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UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C.
20549

FORM 20-F

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

OR

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

For the fiscal year ended January 31, 2010

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 0-18701

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

British Columbia, Canada(Jurisdiction of
incorporation or organization)

Suite 390  3600 Lysander Lane, Richmond, British Columbia
V7B 1C3(Address of principal executive offices)

Douglas Newbyc/o PolyMet Mining
Inc.PO Box 475 6500 County Road 666 Hoyt Lakes,
Minnesota 55750 
Tel: 646-879-5970
Fax: 646-365-3230E-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 Amex Toronto Stock Exchange

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

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

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. 148,980,791

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

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

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

Indicate by check mark whether the registrant 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 | Other [ x ]
|------------- | ----------------------------------------------------------- | -----------
|              | by the International Accounting Standards
      Board [ ]   |            

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 [ x ]

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                           | 1 
|ITEM 2.   | OFFER STATISTICS AND EXPECTED
      TIMETABLE                                         | 1 
|ITEM 3.   | KEY INFORMATION                                                                       | 2 
|ITEM 4.   | INFORMATION ON THE COMPANY                                                            | 10
|ITEM 4A.  | UNRESOLVED
      STAFF COMMENTS                                                       | 25
|ITEM 5.   | OPERATING AND FINANCIAL
      REVIEW AND PROSPECTS                                    | 26
|ITEM 6.   | DIRECTORS,
      SENIOR MANAGEMENT AND EMPLOYEES                                      | 37
|ITEM 7.   | MAJOR SHAREHOLDERS AND RELATED
      PARTY TRANSACTIONS                               | 42
|ITEM 8.   | FINANCIAL
      INFORMATION                                                           | 46
|ITEM 9.   | THE OFFER AND LISTING                                                                 | 47
|ITEM 10.  | ADDITIONAL
      INFORMATION                                                          | 48
|ITEM 11.  | QUANTITATIVE AND QUALITATIVE
      DISCLOSURE ABOUT MARKET RISK                       | 56
|ITEM 12.  | DESCRIPTION
      OF SECURITIES OTHER THAN EQUITY SECURITIES                          | 57
|          |                                                                                       |   
|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                                                         | 57
|ITEM 16A. | **AUDIT COMMITTEE FINANCIAL
      EXPERT**                                            | 59
|ITEM 16B. | **CODE
      OF ETHICS**                                                              | 59
|ITEM 16C. | **PRINCIPAL ACCOUNTANT
      FEES AND SERVICES**                                      | 59
|          |                                                                                       |   
|Part III  |                                                                                       |   
|          |                                                                                       |   
|ITEM 17.  | FINANCIAL STATEMENTS                                                                  | 60
|ITEM 18.  | FINANCIAL
      STATEMENTS                                                            | 60
|ITEM 19.  | EXHIBITS                                                                              | 61

Financial Statements:

|Managements Responsibility
        for the Financial Statements              | F-1 
|----------------------------------------------------------------------------- | ----
|Report of Independent Registered Public
        Accounting Firm               | F-2 
|Consolidated Balance
        Sheet                                            | F-5 
|Consolidated Statements of Loss, Other
        Comprehensive Loss and Deficit | F-6 
|Consolidated Statements
        of Shareholders Equity                       | F-7 
|Consolidated Statements of Cash Flows                                         | F-8 
|Consolidated Schedules
        of Pre-Feasibility Costs                       | F-9 
|Notes to Consolidates Financial Statements                                    | F-10

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

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

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

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND
ADVISORS

Not required.

ITEM 2. OFFER STATISTICS AND EXPECTED
TIMETABLE

Not required.

- 1 -

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ITEM 3. KEY INFORMATION

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

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

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

|                                        | Year Ended 
    1/31/10 | Year Ended 1/31/09 | Year Ended 1/31/08 | Year Ended 1/31/07 | Year Ended 1/31/06
|--------------------------------------- | ----------------------- | ------------------ | ------------------ | ------------------ | ------------------
|Revenue                                 | $                      | $                 | $                 | $                 | $                
|Income (loss) from
      Operations     | $                      | $                 | $                 | $                 | $                
|Net Loss                                | $
      (9,023)         | $
      (5,523)    | $
      (4,124)    | $
      (18,126)   | $
      (15,976)  
|Loss Per Share                          | $
      (0.06)          | $
      (0.04)     | $
      (0.03)     | $
      (0.16)     | $
      (0.22)    
|Diluted Net Loss
      Per Share        | $
      (0.06)          | $
      (0.04)     | $
      (0.03)     | $
      (0.16)     | $
      (0.22)    
|Dividends Per
      Share               | $                      | $                 | $                 | $                 | $                
|Weighted Average
      Shares           | 139,456,827             | 137,187,927        | 133,697,572        | 114,754,213        | 73,484,490        
|Working Capital                         | $
      16,313          | $
      3,582      | $
      16,558     | $
      5,240      | $
      9,070     
|Total Assets                            | $
      139,648         | $
      101,599    | $
      88,485     | $
      48,451     | $
      25,987    
|Long-Term and Convertible Debt          | $ 33,782                | $ 24,006           | $ 10,834           | $ 11,853           | $ 1,420           
|US GAAP Long-Term and Convertible Debt1 | $ 34,032                | $ 24,256           | $ 10,834           | $ 11,853           | $ 1,420           
|Shareholders
      Equity              | $
      97,567          | $
      70,335     | $
      68,437     | $
      29,658     | $
      19,340    
|US GAAP
      Shareholders Equity1     | $
      97,317          | $
      70,085     | $
      68,437     | $
      29,658     | $
      19,340    
|Capital Stock                           | $
      132,066         | $
      105,312    | $
      104,615    | $
      72,923     | $
      46,009    

|1 | Under Canadian GAAP, the Company includes the fair value
      of the conversion ability as shareholders equity. Under US GAAP, this
      amount is included in convertible debt.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

- 2 -

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

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

RISKS RELATING TO OUR BUSINESS

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

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

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

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

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

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

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

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

- 3 -

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

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

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

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

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

We are dependent on our key personnel

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

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

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

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

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

- 4 -

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

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

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

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

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

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

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

Item 4.D of this Annual Report discusses our mineral resources
in accordance with Canadian National Instrument 43-101  Standards of Disclosure
for Mineral Projects (NI 43-101). Resources are classified as measured
resources, indicated resources and inferred resources under NI 43-101.
However, U.S. investors are cautioned that the SEC does not recognize these
resource classifications.

- 5 -

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

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

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

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

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

As a development stage company with no holdings in any
producing mines, we continue to incur losses and expect to incur losses in the
future. As of January 31, 2010, we had an accumulated deficit of $71,549,000. We
may not be able to achieve or sustain profitability in the future. If we do not
begin to generate revenues or find alternate sources of capital, we may either
have to suspend or cease operations.

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

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

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

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

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

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

- 6 -

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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.

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

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

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

RISKS RELATED TO THE OWNERSHIP OF OUR SHARES

We may experience volatility in our share price.

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

- 7 -

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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 of January 31, 2010 there
were 148,980,791 of our common shares outstanding. The average trading volume
for the three months prior to January 31, 2010 was approximately 95,000 shares
per day on the Toronto Stock Exchange and 434,000 shares per day on the NYSE
Amex. Sales of substantial amounts of our common shares, or a perception that
such sales could occur, and the existence of options or warrants to purchase
common shares at prices that may be below the then current market price of our
common shares, could adversely affect the market price of our common shares and
could impair our ability to raise capital through the sale of our equity
securities.

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

We have issued common shares and options, and warrants to
purchase our common shares to satisfy our obligations and fund our operations
(see Item 5.A). Since we currently do not have a source of revenue, we will
likely issue additional common shares, options, warrants 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 (the Plan),
the aggregate number of our common shares that may be issuable pursuant to the
Plan may not at any time exceed the greater of (i) 10% of our issued and
outstanding common shares and (ii)18,592,888 common shares, representing 13.62%
of our outstanding common shares at the time of the approval of the Plan, of
which 4,640,000 common shares are reserved for issuance as awards other than
options. As of January 31, 2010 the aggregate number of Common Shares issuable
pursuant to the Plan was 13,952,888 shares. Our bonus share incentive plan (the
Bonus Plan) was established for our directors and key employees. Under the
Bonus Plan we may issue an additional 3,640,000 shares upon achieving certain
milestones.

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

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

A Shareholders Rights Plan between us and shareholders
effective as of June 27, 2007 and modified on June 17, 2008 and certain
employment and management agreements contain provisions that could discourage an
acquisition or change of control without our board of directors approval. Under
the Shareholders Rights Plan, if a shareholder individually or in concert with
other shareholders acquires 20% or more of our 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 receive 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.

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

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

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Absence of Dividends

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

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

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

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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 principal executive office is situated at Suite 390  3600
Lysander Lane, Richmond, B.C. V7B 1C3. Our phone number is (604) 248-0939. Our
registered and records office is located at our legal counsels offices situated
at 2500  700 West Georgia Street, Vancouver, B.C. V7Y 1B3, CANADA. Our
operational headquarters are located at P.O. Box 475, 6500 County Road 666, Hoyt
Lakes, Minnesota 55750-0475, United States.

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

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

During the years ended January 31, 2010, 2009, and 2008 we
spent $17.754 million, $22.776 million, and $21.161 million, respectively to
acquire property, perform pre-feasibility work and perform work following
completion of our Definitive Feasibility Study on our NorthMet Project located
in Minnesota, USA.

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

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

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

In the years ended January 31, 2010, 2009 and 2008, we
conducted exploration, development and acquisition activities only and did not
conduct any operations that generated revenues. Thus, we rely principally on
equity or debt convertible into equity financings to fund our projects and
expenditures.

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

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

Environmental permitting.To
commence commercial production at NorthMet, various regulatory approvals are
needed. The Minnesota Department of Natural Resources (MDNR) is the lead state
agency and the US Army Corps of Engineers (USACE) is the lead federal agency
(together the Lead Agencies) for preparation of an Environmental Impact
Statement (EIS) for the project.

In October 2009, the Lead Agencies
published the PolyMet Draft EIS (DEIS) with formal notification of publication
in the Minnesota Environmental Quality Board (EQB) Monitor and the Federal
Register on November 2 and November 6, 2009, respectively. The formal
notification of publication started a 90-day period for public review and
comment, which ended on February 3, 2010. During this period, the lead Agencies
held two public meetings  one in the town of Aurora, MN near the project
location and one in Blaine, MN in the metropolitan Minneapolis-St. Paul
area.

Under state and federal guidelines and
regulations, a Draft EIS identifies the environmental impact of a proposed
project as well as evaluating alternatives and ways to mitigate potential
impacts. The Lead Agencies received approximately 3,800 submissions containing
approximately 22,000 separate comments, including an extensive comment letter
from the US Environmental Protection Agency (EPA) in its role as reviewer of
projects that could impact the environment.

The EIS review process leading to
publication of a final EIS is designed to provide information to government
agencies for permitting. The Lead Agencies are working with the EPA and other
government agencies to establish the best way to address the comments from
government agencies, non-government organizations, and the public in order to
move to a final EIS that will provide the information needed for permitting.

Prior to receipt of these permits, we
intend to secure production debt financing that would be available upon receipt
of key permits, with construction slated to start upon availability of
construction finance.

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

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

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

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

Financing and corporate development.
Since 2003 we have raised approximately $105 million from equity private
placement financings. In October 2008, we entered into a strategic partnership
with Glencore AG (Glencore) whereby Glencore agreed (i) to purchase up to $50
million of our floating rate secured debentures, of which $25 million has been
issued, which are exchangeable into our common shares, and (ii) to purchase all
of our production of concentrates, metal, or intermediate products on market
terms at the time of delivery, for at least the first five years of production.
We also appointed a senior technical representative of Glencore to join our
Technical Steering Committee and another officer of Glencore, Stephen Rowland,
was appointed to our Board of Directors. In November 2009 we entered into an
agreement with Glencore whereby, in two installments, Glencore purchased $25
million of our common shares at $2.65 per share.

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

Property - NorthMet Project, Minnesota, USA

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

In the years ended January 31, 2010, 2009 and 2008, we
conducted exploration, development and acquisition activities only and did not
conduct any operations.

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

The NorthMet Project is located immediately south of the
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 property. US Steel investigated the deposit as
a high-grade, underground copper-nickel resource, but considered it to be
uneconomic based on its inability to produce separate, clean nickel and copper
concentrates with the metallurgical processes available at that time. In addition, prior to the development
of the autocatalyst market in the 1970s, there was little market for platinum
group metals (PGMs) and there was no economic and reliable method to assay for
low grades of these metals.

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

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.

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

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

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

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

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

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

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

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

- 2 million of our common shares;
- $1 million in cash was paid at closing;
- $7 million in cash is payable in quarterly installments of $250,000
  commencing December 31, 2006 with the balance payable upon receipt of
  commercial financing. Interest on the outstanding amount is payable quarterly
  from December 31, 2006 at the Wall Street JournalPrime Rate. As of
  March 31, 2010 the remaining balance was $3.5 million; and
- $7 million in cash is payable in quarterly installments of $250,000
  commencing on December 31, 2009. Interest began to accrue on the outstanding
  amount beginning on December 31, 2009 and is now payable quarterly at the
  Wall Street JournalPrime Rate. As of March 31, 2010 the remaining
  balance was $6.5 million.

PolyMet also assumed certain liabilities associated with the
property.

As of January 31, 2010, we have expended $116 million primarily
on the acquisition of the Erie Plant and related infrastructure. Under the Asset
Purchase Agreement we have paid $3.4 million plus interest and owe Cliffs $nil.
Under Cliffs II we have paid $5.75 million plus interest and owe $10.25
million.

Since inception, we have a cumulative deficit of $71.5 million,
much of which has been incurred directly and indirectly in connection with our
NorthMet Project. These expenditures supported drilling, sampling, assaying,
environmental, metallurgical testing, and the pre-feasibility studies.

The following diagram illustrates the location of the NorthMet
Project.

Figure No. 1 NorthMet Project Map



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

The NorthMet Project covers a total of 16,700 acres or 25.9
square miles comprising two areas: the NorthMet mine site totaling 4,300 acres
or 6.5 square miles of leased mineral rights and the Erie Plant site totaling
12,400 acres of freehold land located approximately six miles west of the mine
site. The property is located in St. Louis County in the Mesabi Range District
about 60 miles north of Duluth, Minnesota. The 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. Three 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 Babbit
averages -14oC (7oF) in January and 19oC (66oF) in July. The average annual
precipitation is 28 inches with approximately 30% during the months from
November to April and 70% from May through October.

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

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

- Pursuant to an agreement dated January 4, 1989, subsequently amended and
  assigned, we lease 4,162 acres from RGGS Land & Minerals Ltd., L.P
  (RGGS). During the year ended January 31, 2005, US Steel assigned the lease
  to RGGS. The initial term of the renewable lease was 20 years and called for
  total lease payments of $1.450 million. We can indefinitely extend the 20-year
  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,
  2010.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. The lease payments are considered advance royalty payments and
  will be deducted from future production royalties payable to RGGS, which range
  from 3% to 5% based on the net smelter return that we receive. Our recovery of
  the advance royalty payments is subject to the lessor receiving an amount not
  less than the amount of the annual lease payment due for that year.
- Pursuant to an agreement effective December 1, 2008, we lease 120 acres
  that are encircled by the RGGS property from LMC Minerals (LMC). The initial
  term of the renewable lease is 20 years and calls for minimum annual lease
  payments of $3,000 on each successive anniversary date until our project
  commences commercial production, or for the first four years, whichever is the
  shorter, after which the minimum annual lease payment increases to $30,000.
  The initial term may be extended for up to four additional five-year periods
  on the same terms. All lease payments have been paid to January
  31,2010.The lease payments are considered advance royalty payments and
  will be deducted from future production royalties payable to LMC, which range
  from 3% to 5% based on the net smelter return that we receive. Our recovery of
  the advance royalty payments is subject to the lessor receiving an amount not
  less than the amount of the annual lease payment due for that year.

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

The Erie Plant

As set forth under the Asset Purchase Agreement, we have
assumed certain ongoing site-related environmental and reclamation obligations
of Cliffs in connection with the Erie Plant. Once we obtain our permit to mine
and Cliffs is released from its obligations by certain state agencies, we will
be directly obligated to comply with applicable environmental and reclamation
obligations. Prior to Cliffs acquisition of the plant from LTV Steel and prior
to our acquisition of the plant from Cliffs, both Cliffs and we undertook
environmental assessments and concluded that there were no material liabilities
other than the ultimate closure and reclamation of the site. Until operating
permits are granted to us, Cliffs remains the Regulated Party for such
obligations although, as part of the Asset Purchase Agreement, we have
indemnified Cliffs for such costs.

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 intend
to file a lawsuit in Federal court for alleged violations by Cliffs Erie of
NPDES permits at three separate locations on the Cliffs Erie property. On March
25, 2010 Cliffs entered a consent decree under which it is obligated to proceed
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.

As of January 31, 2010 we estimate the total indemnification
liability (including the additional liabilities associated with the consent
decree) to be approximately $23.6 million and, based on the expected timing of
such payments, our cost of capital, and anticipated inflation rates, we made a
provision of $3.3 million in our financial statements at that date.

