----

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

----

----

----

|                                                  |   | January 31,2017 |     |   | January 31,2016 |   |
|-------------------------------------------------------|--------|-----------------|----------|--------|-----------------|--------|
| ASSETS                                                |   |            |     |   |            |   |
|                                                  |   |            |     |   |            |   |
| Current                                               |   |            |     |   |            |   |
| Cash                                                  |   | $               | 18,674   |   |            | $      | 10,256 |   |
| Amounts receivable                                    |   |            | 749      |   |            |   | 429 |   |
| Prepaid expenses                                      |   |            | 813      |   |            |   | 1,285 |   |
|                                                  |   |            | 20,236   |   |            |   | 11,970 |   |
| Non-Current                                           |   |            |     |   |            |   |   |   |
| Amounts receivable (Note 5)                           |   |            | 2,012    |   |            |   | 2,153 |   |
| Mineral Property, Plant and Equipment (Notes 3 and 4) |   |            | 364,913  |   |            |   | 321,649 |   |
| Wetland Credit Intangible (Note 5)                    |   |            | 1,888    |   |            |   | 1,888 |   |
| Total Assets                                          |   |            | 389,049  |   |            |   | 337,660 |   |
|                                                  |   |            |     |   |            |   |   |   |
| LIABILITIES                                           |   |            |     |   |            |   |   |   |
|                                                  |   |            |     |   |            |   |   |   |
| Current                                               |   |            |     |   |            |   |   |   |
| Accounts payable and accrued liabilities              |   |            | 3,188    |   |            |   | 3,348 |   |
| Non-convertible debt (Notes 7 and 9)                  |   |            | -        |   |            |   | 4,962 |   |
| Environmental rehabilitation provision (Note 6)       |   |            | 781      |   |            |   | 1,498 |   |
|                                                  |   |            | 3,969    |   |            |   | 9,808 |   |
| Non-Current                                           |   |            |     |   |            |   |   |   |
| Convertible debt (Notes 7 and 8)                      |   |            | 42,154   |   |            |   | 35,986 |   |
| Non-convertible debt (Notes 7 and 9)                  |   |            | 65,752   |   |            |   | 43,023 |   |
| Environmental rehabilitation provision (Note 6)       |   |            | 69,845   |   |            |   | 64,186 |   |
| Total Liabilities                                     |   |            | 181,720  |   |            |   | 153,003 |   |
|                                                  |   |            |     |   |            |   |   |   |
| SHAREHOLDERS’ EQUITY                            |   |            |     |   |            |   |   |   |
|                                                  |   |            |     |   |            |   |   |   |
| Share Capital (Note 10)                               |   |            | 268,895  |   |            |   | 242,917 |   |
| Share Premium                                         |   |            | 1,151    |   |            |   | 1,151 |   |
| Equity Reserves                                       |   |            | 59,682   |   |            |   | 53,759 |   |
| Deficit                                               |   |            | (122,399 | )      |            |   | (113,170 | ) |
| Total Shareholders’ Equity                      |   |            | 207,329  |   |            |   | 184,657 |   |
| Total Liabilities and Shareholders’ Equity      |   | $               | 389,049  |   |            | $      | 337,660 |   |

----

|                                                                              |   | For the years ended January 31, |        |
|-----------------------------------------------------------------------------------|--------|---------------------------------|-------------|
|                                                                              |   | 2017                            |        |   | 2016 |   |
| General and Administrative Expenses                                               |   |                            |        |   |   |   |
| Salaries and benefits                                                             |   | $                               | 1,892       |   |   | $ | 1,863 |   |
| Share-based compensation (Note 10)                                                |   |                            | 1,808       |   |   |   | 457 |   |
| Director fees and expenses                                                        |   |                            | 307         |   |   |   | 296 |   |
| Professional fees                                                                 |   |                            | 432         |   |   |   | 363 |   |
| Filing and regulatory fees                                                        |   |                            | 154         |   |   |   | 173 |   |
| Investor and public relations                                                     |   |                            | 1,227       |   |   |   | 1,567 |   |
| Travel                                                                            |   |                            | 344         |   |   |   | 295 |   |
| Rent and other office expenses                                                    |   |                            | 240         |   |   |   | 260 |   |
| Insurance                                                                         |   |                            | 172         |   |   |   | 202 |   |
| Amortization                                                                      |   |                            | 18          |   |   |   | 32 |   |
| Total General and Administration Expenses                                         |   |                            | 6,594       |   |   |   | 5,508 |   |
|                                                                              |   |                            |        |   |   |   |   |   |
| Other Expenses (Income)                                                           |   |                            |        |   |   |   |   |   |
| Finance costs - net (Note 11)                                                     |   |                            | 2,672       |   |   |   | 2,017 |   |
| (Gain) / loss on foreign exchange                                                 |   |                            | (7          | ) |   |   | 17 |   |
| Gain on disposal of available-for-sale financial instrument (Note 5)              |   |                            | (8          | ) |   |   | (16 | ) |
| Loss on disposal of Wetland Credit Intangible (Note 5)                            |   |                            | -           |   |   |   | 1,852 |   |
| Rental income                                                                     |   |                            | (22         | ) |   |   | (32 | ) |
| Total Other Expenses                                                              |   |                            | 2,635       |   |   |   | 3,838 |   |
|                                                                              |   |                            |        |   |   |   |   |   |
| Loss for the Year                                                                 |   |                            | 9,229       |   |   |   | 9,346 |   |
|                                                                              |   |                            |        |   |   |   |   |   |
| Other Comprehensive Income                                                        |   |                            |        |   |   |   |   |   |
| Reclassified gain on disposal of available-for-sale financial instrument (Note 5) |   |                            | 8           |   |   |   | 16 |   |
| Items that may be subsequently reclassified to profit or loss:                    |   |                            |        |   |   |   |   |   |
| Unrealized gain on available-for-sale financial instrument (Note 5)          |   |                            | (221        | ) |   |   | (215 | ) |
| Other Comprehensive Income for the Year                                           |   |                            | (213        | ) |   |   | (199 | ) |
|                                                                              |   |                            |        |   |   |   |   |   |
| Total Comprehensive Loss for the Year – Net of Tax                          |   | $                               | 9,016       |   |   | $ | 9,147 |   |
|                                                                              |   |                            |        |   |   |   |   |   |
|                                                                              |   |                            |        |   |   |   |   |   |
| Basic and Diluted Loss per Share                                                  |   | $                               | (0.03       | ) |   | $ | (0.03 | ) |
|                                                                              |   |                            |        |   |   |   |   |   |
| Weighted Average Number of Shares                                                 |   |                            | 288,998,010 |   |   |   | 276,812,958 |   |

