair values of cash and cash
equivalents, amounts receivable, and accounts payable and accrued liabilities
approximate their carrying amounts due to their short-term nature. The fair
value of the Company's convertible debt and non-convertible debt approximates
the carrying amount at amortized cost using the effective interest method.

Risks Arising from Financial
Instruments and Risk Management

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

Risk management is the responsibility
of executive management. Material risks are identified and monitored and are
discussed with the Audit Committee and the Board of Directors.

Currency Risk

The Company incurs expenditures in
Canada and in the United States. The functional and reporting currency of the
Company and its subsidiary is the United States dollar. Foreign exchange risk
arises because the amount of Canadian dollar cash and cash equivalents, amounts
receivable, or accounts payable and accrued liabilities will vary in United
States dollar terms due to changes in exchange rates.

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

The Company was exposed to currency
risk through the following assets and liabilities denominated in Canadian
dollars:

| |                                          |   | January 31, |   |   | January 31, |  
| | ---------------------------------------- | - | ----------- | - | - | ----------- | -
| |                                          |   | 2015        |   |   | 2014        |  
| | Cash and cash equivalents                | $ | 90          |   | $ | 77          |  
| | Amounts receivables                      |   | 8           |   |   | 12          |  
| | Accounts payable and accrued liabilities |   | (8          | ) |   | (8          | )
| | Total                                    | $ | 90          |   | $ | 81          |  

Based on the above net exposures, as at
January 31, 2015, a 10% change in the Canadian / United States exchange rate
would have impacted the Companys loss by approximately $9,000.

Interest Rate Risk

Interest rate risk arises from interest
paid on floating rate debt and interest received on cash and short-term
deposits. The Company has not hedged any of its interest rate risk. The Company
currently capitalizes the majority of interest charges, and therefore the risk
exposure is primarily on cash interest payable and net earnings in relation to
the subsequent depreciation of capitalized interest charges.

F-31

---

|PolyMet Mining Corp.                                                                                     
|---------------------------------------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                                               
|As at January 31, 2015 and 2014 and for the years ended
      January 31, 2015, 2014, and 2013           
|Tabular amounts
      in thousands of U.S. Dollars, except for number of shares and price per
      share
|                                                                                                         

|15. | Financial Instruments and Risk Management-
      Continued
|--- | ----------------------------------------------------------

The Company was exposed to interest
rate risk through the following assets and liabilities:

| |                           |   | January 31, |  |   | January 31, | 
| | ------------------------- | - | ----------- |  | - | ----------- | 
| |                           |   | 2015        |  |   | 2014        | 
| | Cash and cash equivalents | $ | 9,301       |  | $ | 32,790      | 
| | Convertible debt          |   | 33,451      |  |   | 31,967      | 
| | Non-convertible debt      | $ | 7,855       |  | $ | -           | 

Credit Risk

Credit risk arises on cash and cash
equivalents held with banks and financial institutions, as well as credit
exposure on outstanding amounts receivable. The maximum exposure to credit risk
is equal to the carrying value of the financial assets of $9.682 million.

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

Liquidity Risk

Liquidity risk is the risk the Company
will not be able to meet its financial obligations as they become due and arises
through the excess of financial obligations over available financial assets due
at any point in time. The Companys objective in managing liquidity risk is to
maintain sufficient readily available reserves in order to meet its liquidity
requirements at any point in time and is achieved by maintaining sufficient cash
and cash equivalents. See additional discussion in Note 1.

Capital Management

The Companys capital management
objective is to safeguard the Companys ability to continue as a going concern
in order to pursue the development of its mineral property. In the management of
capital, the Company includes the components of shareholders equity,
convertible debt and non-convertible debt. The Company manages the capital
structure and makes adjustments to it depending on economic conditions and the
rate of anticipated expenditures. To maintain or adjust the capital structure,
the Company may attempt to issue new shares, issue new debt, acquire or dispose
of assets. The Company has no externally imposed capital requirements.

In order to assist in management of its
capital requirements, the Company prepares budgets that are updated as necessary
depending on various factors. The budgets are approved by the Companys Board of
Directors.

Although the Company plans to have the
resources to carry out its plans and operations through January 31, 2016, it
does not currently have sufficient capital to meet its estimated project capital
expenditure requirements and is currently in discussions to arrange sufficient
capital to meet these requirements. During the upcoming fiscal year, the
Companys objective is to identify the source or sources from which it will
obtain the capital required to complete the Project. See additional discussion
in Note 1.