The Erie Plant comprises a large crushing, grinding and milling
facility that was built by a consortium of steel companies in the mid-1950s and
processed low grade iron ore known as taconite that was transported to the
facility by railroad from nearby mines. In the mid-1980s, the consortium was
consolidated into a single owner  LTV Steel. Pickands-Mather and its successor
Cliffs operated the plant on behalf of the owners, processing approximately
100,000 tons per day of taconite ore. The plant was shut down in 2001 when LTV
Steel filed for bankruptcy protection. Since then it has been maintained
initially by Cliffs and, since November 15, 2005, by us. The plant did not
operate during the period ended January 31, 2010.

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

The plant facilities include two rail dump pockets, two primary
60 gyratory crushers, eight secondary 36 gyratory crushers, seven tertiary
seven-foot standard cone crushers, 14 seven-foot short-head crushers, 30 mill
circuits each comprising one 12x 14' rod mill and one 12x 14' ball mill, three
12'x 24' regrind mills, maintenance facilities and spare parts, extensive
conveyors, feeders, bins, auxiliary facilities and offices, established
infrastructure including a 225 MVA high voltage electrical substation, water
supply, roads, tailings basins and rail facilities.

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

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

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We plan to use approximately one-third of the historic
productive capacity to crush and grind material that we expect to mine from the
NorthMet deposit. We intend to construct new facilities to recover copper metal,
nickel and cobalt hydroxides, and precious metal precipitates.

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

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

In October 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 US Army Corps of
Engineers (USACE) as the lead federal agency (together the Lead Agencies) for
preparation of an Environmental Impact Statement (EIS) for the project. In
2006 these Lead Agencies selected an independent environmental contractor (the
EIS Contractor) to prepare the EIS. The EIS Contractor is Environmental
Resources Management, a leading global provider of environmental, health and
safety, risk, and social consulting services. The EIS Contractor team included
members with expertise and experience in mining sulfidic ores. Several other government agencies
 (including the US Forest Service, the Boise Forte Band of Chippewa and the Find Du Lac Band of
Lake Superior Chippewa) joined the EIS preparation team as Cooperating Agencies
which brought their special expertise to the process.

In January 2007, we submitted a Detailed Project Description
(DPD) to state and federal regulators. The DPD lays out the Companys
development plans and proposed environmental safeguards including a mine plan, a
wetland mitigation plan, air and water quality monitoring plans and a closure
plan with closure estimate. Since then, we have submitted a supplemental DPD as
well as more than 100 supporting research studies, including comprehensive mine
waste characterization studies, water quality modeling and air quality
modeling.

Under state and federal guidelines and regulations, a Draft EIS
(DEIS) identifies the environmental impact of a proposed project as well as
evaluating alternatives and ways to mitigate potential impacts. We were involved
the process of alternative/mitigation development and had input into the
technical and economical feasibility of potential alternatives and mitigations.
The EIS Contractor prepared a series of preliminary versions for the DEIS that
were reviewed and commented on by the Lead Agencies, other governmental
agencies, ourselves.

In October 2009, the Lead Agencies published the PolyMet DEIS
with formal notification of publication in the Minnesota Environmental Quality
Board (EQB) Monitor and the Federal Register on November 2 and November 6,
2009, respectively. The formal notification of publication started a 90-day
period for public review and comment, which ended on February 3, 2010. During
this period, the lead Agencies held two public meetings  one in the town of
Aurora, MN near the project location and one in Blaine, MN in the metropolitan
Minneapolis-St. Paul area.

The Lead Agencies received approximately 3,800 submissions
containing approximately 22,000 separate comments, including an extensive
comment letter from the US Environmental Protection Agency (EPA) in its role
as reviewer of projects that could impact the environment. Many of the comments
related to alternative plans that the Company and the Lead Agencies had already
recognized would not be incorporated into the final preferred alternative. In
general, the preferred alternative would be a combination of our proposals,
alternatives and mitigations that meet the purpose and need of the project, is
technically and economically feasible and provides the best environmental
outcomes.

The EIS review process leading to publication of a Final EIS
(FEIS) is designed to provide information to government agencies for
permitting. The Lead Agencies are working with the EPA and other government
agencies to establish the best way to address the comments from government
agencies, non-government organizations, and the public. The FEIS will describe a
specific, preferred alternative.

Once a conclusion has been reached on how best to complete the
EIS process, the Lead Agencies will advise us enabling the Company to release
updated information regarding the project timeline.

- 17 -

---

A number of permits will need to be issued by the MDNR, the
Minnesota Pollution Control Agency (PCA) and the USACE before construction can
begin - 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

We commenced the permitting process in early 2004. As of
January 31, 2010, we had spent approximately $25.6 million on environmental
review and permitting activities.

- 18 -

---

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

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

From 1998 to present, we have conducted a series of drilling
programs totaling 271 holes for approximately 162,000 feet of core and reverse
circulation drilling. These holes, combined with earlier drilling by US Steel,
bring the total to 418 diamond and reverse circulation holes aggregating to
approximately 318,000 feet. In addition, we have meticulously recompiled all
prior work started by US Steel in 1969. We have also recently drilled an
additional 37 holes totaling approximately 6,300 feet of tightly-spaced grid
drilling for detailed mine planning.

- 19-

---

Mineral Resources and Reserves

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

The increase in mineral resources reflects two changes:

- Data from the calendar 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. These changes contributed 149 million short tons to
  the increase in measured and indicated mineral resources.
- Extension of the overall mineral envelope to approximately 1,620 feet below
  surface (0  elevation), compared with the prior cutoff at approximately
  1,120 feet below surface (500  elevation). This change contributed 67
  million short tons to the increase in measured and indicated mineral
  resources.

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

Updated Mineral Resources compared with DFS

|                                                    |  | Short     |  |  | Copper |  |  | Nickel |  |  | Cobalt |  |  | Precious Metals | 
|--------------------------------------------------- |  | --------- |  |  | ------ |  |  | ------ |  |  | ------ |  |  | --------------- | 
|                                                    |  | (million) |  |  | (%)    |  |  | (%)    |  |  | (%)    |  |  | (oz/st)         | 
|Updated Mineral Resouce Estimate                    |  |           |  |  |        |  |  |        |  |  |        |  |  |                 | 
|Measured                                            |  | 187.0     |  |  | 0.287  |  |  | 0.084  |  |  | 0.007  |  |  | 0.010           | 
|Indicated                                           |  | 451.1     |  |  | 0.256  |  |  | 0.075  |  |  | 0.007  |  |  | 0.009           | 
|Measured & Indicated                                |  | 638.2     |  |  | 0.265  |  |  | 0.078  |  |  | 0.007  |  |  | 0.010           | 
|Inferred                                            |  | 251.6     |  |  | 0.275  |  |  | 0.079  |  |  | 0.006  |  |  | 0.011           | 
|DFS                                                 |  |           |  |  |        |  |  |        |  |  |        |  |  |                 | 
|Measured                                            |  | 133.7     |  |  | 0.298  |  |  | 0.087  |  |  | 0.008  |  |  | 0.011           | 
|Indicated                                           |  | 288.4     |  |  | 0.266  |  |  | 0.078  |  |  | 0.007  |  |  | 0.010           | 
|Measured & Indicated                                |  | 422.1     |  |  | 0.276  |  |  | 0.081  |  |  | 0.007  |  |  | 0.010           | 
|Inferred                                            |  | 120.6     |  |  | 0.247  |  |  | 0.074  |  |  | 0.007  |  |  | 0.009           | 
|Change in M&I from DFS to
      Current             |  |           |  |  |        |  |  |        |  |  |        |  |  |                 | 
|Infill drilling                                     |  | 149.3     |  |  |        |  |  |        |  |  |        |  |  |                 | 
|Extension to 0' elevation from 500'
      elevation |  | 66.7      |  |  |        |  |  |        |  |  |        |  |  |                 | 
|Total change                                        |  | 216.1     |  |  |        |  |  |        |  |  |        |  |  |                 | 

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

The resource estimate update was completed by a team from the
Toronto office of Wardrop Engineering working closely with PolyMets chief
geologist Richard Patelke. A NI 43-101 compliant report describing this increase
was issued in September 2007 and has been filed on PolyMets website (www.polymetmining.com) and on SEDAR at www.sedar.com. Pierre Desautels of Wardrop and Richard
Patelke of PolyMet are the Qualified Persons for this report.

- 20 -

---

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

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

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

Updated Reserves compared with DFS

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

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

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

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

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

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

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

- 21 -

---

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

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

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

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

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

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

- 22 -

---

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

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

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

DFS Update

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

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

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

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

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

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

- 23 -

---

Capital Costs

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

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

Capital Costs(US dollars, millions)

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

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

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

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

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

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

- 24 -

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Economic Summary

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

Key Economic Highlights



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

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

ITEM 4A. UNRESOLVED STAFF COMMENTS

None.

- 25 -

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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. Our functional currency is the United
States dollar and our financial statements are prepared in accordance with
Canadian Generally Accepted Accounting Principles (GAAP); however, the only
significant difference between U.S. GAAP and Canadian GAAP with regard to our
financial statements relates to the accounting for fair value of the conversion
factor of convertible debt (see Item 3: Key Information  A. Selected Financial
Data for the impact of this difference). All amounts in this discussion and in
the consolidated financial statements are expressed in United States dollars,
unless identified otherwise.

Summary of Events During the Fiscal Year Ended January 31,
2010

During the year ended January 31, 2010, and through the date of
the filing of this Annual Report, we continued to advance our NorthMet Project
including the activities noted below.

In May 2009, we determined that Milestone 2 of its Bonus Share
Plan, the negotiation and completion of an off-take agreement with a senior
metals producer for the purchase of nickel-hydroxide produced from the NorthMet
Project, and / or an equity investment in the Company by such a producer or
producers, had been achieved. As a result, the we issued the related 1,300,000
common shares to certain Directors and insiders in June 2009.

On each of June 18, 2009 and August 31, 2009, we issued the
third tranche and the fourth tranche, respectively, under the US$50 million
convertible debt facility with Glencore AG, which closed on October 31,
2008.

At the Annual General and Special Meeting of the shareholders
of PolyMet on 24 June 2009, the disinterested shareholders of the Company
approved an extension of the expiry date by two years of all stock options
outstanding as at 24 June 2009.

On August 27, 2009, we announced that we had filed a universal
shelf registration on Form F-3 with the SEC which allows us to have the option
to offer and sell, from time to time in one or more offerings, up to $500
million of its debt securities, common shares, warrants and units. The universal
registration statement was declared effective by the SEC on October 6, 2009. We
subsequently filed a Canadian short form base shelf prospectus in the provinces
of British Columbia, Alberta and Ontario in connection with the shelf
registration.

In October 2009, we received the consent of more than
two-thirds of the warrant holders to exchange 4,010,000 warrants, each warrant
entitling the holder to purchase one of our common shares at US$3.00 per share
until October 13, 2009 for 4,010,000 warrants at the same price exercisable at
any time until the sooner of 30 calendar days after publication of the draft EIS
by the State of Minnesota in the states Environmental Quality Board Monitor and
December 31, 2009.

The draft EIS on our NorthMet Project was published in the
state of Minnesotas EQB Monitor and the Federal Register on November 2, 2009
and November 6, 2009, respectively.

In November 2009, we received the consent of more than two-thirds of the warrant holders to
exchange the 4,010,000 warrants, each warrant entitling the holder to purchase
one of our common shares at US$3.00 per share due to expire the earlier of 30
calendar days after publication of the draft EIS by the State of Minnesota in
the states Environmental Quality Board Monitor and December 31, 2009 for
4,010,000 warrants, exercisable at the above price at any time until the sooner
of 21 business days after publication of the final EIS by the State of Minnesota
in the states Environmental Quality Board Monitor and December 31, 2010.

- 26 -

---

On November 17, 2009, we announced that we had agreed to modify
certain terms of our October 2008 convertible debenture transaction with
Glencore. Under the initial terms, we issued warrants entitling Glencore to purchase 6.25 million of our common shares at
US$5.00 if exercised before the NorthMet Project has produced a total of 20,000
metric tonnes of concentrate, or US$6.00 thereafter. The warrants expire on 30
September 2011. Under the new terms the warrants entitle Glencore to purchase
6.25 million of our common shares at US$3.00 and expire on September 30, 2011.
If the 20-day volume weighted average price of our shares is 150% of the
exercise price or more ($4.50), and the Final EIS has been published in the
Minnesota Department of Natural Resources EQB Monitor, we can accelerate the
expiration of the warrants to not less than 21 business days after the notice of
acceleration.

Separately, we agreed to modify the terms of the final $25
million undrawn Tranche E of the $50 million debenture transaction with
Glencore. The original terms allowed Glencore to exchange the debentures at
$4.00 per share. The revised terms allow Glencore to exchange funds drawn under
Tranche E at US$2.65 per share. To date, no funds have been drawn under Tranche
E. The first four tranches totaling US$25 million (excluding capitalized
interest) that have already been drawn will continue to be exchangeable at
US$4.00 per share.

On November 24, 2009, we announced that we had closed an equity
financing with Glencore for 3,773,585 common shares at $2.65 per share for gross
proceeds of $10 million. We also entered into a definitive agreement with
Glencore to sell an additional 5,660,377 of our common shares at $2.65 per
common share for gross proceeds of $15 million. On January 26, 2010, the Company
we closed the second part of the Glencore financing. Both sales were distributed
under the universal shelf registration statement

- 27 -

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Summary of Operating Results

As of January 31, 2010, we operated in one segment, the
exploration and development of the base and precious metals at our NorthMet
Project in Minnesota, United States. Head office comprises general and
administrative costs, stock based compensation expense, financing expenses,
foreign exchange interest income, assets, purchase of property, plant and
equipment and amortization reported by the Canadian head office.

|                                      |   | NorthMet   |  |   | Head Office |  |   | Consolidated | 
|------------------------------------- | - | ---------- |  | - | ----------- |  | - | ------------ | 
|                                      |   | Project    |  |   | (US$000s)  |  |   | (US$000s)   | 
|2010                                  |   | (US$000s) |  |   |             |  |   |              | 
|Segment operating loss                | $ | 892        |  | $ | 8,131       |  | $ | 9,023        | 
|Mineral property, plant and equipment | $ | 115,781    |  | $ | 51          |  | $ | 115,832      | 
|Other assets                          | $ | 2,466      |  | $ | 21,340      |  | $ | 23,806       | 
|Identifiable assets                   | $ | 118,257    |  | $ | 21,391      |  | $ | 139,648      | 
|2009                                  |   |            |  |   |             |  |   |              | 
|Segment operating loss                | $ | 560        |  | $ | 4,963       |  | $ | 5,523        | 
|Mineral property, plant and equipment | $ | 91,832     |  | $ | 78          |  | $ | 91,910       | 
|Other assets                          | $ | 2,546      |  | $ | 7,143       |  | $ | 9,689        | 
|Identifiable assets                   | $ | 94,378     |  | $ | 7,221       |  | $ | 101,599      | 
|2008                                  |   |            |  |   |             |  |   |              | 
|Segment operating loss                | $ | 837        |  | $ | 3,287       |  | $ | 4,124        | 
|Mineral property, plant and equipment | $ | 64,200     |  | $ | 105         |  | $ | 64,305       | 
|Other assets                          | $ | 3,926      |  | $ | 20,254      |  | $ | 24,180       | 
|Identifiable assets                   | $ | 68,126     |  | $ | 20,359      |  | $ | 88,485       | 

Year ended January 31, 2010 compared with the year ended
January 31, 2009

Overall. Our focus for the fiscal year ended January 31,
2010 was to provide the state input into the environmental impact statement and
permitting work at the NorthMet Project, obtain additional financing and to
continue to develop the Project including updating the mineral reserves and
mineral resources estimates and preparing for construction.

Loss for the year. During the year ended 31 January
2010, we incurred a loss of $9.023 million ($0.06 loss per share) compared to a
loss of $5.523 million ($0.04 loss per share) in 2008. The increase in the net
loss for the period was primarily attributable to:

- A non-cash charge of $4.920 million for the amendment of stock warrants
  (prior year period - $544,000);

- 28 -

---

- Stock-based compensation expense of $915,000 (prior year period -
  $487,000) with the increase being predominantly due to the granting of
  additional stock options in the first quarter and the extension of the term of
  all PolyMet stock options outstanding at 24 June 2009 by two years which was
  approved by the disinterested shareholders at the Companys Annual and Special
  of shareholders on 24 June 2009;
- Interest income of $5,000 (prior year period - $154,000) with the decrease
  being due to lower cash balances and interest rates;
- Investor relations and financing expenses of $420,000 due to the filing of
  an F-3 registration statement during the 2010 third quarter and additional
  financing related activities, and
- A foreign exchange loss of $195,000 in the prior year period due to the
  strengthening of the U.S. dollar versus the Canadian dollar, compared to a
  loss of $24,000 in the current year quarter.

This was partially offset by an other than temporary impairment
loss of $1,365,000 in the prior year period (current year period - $nil) and a
foreign exchange loss of $156,000 in the prior year period (current year period
- $24,000) due to the strengthening of the U.S. dollar versus the Canadian
dollar.