----

|                                                   |   | Share Capital (authorized = unlimited) |        |   | Equity Reserves |   |    |    |   |   |        |   |
|--------------------------------------------------------|--------|----------------------------------------|-------------|--------|-----------------|--------|---------|---------|--------|--------|-------------|--------|
|                                                   |   |                                   |        |   |            |   |    |    |   |   |        |   |   | Accumulated |   |   |   |   |   |   |   |   | Total |   |
|                                                   |   | Issued                                 |        |   | Share           |   |    | Share   |   |   | Contributed |   |   | Other Comp |   |   | Equity |   |   |   |   |   | Shareholders' |   |
|                                                   |   | Shares                                 |        |   | Capital         |   |    | Premium |   |   | Surplus     |   |   | Inc / (Loss) |   |   | Reserves |   |   | Deficit |   |   | Equity |   |
| Balance - January 31, 2015                             |   |                                   | 276,351,374 |   |            | $      | 241,489 |    |   | $      | 3,007       |   |   | $ | 51,704 |   |   | $ | - |   |   | $ | 51,704 |   |   | $ | (103,824 | ) |   | $ | 192,376 |   |
| Total comprehensive loss for the year                  |   |                                   | -           |   |            |   | -       |    |   |   | -           |   |   |   | - |   |   |   | 199 |   |   |   | 199 |   |   |   | (9,346 | ) |   |   | (9,147 | ) |
| Refinance of debenture (Notes 7 and 8)                 |   |                                   | -           |   |            |   | -       |    |   |   | (1,856      | )      |   |   | 1,856 |   |   |   | - |   |   |   | 1,856 |   |   |   | - |   |   |   | - |   |
| Payment of land purchase options (Note 10)             |   |                                   | 224,038     |   |            |   | 199     |    |   |   | -           |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 199 |   |
| Exercise of share options (Note 10)                    |   |                                   | 275,000     |   |            |   | 434     |    |   |   | -           |   |   |   | (218 | ) |   |   | - |   |   |   | (218 | ) |   |   | - |   |   |   | 216 |   |
| Vesting of restricted shares and RSU’s (Note 10) |   |                                   | 729,670     |   |            |   | 795     |    |   |   | -           |   |   |   | (950 | ) |   |   | - |   |   |   | (950 | ) |   |   | - |   |   |   | (155 | ) |
| Share-based compensation (Note 10)                     |   |                                   | (23,000     | )      |            |   | -       |    |   |   | -           |   |   |   | 835 |   |   |   | - |   |   |   | 835 |   |   |   | - |   |   |   | 835 |   |
| Bonus share cost amortization (Note 10)                |   |                                   | -           |   |            |   | -       |    |   |   | -           |   |   |   | 333 |   |   |   | - |   |   |   | 333 |   |   |   | - |   |   |   | 333 |   |
| Balance - January 31, 2016                             |   |                                   | 277,557,082 |   |            | $      | 242,917 |    |   | $      | 1,151       |   |   | $ | 53,560 |   |   | $ | 199 |   |   | $ | 53,759 |   |   | $ | (113,170 | ) |   | $ | 184,657 |   |
| Total comprehensive loss for the year                  |   |                                   | -           |   |            |   | -       |    |   |   | -           |   |   |   | - |   |   |   | 213 |   |   |   | 213 |   |   |   | (9,229 | ) |   |   | (9,016 | ) |
| Private placement and issuance costs (Note 10)         |   |                                   | 40,074,418  |   |            |   | 25,091  |    |   |   | -           |   |   |   | 3,444 |   |   |   | - |   |   |   | 3,444 |   |   |   | - |   |   |   | 28,535 |   |
| Refinance of debentures (Notes 7, 8 and 9)             |   |                                   | -           |   |            |   | -       |    |   |   | -           |   |   |   | 250 |   |   |   | - |   |   |   | 250 |   |   |   | - |   |   |   | 250 |   |
| Payment of land purchase options (Note 10)             |   |                                   | 241,376     |   |            |   | 200     |    |   |   | -           |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 200 |   |
| Vesting of restricted shares and RSU’s (Note 10) |   |                                   | 537,481     |   |            |   | 575     |    |   |   | -           |   |   |   | (694 | ) |   |   | - |   |   |   | (694 | ) |   |   | - |   |   |   | (119 | ) |
| Share-based compensation (Note 10)                     |   |                                   | 135,162     |   |            |   | 112     |    |   |   | -           |   |   |   | 2,406 |   |   |   | - |   |   |   | 2,406 |   |   |   | - |   |   |   | 2,518 |   |
| Bonus share cost amortization (Note 10)                |   |                                   | -           |   |            |   | -       |    |   |   | -           |   |   |   | 304 |   |   |   | - |   |   |   | 304 |   |   |   | - |   |   |   | 304 |   |
| Balance - January 31, 2017                             |   |                                   | 318,545,519 |   |            | $      | 268,895 |    |   | $      | 1,151       |   |   | $ | 59,270 |   |   | $ | 412 |   |   | $ | 59,682 |   |   | $ | (122,399 | ) |   | $ | 207,329 |   |