F-32

---

|PolyMet Mining Corp.                                                                                     
|---------------------------------------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                                               
|As at January 31, 2015 and 2014 and for the years ended
      January 31, 2015, 2014, and 2013           
|Tabular amounts
      in thousands of U.S. Dollars, except for number of shares and price per
      share
|                                                                                                         

|16. | Subsequent Event
|--- | ----------------

On April 15, 2015, the Company issued
to Glencore the 2015 Agreement Tranche G debenture in the amount of $8.0
million. The debenture bears interest at 12-month US dollar LIBOR plus 8.0% .
The Company has provided security on the debenture covering all of the assets of
PolyMet and PolyMet US, including a pledge of PolyMets 100% shareholding in
PolyMet US. The due date of the debenture is the earlier of (i) the availability
of at least $100 million of finance provided the Company demonstrates repayment
is prudent or (ii) March 31, 2016, on which date all principal and interest
accrued to such date will be due and payable.

F-33

---

ITEM 19. EXHIBITS

|1.1  | Certificate of Incorporation                                                                                                                     | (2) 
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------ | ----
|     |                                                                                                                                                  |     
|1.2  | Certificate of Change of Name                                                                                                                    | (2) 
|     |                                                                                                                                                  |     
|1.3  | Articles of Incorporation                                                                                                                        | (2) 
|     |                                                                                                                                                  |     
|4.1  | Shareholder Rights Plan
      Agreement                                                                                                          | (2) 
|     |                                                                                                                                                  |     
|4.2  | Contract for Deed between us
      and Cleveland Cliffs, Ohio, dated November 15, 2005                                                           | (2) 
|     |                                                                                                                                                  |     
|4.3  | Contract for Deed between us
      and Cleveland Cliffs, Ohio, dated December 20, 2006                                                           | (1) 
|     |                                                                                                                                                  |     
|4.4  | Shareholder Rights Plan as
      amended and restated                                                                                            | (7) 
|     |                                                                                                                                                  |     
|4.5  | Omnibus Share Compensation Plan
      as amended and restated                                                                                    | (7) 
|     |                                                                                                                                                  |     
|4.6  | Purchase Agreement between us
      and Glencore, dated October 31, 2008                                                                         | (8) 
|     |                                                                                                                                                  |     
|4.7  | Form of Floating Rate Secured
      Debenture between us and Glencore dated October 31, 2008                                                     | (8) 
|     |                                                                                                                                                  |     
|4.8  | Guarantee between PolyMet
      Mining Corp. and Glencore, dated October 31, 2008                                                                | (8) 
|     |                                                                                                                                                  |     
|4.9  | Security Agreement between
      PolyMet Mining Corp. and Glencore, dated October 31, 2008                                                       | (8) 
|     |                                                                                                                                                  |     
|4.10 | Security Agreement between Poly
      Met Mining, Inc. and Glencore, dated October 31, 2008                                                      | (8) 
|     |                                                                                                                                                  |     
|4.11 | Pledge Agreement between Poly
      Met Mining, Inc. and Glencore, dated October 31, 2008                                                        | (8) 
|     |                                                                                                                                                  |     
|4.12 | Amendment to Purchase Agreement
      between us and Glencore dated October 20, 2009                                                             | (9) 
|     |                                                                                                                                                  |     
|4.13 | Amendment to Purchase Agreement
      between us and Glencore dated November 16, 2009                                                            | (9) 
|     |                                                                                                                                                  |     
|4.14 | Amendment to Purchase Agreement
      and Waiver between us and Glencore dated November 12, 2010                                                 | (10)
|     |                                                                                                                                                  |     
|4.15 | Form of Purchase Warrant
      between us and Glencore dated November 12, 2010                                                                   | (10)
|     |                                                                                                                                                  |     
|4.16 | Form of Purchase Warrant
      between us and Glencore dated November 30, 2011                                                                   | (11)
|     |                                                                                                                                                  |     
|4.17 | Amendment to Purchase Agreement
      and Waiver between us and Glencore dated November 30, 2011                                                 | (11)
|     |                                                                                                                                                  |     
|4.18 | Amended and Restated Exchange
      Warrant between us and Glencore dated December 6, 2011                                                       | (11)
|     |                                                                                                                                                  |     
|4.19 | Amendment to Purchase Agreement
      between us and Glencore dated April 10, 2013                                                               | (14)
|     |                                                                                                                                                  |     
|4.20 | Amendment to Purchase Agreement
      and Exchange Warrants between us and Glencore dated April 25, 2014                                         | (17)
|     |                                                                                                                                                  |     
|4.21 | Amendment to Purchase Agreement
      between us and Glencore dated January 28, 2015                                                             | (18)
|     |                                                                                                                                                  |     
|8.1  | List of Subsidiaries                                                                                                                             | (16)
|     |                                                                                                                                                  |     
|11.1 | Code of Ethics                                                                                                                                   | (3) 
|     |                                                                                                                                                  |     
|11.2 | Statement of Corporate
      Governance Practices                                                                                                | (4) 
|     |                                                                                                                                                  |     
|12.1 | Certification of Principal
      Executive Officer pursuant to 17 C.F.R. 240.13a-14(a)                                                           | *   
|     |                                                                                                                                                  |     
|12.2 | Certification of Principal
      Financial Officer pursuant to 17 C.F.R. 240.13a-14(a)                                                           | *   
|     |                                                                                                                                                  |     
|13.1 | Certification of Principal
      Executive Officer and Principal Financial Officer pursuant to 17 C.F.R.
      240.13a-14(b) and 18 U.S.C. 1350. | *   
|     |                                                                                                                                                  |     
|15.1 | Consent of Independent Auditors                                                                                                                  | *   
|     |                                                                                                                                                  |     
|15.2 | Lease Agreement between us and
      U.S. Steel Corporation, dated January 4, 1989.                                                              | (2) 
|     |                                                                                                                                                  |     
|15.3 | Notice of Assignment of the
      Lease Agreement from U.S. Steel Corporation to RGGS Land and Minerals,
      Ltd. L.P dated February 26, 2004  | (2) 