Effective 1 February 2009, the Company adopted CICA Section
3064 - Goodwill and Intangible Assets. As a result of this standard, the CICA
withdrew EIC 27, Revenue and Expenses during the pre-operating period. With the
withdrawal of EIC 27, the Company is no longer able to defer operating costs and
revenues incurred prior to commercial production at its development project. The
adoption of this standard resulted in the Company retroactively ceasing to
capitalize to mineral property accretion related to asset retirement obligations
in its consolidated financial statements.

The company has restated its financial statements for the items
above and the impacts on certain line items of the financial statements with
significant changes were as follows:

|Line Item                                        |  | Year Ended      |  |  | Year ended | 
|------------------------------------------------ |  | --------------- |  |  | ---------- | 
|                                                 |  | 31 January 2009 |  |  | 31 January | 
|                                                 |  |                 |  |  | 2008       | 
|                                                 |  | As              |  |  | Restated   | 
|                                                 |  | Previously      |  |  |            | 
|                                                 |  | Reported        |  |  |            | 
|Mineral Property       Plant and
      Equipment |  | 93,067          |  |  | 91,910     | 
|Loss for the period                              |  | 4,536           |  |  | 4,979      | 
|Deficit                                          |  | 60,825          |  |  | 61,982     | 
|Loss per share                                   |  | 0.03            |  |  | 0.04       | 

Effective 1 November 2009, the Company changed its accounting
policy for accounting for amendments to warrants. Prior to this date, if the
amendment related to warrants held by existing equity holders, the Company would
debit the increase in fair value as a result of an amendment to the warrants to
share capital. Under its new accounting policy, the Company records the debit to
warrant amendment expense. This change in accounting policy has been applied
retroactively, the impacts on certain line items of the financial statements
with significant changes, after taking into account the above restatement with
respect to Section 3064 / EIC 27, were as follows:

|Line Item           |  | Year ended | 
|------------------- |  | ---------- | 
|                    |  | 31 January | 
|                    |  | 2009       | 
|                    |  | As         | 
|                    |  | Previously | 
|                    |  | Reported   | 
|Share Capital       |  | 104,768    | 
|Loss for the period |  | 4,979      | 
|Deficit             |  | 61,982     | 
|Loss per share      |  | 0.04       | 

- 29 -

---

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

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

Loss for the year. During the year ended 31 January
2009, we incurred a loss of $5.523 million ($0.04 loss per share) compared to a
loss of $4.124 million ($0.03 loss per share) in 2008. The increase in the net
loss for the period was primarily attributable to:

- An other than temporary impairment loss of $1,365,000 (prior year period -
  $1,050,000) on an investment by the Company in the prior year;
- A non-cash expense of $544,000 relating to the amendment of warrant terms
  (prior year period - $nil);
- A decrease in interest income to $154,000 (prior year period - $1,168,000)
  due to lower cash balances and interest rates, and
- Foreign exchange translation losses of $156,000 (prior period  gain of
  $566,000) as the United States dollar strengthened against the Canadian dollar
  in the current period while it weakened in the prior year period.

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

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

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

Financing Activities

On 24 November 2009, the Company closed an equity financing
with Glencore for 3,773,585 common shares at $2.65 per share for gross proceeds
of $10 million. On 26 January 2010, the Company closed the second tranche of the
previously announced equity financing with Glencore of an additional 5,660,377
common shares at $2.65 per common share for gross proceeds of $15 million.
Transactions costs for these two financings totaled $499,000.

During the year ended 31 January 2010 the Company issued
775,000 shares (prior year period  262,800) upon exercise of options for
proceeds of $477,000 and 167,954 shares upon exercise of share warrants for
proceeds of $494,000.

On 27 August 2009, the Company announced that it had filed a
universal shelf registration on Form F-3 with the U.S. Securities and Exchange
Commission (SEC). This universal shelf registration allows PolyMet to have the
option to offer and sell, from time to time in one or more offerings, up to $500
million of its debt securities, common shares, warrants and units.

On 18 June 2009 the Company received $5 million under an
existing convertible debenture agreement. On 31 August 2009 PolyMet received an
additional $5 million under the convertible debenture agreement.

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

- 30 -

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

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

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

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

On 17 November 2009, the
  Company announced that it agreed to modify certain terms of the above
  transaction. Under the new terms the Glencore Warrants entitle Glencore to
  purchase 6.25 million common shares of PolyMet at US$3.00 and expire on
  September 30, 2011. If the 20-day volume weighted average price of PolyMets
  shares is 150% of the exercise price or more ($4.50), and the Final EIS has been
  published in the Minnesota Department of Natural Resources EQB Monitor, PolyMet
  can accelerate the expiration of the Glencore Warrants to not less than 21
  business days after the notice of acceleration. The incremental $158,000
  increase in the fair value of the warrants due to the warrant exchange was
  debited to warrant amendment expense and credited to contributed surplus.

Separately in November 2009, PolyMet agreed to modify the terms
of the final $25 million Tranche E of the $50 million Debenture with Glencore
such that Tranche E, if drawn, can be exchanged at US$2.65 per share. The first
four tranches totaling US$25 million (excluding capitalized interest) that have
already been drawn will continue to be exchangeable at US$4.00 per share.

During the year ended 31 January 2009 the Company issued
312,800 shares upon exercise of options for proceeds of $452,000.

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

- 31 -

---

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

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

The incremental $544,000 increase in the fair value of the
warrants due to the warrant exchange was debited to warrant amendment expense
and credited to contributed surplus in the year ended 31 January 2009.

In October 2009, the Company received the consent from holders
of more than two-thirds of the above warrants to exchange those the 4,010,000
warrants due to expire on October 13, 2009 for 4,010,000 warrants, each warrant
entitling the holder to purchase one share of PolyMet common stock at US$3.00
per share at any time until the sooner of 30 calendar days after publication of
the draft Environmental Impact Statement by the State of Minnesota in the
states Environmental Quality Board Monitor and 31 December, 2009. The
incremental $1,005,000 increase in the fair value of the warrants due to the
warrant exchange was debited to warrant amendment expense and credited to
contributed surplus.

In November 2009, the Company received the consent from holders
of more than two-thirds of the above warrants to exchange the 4,010,000 warrants
due to expire the earlier of 30 calendar days after publication of the draft
Environmental Impact Statement by the State of Minnesota in the states
Environmental Quality Board Monitor and 31 December, 2009 for 4,010,000
warrants, each warrant entitling the holder to purchase one share of PolyMet
common stock at US$3.00 per share at any time until the sooner of 21 business
days after publication of the final Environmental Impact Statement by the State
of Minnesota in the states Environmental Quality Board Monitor and 31 December
2010. The incremental $3,757,000 increase in the fair value of the warrants due
to the warrant exchange was debited to warrant amendment expense and credited to
contributed surplus.

Year Ended January 31, 2010

Cash used in operating activities in the year ended 31 January
2010 was $2.429 million compared to cash used in the prior year of $3.290
million. The variance is primarily due to the cash based operating activity
differences described above and changes in working capital balances.

Cash provided by financing activities for the year ended 31
January 2010 was $34.111 million compared with $13.336 million in the prior
year. The activity in the current year was primarily due to net proceeds of
$24.501 million from two Glencore equity offerings in the fourth quarter, the
net funding from issuance of convertible debentures of $9,944,000 (prior year
period - $14,333,000), the scheduled repayment of $1,250,000 of debt (prior year
period - $1,150,000) and deferred financing costs of $55,000 (prior year period
- $49,000). During the current year period, the Company received $477,000 from
the issuance of common shares on exercise of stock options (prior year period -
$452,000) and $494,000 from the issuance of common shares on the exercise of
share warrants (prior year period - $nil).

Cash used in investing activities for the year ended 31 January
2010 was $17.754 million compared with $22.776 million in the preceding year,
with the decrease being primarily the result of lower engineering, project and
environmental / permitting costs in the current year period as the Company
scaled back detailed engineering and design work that is not needed for
permitting.

- 32 -

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Total cash for the year ended 31 January 2010 increased by
$13.928 million for a balance of $21.282 million compared to the year ended 31
January 2009 when cash decreased by $12.730 million to a balance of $7.354
million.

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

As at 31 January 2010 the Company had working capital of
  $16.313 million compared with working capital of $3.582 million at 31 January
  2009 consisting primarily of cash of $21.282 million (31 January 2009 -$7.354
  million), prepaids of $512,000 (31 January 2009 - $470,000), accounts payable
  and accrued liabilities of $2.953 million (31 January 2009 - $2.797 million),
  the current portion of the notes to Cliffs of $2.000 million (31 January 2009 -
  $1.250 million) and the current portion of asset retirement obligations of
  $756,000 (31 January 2009 - $321,000). The Company expects to pay the remaining
  balance of $8.529 million (31 January 2009 - $10.063 million) long term notes to
  Cliffs and the convertible debt principal balance of $25 million plus
  capitalized interest from working capital, additional financing and funds from
  operations once commercial production has commenced. The Companys cash is
  primarily held in deposits and bearer deposits of a major Canadian bank and does
  not include any exposure to asset-backed commercial paper.

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

The Company has taken steps to fund its operations through the
issuance of equity and debt. It plans to meet its financial obligations to the
point at which all regulatory approvals for its NorthMet project have been
obtained and which will allow the Company to raise capital to construct its mine
and commence commercial production. Management believes that the closing of an
equity financing for $25 million in fiscal 2010 and the negotiation of a
convertible debenture for $50 million in 2008 will be sufficient to meet its
obligations until it is able to raise capital to construct its mine. Four
tranches of the convertible debenture amounting to $25 million were advanced to
the Company by January 31, 2010. Further advances require the Company to achieve
certain milestones and conditions. One of these conditions is for the Company to
obtain the consent of Cliffs to allow the debenture holder to obtain a mortgage
over certain of the Companys assets. In the event that the milestones and
conditions laid out in the convertible debenture are not met or their
achievement is delayed the Company may be forced to curtail or delay
expenditures, sell assets or seek additional financing sources. All of these
circumstances may delay the progress of or affect the ultimate success of the
Companys plans.

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

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

Debt

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

- 33 -

---

Pursuant to a financing agreement with Glencore, the Company
has entered into convertible debenture agreements for $25 million. The
Debentures are due on 30 September 2011 and bear interest at 12-month US dollar
LIBOR plus 4%. Interest is payable in cash or by increasing the principal amount
of the Debentures, at PolyMets option, for payments on or before
September 30, 2009, and at Glencores option thereafter.

As at January 31, 2010 the outstanding long term debt was as
follows:

|                     |   | January 31, 2010 |   |   | January 31, 2009 |  
|-------------------- | - | ---------------- | - | - | ---------------- | -
|                     |   |                  |   |   |                  |  
|Notes payable        | $ | 10,499           |   | $ | 11,299           |  
|Accrued interest     |   | 30               |   |   | 14               |  
|Convertible debt     |   | 25,253           |   |   | 13,943           |  
|Total debt           |   | 35,782           |   |   | 25,256           |  
|Less current portion |   | (2,000           | ) |   | (1,250           | )
|                     |   |                  |   |   |                  |  
|Long term debt       | $ | 33,782           |   | $ | 24,006           |  

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

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

None.

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

None.

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

None.

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

The following table lists as of January 31, 2010 information
with respect to the Companys known contractual obligations:

|                                         |   | Payments due by period | 
|---------------------------------------- | - | ---------------------- | 
|                                         |   | Total                  | 
|Contractual
      Obligations            |   |                        | 
|Accounts payable and accrued liabilities | $ | 2,953,000              | 
|Long-term debt obligations               |   | 41,561,000             | 
|Asset retirement
      obligation        |   | 23,638,000             | 
|Total                                    | $ | 68,152,000             | 

Long-term debt obligations (including the current portion) are
comprised of long-term and convertible debt balances, are set out in this table
on an undiscounted basis and include anticipated interest. Asset retirement
obligation represents the undiscounted obligation at 31 January 2010.

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

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

- 34 -

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Mineral Property, Plant and Equipment

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

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

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

Stock-Based Compensation and Share Purchase Warrants

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

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

When the Company amends the terms of either stock options or
share purchase warrants, the incremental change in the fair value of the options
or warrants due to the amendment is charged to warrant amendment expense and
contributed surplus.

Asset Retirement Obligations

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

- 35 -

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

Financial Instruments

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

- 36 -

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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. (For more
details on the process for nominating directors, see our Nominations Committee
Charter, referenced hereto as Exhibit 11.2. )

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

|Name                |  | Age |  | Position                                              
|------------------- |  | --- |  | ------------------------------------------------------
|                    |  |     |  |                                                       
|William Murray      |  | 61  |  | Executive Chairman                                    
|Joseph Scipioni     |  | 56  |  | Director, President, and Chief Executive
      Officer
|Douglas J. Newby    |  | 51  |  | Chief Financial Officer                               
|Niall Moore         |  | 48  |  | Corporate Secretary and Group Controller              
|William Corneliuson |  | 67  |  | Director                                              
|David Dreisinger    |  | 52  |  | Director                                              
|W. Ian L. Forrest   |  | 71  |  | Director                                              
|George Molyviatis   |  | 47  |  | Director                                              
|Frank Sims          |  | 59  |  | Director                                              
|James Swearingen    |  | 67  |  | Director                                              
|Stephen Rowland     |  | 48  |  | Director                                              

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

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

- 37 -

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

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

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

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

- 38 -

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W. Ian L. Forrest has served as a member of our board of
directors since October 3, 2003 and served as Chairman of our board until
February 5, 2008. He also serves on our audit, compensation, and nominating and
corporate governance committees. Mr. Forrest is a member of the Institute of
Chartered Accountants of Scotland and continues to practice as a public
accountant in Geneva, Switzerland. Mr. Forrest has more than 30 years of
experience with public companies in the resource sector. His experience
encompasses the areas of promotion, financing, exploration, production and
company management. He has also participated in several notable projects
including Gulfstream's North Dome gas discovery, Qatar, Reunion Mining's
Scorpion zinc, Namibia, which was subsequently developed by Anglo American, and
Ocean Diamond Mining which pioneered the independent diamond dredging industry
off the west coast of southern Africa. He also serves as a director of Mengold
Resources Inc. Having played an important role in the revival of PolyMet Mining
Corporation in 2003, he was appointed Chairman in May 2004. W. Ian L. Forrest
was a director of AB Airlines plc from June 30, 1999 to July 30, 1999 and, on
August 2, 1999 AB Airlines plc was placed in administrative receivership. Viatrade plc, an investment company of which Mr. Forrest was a director went into administration in August 2009. Mr.
Forrest currently resides in Vaud, Switzerland.

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

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

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

James Swearingenhas served as a member of our board of
directors since January 14, 2005. He also serves on our safety, health and
environmental committee. From September 1994 to April 2003, Mr. Swearingen was
General Manager of US Steel Corporations Minnesota Ore Operations located at
the Minntac mine and plant, the largest mining operation in North America. He
held a series of progressively senior positions with US Steel Corporation
between 1964 and his retirement in 2003. He has served as co-chair of the
Governor's Committee on Minnesota's Mining Future. Mr. Swearingen is also active
with other groups that bring new technology to north-eastern Minnesota to
develop non-ferrous mines and new, value added, projects in steel making. From
December 2009 he has been a Trustee for Great Northern Iron Ore Properties. He
is also an active advisor to the University of Minnesota's Natural Resources
Research Institute based in Duluth, Minnesota, and was recently elected to the
City Council of Biwabik, Minnesota. Mr. Swearingen currently resides in
Minnesota, United States.

- 39 -

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

The following table sets forth the compensation paid to our
Named Executive Officers for the fiscal year ended January 31, 2010:

|                                                                   |   |             |  |   |            |  |   | Pension,    |  |   | Bonus Shares |  |   |              | 
|------------------------------------------------------------------ | - | ----------- |  | - | ---------- |  | - | ----------- |  | - | ------------ |  | - | ------------ | 
|                                                                   |   | Salaries    |  |   |            |  |   | Retirement  |  |   |              |  |   |              | 
|                                                                   |   | Commissions |  |   |            |  |   | and Similar |  |   |              |  |   | Total        | 
|                                                                   |   | and Bonuses |  |   | Options(1) |  |   | Benefits(2) |  |   |              |  |   | Compensation | 
|                                                                   |   |             |  |   |            |  |   |             |  |   |              |  |   |              | 
|William Murray,
      Executive Chairman                           | $ | 343,424     |  | $ | 85,432     |  | $ | nil         |  | $ | 366,390      |  | $ | 795,246      | 
|Joseph Scipioni,
      President and Chief Executive
      Officer | $ | 287,110     |  | $ | 85,432     |  | $ | 13,414      |  | $ | 61,065       |  | $ | 447,021      | 
|Douglas Newby Chief
      Financial Officer                        | $ | 301,720     |  | $ | nil        |  | $ | 4,501       |  | $ | 122,130      |  | $ | 428,351      | 

|(1) | Balance represents the fair value of options issued the
      individuals in February 2009.
|--- | -------------------------------------------------------------------------------------------
|    |                                                                                            
|(2) | Balances represent Company contributions under 401k
      pension plans.                   