----

|                                                                          |   | For the years ended January 31, |    |
|-------------------------------------------------------------------------------|--------|---------------------------------|---------|
|                                                                          |   | 2017                            |    |   | 2016 |   |
| Operating Activities                                                          |   |                            |    |   |   |   |
| Loss for the year                                                             |   | $                               | (9,229  | ) |   | $ | (9,346 | ) |
| Items not involving cash:                                                     |   |                            |    |   |   |   |   |   |
| Amortization                                                                  |   |                            | 18      |   |   |   | 32 |   |
| Environmental rehabilitation provision accretion (Note 6)                     |   |                            | 1,465   |   |   |   | 1,663 |   |
| Share-based compensation (Note 10)                                            |   |                            | 1,808   |   |   |   | 457 |   |
| Unrealized loss on foreign exchange                                           |   |                            | 4       |   |   |   | 10 |   |
| Loss on disposal of wetland credit intangible (Note 5)                        |   |                            | -       |   |   |   | 1,852 |   |
| Gain on disposal of available-for-sale financial instrument (Note 5)          |   |                            | (8      | ) |   |   | (16 | ) |
| Changes in non-cash working capital:                                          |   |                            |    |   |   |   |   |   |
| Amounts receivable                                                            |   |                            | (40     | ) |   |   | 316 |   |
| Prepaid expenses                                                              |   |                            | 472     |   |   |   | (177 | ) |
| Accounts payable and accrued liabilities                                      |   |                            | 47      |   |   |   | 387 |   |
| Net cash used in operating activities                                         |   |                            | (5,463  | ) |   |   | (4,822 | ) |
|                                                                          |   |                            |    |   |   |   |   |   |
| Financing Activities                                                          |   |                            |    |   |   |   |   |   |
| Share issuance proceeds, net of costs (Note 10)                               |   |                            | 28,535  |   |   |   | 216 |   |
| Debenture funding, net of costs (Notes 7 and 9)                               |   |                            | 13,943  |   |   |   | 32,954 |   |
| Debenture repayment (Notes 7 and 9)                                           |   |                            | (5,111  | ) |   |   | - |   |
| Cash settled RSU’s (Note 10)                                            |   |                            | (119    | ) |   |   | (155 | ) |
| Net cash provided by financing activities                                     |   |                            | 37,248  |   |   |   | 33,015 |   |
|                                                                          |   |                            |    |   |   |   |   |   |
| Investing Activities                                                          |   |                            |    |   |   |   |   |   |
| Property, plant and equipment purchases (Note 4)                              |   |                            | (23,445 | ) |   |   | (27,378 | ) |
| Available-for-sale financial instrument disposal proceeds (Note 5)  |   |                            | 82      |   |   |   | 250 |   |
| Wetland credit intangible purchases (Note 5)                                  |   |                            | -       |   |   |   | (100 | ) |
| Net cash used in investing activities                                         |   |                            | (23,363 | ) |   |   | (27,228 | ) |
|                                                                          |   |                            |    |   |   |   |   |   |
| Net Increase (Decrease) in Cash                                               |   |                            | 8,422   |   |   |   | 965 |   |
| Effect of foreign exchange on Cash                                            |   |                            | (4      | ) |   |   | (10 | ) |
| Cash - Beginning of year                                                      |   |                            | 10,256  |   |   |   | 9,301 |   |
| Cash - End of year                                                            |   | $                               | 18,674  |   |   | $ | 10,256 |   |
|  Supplementary information                                               |   |                            |    |   |   |   |   |   |
|    Accounts payable and accrued liabilities related to PP&E     |   | $                               | (207    | ) |   | $ | 334 |   |
|    Debt accretion and capitalized interest (Notes 7, 8, and 9) |   |                            | 15,103  |   |   |   | 5,051 |   |
|    Share-based compensation related to PP&E (Note 10)      |   |                            | 710     |   |   |   | 378 |   |
|    Bonus share amortization related to PP&E (Note 10)      |   |                            | 304     |   |   |   | 333 |   |
|    Fair value of shares issued for land options (Note 10)      |   | $                               | 200     |   |   | $ | 199 |   |

----

----

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

----

----

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

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

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

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

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

----

----

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

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

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

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

----

----

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

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

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

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

----

----

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

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

|   | Leasehold improvements  | Straight-line over the term of the lease |
|--------|-------------------------|------------------------------------------|
|   | Furniture and equipment | Straight-line over 10 years              |
|   | Computers               | Straight-line over 5 years               |
|   | Computer software       | Straight-line over 1 year                |