62

---

|15.4 | Executive employment agreement
      with Mr. Douglas Newby dated July 1, 2007                                               | (7) 
|---- | ---------------------------------------------------------------------------------------------------------------------------- | ----
|     |                                                                                                                              |     
|15.5 | Executive employment agreement
      with Mr. Jonathan Cherry dated July 16, 2012                                            | (15)
|     |                                                                                                                              |     
|15.6 | Technical Report on NorthMet
      Project dated January 14, 2013                                                            | (12)
|     |                                                                                                                              |     
|15.7 | Consents for use of information
      and inclusion of the Technical Report in Exhibit 15.1 and reference in
      Form 20-F | *   
|     |                                                                                                                              |     
|16.1 | Disclosure of Mine Safety and
      Health Administration Safety Data                                                        | *   

| | * | Filed herewith.
| | - | ---------------

| | (1)  | Incorporated by reference to our Annual Report on Form
      20-F/A for the fiscal year ended January 31, 2007, filed on May 31
      2007.    
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------
| |      |                                                                                                                                                
| | (2)  | Incorporated by reference to our Annual Report on Form
      20-F/A for the fiscal year ended January 31, 2006, filed on July 31
      2006.   
| |      |                                                                                                                                                
| | (3)  | Incorporated by reference to our Annual Report on Form
      20-F/A for the fiscal year ended January 31, 2004, filed on July 7,
      2005.   
| |      |                                                                                                                                                
| | (4)  | Incorporated by reference to our Annual Report on Form
      20-F for the fiscal year ended January 31, 2005, filed on July 25,
      2005.    
| |      |                                                                                                                                                
| | (5)  | Incorporated by reference to our Annual Report on Form
      20-F for the fiscal year ended January 31, 2004, filed on June 30,
      2004.    
| |      |                                                                                                                                                
| | (6)  | Incorporated by reference to our Report on Form 6-K,
      filed on November 13, 2006.                                                         
| |      |                                                                                                                                                
| | (7)  | Incorporated by reference to our Annual Report on
      Form-20-F/A for the fiscal year ended January 31, 2008, filed on August
      27, 2008.
| |      |                                                                                                                                                
| | (8)  | Incorporated by reference to our Form 13-D filed on
      November 10, 2008.                                                                   
| |      |                                                                                                                                                
| | (9)  | Incorporated by reference to our Report on Form 6-K filed
      on November 23, 2009.                                                          
| |      |                                                                                                                                                
| | (10) | Incorporated by reference to our Report on Form 6-K filed
      on November 18, 2010.                                                          
| |      |                                                                                                                                                
| | (11) | Incorporated by reference to our Report on Form 6-K filed
      on December 7, 2011                                                            
| |      |                                                                                                                                                
| | (12) | Incorporated by reference to our Report on Form 6-K filed
      on April 5, 2013                                                               
| |      |                                                                                                                                                
| | (13) | Incorporated by reference to our Registration Statement
      on Form F-10 (File No 333-187853) filed on April 10, 2013                        
| |      |                                                                                                                                                
| | (14) | Incorporated by reference to our Report on Form 6-K filed
      on April 11, 2013                                                              
| |      |                                                                                                                                                
| | (15) | Incorporated by reference to our Annual Report on Form
      20-F for the fiscal year ended January 31, 2013, filed on April 22,
      2013.   
| |      |                                                                                                                                                
| | (16) | Incorporated by reference to Item 4(c)  Organizational
      Structure.                                                                       
| |      |                                                                                                                                                
| | (17) | Incorporated by reference to our Report on Form 6-K filed
      on April 25, 2014.                                                             
| |      |                                                                                                                                                
| | (18) | Incorporated by reference to our Report on Form 6-K filed
      on February 2, 2015.                                                           

63

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SIGNATURES

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

Dated: April 21, 2015

POLYMET MINING CORP./s/
      Jonathan CherryName:
    Jonathan CherryTitle:
    Chief Executive Officer


64

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