During the fiscal year ended January 31, 2010, we had three
Named Executive Officers (NEOs) (for the purposes of applicable securities
legislation), namely:

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

During the fiscal year ended January 31, 2010, no compensation
was paid or is payable by us to the directors of the Company, other than the
NEOs (the Other Directors), or our subsidiaries, if any, for their services in
their capacity as directors, including any amounts payable for committee
participation or special assignments pursuant to any standard or other
arrangements; or The Company has no pension plan or other arrangement for
non-cash compensation to the Other Directors, except as follows:

|Name of
      Director | Consulting Fees
|---------------------- | ---------------
|David Dreisinger       | 59,000
(1)     

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

C. Board Practices

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

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

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

- 40 -

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

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

D. Employees

As of January 31, 2010 we had 21 full-time employees, with four
located in our Vancouver office and the 17 located in our Hoyt Lakes
office. None of our employees are covered by a collective bargaining
agreement. We believe that our relations with our employees are good.

During the fiscal year ended January 31, 2010, we employed an
average of 6 consultants working out of our Vancouver and Minnesota offices.

E. Share Ownership

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

- 41 -

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ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY
TRANSACTIONS

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

The following table sets forth, as of April 26, 2010, certain
information regarding the ownership of our voting securities by each shareholder
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 executive officers and
directors as a group. We believe that, except as otherwise indicated, the
beneficial owners of the common shares listed below, based on information
furnished by such owners, have sole investment and voting power with respect to
such shares.

|                                                                                |  |                      |  | Percent of   
|------------------------------------------------------------------------------- |  | -------------------- |  | -------------
|Name and Address of                                                             |  | Amount and Nature of |  | Outstanding  
|Beneficial
      Owner(1)                                                       |  | Beneficial Ownership |  | Common Shares
|William Murray (2)                                                              |  | 3,157,276            |  | 2.1%         
|Douglas J. Newby (3)                                                            |  | 1,015,000            |  | *            
|Joseph Scipioni (4)                                                             |  | 1,100,000            |  | *            
|Niall Moore (5)                                                                 |  | 525,000              |  | *            
|David Dreisinger (6)                                                            |  | 1,426,300            |  | *            
|W. Ian L. Forrest (7)                                                           |  | 2,453,000            |  | 1.6%         
|George Molyviatis (8)                                                           |  | 8,884,920            |  | 6.0%         
|James Swearingen (9)                                                            |  | 700,000              |  | *            
|William D. Corneliuson (10)                                                     |  | 960,000              |  | *            
|Frank Sims (11)                                                                 |  | 639,100              |  | *            
|Stephen Rowland                                                                 |  | Nil                  |  | *            
|All executive officers and directors as a group (11
      persons) (12)         |  | 20,860,596           |  | 14.0%        
|5% or more shareholders:                                                        |  |                      |  |              
|Cleveland-Cliffs, Inc. (13) 1100 Superior Avenue
      Cleveland, OH 44114-2589 |  | 9,200,547            |  | 6.2%         
|Glencore (14) Baarermattstrasse 3
      CH-6341 Baar Switzerland                |  | 9,433,962            |  | 6.3%         

|*  | Less than 1%.                                                                                                                                                 
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                               
|1. | The address of each person, unless otherwise noted, is
      c/o PolyMet Mining Corp., Suite 390-3600 Lysander Lane, Richmond, British
      Columbia V7B 1C3.

- 42 -

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|2. | Includes 100,000 common shares issuable upon exercise of
      currently exercisable options, at an exercise price of CDN$0.66 per share
      set to expire on July 5, 2011, 300,000 common shares issuable upon
      exercise of currently exercisable options, at an exercise price of
      CDN$1.36 per share set to expire on September 19, 2012, 450,000 common
      shares issuable upon exercise of currently exercisable options at an
      exercise price of CDN$2.76 per share set to expire on March 20, 2013 and
      200,000 common shares issuable upon exercise of currently exercisable
      options, at an exercise price of US$0.82 per share set to expire on
      February 17, 2016. Mr. Murray directly owns 1,120,100 common shares and
      has voting and dispositive control over 987,176 common shares owned in the
      name of Group 4 Ventures of which he is the sole shareholder.                                                                                                                                                         
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|3. | Includes 165,000 common shares held in the name of
      Proteus Capital Corp. of which he is the President and controlling
      shareholder, 100,000 common shares issuable upon exercise of currently
      exercisable options, at an exercise price of CDN$1.15 per share set to
      expire on December 5, 2012, 500,000 common shares issuable upon exercise
      of currently exercisable options, at an exercise price of CDN$2.76 per
      share set to expire on March 20, 2013 held in Mr. Newbys name; and 40,000
      common shares issuable upon exercise of currently exercisable options, at
      an exercise price of CDN$0.94 per share set to expire on June 15, 2012,
      and 210,000 common shares issuable upon exercise of currently exercisable
      options, at an exercise price of CDN$1.36 per share set to expire on
      September 19, 2012 held in the name of Proteus Capital Corp. of which he
      is the President and controlling shareholder.                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|4. | Includes 200,000 common shares issuable upon exercise of
      currently exercisable options, at an exercise price of CDN$2.97 per share
      set to expire on June 19, 2013, 300,000 common shares issuable upon
      exercise of currently non-exercisable options, at an exercise price of
      CDN$3.30 per share set to expire on January 5, 2014, 250,000 common shares
      issuable upon exercise of currently non-exercisable options, at an
      exercise price of USD$2.92 per share set to expire on March 12, 2014 and
      100,000 common shares issuable upon exercise of currently non-exercisable
      options, at an exercise price of USD$2.72 per share set to expire on
      February 15, 2015, 200,000 common shares issuable upon exercise of
      currently exercisable options, at an exercise price of US$0.82 per share
      set to expire on February 17, 2016 held in Mr. Scipionis name. Mr.
      Scipioni directly owns 50,000 common shares.                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|5. | Includes 275,000 common shares issuable upon exercise of
      currently exercisable options, at an exercise price of CDN$3.82 per share
      set to expire on September 1, 2013, 175,000 common shares issuable upon
      exercise of currently non-exercisable options, at an exercise price of
      CDN$3.30 per share set to expire on January 5, 2014 and 75,000 common
      shares issuable upon exercise of currently exercisable options, at an
      exercise price of US$0.82 per share set to expire on January 30, 2016 held
      in Mr. Moores name.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|6. | Includes 300,000 common shares issuable upon exercise of
      currently exercisable options, at an exercise price of CDN$0.66 per share
      set to expire on July 5, 2011, 150,000 common shares issuable upon
      exercise of currently exercisable options, at an exercise price of
      CDN$1.36 per share set to expire on September 19, 2012, 250,000 common
      shares issuable upon exercise of currently exercisable options, at an
      exercise price of CDN$2.76 per share set to expire on March 20, 2013 and
      150,000 common shares issuable upon exercise of currently exercisable
      options, at an exercise price of US$0.82 per share set to expire on
      February 17, 2016. Dr. Dreisinger directly owns 576,300 common
    shares.                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|7. | Includes 350,000 common shares issuable upon exercise of
      currently exercisable options, at an exercise price of CDN$0.66 per share
      set to expire on July 5, 2011, 150,000 common shares issuable upon
      exercise of currently exercisable options, at an exercise price of
      CDN$1.36 per share set to expire on September 19, 2012, 250,000 common
      shares issuable upon exercise of currently exercisable options, at an
      exercise price of CDN$2.76 per share set to expire on March 20, 2013 and
      150,000 common shares issuable upon exercise of currently exercisable
      options, at an exercise price of US$0.82 per share set to expire on
      February 17, 2016. Mr. Forrest has voting and dispositive control with
      respect to 1,178,000 common shares owned in the name of Micor Trading SA
      of which he is a director, 375,000 common shares owned in the name of
      Panares Resources Inc. of which he is a director, and Catherine L.
      Forrest, Mr. Forrests wife, directly owns 932,380 common
  shares.

- 43 -

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|8.  | Includes 150,000 common shares issuable upon exercise of
      currently exercisable options, at an exercise price of CDN$1.36 per share
      set to expire on September 19, 2012, 250,000 common shares issuable upon
      exercise of currently exercisable options, at an exercise price of
      CDN$2.76 per share set to expire on March 20, 2013 and 150,000 common
      shares issuable upon exercise of currently exercisable options, at an
      exercise price of US$0.82 per share set to expire on February 17, 2016.
      Mr. Molyviatis directly owns 8,334,920 common shares.                                                            
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|9.  | Includes 150,000 common shares issuable upon exercise of
      currently exercisable options, at an exercise price of CDN$1.36 per share
      set to expire on September 19, 2012, 250,000 common shares issuable upon
      exercise of currently exercisable options, at an exercise price of
      CDN$2.76 per share set to expire on March 20, 2013 and 150,000 common
      shares issuable upon exercise of currently exercisable options, at an
      exercise price of US$0.82 per share set to expire on February 17, 2016.
      Mr. Swearingen directly owns 150,000 common shares. Mr. Swearingens wife,
      directly owns 900 common shares.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|10. | Includes 400,000 common shares issuable upon exercise of
      currently exercisable options, at an exercise price of US$2.88 per share
      set to expire on March 8, 2014 and 200,000 common shares issuable upon
      exercise of currently exercisable options, at an exercise price of US$0.82
      per share set to expire on February 17, 2016. Mr. Corneliuson directly
      owns 360,000 common shares.                                                                                                                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|11. | Includes 400,000 common shares issuable upon exercise of
      currently un-exercisable options, at an exercise price of US$2.72 per
      share set to expire on February 15, 2015 and 200,000 common shares
      issuable upon exercise of currently exercisable options, at an exercise
      price of US$0.82 per share set to expire on February 17, 2016. Mr. Sims
      directly owns 39,100 common shares.                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|12. | Includes 7,525,000 common shares issuable upon exercise
      of currently exercisable options.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|13. | This shareholder held 1,000,000 shares as of January 31,
      2005, 7,200,547 as of January 31, 2006 and 9,200,547 as of January 31,
      2007, January 31, 2008 and January 31, 2009.                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|14. | This shareholder acquired 9,433,962 of our common shares
      from us during our fiscal fourth quarter. This shareholder also holds
      convertible debentures convertible into 6,637,934 of our common
shares.                                                                                                                                                                                                                                                                                                                                                                                                                                            

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

As of April 26, 2010, there were 336 holders of record of our
common shares of which 257 were U.S. residents owning 28.01% of our outstanding
common shares.

- 44 -

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B. Related Party Transactions

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

2010
    
    
    2009
    
    
    2008Consulting fees paid to David Dreisinger, a
      Director of the Company
    $
    59
    
    $
    56
    
    $
    63Consulting fees paid to James Swearingen, a Director of
      the Company
    
    -
    
    
    -
    
    
    55Management fees paid to Group 4 Ventures,
      an affiliate controlled by the Executive Chairman of the Company
    
    -
    
    
    -
    
    
    81Rent and office charges paid to Baja Mining       Corp., a
      company of which the Executive Chairman was a director
    
    -
    
    
    5
    
    
    25$
    59
    
    $
    61
    
    $
    224


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

During the year ended 31 January 2010, the Company paid $59,000
(2009 - $56,000 and 2008 - $63,000) to Dr. Dreisinger for consulting fees
primarily in connection with activities related to the processing / technical
side of the NorthMet project and related expenses (the latter were supported by
invoices and receipts). The consulting fees were based on a monthly fee of
Canadian $5,500 plus general sales tax. Throughout the term of his engagement,
Dr. Dreisinger has conducted in-person and telephonic meetings with Mr. William
Murray, the Companys Executive Chairman and formally its President and Chief
Executive Officer, and other members of management at which he provided both
verbal and written updates on the status of test work and made recommendations
for future activities. These meetings occurred approximately every two to three
weeks for the past six years.

During the year ended 31 January 2010, the Company paid $nil
(2009 - $nil and 2008 - $55,000) to Mr. Swearingen for consulting fees primarily
in connection with activities related to our agreements with Cliffs Erie L.L.C.
and land tenure and related expenses (the latter were supported by invoices and
receipts). The consulting fees were based on a monthly fee of $5,000. Mr.
Swearingen spent a significant amount of time in our Hoyt Lakes office reporting
to both Mr. Murray and Mr. Warren Hudelson, our senior officer at that site, on
a regular basis until Mr. Joseph Scipioni joined the Company. He then reported
to Mr. Scipioni, who at the time, was PolyMets General Manager and Chief
Operating Officer.

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

During the year ended 31 January 2010, the Company paid $nil
(2009 - $nil and 2008 - $81,000) to Group 4 Ventures (Group 4) for the
provision of consulting services of Mr. Murray, at a fixed monthly rate in
accordance with a written contract. These amounts were in addition to the salary
paid to him during the year ended 31 January 2008 of $172,000. Effective 1 July
2007, Mr. Murrays employment agreement was adjusted to include, as salary, the
amounts formerly paid to Group 4 Ventures as consulting fees and the contract
with Group 4 was terminated.

- 45 -

---

During the year ended 31 January 2010, the Company paid $nil
(2009 - $5,000 and 2008 - $25,000) to Baja Mining Corp. (Baja) primarily for
rent and office costs, including health insurance plan costs. The agreement
between Baja and the Company was oral in nature. Mr. Murray ceased being a
Director of Baja in June 2008. Effective 1 February, 2007, the Company occupied
its own premises and ceased paying rent to Baja. Effective 1 September, 2008,
the Company ceased paying the remaining costs to Baja.

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

C. Interests of experts and counsel.

Not applicable.

ITEM 8. FINANCIAL INFORMATION

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

See Item 18.

Legal Proceedings

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

Dividend Policy

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

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

There have been so significant changes subsequent to January
31, 2010.

- 46 -

---

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:



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



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



|1. | On January 31, 2007 we ceased trading on the TSX Venture
      Exchange and on February 1, 2007, we commenced trading on the Toronto
      Stock Exchange.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------

- 47 -

---

|2. | On June 26, 2006, we began trading on the NYSE
      Amex.
|-- | ----------------------------------------------------------

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

Not applicable.

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

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

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

Not applicable.

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

Not applicable.

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

Not applicable.

ITEM 10. ADDITIONAL INFORMATION

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

Not Applicable.

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

Incorporation

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

Powers and Functions of the Directors

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

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

- 48 -

---

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

Rights and Restrictions Attached to the Shares

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

Alteration of Share Rights

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

Annual General Meetings

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

Foreign Ownership Limitations

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

Change of Control

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

Share Ownership Reporting Obligations

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

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

- 49 -

---

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

Asset Purchase Agreements

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

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

Purchase Agreement

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

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

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

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

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

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

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

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

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

- 50 -

---

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

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

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

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

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

Certain United States Federal Income Tax Consequences.
The following 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.

- 51 -

---

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. This
discussion applies only to U.S. Holders who hold our common shares as capital
assets within the meaning of Section 1221 of the Code. In addition, this summary
does not address all U.S. federal income tax considerations that may be
applicable to a U.S. Holders particular circumstances or to U.S. Holders who
may be subject to special tax rules, including, without limitation: tax-exempt
organizations, qualified retirement plans, individual retirement accounts and
other tax-deferred accounts, financial institutions, insurance companies,
partnerships or other entities treated as partnerships for U.S. federal income
tax purposes, real estate investment trusts, regulated investment companies,
broker-dealers, non-resident alien individuals, U.S. Holders whose functional
currency is not the U.S. dollar, persons subject to the alternative minimum
tax, persons who hold our common shares as part of a straddle, hedging or
conversion transaction, and persons who own, actually or constructively, 10% or
more of our common shares.

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.

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. 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 Our 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.

For taxable years beginning before January 1, 2011, dividends
received by U.S. Holders that are individuals, estates or trusts from a
qualified foreign corporation, as defined in Section 1(h)(11) of the Code,
generally are taxed at the same preferential tax rates applicable to long-term
capital gains. A corporation that is a PFIC, 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 and 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.

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In the case of foreign currency 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.

Disposition of Our 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. A U.S. Holders tax basis in the shares generally will be equal to the
amount such U.S. Holder paid for the shares, subject to adjustments. 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 Company. We believe that we
will meet the definition of passive foreign investment company (PFIC) within
the meaning of Sections 1291 through 1298 of the Code. A U.S. Holder who holds
stock 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 stock. 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 a
related person (as defined in Section 954(d)(3) of the Code), 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
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 our 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 we are a PFIC for any taxable year and
any of our 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. U.S. Holders are urged to
consult their tax advisors about the application of the PFIC rules to any of our
subsidiaries.

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:

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- the excess distribution or gain will be allocated ratably over the U.S.
  Holders holding period for the common shares;
- 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
- 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.

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, even if the U.S .
Holder holds the common shares as capital assets.

Alternatively, a U.S. Holder of marketable stock (as defined
below) in a PFIC may make a mark-to-market election 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.

Although a U.S. Holder may be eligible to make a mark-to-market
election with respect to our common shares, no such election may be made with
respect to the stock of any of our non-U.S. subsidiaries that is also a PFIC and
that a U.S. Holder is treated as owning, because such stock is not marketable.
Hence, the mark-to-market election will not be effective to eliminate the
interest charge described above with respect to deemed dispositions of
subsidiary PFIC stock or distributions from a subsidiary PFIC.