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

----

----

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

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

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

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

----

**PolyMet Mining Corp.**

**Notes to Consolidated Financial Statements**

**As at January 31, 2017 and 2016 and for the years then ended**

**Tabular amounts in thousands of U.S. Dollars, except for shares and per share amounts**

----

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

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

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

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

| o) | Future Accounting Changes |
|----|---------------------------|

----

**PolyMet Mining Corp.**

----

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

| o) | Future Accounting Changes – Continued |
|----|---------------------------------------------|

----

**PolyMet Mining Corp.**

----

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

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

| Net Book Value                                             |   | NorthMet |    |   | Other fixedassets |   |   | Total  |   |
|------------------------------------------------------------|--------|----------|---------|--------|-------------------|--------|--------|--------|--------|
| Balance at January 31, 2015                                |   | $        | 296,102 |   |              | $      | 145    |   |   | $ | 296,247 |   |
| Additions                                                  |   |     | 32,726  |   |              |   | 19     |   |   |   | 32,745 |   |
| Changes to environmental rehabilitation provision (Note 6) |   |     | (7,269  | )      |              |   | -      |   |   |   | (7,269 | ) |
| Amortization                                               |   |     | -       |   |              |   | (74    | )      |   |   | (74 | ) |
| Balance at January 31, 2016                                |   |     | 321,559 |   |              |   | 90     |   |   |   | 321,649 |   |
| Additions                                                  |   |     | 38,767  |   |              |   | 89     |   |   |   | 38,856 |   |
| Changes to environmental rehabilitation provision (Note 6) |   |     | 4,467   |   |              |   | -      |   |   |   | 4,467 |   |
| Amortization                                               |   |     | -       |   |              |   | (59    | )      |   |   | (59 | ) |
| Balance at January 31, 2017                                |   | $        | 364,793 |   |              | $      | 120    |   |   | $ | 364,913 |   |

----

**PolyMet Mining Corp.**

----

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

| NorthMet                                        |   | January 31,2017 |    |   | January 31,2016 |   |
|-------------------------------------------------|--------|-----------------|---------|--------|-----------------|--------|
| Mineral property acquisition and interest costs |   | $               | 68,352  |   |            | $      | 53,041 |   |
| Mine plan and development                       |   |            | 47,833  |   |            |   | 45,422 |   |
| Environmental                                   |   |            | 111,421 |   |            |   | 95,709 |   |
| Consulting and wages                            |   |            | 49,715  |   |            |   | 45,770 |   |
| Reclamation and remediation (Note 6)            |   |            | 66,652  |   |            |   | 62,185 |   |
| Site activities                                 |   |            | 19,871  |   |            |   | 18,483 |   |
| Mine equipment                                  |   |            | 949     |   |            |   | 949 |   |
| Total                                           |   | $               | 364,793 |   |            | $      | 321,559 |   |

----

**PolyMet Mining Corp.**

----

| 5. | Wetland Credit Intangible and EIP Receivable |
|----|----------------------------------------------|

|                                                |   | For the year ended January 31, |   |
|-----------------------------------------------------|--------|--------------------------------|--------|
|                                                |   | 2017                           |   |   | 2016 |   |
| Wetland Credit Intangible – beginning of year |   | $                              | 1,888  |   |   | $ | 6,192 |   |
| Additions                                           |   |                           | -      |   |   |   | 100 |   |
| Disposals                                           |   |                           | -      |   |   |   | (4,404 | ) |
| Wetland Credit Intangible – end of year       |   | $                              | 1,888  |   |   | $ | 1,888 |   |

|                                     |   | For the year ended January 31, |   |
|------------------------------------------|--------|--------------------------------|--------|
|                                     |   | 2017                           |   |   | 2016 |   |
| EIP Receivable – beginning of year |   | $                              | 2,517  |   |   | $ | - |   |
| Initial recognition                      |   |                           | -      |   |   |   | 2,552 |   |
| Collections from EIP                     |   |                           | (82    | ) |   |   | (250 | ) |
| Accretion                                |   |                           | 228    |   |   |   | 192 |   |
| (Loss) / Gain on re-measurement          |   |                           | (7     | ) |   |   | 23 |   |
| EIP Receivable – end of year       |   |                           | 2,656  |   |   |   | 2,517 |   |
| Less current portion                     |   |                           | (644   | ) |   |   | (364 | ) |
| Non-current portion                      |   | $                              | 2,012  |   |   | $ | 2,153 |   |

----

**PolyMet Mining Corp.**

----

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

|                                                             |   | For the year ended January 31, |   |
|------------------------------------------------------------------|--------|--------------------------------|--------|
|                                                             |   | 2017                           |   |   | 2016 |   |
| Environmental Rehabilitation Provision – beginning of year |   | $                              | 65,684 |   |   | $ | 72,260 |   |
| Change in estimate                                               |   |                           | 4,467  |   |   |   | (7,269 | ) |
| Liabilities discharged                                           |   |                           | (990   | ) |   |   | (970 | ) |
| Accretion expense                                                |   |                           | 1,465  |   |   |   | 1,663 |   |
| Environmental Rehabilitation Provision – end of year       |   |                           | 70,626 |   |   |   | 65,684 |   |
| Less current portion                                             |   |                           | (781   | ) |   |   | (1,498 | ) |
| Non-current portion                                              |   | $                              | 69,845 |   |   | $ | 64,186 |   |

----

**PolyMet Mining Corp.**

----

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

| · | Equity – five separate agreements comprising $25.0 million placement of PolyMet common shares in calendar 2009 in two tranches; a $30.0 million placement of PolyMet common shares in calendar 2010 in three tranches; a $20.0 million placement of PolyMet common shares in calendar 2011 in one tranche; a $20.960 million purchase of PolyMet common shares in the 2013 Rights Offering; and a $10.583 million purchase of PolyMet common shares in the 2016 Private Placement (see Note 10);  |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Convertible debt ("Glencore Convertible Debt") – agreement comprising $25.0 million initial principal secured convertible debentures drawn in four tranches (see Note 8);                                                                                                                                                                                                                                                                                                                         |
| · | Non-convertible debt ("Glencore Non-Convertible Debt") – three separate agreements comprising $30.0 million initial principal secured debentures in calendar 2015 drawn in four tranches; an $11.0 million initial principal secured debenture in calendar 2016 drawn in one tranche; and a $14.0 million initial principal secured debenture in calendar 2016 drawn in four tranches (see Note 9b);                                                                                              |
| · | 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; and                                                                                                                                                                                                                                                           |
| · | 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 has the right, but not obligation, to nominate 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.                                                                   |

| · | 92,836,072 shares representing 29.1% of PolyMet's issued shares (January 31, 2016 - 78,724,821 shares);                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Glencore Convertible Debt exchangeable through the exercise of an exchange warrant ("Exchange Warrant") at $1.2696 per share into 33,265,768 common shares of PolyMet (including capitalized and accrued interest as at January 31, 2017) until the earlier of March 31, 2018, availability of $100 million of debt or equity financing, or an earlier date on which PolyMet can demonstrate that it is prudent to repay the debentures, subject to ten days notice during which time Glencore can elect to exercise the Exchange Warrant, and where the exercise price and the number of shares issuable are subject to conventional anti-dilution provisions.  See Note 8 for additional details;  |
| · | Warrants to purchase 6,458,001 common shares at $0.8231 per share at any time until December 31, 2017 ("Purchase Warrants"), 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 PolyMet has received permits and construction finance is available ("Exercise Triggering Event"), and where the exercise price and the number of warrants are subject to conventional anti-dilution provisions;                                                                                                                                                                                       |

----

**PolyMet Mining Corp.**

----

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

| · | Warrants to purchase 7,055,626 common shares at $1.00 per share at any time until October 28, 2021, subject to acceleration on the earlier of receipt of permits necessary to construct NorthMet or the 12 month anniversary of the issue date provided the 20-day VWAP of PolyMet common shares is equal to or greater than $1.50 (“Acceleration Triggering Event”), and where the exercise price and the number of warrants are subject to conventional anti-dilution provisions.  See 2016 Agreements below for additional details; and  |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Warrants to purchase 625,000 common shares at $0.7797 per share at any time until October 28, 2021, and where the exercise price and the number of warrants are subject to conventional anti-dilution provisions.  See 2016 Agreements below for additional details. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**PolyMet Mining Corp.**

----

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

----

**PolyMet Mining Corp.**

----

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

|                                       |   | For the year ended January 31, |   |
|--------------------------------------------|--------|--------------------------------|--------|
|                                       |   | 2017                           |   |   | 2016 |   |
| Convertible Debt – beginning of year |   | $                              | 35,986 |   |   | $ | 33,451 |   |
| Accretion and capitalized interest         |   |                           | 6,168  |   |   |   | 2,535 |   |
| Convertible Debt – end of year       |   |                           | 42,154 |   |   |   | 35,986 |   |
| Less current portion                       |   |                           | -      |   |   |   | - |   |
| Non-current portion                        |   | $                              | 42,154 |   |   | $ | 35,986 |   |

----

**PolyMet Mining Corp.**

----

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

|                                   |   | For the year ended January 31, |   |
|----------------------------------------|--------|--------------------------------|--------|
|                                   |   | 2017                           |   |   | 2016 |   |
| IRRRB – beginning of year        |   | $                              | 4,962  |   |   | $ | 4,614 |   |
| Accretion and capitalized interest     |   |                           | 149    |   |   |   | 348 |   |
| Repayment                              |   |                           | (5,111 | ) |   |   | - |   |
| IRRRB – end of year (Note 9a)    |   |                           | -      |   |   |   | 4,962 |   |
|                                   |   |                           |   |   |   |   |   |   |
| Glencore – beginning of year     |   |                           | 43,023 |   |   |   | 7,855 |   |
| Accretion and capitalized interest     |   |                           | 8,786  |   |   |   | 2,168 |   |
| Funding, net of costs                  |   |                           | 13,943 |   |   |   | 33,000 |   |
| Glencore – end of year (Note 9b) |   |                           | 65,752 |   |   |   | 43,023 |   |
|                                   |   |                           |   |   |   |   |   |   |
| Total Non-Convertible Debt             |   |                           | 65,752 |   |   |   | 47,985 |   |
| Less current portion                   |   |                           | -      |   |   |   | (4,962 | ) |
| Non-current portion                    |   | $                              | 65,752 |   |   | $ | 43,023 |   |

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

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

----

**PolyMet Mining Corp.**

----

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

|  | a) | Issuances for Cash and Land Acquisition |
|--|----|-----------------------------------------|