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 Toronto Stock Exchange and the NYSE Amex, or other market, as defined in
applicable U.S. Treasury regulations. We expect that our common shares will
continue to be listed on each of the Toronto Stock Exchange and the NYSE Amex on
at least 15 days during each calendar quarter and traded in other than de
minimis quantities, and, consequently, the mark-to-market election would be
available to U.S. Holders of common shares if we were to be a PFIC.

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.

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Congress recently enacted the Hiring Incentives to Restore
Employment Act (HIRE). Under HIRE, U.S. Holders of a PFIC are required to file
an annual report containing any information that may be required by the
Treasury. While these information requirements have not yet been specified by
the Treasury, a U.S. Holder that holds common shares in any year in which we are
a PFIC generally will be required to file IRS Form 8621 regarding distributions received on the common shares
and any gain realized on the disposition of the common shares.

U.S. Holders are urged to consult their tax advisors regarding
the application of the PFIC rules to their investment in our common shares.

Foreign Tax Credits. Subject to certain conditions and
limitations, including potential limitations under the United States-Canada
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.

Information Reporting; Backup Withholding.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 tax
(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
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 UNITED STATES 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.

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

Not Applicable.

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

Not Applicable.

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

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

| | PolyMet Mining Corp.      
| | --------------------------
| | #390  3600 Lysander Lane 
| | Richmond, British Columbia
| | V7B 1C3 Canada            

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
securityholders that involved the election of directors.

Additional financial information is provided in our financial
statements and MD&A, copies of which can be obtained by contacting our
Corporate Secretary in writing at 390  3600 Lysander Lane, Richmond, British
Columbia V7B 1C3 or by e-mail at info@polymetmining.com. Copies of such documents will
be provided to shareholders free of charge.

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

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

Not Applicable

ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURE
      ABOUT MARKET RISK

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

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

ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY
      SECURITIES

Not Applicable.

ITEM 13. DEFAULT, DIVIDEND ARREARAGES AND
      DELINQUENCIES

None.

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

Shareholder Rights Plan

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

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

The Shareholder Rights Plan has previously been filed as
Exhibit 14.1.

ITEM 15. CONTROLS AND PROCEDURES

A. Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this Annual Report, an
evaluation was performed under the supervision and with the participation of our
management, including the chief executive officer and chief financial officer,
of the effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rule 13a-15 of the Exchange Act). Based on that
evaluation, our management, including the chief executive officer and chief
financial officer, concluded that at 31 January 2010 the Companys disclosure
controls and procedures were effective in providing reasonable assurance that
material information required to be disclosed by us in the reports that we file
or submit under the Exchange Act, is recorded, processed, summarized and reported within the time
periods specified in the SECs rules and forms. In reaching this conclusion, the
Company recognizes two factors that must be and are present:

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

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

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

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

Management has assessed the effectiveness of the Companys
internal control over financial reporting as at 31 January 2010. In making its
assessment, management has used the criteria established in Internal Control
- Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO) to evaluate the Companys internal control
over financial reporting.

Based on its assessment, management believes that, as of
January 31, 2010, our internal control over financial reporting is effective.

C. Attestation Report of the Registered Public Accounting
Firm

The attestation report of PricewaterhouseCoopers with respect
to the Companys internal control over financial reporting is filed with Item 18
of this Annual Report.

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D. Changes in Internal Controls

There have been no changes in the Companys internal control
over financial reporting during the year ended 31 January 2010 that have
materially affected, or are reasonably likely to material affect, its internal
control over financial reporting.

ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT

As of January 31, 2010, the audit committee consisted of four
directors. All four members of the Audit Committee, W. Ian L. Forrest, William
Corneliuson, George Molyviatis and Frank Sims, meet the criteria of an Audit
Committee Financial Expert under the applicable rules and regulations of the
SEC, and each of their designation as an Audit Committee Financial Expert has
been ratified by the Board. All four members of the Audit Committee are
independent, as that term is defined in the New York Stock Exchange Amex
listing standards.

ITEM 16B. CODE OF ETHICS

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

The Code has previously been filed as Exhibit 11.1.

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 Ending | Audit Fees         | Audit Related Fees | Tax Fees1         | All Other Fees
|--------------------- | ------------------ | ------------------ | ----------------- | --------------
|January 31, 2010      | CDN
      $231,392 | CDN
      $126,500 | CDN
      $13,906 | CDN
      $Nil
|January 31, 2009      | CDN
      $279,220 | CDN
      $47,000  | CDN
      $14,130 | CDN
      $Nil

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

Pre-Approval Policies and Procedures

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

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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 AFFILIATED PURCHASERS

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 Amex.

PART III

ITEM 17. FINANCIAL STATEMENTS

Not applicable.

ITEM 18. FINANCIAL STATEMENTS

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

Index to Financial Statements

|Description                                                                    | Page
|------------------------------------------------------------------------------ | ----
|Managements Responsibility
        for the Financial Statements               | F-1 
|Report of Independent Registered Public
        Accounting Firm                | F-2 
|Consolidated Balance
        Sheet                                             | F-4 
|Consolidated Statements of Loss, Other
        Comprehensive Loss and Deficits | F-5 
|Consolidated Statements
        of Shareholders Equity                        | F-6 
|Consolidated Statements of Cash Flows                                          | F-7 
|Notes to Consolidated
        Financial Statements                             | F-8 

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POLYMET MINING CORP.(a development stage
    company)

CONSOLIDATED FINANCIAL STATEMENTS 
  31 January 2010,
  2009 and 2008 
  U.S. Funds

---

logo POLYMET MINING CORP.

Management Report

Managements Responsibility for Consolidated Financial
  Statements

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

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

Managements Annual Report on Internal Control over
  Financial Reporting

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

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

Management has assessed the effectiveness of the Companys
  internal control over financial reporting as at 31 January 2010. In making its
  assessment, management has used the criteria established in Internal Control
    - Integrated Frameworkissued by the Committee of Sponsoring Organizations
  of the Treadway Commission (COSO) to evaluate the Companys internal control
  over financial reporting. Based on this assessment, management has concluded
  that the Company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 31 January 2010 has been audited by
  PricewaterhouseCoopers LLP, our independent auditors, as stated in their report
  which appears herein.

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

F-1

---

Independent Auditors Report

To the Shareholders of PolyMet Mining Corp.

We have completed integrated audits of PolyMet Mining
  Corp.s2010, 2009 and 2008 consolidated financial statements and of its
  internal control over financial reporting as at January 31, 2010.

Consolidated financial statements

We have audited the accompanying consolidated balance sheets of PolyMet Mining Corp.(the Company) as at January 31, 2010 and January
  31, 2009, and the related consolidated statements of loss, other comprehensive
  loss and deficit, changes in shareholders equity and cash flows for each of the
  years in the three year period ended January 31, 2010. These financial
  statements are the responsibility of the Companys management. Our
  responsibility is to express an opinion on these financial statements based on
  our audits.

We conducted our audits of the Companys financial statements
  in accordance with Canadian generally accepted auditing standards and the
  standards of the Public Company Accounting Oversight Board (United States).
  Those standards require that we plan and perform an audit to obtain reasonable
  assurance about whether the financial statements are free of material
  misstatement. An audit of financial statements includes examining, on a test
  basis, evidence supporting the amounts and disclosures in the financial
  statements. A financial statement audit also includes assessing the accounting
  principles used and significant estimates made by management, and evaluating the
  overall financial statement presentation. We believe that our audits provide a
  reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred
  to above present fairly, in all material respects, the financial position of the
  Company as at January 31, 2010 and 2009, and the results of its operations and
  its cash flows for each of the years in the three year period ended January 31,
  2010, in accordance with Canadian generally accepted accounting principles.

Internal control over financial reporting

We have also audited PolyMet Mining Corp.s internal control
  over financial reporting as at January 31, 2010,based on criteria
  established in Internal Control - Integrated Frameworkissued by the
  Committee of Sponsoring Organizations of the Treadway Commission (COSO). The
  Companys management is responsible for maintaining effective internal control
  over financial reporting and for its assessment of the effectiveness of internal
  control over financial reporting, included in the accompanying Managements
  Annual Report on Internal Control over Financial Reporting. Our responsibility
  is to express an opinion on the Companys internal control over financial
  reporting based on our audit.

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

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

F-2

---

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

In our opinion, the Company maintained, in all material
  respects, effective internal control over financial reporting as at January 31,
  2010 based on criteria established in Internal Control  Integrated Framework
  issued by the COSO.

PricewaterhouseCoopers LLP

Chartered
  Accountants
  Vancouver, BC, Canada 
  April 30, 2010

F-3

---

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

|                                                              |   | 2010    |   |   | 2009                |  
|------------------------------------------------------------- | - | ------- | - | - | ------------------- | -
|ASSETS                                                        |   |         |   |   | (restated  Note 2) |  
|Current                                                       |   |         |   |   |                     |  
|Cash and equivalents                                          | $ | 21,282  |   | $ | 7,354               |  
|Accounts receivable and advances                              |   | 88      |   |   | 69                  |  
|Investment (Note
      13)                                    |   | 140     |   |   | 57                  |  
|Prepaid expenses                                              |   | 512     |   |   | 470                 |  
|                                                              |   | 22,022  |   |   | 7,950               |  
|Deferred Financing Costs(Note 14c)                            |   | 1,794   |   |   | 1,739               |  
|Mineral Property, Plant and Equipment(Notes 3 and 4)          |   | 115,832 |   |   | 91,910              |  
|                                                              | $ | 139,648 |   | $ | 101,599             |  
|                                                              |   |         |   |   |                     |  
|LIABILITIES                                                   |   |         |   |   |                     |  
|Current                                                       |   |         |   |   |                     |  
|Accounts payable and accrued
      liabilities                | $ | 2,953   |   | $ | 2,797               |  
|Current portion of long
      term debt (Note 5)              |   | 2,000   |   |   | 1,250               |  
|Current portion of asset retirement
      obligation (Note 6) |   | 756     |   |   | 321                 |  
|                                                              |   | 5,709   |   |   | 4,368               |  
|Long term                                                     |   |         |   |   |                     |  
|Long term debt (Note
      5)                                 |   | 8,529   |   |   | 10,063              |  
|Convertible debt (Note 7)                                     |   | 25,253  |   |   | 13,943              |  
|Asset retirement
      obligation (Note 6)                    |   | 2,590   |   |   | 2,890               |  
|Total Liabilities                                             |   | 42,081  |   |   | 31,264              |  
|                                                              |   |         |   |   |                     |  
|SHAREHOLDERS EQUITY                                          |   |         |   |   |                     |  
|Share Capital-(Note
      8)                                  |   | 132,066 |   |   | 105,312             |  
|Contributed Surplus(Note 8d)                                 |   | 36,979  |   |   | 27,549              |  
|Accumulated Other Comprehensive
      Income                  |   | 71      |   |   | -                   |  
|Deficit                                                       |   | (71,549 | ) |   | (62,526             | )
|                                                              |   | 97,567  |   |   | 70,335              |  
|Total
      Liabilities and Shareholders Equity              | $ | 139,648 |   | $ | 101,599             |  

Contingent Liabilities and Commitments(Notes 4, 6
  and 14)

ON BEHALF OF THE BOARD:

William Murray, Director

David Dreisinger, Director

- See Accompanying Notes -

F-4

---

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

|                                                  |   |             |   |   | 2009                   |   |   | 2008                 |  
|------------------------------------------------- | - | ----------- | - | - | ---------------------- | - | - | -------------------- | -
|                                                  |   | 2010        |   |   | *(restated  Note 2b)* |   |   | (restated  Note 2b) |  
|General and Administrative                        |   |             |   |   |                        |   |   |                      |  
|Amortization                                      | $ | 31          |   | $ | 31                     |   | $ | 56                   |  
|Asset retirement obligation accretion             |   | 408         |   |   | 443                    |   |   | 434                  |  
|Consulting fees                                   |   | 63          |   |   | 45                     |   |   | 73                   |  
|Investor relations and financing                  |   | 420         |   |   | 169                    |   |   | 270                  |  
|Office and corporate wages                        |   | 1,387       |   |   | 1,247                  |   |   | 1,681                |  
|Professional fees                                 |   | 371         |   |   | 512                    |   |   | 652                  |  
|Shareholders information                         |   | 248         |   |   | 311                    |   |   | 373                  |  
|Stock-based compensation (Notes 8b) and
      c)) |   | 915         |   |   | 487                    |   |   | 635                  |  
|Transfer agent and filing fees                    |   | 63          |   |   | 158                    |   |   | 127                  |  
|Travel                                            |   | 332         |   |   | 424                    |   |   | 532                  |  
|Warrant amendment (Notes
      2b), 7 and 8e))    |   | 4,920       |   |   | 544                    |   |   | -                    |  
|                                                  |   | 9,158       |   |   | 4,371                  |   |   | 4,833                |  
|                                                  |   |             |   |   |                        |   |   |                      |  
|Other Expenses (Income)                           |   |             |   |   |                        |   |   |                      |  
|Interest income, net                              |   | (5          | ) |   | (154                   | ) |   | (1,168               | )
|Loss (gain) on foreign exchange                   |   | 24          |   |   | 156                    |   |   | (566                 | )
|Investment loss (Note
      13)                   |   | -           |   |   | 1,365                  |   |   | 1,050                |  
|Rental income                                     |   | (154        | ) |   | (215                   | ) |   | (25                  | )
|                                                  |   | (135        | ) |   | 1,152                  |   |   | (709                 | )
|                                                  |   |             |   |   |                        |   |   |                      |  
|Loss for the Year                                 |   | 9,023       |   |   | 5,523                  |   |   | 4,124                |  
|                                                  |   |             |   |   |                        |   |   |                      |  
|Other Comprehensive Income                        |   |             |   |   |                        |   |   |                      |  
|Unrealized gain on investment                     |   | 71          |   |   | -                      |   |   | -                    |  
|Comprehensive Loss                                |   | 8,952       |   |   | 5,523                  |   |   | 4,124                |  
|                                                  |   |             |   |   |                        |   |   |                      |  
|Loss for the Year                                 |   | 9,023       |   |   | 5,523                  |   |   | 4,124                |  
|Deficit Beginning of the Year                     |   | 62,526      |   |   | 57,003                 |   |   | 52,879               |  
|                                                  |   |             |   |   |                        |   |   |                      |  
|Deficit End of
      Year                         |   | 71,549      |   |   | 62,526                 |   |   | 57,003               |  
|                                                  |   |             |   |   |                        |   |   |                      |  
|Basic and
      Diluted Loss per Share            | $ | (0.06       | ) | $ | (0.04                  | ) | $ | (0.03                | )
|                                                  |   |             |   |   |                        |   |   | -                    |  
|                                                  |   |             |   |   |                        |   |   |                      |  
|Weighted Average Number of Shares                 |   | 139,456,827 |   |   | 137,187,927            |   |   | 133,697,572          |  

- See Accompanying Notes -

F-5

---

|PolyMet Mining Corp.                                              
|------------------------------------------------------------------
|(a development stage company)                                     
|Consolidated Statements of
        Changes in Shareholders Equity
|All figures in Thousands of U.S. Dollars, except for
      Shares 

|                                                                 |  | Common Shares (Note 8) |  |  |             |  |   |         |  |   |             |   |   |               |  |   |                       |  
|---------------------------------------------------------------- |  | ---------------------- |  |  | ----------- |  | - | ------- |  | - | ----------- | - | - | ------------- |  | - | --------------------- | -
|                                                                 |  |                        |  |  |             |  |   |         |  |   |             |   |   | Other         |  |   |                       |  
|                                                                 |  | Authorized             |  |  |             |  |   |         |  |   | Contributed |   |   | Comprehensive |  |   | Deficit               |  
|                                                                 |  | Shares                 |  |  | Shares      |  |   | Amount  |  |   | Surplus     |   |   | Income        |  |   | *(restated  Note 2)* |  
|Balance  31 January 2007                                        |  | Unlimited              |  |  | 121,378,876 |  | $ | 72,923  |  | $ | 9,614       |   | $ | -             |  | $ | (52,879               | )
|Loss for the year                                                |  | -                      |  |  | -           |  |   | -       |  |   | -           |   |   |               |  |   | (4,124                | )
|Shares and warrants
      issued:                                |  |                        |  |  |             |  |   |         |  |   |             |   |   |               |  |   |                       |  
|Exercise of
      options                                        |  | -                      |  |  | 462,200     |  |   | 303     |  |   | -           |   |   |               |  |   | -                     |  
|Fair value of stock options exercised                            |  | -                      |  |  | -           |  |   | 212     |  |   | (212        | ) |   |               |  |   | -                     |  
|Private placement,
      finders fees and issuance costs        |  | -                      |  |  | 15,149,999  |  |   | 31,177  |  |   | 8,346       |   |   |               |  |   | -                     |  
|Stock-based compensation                                         |  | -                      |  |  | -           |  |   | -       |  |   | 3,077       |   |   |               |  |   | -                     |  
|Balance  31 January 2008 (restated  Note 2)                    |  | Unlimited              |  |  | 136,991,075 |  | $ | 104,615 |  | $ | 20,825      |   | $ | -             |  | $ | (57,003               | )
|Loss for the year                                                |  | -                      |  |  | -           |  |   | -       |  |   | -           |   |   |               |  |   | (5,523                | )
|Shares and warrants issued:                                      |  |                        |  |  |             |  |   |         |  |   |             |   |   |               |  |   |                       |  
|Exercise of options                                              |  | -                      |  |  | 312,800     |  |   | 452     |  |   | -           |   |   |               |  |   | -                     |  
|Fair value of
      stock options exercised                      |  | -                      |  |  | -           |  |   | 245     |  |   | (245        | ) |   |               |  |   | -                     |  
|Convertible debt 
      conversion factor and warrants (Note 7) |  | -                      |  |  | -           |  |   | -       |  |   | 691         |   |   |               |  |   | -                     |  
|Accrual of Milestones 2 and 4 Bonus
      Shares (Note 14)       |  | -                      |  |  | -           |  |   | -       |  |   | 3,912       |   |   |               |  |   | -                     |  
|Amendment to previously
      issued warrants (Note 8e))         |  | -                      |  |  | -           |  |   | -       |  |   | 544         |   |   |               |  |   | -                     |  
|Stock-based compensation                                         |  | -                      |  |  | -           |  |   | -       |  |   | 1,822       |   |   |               |  |   | -                     |  
|Balance  31 January 2009 (restated 
      Note 2)              |  | Unlimited              |  |  | 137,303,875 |  | $ | 105,312 |  | $ | 27,549      |   | $ | -             |  | $ | (62,526               | )
|Loss for the year                                                |  | -                      |  |  | -           |  |   | -       |  |   | -           |   |   |               |  |   | (9,023                | )
|Other comprehensive
      income for the period                  |  | -                      |  |  | -           |  |   | -       |  |   | -           |   |   | 71            |  |   | -                     |  
|Shares and warrants issued:                                      |  |                        |  |  |             |  |   |         |  |   |             |   |   |               |  |   |                       |  
|Equity offering and issuance costs                               |  | -                      |  |  | 9,433,962   |  |   | 24,501  |  |   | -           |   |   |               |  |   | -                     |  
|Exercise of
      options                                        |  | -                      |  |  | 775,000     |  |   | 477     |  |   | -           |   |   |               |  |   | -                     |  
|Fair value of stock options exercised                            |  | -                      |  |  | -           |  |   | 307     |  |   | (307        | ) |   |               |  |   | -                     |  
|Exercise of
      warrants                                       |  | -                      |  |  | 167,954     |  |   | 494     |  |   | -           |   |   |               |  |   | -                     |  
|Fair value of warrants exercised                                 |  | -                      |  |  | -           |  |   | 254     |  |   | (254        | ) |   |               |  |   | -                     |  
|Convertible debt 
      conversion factor and warrants(Note7)   |  | -                      |  |  | -           |  |   | -       |  |   | 352         |   |   |               |  |   | -                     |  
|Accrual of
      Milestones 2 and 4 Bonus Shares (Note 14)       |  | -                      |  |  | -           |  |   | -       |  |   | 4,200       |   |   |               |  |   | -                     |  
|Amendment to
      previously issued warrants (Notes 7 and 8e))  |  | -                      |  |  | -           |  |   | -       |  |   | 4,920       |   |   |               |  |   | -                     |  
|Issuance of
      Milestone 2 Bonus Shares (Note 14)             |  |                        |  |  | 1,300,000   |  |   | 721     |  |   | (721        | ) |   |               |  |   |                       |  
|Stock-based compensation (Note
      8c))                        |  | -                      |  |  | -           |  |   | -       |  |   | 1,240       |   |   |               |  |   | -                     |  
|Balance  31 January 2010                                        |  | Unlimited              |  |  | 148,980,791 |  | $ | 132,066 |  | $ | 36,979      |   | $ | 71            |  | $ | (71,549               | )

- See Accompanying Notes -

F-6

---

|PolyMet Mining Corp.                    
|----------------------------------------
|(a development stage company)           
|Consolidated Statements of Cash Flows   
|For the Years Ended 31 January          
|All figures in Thousands of U.S. Dollars

|                                                                    |   |         |    |   | 2009        |     |   | 2008        |  
|------------------------------------------------------------------- | - | ------- | -- | - | ----------- | --- | - | ----------- | -
|                                                                    |   |         |    |   | (restated  |     |   | (restated  |  
|                                                                    |   | 2010    |    |   | *Note 2)*   |     |   | *Note 2)*   |  
|Operating Activities                                                |   |         |    |   |             |     |   |             |  
|Loss for the year                                                   | $ | (9,023  | )$ |   | (5,523      | ) $ |   | (4,124      | )
|Items not involving cash                                            |   |         |    |   |             |     |   |             |  
|Amortization                                                        |   | 31      |    |   | 31          |     |   | 56          |  
|Asset retirement
      obligation accretion                         |   | 408     |    |   | 443         |     |   | 434         |  
|Investment loss (Note 13)                                           |   | -       |    |   | 1,365       |     |   | 1,050       |  
|Stock-based compensation                                            |   | 915     |    |   | 487         |     |   | 635         |  
|Warrant
      amendment (Notes 7 and 8e))                           |   | 4,920   |    |   | 544         |     |   | -           |  
|Changes in non-cash working capital
      items                     |   |         |    |   |             |     |   |             |  
|Accounts
      receivable and advances                              |   | (19     | )  |   | 99          |     |   | (107        | )
|Prepaid expenses                                                    |   | (42     | )  |   | 323         |     |   | (583        | )
|Accounts
      payable and accrued liabilities                      |   | 381     |    |   | (1,059      | )   |   | (51         | )
|Net cash used in operating activities                               |   | (2,429  | )  |   | (3,290      | )   |   | (2,690      | )
|                                                                    |   |         |    |   |             |     |   |             |  
|Financing Activities                                                |   |         |    |   |             |     |   |             |  
|Share capital - for cash                                            |   | 25,472  |    |   | 452         |     |   | 39,826      |  
|Long-term debt repayment                                            |   | (1,250  | )  |   | (1,400      | )   |   | (2,000      | )
|Convertible debt                                                    |   | 9,944   |    |   | 14,333      |     |   | -           |  
|Deferred financing costs                                            |   | (55     | )  |   | (49         | )   |   | (293        | )
|Net cash provided by financing
      activities                     |   | 34,111  |    |   | 13,336      |     |   | 37,533      |  
|                                                                    |   |         |    |   |             |     |   |             |  
|Investing Activities                                                |   |         |    |   |             |     |   |             |  
|Purchase of investment                                              |   | -       |    |   | -           |     |   | (2,495      | )
|Purchase of mineral property,
      plant and equipment             |   | (17,754 | )  |   | (22,776     | )   |   | (21,161     | )
|Net cash used in investing activities                               |   | (17,754 | )  |   | (22,776     | )   |   | (23,656     | )
|                                                                    |   |         |    |   |             |     |   |             |  
|Net Increase (Decrease) in Cash and Cash Equivalents
      Position |   | 13,928  |    |   | (12,730     | )   |   | 11,187      |  
|Cash and Cash Equivalents Position -
      Beginning of Year        |   | 7,354   |    |   | 20,084      |     |   | 8,897       |  
|Cash and Cash
      Equivalents Position - End of Year              | $ | 21,282  |    | $ | 7,354       |     | $ | 20,084      |  

- See Accompanying Notes -

F-7

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial Statements                                                       
|For the years ended 31 January 2010, 2009 and 2008                                               
|Tabular amounts in Thousands of U.S. Dollars except for
      price per share, shares and options

|**1.** | Nature of Business                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|------ | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|       | PolyMet Mining Corp. (the Company) was incorporated in
      British Columbia, Canada on 4 March 1981 under the name Fleck Resources
      Ltd. The Company changed its name from Fleck Resources to PolyMet Mining
      Corp. on 10 June 1998. The Company is engaged in the exploration and
      development, when warranted, of natural resource properties. The Companys
      primary mineral property is the NorthMet Project, a polymetallic project
      in northeastern Minnesota, USA. The realization of the Companys
      investment in the NorthMet Project and other assets is dependent upon
      various factors, including the existence of economically recoverable
      mineral reserves, the ability to obtain the necessary financing to
      complete the exploration and development of the NorthMet Project, future
      profitable operations, or alternatively upon disposal of the investment on
      an advantageous basis.
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|       | On 25 September 2006, the Company received the results of
      a Definitive Feasibility Study (DFS) prepared by Bateman Engineering
      (Pty) Ltd. (Bateman) that confirms the economic and technical viability
      of the NorthMet Project and, as such, the Project has moved from the
      exploration stage to the development stage.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

F-8

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial Statements                                                       
|For the years ended 31 January 2010, 2009 and 2008                                               
|Tabular amounts in Thousands of U.S. Dollars except for
      price per share, shares and options

|2. | Significant Accounting Policies and
      Restatements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | (a) Significant Accounting Policies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | The consolidated financial statements of PolyMet Mining
      Corp. have been prepared in accordance with accounting principles
      generally accepted in Canada that require management to make assumptions
      and estimates that affect the reported amounts of assets and liabilities
      and disclosures of contingent assets and liabilities as at the date of the
      financial statements.                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | Significant estimates used in the preparation of these
      consolidated financial statements include, amongst other things, expected
      economic lives of plant and equipment, anticipated costs of asset
      retirement obligations including the reclamation of mine site, valuation
      of options, convertible debt and share purchase warrants, and the
      assessment of impairment in value of long lived assets. Actual results
      could differ from these estimates. Significant differences from United
      States generally accepted accounting principles are disclosed in Note
      16.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | Basis of consolidation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | The consolidated financial statements include the
      accounts of the Company and its wholly-owned subsidiary, Poly Met Mining,
      Inc. Inter-company balances and transactions have been eliminated on
      consolidation.                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | Cash and Cash Equivalents                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | The Company considers cash and cash equivalents to
      include amounts held in banks and highly liquid debt investments with
      remaining maturities at point of purchase of three months or
      less.                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | Mineral Property, Plant and Equipment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | Mineral property                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | Mineral property costs, aside from mineral property
      acquisition costs, incurred prior to determination of the DFS are expensed
      as incurred and expenditures incurred subsequent to the DFS and mineral
      property acquisition costs are deferred or capitalized until the property
      is placed into production, sold, allowed to lapse or abandoned.
      Acquisition costs include cash, debt and fair market value of common
      shares.                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | Upon commencement of production, mineral properties and
      acquisition costs relating to mines are amortized over the estimated life
      of the proven and probable mineral reserves to which they relate,
      calculated on a unit of production basis.                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | As a result of the DFS on the NorthMet Project, the
      Project entered the development stage effective 1 October 2006. The
      Company has deferred mineral property development expenditures related to
      the NorthMet Project from that date.                                                                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | Ownership in mineral interests involves certain inherent
      risks due to the difficulties of determining the validity of certain
      claims as well as the potential for problems arising from the frequently
      ambiguous conveyance history characteristic of many mineral interests. The
      Company has investigated ownership of its mineral interests and, to the
      best of its knowledge, ownership of its interests are in good
      standing.                                                                                                                                                

F-9

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial Statements                                                       
|For the years ended 31 January 2010, 2009 and 2008                                               
|Tabular amounts in Thousands of U.S. Dollars except for
      price per share, shares and options

|2. | Significant Accounting Policies and Restatements- Continued                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | (a) Significant Accounting Policies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | Plant and equipment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | Plant and equipment are recorded at cost and depreciated
      over the estimated life of the related assets calculated on a unit of
      production or straight-line basis, as appropriate.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | Depreciation of plant and equipment is provided on a
      straight-line basis over the estimated economic life of the assets as
      follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | Leasehold improvements  Straight-line over the term of
      the lease                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | Furniture and equipment  Straight-line over 10 years                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | Computers
       Straight-line over 5 years                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | Computer software  Straight-line over 1
      year                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | Mineral property, plant and equipment related to the
      NorthMet Project will begin to be amortized at the time the project
      commences operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | Loss Per Share                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | Loss per share is computed by dividing the loss for the
      year by the weighted average number of common shares outstanding during
      the year. Basic and diluted losses per share are the same for the periods
      reported, as the effect of potential issuances of shares under warrant or
      share option agreements would be anti-dilutive.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | Foreign Currency Translation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | The United States (U.S.) dollar is the functional
      currency of the Companys business. Accordingly, amounts in these
      consolidated financial statements are expressed in U.S. dollars unless
      otherwise stated. The Companys non-U.S. operations are considered to be
      integrated with the U.S. operations and have been translated into U.S.
      dollars using the temporal method. Under this method, monetary assets and
      liabilities are translated at the rate of exchange in effect at the
      balance sheet dates and non-monetary assets and liabilities are translated
      at the exchange rate in effect at the times of the transactions. Revenue
      and expense items are translated at rates approximating the exchange rate
      in effect at the time of the transactions, except for amortization which
      is translated at historical rates. Translation gains and losses are
      reflected in the consolidated statement of loss in the year
      incurred.

F-10

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial Statements                                                       
|For the years ended 31 January 2010, 2009 and 2008                                               
|Tabular amounts in Thousands of U.S. Dollars except for
      price per share, shares and options

|2. | Significant Accounting Policies and Restatements- Continued                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | (a) Significant Accounting Policies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | Stock-Based Compensation and Share Purchase
      Warrants                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | All stock-based awards made to directors, employees and
      non-employees are measured and recognized using a fair value based method.
      For directors and employees, the fair value of the options is measured at
      the date of the grant. For non-employees, the fair value of the options is
      measured on the earlier of the date at which the counterparty performance
      is complete or the date the performance commitment is reached or the date
      at which the equity instruments are granted if they are fully vested and
      non-forfeitable. For directors, employees and non-employees, the fair
      value of the options is accrued and charged either to operations or
      mineral property plant and equipment, with the offsetting credit to
      contributed surplus, on a graded method over the vesting period. If and
      when the stock options are ultimately exercised, the applicable amounts of
      contributed surplus are transferred to share capital.                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | The Company issues share purchase warrants in connection
      with certain equity transactions. The fair value of the warrants, as
      determined using the Black-Scholes option pricing model, is credited to
      contributed surplus. The recorded value of share purchase warrants is
      transferred to share capital upon exercise.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | When the Company amends the terms of either stock options
      or share purchase warrants, the incremental change in the fair value of
      the options or warrants due to the amendment is booked to warrant
      amendment expense and contributed surplus.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | Asset Retirement Obligations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | The Company follows CICA Handbook Section 3110, Asset
      Retirement Obligations(CICA 3110) which requires the recognition of
      a legal liability for obligations relating to the retirement of property,
      plant and equipment and obligations arising from the acquisition,
      construction, development, or normal operation of those assets. Such asset
      retirement costs must be recognized at fair value, when a reasonable
      estimate of fair value can be estimated, in the year in which the
      liability is incurred. A corresponding increase to the carrying amount of
      the related asset, where one is identifiable, is recorded and amortized
      over the life of the asset. Where a related asset is not easily
      identifiable with a liability, the change in fair value over the course of
      the year is expensed. The estimates are based principally on legal and
      regulatory requirements. It is possible that the Companys estimates of
      its ultimate reclamation and closure liabilities could change as a result
      of changes in regulations, changes in the extent of environmental
      remediation required, changes in the means of reclamation or changes in
      cost estimates.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | The operations of the Company may in the future be
      affected from time to time in varying degrees by changes in environmental
      regulations, including those for future removal and site restoration
      costs.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | Both the likelihood of new regulations and their overall
      effect upon the Company may vary greatly and are not
      predictable.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

F-11

---

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

F-12

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial Statements                                                       
|For the years ended 31 January 2010, 2009 and 2008                                               
|Tabular amounts in Thousands of U.S. Dollars except for
      price per share, shares and options

|2. | Significant Accounting Policies and Restatements- Continued                                                     
|-- | ----------------------------------------------------------------------------------------------------------------
|   |                                                                                                                 
|   | (b)                                                                                                             
|   |                                                                                                                 
|   | The Company has adopted the following CICA standards
      effective for the Company commencing 1 February 2009:
|   |                                                                                                                 
|   |                                                                                                                 

Instruments  Disclosures (Section
  3862), to require enhanced disclosures  a fair value hierarchy that
  classifies financial instruments at one of three levels according to the
  relatively reliability of the inputs used to estimated the fair values. The new
  requirements of this standard are addressed in Note 15.

(ii) Section 3064 - Goodwill and
  Intangible Assets. This new standard provides guidance on the recognition,
  measurement, presentation and disclosure of goodwill and other intangible
  assets. As a result of this standard, the CICA withdrew EIC 27, Revenue and
  Expenses during the pre-operating period. With the withdrawal of EIC 27, the
  Company is no longer able to defer operating costs and revenues incurred prior
  to commercial production at its development project. The adoption of this
  standard resulted in the Company retroactively ceasing to capitalize to mineral
  property accretion related to asset retirement obligations in its consolidated
  financial statements.

The company has restated its financial
  statements for the items above and the impacts on certain line items of the
  financial statements with significant changes were as follows:

| | Line Item                            |  | Year Ended      |  |  | Year ended      | 
| | ------------------------------------ |  | --------------- |  |  | --------------- | 
| |                                      |  | 31 January 2009 |  |  | 31 January 2008 | 
| |                                      |  |                 |  |  |                 | 
| |                                      |  | As Previously   |  |  | Restated        | 
| |                                      |  | Reported        |  |  |                 | 
| | Mineral Property Plant and Equipment |  | 93,067          |  |  | 91,910          | 
| | Loss for the period                  |  | 4,536           |  |  | 4,979           | 
| | Deficit                              |  | 60,825          |  |  | 61,982          | 
| | Loss per share                       |  | 0.03            |  |  | 0.04            | 

(iii) EIC  173  Credit Risk and Fair
  Value of Financial Assets and Liabilities. This standard provides guidance on
  how to take into account credit risk of an entity and counterparty when
  determining fair value of financial assets and financial liabilities. The
  adoption of this standard did not have any effect on the Companys financial
  statements.