----

**PolyMet Mining Corp.**

----

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

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

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

|                                  |   | Year endedJanuary 31, 2017 |       |   | Year endedJanuary 31, 2016    |   |
|---------------------------------------|--------|----------------------------|------------|--------|-------------------------------|--------|
|                                  |   | Number ofOptions           |       |   | WeightedAverageExercise Price |   |   | Number ofOptions |   |   | WeightedAverageExercise Price |   |
| Outstanding – beginning of year |   |                       | 18,975,002 |   |                          |   | 1.29 |   |   |   | 21,085,002 |   |   |   | 1.33 |   |
| Granted                               |   |                       | 5,502,000  |   |                          |   | 0.76 |   |   |   | 338,000 |   |   |   | 1.50 |   |
| Exercised                             |   |                       | -          |   |                          |   | - |   |   |   | (275,000 | ) |   |   | 0.79 |   |
| Expired                               |   |                       | (3,515,000 | )      |                          |   | 1.64 |   |   |   | (2,173,000 | ) |   |   | 1.59 |   |
| Outstanding – end of year       |   |                       | 20,962,002 |   |                          |   | 1.10 |   |   |   | 18,975,002 |   |   |   | 1.29 |   |

----

**PolyMet Mining Corp.**

----

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

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

|                                       | For the year ended January 31, |   |
|--------------------------------------------|--------------------------------|--------|
|  2017                                 |                           | 2016   |   |
| Risk-free interest rate                    | 1.01% to 1.30%                 |   |   | 0.93 | % |
| Expected dividend yield                    | Nil                            |   | Nil |   |
| Expected forfeiture rate                   | Nil                            |   | Nil |   |
| Expected volatility                        | 55.88% to 59.17%               |   |   | 49.61 | % |
| Expected life in years                     | 2.50 to 5.00                   |   |   | 2.50 |   |
| Weighted average fair value of each option | $0.26 to $0.38                 |   |   | $0.32 |   |

| Range of Exercise Prices | Number ofoptionsoutstanding | Number ofoptionsexercisable | Weighted AverageExercise Price | Weighted AverageRemaining Life |
|--------------------------|-----------------------------|-----------------------------|--------------------------------|--------------------------------|
| 0.7110 to 0.8671         | 10,112,000                  | 9,228,667                   | 0.75                           | 4.57                           |
| 0.9300 to 1.1500         | 6,907,002                   | 6,907,002                   | 1.02                           | 5.45                           |
| 1.5000 to 1.8816         | 1,928,000                   | 1,928,000                   | 1.69                           | 3.23                           |
| 2.0475 to 2.4886         | 615,000                     | 415,000                     | 2.31                           | 1.35                           |
| 2.5059 to 3.0695         | 1,400,000                   | 1,227,500                   | 2.65                           | 0.64                           |
|                     | 20,962,002                  | 19,706,169                  | 1.10                           | 4.38                           |

----

**PolyMet Mining Corp.**

----

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

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

|                            |   | For the year ended January 31, |      |
|---------------------------------|--------|--------------------------------|-----------|
|                            |   | 2017                           |      |   | 2016 |   |
| Outstanding - beginning of year |   |                           | 990,471   |   |   |   | 2,130,286 |   |
| Issued                          |   |                           | 2,303,239 |   |   |   | - |   |
| Forfeited                       |   |                           | -         |   |   |   | (64,667 | ) |
| Vested                          |   |                           | (675,690  | ) |   |   | (1,075,148 | ) |
| Outstanding - end of year       |   |                           | 2,618,020 |   |   |   | 990,471 |   |

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

|                                  |   | Year endedJanuary 31, 2017 |      |   | Year endedJanuary 31, 2016 |   |
|---------------------------------------|--------|----------------------------|-----------|--------|----------------------------|--------|
|                                  |   | Allocated                  |      |   | Authorized & Unissued  |   |   | Allocated |   |   | Authorized & Unissued |   |
| Outstanding – beginning of year |   |                       | 3,150,000 |   |                       |   | 3,640,000 |   |   |   | 3,150,000 |   |   |   | 3,640,000 |   |
| Outstanding – end of year       |   |                       | 3,150,000 |   |                       |   | 3,640,000 |   |   |   | 3,150,000 |   |   |   | 3,640,000 |   |

----

**PolyMet Mining Corp.**

----

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

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

|                                  |   | Year endedJanuary 31, 2017 |       |   | Year endedJanuary 31, 2016    |   |
|---------------------------------------|--------|----------------------------|------------|--------|-------------------------------|--------|
|                                  |   | Number of PurchaseWarrants |       |   | WeightedAverageExercise Price |   |   | Number ofPurchaseWarrants |   |   | WeightedAverageExercise Price |   |
| Outstanding – beginning of year |   |                       | 6,919,287  |   |                          | $      | 0.91 |   |   |   | 8,168,602 |   |   | $ | 1.35 |   |
| Issued (Notes 7 and 10a)              |   |                       | 21,322,212 |   |                          |   | 0.99 |   |   |   | - |   |   |   | - |   |
| Expiration (Notes 5 and 9a)           |   |                       | (461,286   | )      |                          |   | (2.17 | ) |   |   | (1,249,315 | ) |   |   | (1.30 | ) |
| Glencore Adjustments (Note 7)         |   |                       | -          |   |                          |   | - |   |   |   | - |   |   |   | (0.48 | ) |
| Outstanding – end of year       |   |                       | 27,780,213 |   |                          | $      | 0.95 |   |   |   | 6,919,287 |   |   | $ | 0.91 |   |

|                                            | For the year ended January 31, |
|-------------------------------------------------|--------------------------------|
|                                            |  2017                     | 2016 |
| Risk-free interest rate                         | 0.98% to 1.33%                 | Nil |
| Expected dividend yield                         | Nil                            | Nil |
| Expected forfeiture rate                        | Nil                            | Nil |
| Expected volatility                             | 55.58% to 58.47%               | Nil |
| Expected life in years                          | 2.50 to 5.00                   | Nil |
| Weighted average fair value of each warrant (1) | $0.19 to $0.40                 | Nil |

|  | (1) | The fair value of share purchase warrants was used in determining the allocation of net proceeds under the relative fair value method for Placement Units on October 18, 2016 and Glencore Units on October 28, 2016. |
|--|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**PolyMet Mining Corp.**

----

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

|                                                      |   | Year ended January 31, |    |
|-----------------------------------------------------------|--------|------------------------|---------|
|                                                      |   | 2017                   |    |   | 2016 |   |
| Debt accretion and capitalized interest:                  |   |                   |    |   |   |   |   |   |
| Convertible debt (Notes 7 and 8)                          |   | $                      | 6,168   |   |   | $ | 2,535 |   |
| Non-convertible debt (Notes 7 and 9)                      |   |                   | 8,935   |   |   |   | 2,516 |   |
| Environmental rehabilitation provision accretion (Note 6) |   |                   | 1,465   |   |   |   | 1,663 |   |
| Other finance costs                                       |   |                   | 1,261   |   |   |   | 375 |   |
| Less: amounts capitalized on qualifying assets            |   |                   | (15,103 | ) |   |   | (5,051 | ) |
| Finance costs                                             |   |                   | 2,726   |   |   |   | 2,038 |   |
| Interest income:                                          |   |                   |    |   |   |   |   |   |
| Bank deposits                                             |   |                   | (54     | ) |   |   | (21 | ) |
| Finance income                                            |   |                   | (54     | ) |   |   | (21 | ) |
| Finance costs - net                                       |   | $                      | 2,672   |   |   | $ | 2,017 |   |

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

|                                   |   | Year ended January 31, |   |
|----------------------------------------|--------|------------------------|--------|
|                                   |   | 2017                   |   |   | 2016 |   |
| Salaries and other short-term benefits |   | $                      | 1,828  |   |   | $ | 1,825 |   |
| Other long-term benefits               |   |                   | 44     |   |   |   | 36 |   |
| Share-based payment (1)                |   |                   | 1,709  |   |   |   | 411 |   |
| Total                                  |   | $                      | 3,581  |   |   | $ | 2,272 |   |

| (1) | Share-based payment represents the amount expensed during the period and are described in Note 10. |
|-----|----------------------------------------------------------------------------------------------------|

----

**PolyMet Mining Corp.**

----

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

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

|                                                |   | Year ended January 31, |   |
|-----------------------------------------------------|--------|------------------------|--------|
|                                                |   | 2017                   |   |   | 2016 |   |
| Loss for the year before taxes                      |   | $                      | (9,229 | ) |   | $ | (9,346 | ) |
| Canadian statutory tax rate                         |   |                   | 26.0   | % |   |   | 26.0 | % |
| Expected tax recovery                               |   |                   | (2,400 | ) |   |   | (2,430 | ) |
| Difference in foreign tax rates                     |   |                   | (413   | ) |   |   | (771 | ) |
| Non-deductible items                                |   |                   | 470    |   |   |   | 119 |   |
| Change in unrecognized deferred tax and other items |   |                   | 2,343  |   |   |   | 3,082 |   |
| Income Tax Expense / (Recovery)                     |   | $                      | -      |   |   | $ | - |   |

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

|                                                            |   | Year ended January 31, |    |
|-----------------------------------------------------------------|--------|------------------------|---------|
|                                                            |   | 2017                   |    |   | 2016 |   |
| Non-capital loss carry forward assets                           |   | $                      | 35,992  |   |   | $ | 31,488 |   |
| Mineral property acquisition, exploration and development costs |   |                   | (35,992 | ) |   |   | (31,488 | ) |
| Other                                                           |   |                   | -       |   |   |   | - |   |
| Net deferred income tax liabilities                             |   | $                      | -       |   |   | $ | - |   |

|                                    |   | Year ended January 31, |   |
|-----------------------------------------|--------|------------------------|--------|
|                                    |   | 2017                   |   |   | 2016 |   |
| Non-capital loss carry forward assets   |   | $                      | 25,619 |   |   | $ | 22,380 |   |
| Capital loss carry forward assets       |   |                   | 347    |   |   |   | 347 |   |
| Intercompany receivable assets          |   |                   | 2,031  |   |   |   | 2,031 |   |
| Other assets                            |   |                   | 1,059  |   |   |   | 1,074 |   |
| Unrecognized deferred income tax assets |   | $                      | 29,056 |   |   | $ | 25,832 |   |