(iv) EIC  174  Mining Exploration
  Costs. This standard provides guidance on the accounting and impairment review
  of exploration costs. The adoption of this standard did not have any effect on
  the Companys financial statements.

There were no new accounting standards
  issued during the period that are expected to impact the Company.

F-13

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial Statements                                                       
|For the years ended 31 January 2010, 2009 and 2008                                               
|Tabular amounts in Thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

|2. | Significant Accounting Policies and Restatements- Continued
|-- | -----------------------------------------------------------

**(b) Recent Accounting
  Pronouncements and Restatements**

Effective 1 November 2009, the Company
  changed its accounting policy for accounting for amendments to warrants. Prior
  to this date, if the amendment related to warrants held by existing equity
  holders, the Company would debit the increase in fair value as a result of an
  amendment to the warrants to share capital. Under its new accounting policy, the
  Company records the debit to warrant amendment expense. This change in
  accounting policy has been applied retroactively, the impacts on certain line
  items of the financial statements with significant changes, after taking into
  account the above restatement with respect to Section 3064 / EIC 27, were as
  follows:

|Line
      Item     |  | Year ended      | 
|------------------- |  | --------------- | 
|                    |  | 31 January 2009 | 
|                    |  | As Previously   | 
|                    |  | Reported        | 
|Share Capital       |  | 104,768         | 
|Loss for the period |  | 4,979           | 
|Deficit             |  | 61,982          | 
|Loss per share      |  | 0.04            | 

F-14

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial Statements                                                       
|For the years ended 31 January 2010, 2009 and 2008                                               
|Tabular amounts in Thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

|3. | Resource Property Agreements                                                                                                                                                                                                                                                                                                                                                                                                                                                
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | NorthMet, Minnesota, U.S.A. - Lease                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | Pursuant to an agreement dated 4 January 1989,
      subsequently amended and assigned, the Company leases certain lands in St.
      Louis County, Minnesota from RGGS Land & Minerals Ltd., L.P. The
      original term of the renewable lease was 20 years and called for total
      lease payments of $1,475,000. The Company has renewed the lease by making
      a payment of $150,000 in January 2010. All lease payments have been paid
      to 31 January 2010.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | The Company can, at its option, terminate the lease at
      any time by giving written notice to the lessor not less than 90 days
      prior to the effective termination date or can indefinitely extend the
      20-year term by continuing to make $150,000 annual lease payments on each
      successive anniversary date.                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | The lease payments are considered advance royalty
      payments and shall be deducted from future production royalties payable to
      the lessor, which range from 3% to 5% based on the net smelter return
      received by the Company. The Companys recovery of the advance royalty
      payments is subject to the lessor receiving an amount not less than the
      amount of the annual lease payment due for that year.                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | Pursuant to the leases, PolyMet holds mineral rights and
      the right to mine. PolyMet intends to acquire surface rights through a
      land exchange with or direct acquisition of surface rights from the United
      States Forest Service, which costs have been included in the capital cost
      estimate of the Project.                                                                                                                                       

F-15

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial Statements                                                       
|For the years ended 31 January 2010, 2009 and 2008                                               
|Tabular amounts in Thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

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

| |                         |   |         |  |   | Accumulated  |  |   | Net Book | 
| | ----------------------- | - | ------- |  | - | ------------ |  | - | -------- | 
| | 31 January 2010         |   | Cost    |  |   | Amortization |  |   | Value    | 
| | NorthMet Project        | $ | 115,620 |  | $ | -            |  | $ | 115,620  | 
| | Leasehold improvements  |   | 47      |  |   | 30           |  |   | 17       | 
| | Computers               |   | 418     |  |   | 276          |  |   | 142      | 
| | Furniture and equipment |   | 142     |  |   | 89           |  |   | 53       | 
| |                         | $ | 116,227 |  | $ | 395          |  | $ | 115,832  | 
| |                         |   |         |  |   |              |  |   |          | 
| |                         |   |         |  |   |              |  |   |          | 
| |                         |   |         |  |   | Accumulated  |  |   | Net Book | 
| | 31 January 2009         |   | Cost    |  |   | Amortization |  |   | Value    | 
| | NorthMet Project        | $ | 91,707  |  | $ | -            |  | $ | 91,707   | 
| | Leasehold improvements  |   | 47      |  |   | 21           |  |   | 26       | 
| | Computers               |   | 224     |  |   | 125          |  |   | 99       | 
| | Furniture and equipment |   | 137     |  |   | 59           |  |   | 78       | 
| |                         | $ | 92,115  |  | $ | 205          |  | $ | 91,910   | 

Erie Plant, Minnesota,
  U.S.A.

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

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

F-16

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial Statements                                                       
|For the years ended 31 January 2010, 2009 and 2008                                               
|Tabular amounts in Thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

|4. | Mineral Property, Plant and Equipment- Continued                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | On 20 December 2006, the Company closed a transaction
      (the Asset Purchase Agreement II) in which it acquired, from Cliffs,
      property and associated rights sufficient to provide it with a railroad
      connection linking the mine development site and the Erie Plant. The
      transaction also included a 120-railcar fleet, locomotive fuelling and
      maintenance facilities, water rights and pipelines, large administrative
      offices on site and an additional 6,000 acres to the east and west of and
      contiguous to its existing tailing facilities.                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | The purchase price totalling 2 million shares and $15
      million in cash and debt was in four tranches:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | The Company has assumed certain ongoing site-related
      environmental and reclamation obligations as a result of the above
      purchases. These environmental and reclamation obligations are presently
      contracted under the terms of the purchase agreements with Cliffs. Once
      the Company obtains its permit to mine and Cliffs is released from its
      obligations by the State agencies, the environmental and reclamation
      obligations will be direct with the governing bodies. The present value of
      the asset retirement obligation in the amount of $3,346,000 (Note 6) less
      accretion of $1,559,000 charged to retained earnings has been recorded as
      an increase in the carrying amount of the NorthMet Project assets and will
      be amortized over the life of the asset.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | Interest and loan accretion on the long-term and
      convertible debt to 31 January 2010 in the amount of $4,608,000 (2009 -
      $2,264,000) has been capitalized as part of the cost of the NorthMet
      Project assets.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | As the above assets are not in use no amortization of
      these assets has been recorded to 31 January 2010.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

F-17

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial Statements                                                       
|For the years ended 31 January 2010, 2009 and 2008                                               
|Tabular amounts in Thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

|5. | Long Term Debt
|-- | --------------

Pursuant to the Asset Purchase
  Agreements (Note 4) the Companys wholly owned subsidiary Poly Met Mining, Inc.
  (PolyMet US) signed three notes payable to Cliffs in the amounts of
  $2,400,000, $7,000,000 and $7,000,000, respectively. The first note was interest
  bearing at the annual simple rate of four percent (4%) and the final payment was
  made on June 2008. The second note is interest bearing at the Wall Street
    JournalPrime Rate and is being paid in quarterly instalments equal to
  $250,000 commencing 31 December 2006, with the balance repayable upon receipt of
  commercial financing, for total repayment of $7,000,000. The third note is
  interest bearing at the Wall Street JournalPrime Rate and is being paid
  in quarterly instalments equal to $250,000 commencing on 31 December 2009 for
  total repayment of $7,000,000. No interest was payable on the third note until
  31 December 2009. Accordingly it was fair valued, for balance sheet purposes, by
  discounting it at 8.25% . If PolyMet were to default on individual elements of
  the transactions with Cliffs, the assets associated with the default could
  revert to Cliffs control. As at 31 January 2010 the outstanding long term debt
  was as follows:

| |                      |   | 31 January 2010 |   |   | 31
      January 2009 |  
| | -------------------- | - | --------------- | - | - | --------------------- | -
| |                      |   |                 |   |   |                       |  
| | Notes Payable        | $ | 10,499          |   | $ | 11,299                |  
| | Accrued interest     |   | 30              |   |   | 14                    |  
| | Total debt           |   | 10,529          |   |   | 11,313                |  
| | Less current portion |   | (2,000          | ) |   | (1,250                | )
| |                      |   |                 |   |   |                       |  
| | Long term debt       | $ | 8,529           |   | $ | 10,063                |  

F-18

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial Statements                                                       
|For the years ended 31 January 2010, 2009 and 2008                                               
|Tabular amounts in Thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

|6. | Asset Retirement
      Obligation
|-- | ---------------------------------

As part of the consideration for the
  Cliffs Purchase Agreements (Note 4), the Company indemnified Cliffs for the
  liability for final reclamation and closure of the acquired property.

Federal, state and local laws and
  regulations concerning environmental protection affect the Companys operations.
  Under current regulations, the Company is contracted to indemnify Cliffs
  requirement to meet performance standards to minimize environmental impact from
  operations and to perform site restoration and other closure activities. The
  Companys provisions for future site closure and reclamation costs are based on
  known requirements. It is not currently possible to estimate the impact on
  operating results, if any, of future legislative or regulatory developments. The
  Companys estimate of the present value of the obligation to reclaim the
  NorthMet Project is based upon existing reclamation standards at 31 January 2010
  and under Canadian GAAP. Once the Company obtains its permit to mine the
  environmental and reclamation obligations will be direct with the governing
  bodies.

The Companys estimate of the fair
  value of the asset retirement obligation at 31 January 2010 was $3,346,000 (2009
  - $3,211,000). These were based upon a 31 January 2010 undiscounted future cost
  of $21.6 million for the first Cliffs transaction and $2.0 million for Cliffs
  II, an annual inflation rate of 2.00%, credit-adjusted risk free interest rates
  of 10.00% to 12.00% and a mine life of 20 years and a reclamation period of 9
  years.

In March 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 requires
  submission of a short-term mitigation plan by May 20, 2010 and subsequent
  approval of that plan by the MPCA. As part of its prior transactions with Cliffs
  (note 4), PolyMet has agreed to indemnify Cliffs for certain on-going site
  environmental liabilities. As such, the Company has included its best estimate
  of the liabilities related to this consent decree in its asset retirement
  obligation for the year ended 31 January 2010.

F-19

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial Statements                                                       
|For the years ended 31 January 2010, 2009 and 2008                                               
|Tabular amounts in Thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

|7. | Convertible Debt
|-- | ----------------

On 31 October 2008, the Company entered
  into a financing with Glencore AG (Glencore) for an aggregate of US$50 million
  floating rate secured debentures due on 30 September 2011 (the "Debentures") to
  be issued by PolyMet US, and guaranteed by the Company. The Debentures bear
  interest at 12-month US dollar LIBOR plus 4%. Interest is payable in cash or by
  increasing the principal amount of the Debentures, at PolyMets option, for
  payments on or before 30 September 2009, and at Glencores option thereafter. At
  31 January 2010, $1,314,000 of interest had been added to the principal amount
  of the debt. The Debentures are secured by all of the assets of PolyMet and
  PolyMet US, including a pledge of PolyMets 100% shareholding in PolyMet US.

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

US$7.5 million of the Debentures were
  issued on 31 October 2008, an additional US$7.5 million of the Debentures were
  issued on 22 December 2008, $5 million of the Debentures were issued on 18 June
  2009 and an additional US$5 million of the Debentures were issued on 31 August
  2009.

The final US$25 million of the
  Debentures, to be used primarily for detailed engineering and procurement, may
  be issued upon publication of the Final Environmental Impact Statement in the
  State of Minnesotas Environmental Quality Board Monitor, receipt by the Company
  of a bona fide term sheet for construction financing and are subject to
  expenditures being in material compliance with budget and other customary
  conditions as well as agreement between Glencore and Cliffs on terms and
  conditions whereby Cliffs will provide its consent to Glencore as mortgagee of
  those parts of the Erie Plant acquired by PolyMet under Asset Agreement II.

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

The Company has accounted for the
  initial US$7.5 million of the Debentures and the 6.25 million common share
  warrants by allocating the $7.5 million between the debt, the exchangeable
  feature of the debt and the warrants based on their pro rata fair values. The
  debt has been fair valued using the difference between 9% and 12 month LIBOR at
  31 October 2008 (3.2075%) plus 4%. Costs related to the financing of $652,000
  have been recorded against the convertible debt.

The Company has accounted for the
  second, third and fourth advances of US$7.5 million, US$5 million and US$5
  million, respectively, of the Debentures by allocating the principal amounts
  between the debt and the exchangeable feature of the debt based on their pro
  rata fair values. The debt has been fair valued using the difference between 9%
  and 12 month LIBOR at 31 October 2008 (3.2075%) plus 4%. Costs related to the
  financings of $43,000, $16,000 and $12,000, respectively, have been recorded
  against the convertible debt.

F-20

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial Statements                                                       
|For the years ended 31 January 2010, 2009 and 2008                                               
|Tabular amounts in Thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

|7. | Convertible Debt -continued                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | On 17 November 2009, the Company announced that it agreed
      to modify certain terms of the above transaction. Under the new terms the
      Glencore Warrants entitle Glencore to purchase 6.25 million common shares
      of PolyMet at US$3.00 and expire on September 30, 2011. If the 20-day
      volume weighted average price of PolyMets shares is 150% of the exercise
      price or more ($4.50), and the Final EIS has been published in the
      Minnesota Department of Natural Resources EQB Monitor, PolyMet can
      accelerate the expiration of the Glencore Warrants to not less than 21
      business days after the notice of acceleration. The incremental $158,000
      increase in the fair value of the warrants due to the warrant exchange was
      debited to warrant amendment expense and credited to contributed
      surplus.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | Separately in November 2009, PolyMet agreed to modify the
      terms of the final $25 million Tranche E of the $50 million Debenture with
      Glencore such that Tranche E, if drawn, can be exchanged at US$2.65 per
      share. The first four tranches totaling US$25 million (excluding
      capitalized interest) that have already been drawn will continue to be
      exchangeable at US$4.00 per share.                                                                                                                                                                                                                                                                                                                                                                                                                                                     

F-21

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial Statements                                                       
|For the years ended 31 January 2010, 2009 and 2008                                               
|Tabular amounts in Thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

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

| | i)  | On 17 April 2007, the Company closed a non-brokered
      private placement financing of 15 million units at US$2.75 per unit, with
      each unit comprising one common share and one-half of one warrant (for
      accounting purposes, the value of the units was bifurcated between the
      common shares and the warrants). Each whole warrant was exercisable into a
      common share at a price of US$4.00 at any time until 13 October 2008 (see
      amendment below), subject to an early trigger if the 20-day volume
      weighted average price of the common shares is US$6.00 or more. In
      connection with the private placement, the Company has paid finders fees
      totalling US$1.43 million in cash, 150,000 shares and 520,000 broker
      warrants having the same terms as the warrants described above,
      and
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | ii) | 462,200 shares pursuant to the exercise of stock options
      for total proceeds of $303,000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

F-22

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial Statements                                                       
|For the years ended 31 January 2010, 2009 and 2008                                               
|Tabular amounts in Thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

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

| |                                 |  | 31 January |   |  | 31 January |   |  | 31 January |  
| | ------------------------------- |  | ---------- | - |  | ---------- | - |  | ---------- | -
| |                                 |  | 2010       |   |  | 2009       |   |  | 2008       |  
| |                                 |  | Options    |   |  | Options    |   |  | Options    |  
| | Outstanding - Beginning of year |  | 12,615,000 |   |  | 11,312,800 |   |  | 9,090,000  |  
| | Granted                         |  | 1,585,000  |   |  | 1,690,000  |   |  | 2,685,000  |  
| | Cancelled / Forfeited           |  | (350,000   | ) |  | (75,000    | ) |  | -          |  
| | Exercised                       |  | (775,000   | ) |  | (312,800   | ) |  | (462,200   | )
| |                                 |  |            |   |  |            |   |  |            |  
| | Outstanding - End
      of year |  | 13,075,000 |   |  | 12,615,000 |   |  | 11,312,800 |  

F-23

---

|PolyMet Mining Corp.                                                                           
|-----------------------------------------------------------------------------------------------
|(a development stage company)                                                                  
|Notes to Consolidated Financial Statements                                                     
|For the years ended 31 January 2010, 2009 and 2008                                             
|Tabular amounts in Thousands of US Dollars except for
      price per share, shares and options
|                                                                                               