----

**PolyMet Mining Corp.**

----

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

| a) | As at January 31, 2017, the Company had firm commitments related to the environmental permitting process, land options, and rent of approximately $1.1 million with the majority due over the next year and the remainder due over three years. |
|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| b) | As at January 31, 2017, 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, 2017: |
|----|-------------------------------------------------------------------------------------|

|  Contractual Obligations            |   | CarryingValue |    |   | ContractualCash flows |   |    | Less than1 year |   |   | 1 – 3years |   |   | 3 – 5years |    |   | More than5 years |   |
|------------------------------------------|--------|---------------|---------|--------|-----------------------|--------|---------|-----------------|--------|--------|------------------|--------|--------|------------------|---------|--------|------------------|--------|
| Accounts payable and accrued liabilities |   | $             | 3,188   |   |                  | $      | 3,188   |            |   | $      | 3,188            |   |   | $                | -       |   |             | $      | - |   |   | $ | - |   |
| Convertible debt (Note 8)                |   |          | 42,154  |   |                  |   | 51,099  |            |   |   | -                |   |   |             | 51,099  |   |             |   | - |   |   |   | - |   |
| Non-convertible debt (Note 9)            |   |          | 65,752  |   |                  |   | 79,766  |            |   |   | -                |   |   |             | 79,766  |   |             |   | - |   |   |   | - |   |
| Firm commitments                         |   |          | -       |   |                  |   | 1,127   |            |   |   | 908              |   |   |             | 219     |   |             |   | - |   |   |   | - |   |
| Total                                    |   | $             | 111,094 |   |                  | $      | 135,180 |            |   | $      | 4,096            |   |   | $                | 131,084 |   |             | $      | - |   |   | $ | - |   |

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

|                                     |   | Loans and receivables |   |   | Availablefor sale |   |   | Otherfinancialliabilities |   |   | Totalcarrying value |   |
|------------------------------------------|--------|-----------------------|--------|--------|-------------------|--------|--------|---------------------------|--------|--------|---------------------|--------|
| Financial assets                         |   |                  |   |   |              |   |   |                      |   |   |                |   |
| Cash                                     |   | $                     | 18,674 |   |              | $      | -      |                      |   | $      | -                   |   |   | $ | 18,674 |   |
| Amounts receivable                       |   |                  | 105    |   |              |   | 2,656  |                      |   |   | -                   |   |   |   | 2,761 |   |
| Total financial assets                   |   | $                     | 18,779 |   |              | $      | 2,656  |                      |   | $      | -                   |   |   | $ | 21,435 |   |
|  Financial liabilities              |   |                  |   |   |              |   |   |                      |   |   |                |   |   |   |   |   |
| Accounts payable and accrued liabilities |   | $                     | -      |   |              | $      | -      |                      |   | $      | 3,188               |   |   | $ | 3,188 |   |
| Convertible debt                         |   |                  | -      |   |              |   | -      |                      |   |   | 42,154              |   |   |   | 42,154 |   |
| Non-convertible debt                     |   |                  | -      |   |              |   | -      |                      |   |   | 65,752              |   |   |   | 65,752 |   |
| Total financial liabilities              |   | $                     | -      |   |              | $      | -      |                      |   | $      | 111,094             |   |   | $ | 111,094 |   |

----

**PolyMet Mining Corp.**

----

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

|                                     |   | Loans and receivables |   |   | Availablefor sale |   |   | Otherfinancialliabilities |   |   | Totalcarrying value |   |
|------------------------------------------|--------|-----------------------|--------|--------|-------------------|--------|--------|---------------------------|--------|--------|---------------------|--------|
| Financial assets                         |   |                  |   |   |              |   |   |                      |   |   |                |   |
| Cash                                     |   | $                     | 10,256 |   |              | $      | -      |                      |   | $      | -                   |   |   | $ | 10,256 |   |
| Amounts receivable                       |   |                  | 65     |   |              |   | 2,517  |                      |   |   | -                   |   |   |   | 2,582 |   |
| Total financial assets                   |   | $                     | 10,321 |   |              | $      | 2,517  |                      |   | $      | -                   |   |   | $ | 12,838 |   |
|  Financial liabilities              |   |                  |   |   |              |   |   |                      |   |   |                |   |   |   |   |   |
| Accounts payable and accrued liabilities |   | $                     | -      |   |              | $      | -      |                      |   | $      | 3,348               |   |   | $ | 3,348 |   |
| Convertible debt                         |   |                  | -      |   |              |   | -      |                      |   |   | 35,986              |   |   |   | 35,986 |   |
| Non-convertible debt                     |   |                  | -      |   |              |   | -      |                      |   |   | 47,985              |   |   |   | 47,985 |   |
| Total financial liabilities              |   | $                     | -      |   |              | $      | -      |                      |   | $      | 87,319              |   |   | $ | 87,319 |   |

|   | 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.                                                    |

|                 | Impact on fair valuedue to 2% decreasein interest rate | Impact on fair valuedue to 1% decreasein interest rate | Impact on fair valuedue to 1% increasein interest rate | Impact on fair valuedue to 2% increasein interest rate |
|----------------------|--------------------------------------------------------|--------------------------------------------------------|--------------------------------------------------------|--------------------------------------------------------|
| Convertible debt     | 867                                                    | 429                                                    | (421)                                                  | (835)                                                  |
| Non-convertible debt | 1,352                                                  | 670                                                    | (657)                                                  | (1,303)                                                |

----

**PolyMet Mining Corp.**

----

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

|                 |   | January 31,2017 |   |   | January 31,2016 |   |
|----------------------|--------|-----------------|--------|--------|-----------------|--------|
| Cash                 |   | $               | 18,674 |   |            | $      | 10,256 |   |
| Convertible debt     |   |            | 42,154 |   |            |   | 35,986 |   |
| Non-convertible debt |   | $               | 65,752 |   |            | $      | 47,985 |   |

----

**PolyMet Mining Corp.**

----

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