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

As at 31 January 2010, the following
  director, officer, consultant and employee stock options were outstanding:

| |                   |  |                |  |  |                |  |  | Number of   | 
| | ----------------- |  | -------------- |  |  | -------------- |  |  | ----------- | 
| |                   |  | Exercise Price |  |  | Exercise Price |  |  | options     | 
| | Expiry Date       |  | (US$)          |  |  | (CDN$)         |  |  | outstanding | 
| | 5 July 2011       |  | 0.62           |  |  | 0.66           |  |  | 825,000     | 
| | 18 October 2011   |  | 0.74           |  |  | 0.79           |  |  | 50,000      | 
| | 30 March 2012     |  | 0.61           |  |  | 0.65           |  |  | 85,000      | 
| | 1 May 2012        |  | 0.79           |  |  | 0.85           |  |  | 350,000     | 
| | 15 June 2012      |  | 0.88           |  |  | 0.94           |  |  | 40,000      | 
| | 19 September 2012 |  | 1.27           |  |  | 1.36           |  |  | 1,540,000   | 
| | 24 October 2012   |  | 1.12           |  |  | 1.20           |  |  | 200,000     | 
| | 5 December 2012   |  | 1.07           |  |  | 1.15           |  |  | 200,000     | 
| | 20 March 2013     |  | 2.58           |  |  | 2.76           |  |  | 2,900,000   | 
| | 19 June 2013      |  | 2.78           |  |  | 2.97           |  |  | 325,000     | 
| | 1 September 2013  |  | 3.57           |  |  | 3.82           |  |  | 300,000     | 
| | 22 September 2013 |  | 3.28           |  |  | 3.51           |  |  | 75,000      | 
| | 5 January 2014    |  | 3.08           |  |  | 3.30           |  |  | 525,000     | 
| | 13 February 2014  |  | 2.99           |  |  | 3.20           |  |  | 1,250,000   | 
| | 8 March 2014      |  | 2.88           |  |  | 3.08           |  |  | 400,000     | 
| | 12 March 2014     |  | 2.92           |  |  | 3.12           |  |  | 250,000     | 
| | 23 March 2014     |  | 2.89           |  |  | 3.09           |  |  | 50,000      | 
| | 4 September 2014  |  | 3.00           |  |  | 3.21           |  |  | 360,000     | 
| | 12 December 2014  |  | 3.05           |  |  | 3.26           |  |  | 205,000     | 
| | 11 January 2015   |  | 3.03           |  |  | 3.24           |  |  | 70,000      | 
| | 31 January 2015   |  | 2.87           |  |  | 3.07           |  |  | 100,000     | 
| | 15 February 2015  |  | 2.72           |  |  | 2.91           |  |  | 500,000     | 
| | 2 June 2015       |  | 3.92           |  |  | 4.19           |  |  | 100,000     | 
| | 30 July 2015      |  | 3.22           |  |  | 3.44           |  |  | 175,000     | 
| | 30 January 2016   |  | 0.82           |  |  | 0.88           |  |  | 615,000     | 
| | 17 February 2016  |  | 0.82           |  |  | 0.88           |  |  | 1,410,000   | 
| | 15 October 2016   |  | 2.67           |  |  | 2.86           |  |  | 115,000     | 
| | 8 January 2017    |  | 3.54           |  |  | 3.79           |  |  | 60,000      | 
| |                   |  | 2.07           |  |  | 2.22           |  |  | 13,075,000  | 

As at 31 January 2010 all options had
  vested and were exercisable, with the exception of 57,500 which vest
  incrementally until October 15, 2010 and 1,812,500 which vest upon completion of
  specific targets.

F-24

---

|PolyMet Mining Corp.                                                                           
|-----------------------------------------------------------------------------------------------
|(a development stage company)                                                                  
|Notes to Consolidated Financial Statements                                                     
|For the years ended 31 January 2010, 2009 and 2008                                             
|Tabular amounts in Thousands of US Dollars except for
      price per share, shares and options
|                                                                                               

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

| | Risk-free interest rate             |  | 1.30% to 1.69%    | 
| | ----------------------------------- |  | ----------------- | 
| | Expected dividend yield             |  | Nil               | 
| | Expected stock price volatility     |  | 81.97% to 107.32% | 
| | Expected option
      life in years |  | 2.33              | 

The weighted fair value of options
  granted during the period was US$0.56. Option pricing models require the input
  of highly subjective assumptions including the estimate of the share price
  volatility. Changes in the subjective input assumptions can materially affect
  the fair value estimate, and therefore, the existing models do not necessarily
  provide a reliable single measure of the fair value of the Companys stock
  options.

During the year ended 31 January 2010,
  the Company recorded $1,240,000 for stock based compensation in its accounts as
  an expense of $915,000 and a debit to mineral property, plant and equipment of
  $325,000, with the offsetting entries going to contributed surplus. The total
  for the year included the amortization of the fair value cost of existing stock
  options and the impact of the two year extension of the term of all options
  outstanding at 24 June 2009 ($339,000).

During the year ended 31 January 2009,
  the Company granted 1,690,000 options to directors, officers, consultants and
  employees with an average exercise price of USD$1.81 per option. The fair value
  of these options was estimated at the date of grant using the Black-Scholes
  Option Pricing Model with the following weighted average assumptions:

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

The weighted fair value of options granted during the period
  was US$0.79. During the year ended 31 January 2009, the Company recorded
  $1,822,000 for stock based compensation in its accounts as an expense of
  $487,000 and a debit to mineral property, plant and equipment of $1,335,000,
  with the offsetting entries going to contributed surplus.

F-25

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial Statements                                                       
|For the years ended 31 January 2010, 2009 and 2008                                               
|Tabular amounts in Thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

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

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

| |    | The weighted fair value of options granted was US$1.29
      (Cdn$1.36). During the year ended 31 January 2008, the Company recorded
      $3,077,000 in the accounts of the Company as an expense of $635,000 and a
      debit to mineral property, plant and equipment of $2,442,000 with the
      offsetting entries going to contributed surplus.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                        
| | d) | Contributed Surplus                                                                                                                                                                                                                                                                                                                                    
| |    |                                                                                                                                                                                                                                                                                                                                                        
| |    | Contributed surplus represents accumulated stock-based
      compensation expense and warrants issued, reduced by the fair value of the
      stock options and warrants exercised.                                                                                                                                                                    
| |    |                                                                                                                                                                                                                                                                                                                                                        
| |    | Details are as follows:                                                                                                                                                                                                                                                                                                                                

| |                                                                          |   | 31 January |   |   | 31 January |  
| | ------------------------------------------------------------------------ | - | ---------- | - | - | ---------- | -
| |                                                                          |   | 2010       |   |   | 2009       |  
| | Balance  Beginning of year                                              | $ | 27,549     |   | $ | 20,825     |  
| | Current year fair value of stock-based compensation                      |   | 1,240      |   |   | 1,822      |  
| | Fair value of exchangeable warrants and
      debt conversion (Note 7)   |   | 352        |   |   | 691        |  
| | Change in fair value of warrants amended (Notes 7,
      8a) and e))     |   | 4,920      |   |   | 544        |  
| | Issuance of Milestone 2 Bonus Shares (Note 14)                           |   | (721       | ) |   |            |  
| | Accrual of Bonus Shares for Milestones 2 and 4 (Note 14a))               |   | 4,200      |   |   | 3,912      |  
| | Fair value of stock options and warrants exercised during
      the year |   | (561       | ) |   | (245       | )
| | Balance  End of year                                                    | $ | 36,979     |   | $ | 27,549     |  

F-26

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial Statements                                                       
|For the years ended 31 January 2010, 2009 and 2008                                               
|Tabular amounts in Thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

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

Details of stock purchase warrant activity are as
  follows:

| |                                            |  | 31 January
      2010 |   |  | 31 January 2009 | 
| | ------------------------------------------ |  | --------------------- | - |  | --------------- | 
| |                                            |  |                       |   |  | Weighted        | 
| |                                            |  |                       |   |  | Average         | 
| |                                            |  |                       |   |  | Exercise        | 
| |                                            |  | Warrants              |   |  | Price           | 
| |                                            |  |                       |   |  | (US$)           | 
| | Warrants outstanding - beginning of period |  | 15,370,000            |   |  | 4.74            | 
| | Cancelled (Notes 7 and 8e))                |  | (10,260,000           | ) |  | 4.52            | 
| | Exercised                                  |  | (335,908              | ) |  | 3.00            | 
| | Issued                                     |  | 4,010,000             |   |  | 3.00            | 
| | Issued (Note 8a))                          |  | -                     |   |  | -               | 
| | Issued (Note 7)                            |  | 6,250,000             |   |  | 3.00            | 
| |                                            |  |                       |   |  |                 | 
| | Warrants
      outstanding  end of period |  | 15,034,092            |   |  | 3.74            | 

F-27

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial Statements                                                       
|For the years ended 31 January 2010, 2009 and 2008                                               
|Tabular amounts in Thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

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

F-28

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial Statements                                                       
|For the years ended 31 January 2010, 2009 and 2008                                               
|Tabular amounts in Thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

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

F-29

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial Statements                                                       
|For the years ended 31 January 2010, 2009 and 2008                                               
|Tabular amounts in Thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

|9. | Supplemental Disclosure With Respect To Statements of
      Cash Flows                                                                               
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                      
|   | During the years ended 31 January 2010, 2009 and 2008 the
      Company entered into the following non-cash investing and financing
      activities:

| |                                                                                                                                     |   | 2010 |  |   | 2009  |  |   | 2008  | 
| | ----------------------------------------------------------------------------------------------------------------------------------- | - | ---- |  | - | ----- |  | - | ----- | 
| |                                                                                                                                     |   |      |  |   |       |  |  
| |                                                                                                                                     |   |      |  |   |       |  |  
| | Issued nil (2010  nil; 2009  nil 2008 -
      150,000) shares and 520,000 broker warrants for finders fees on private placements | $ | -    |  | $ | -     |  | $ | 1,108 | 
| | Changes in accounts payable and accrued liabilities related to Investing Activities                                                 | $ | 225  |  | $ | 1,970 |  | $ | 2,907 | 

F-30

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial Statements                                                       
|For the years ended 31 January 2010, 2009 and 2008                                               
|Tabular amounts in Thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

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

| |                                                                                                                   |   | 2010 |  |   | 2009 |  |   | 2008 | 
| | ----------------------------------------------------------------------------------------------------------------- | - | ---- |  | - | ---- |  | - | ---- | 
| |                                                                                                                   |   |      |  |   |      |  |   |      | 
| | Consulting fees paid to David Dreisinger, a
      Director of the Company                                         | $ | 59   |  | $ | 56   |  | $ | 63   | 
| | Consulting fees paid to James Swearingen, a Director of the
      Company                                         |   | -    |  |   | -    |  |   | 55   | 
| | Management fees paid to Group 4 Ventures,
      an affiliate controlled by the Executive Chairman of the Company  |   | -    |  |   | -    |  |   | 81   | 
| | Rent and office charges paid to Baja Mining Corp., a
      company of which the Executive Chairman was a director |   | -    |  |   | 5    |  |   | 25   | 
| |                                                                                                                   | $ | 59   |  | $ | 61   |  | $ | 224  | 

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

During the year ended 31 January 2010,
  the Company paid $59,000 (2009 - $56,000 and 2008 -$63,000) to Dr. Dreisinger
  for consulting fees primarily in connection with activities related to the
  processing / technical side of the NorthMet project and related expenses (the
  latter were supported by invoices and receipts). The consulting fees were based
  on a monthly fee of Canadian $5,500 plus general sales tax. Throughout the term
  of his engagement, Dr. Dreisinger has conducted in-person and telephonic
  meetings with Mr. William Murray, the Companys Executive Chairman and formerly
  its President and Chief Executive Officer, and other members of management at
  which he provided both verbal and written updates on the status of test work and
  made recommendations for future activities. These meetings occurred
  approximately every two to three weeks for the past six years.

During the year ended 31 January 2010,
  the Company paid $nil (2009 - $nil and 2008 - $55,000) to Mr. Swearingen for
  consulting fees primarily in connection with activities related to the Companys
  agreements with Cliffs Erie L.L.C. and land tenure and related expenses (the
  latter were supported by invoices and receipts). The consulting fees were based
  on a monthly fee of $5,000. Mr. Swearingen spent a significant amount of time in
  our Hoyt Lakes office reporting to both Mr. Murray and Mr. Warren Hudelson, our
  senior officer at that site, on a regular basis until Mr. Joe Scipioni joined
  the Company. He then reported to Mr. Scipioni, who at the time, was PolyMets
  General Manager and Chief Operating Officer.

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

F-31

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial Statements                                                       
|For the years ended 31 January 2010, 2009 and 2008                                               
|Tabular amounts in Thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

|10. | Related Party Transactions- Continued                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | During the year ended 31 January 2010, the Company paid
      $nil (2009 - $nil and 2008 - $81,000) to Group 4 Ventures (Group 4) for
      the provision of consulting services of Mr. Murray, at a fixed monthly
      rate in accordance with a written contract. These amounts were in addition
      to the salary paid to him during the year ended 31 January 2008 of
      $172,000. Effective 1 July 2007, Mr. Murrays employment agreement was
      adjusted to include, as salary, the amounts formerly paid to Group 4
      Ventures as consulting fees and the contract with Group 4 was
      terminated.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | During the year ended 31 January 2010, the Company paid
      $nil (2009 - $5,000 and 2008 - $25,000) to Baja Mining Corp. (Baja)
      primarily for rent and office costs, including health insurance plan
      costs. The agreement between Baja and the Company was oral in nature. Mr.
      Murray ceased being a Director of Baja in June 2008. Effective 1 February,
      2007, the Company occupied its own premises and ceased paying rent to
      Baja. Effective 1 September, 2008, the Company ceased paying the remaining
      costs to Baja.                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | The Company believes that the contracts with Group 4 and
      Baja were at terms that were fair to the parties
      involved.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

F-32

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial Statements                                                       
|For the years ended 31 January 2010, 2009 and 2008                                               
|Tabular amounts in Thousands of U.S. Dollars except for
      price per share, shares and options

|11. | Income Taxes                                                                                                                                                                                                                                      
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                   
|    | The Companys provision for income taxes differs from the
      amounts computed by applying the combined Canadian federal and provincial
      income tax rates (2010  28.5% and 2009  30%) to the net loss as a result
      of the following:

| |                                                          |   | 2010   |   |   | 2009   |  
| | -------------------------------------------------------- | - | ------ | - | - | ------ | -
| | Provision for recovery of taxes at
      statutory rates | $ | (2,583 | ) | $ | (1,361 | )
| | Tax benefit not recognized on current year losses        |   | 3,292  |   |   | 2,751  |  
| | Differences in foreign tax rates                         |   | (85    | ) |   | (9     | )
| | Change in valuation allowance                            |   | 2,883  |   |   | (2,001 | )
| | Non-deductible items and other                           |   | (3,507 | ) |   | 620    |  
| |                                                          |   |        |   |   |        |  
| |                                                          | $ | -      |   | $ | -      |  

Future income taxes reflect the net
  effects of temporary differences between the carrying amounts of assets and
  liabilities for financial reporting purposes and the amounts used for income tax
  purposes. The significant components of the Company's future tax assets as at 31
  January 2010 are as follows:

| |                                 |   | 2010    |   |   | 2009    |  
| | ------------------------------- | - | ------- | - | - | ------- | -
| | Non-capital loss carry forwards | $ | 14,573  |   | $ | 10,421  |  
| | Unutilized exploration expenses |   | 730     |   |   | 2,144   |  
| | Capital assets                  |   | 109     |   |   | (36     | )
| | Total future income tax assets  |   | 15,412  |   |   | 12,529  |  
| | Less: valuation allowance       |   | (15,412 | ) |   | (12,529 | )
| |                                 |   |         |   |   |         |  
| | Net future income tax assets    | $ | -       |   | $ | -       |  

The Company has income tax loss carry
  forwards of approximately $13.1 million in Canada, which may be used to reduce
  future income taxes otherwise payable and which expire in the years 2011 to
  2030.

The Company has income tax loss carry
  forwards of approximately $29.7 million in the United States, which may be used
  to reduce future income taxes otherwise payable and which expire in the years
  2011 to 2030. Virtually all of the unutilized exploration expenses are in the
  United States.

The tax benefit of the above noted tax
  assets have been offset by recognition of a valuation allowance in these
  financial statements.

F-33

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial Statements                                                       
|For the years ended 31 January 2010, 2009 and 2008                                               
|Tabular amounts in Thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

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

| | 2010                      |   | Canada |  |   | U.S.    |  |   | Consolidated | 
| | ------------------------- | - | ------ |  | - | ------- |  | - | ------------ | 
| | Segment operating loss    | $ | 8,131  |  | $ | 892     |  | $ | 9,023        | 
| | Identifiable
      assets | $ | 21,391 |  | $ | 118,257 |  | $ | 139,648      | 
| |                           |   |        |  |   |         |  |   |              | 
| | 2009                      |   |        |  |   |         |  |   |              | 
| | Segment operating loss    | $ | 4,963  |  | $ | 560     |  | $ | 5,523        | 
| | Identifiable
      assets | $ | 7,221  |  | $ | 94,378  |  | $ | 101,599      | 
| |                           |   |        |  |   |         |  |   |              | 
| | 2008                      |   |        |  |   |         |  |   |              | 
| | Segment operating loss    | $ | 3,287  |  | $ | 837     |  | $ | 4,124        | 
| | Identifiable
      assets | $ | 20,359 |  | $ | 68,126  |  | $ | 88,485       | 

|13. | Investment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | During the quarter ended 31 July 2007, the Company
      acquired, for cash, common shares of a publicly traded Canadian mining
      company whose primary business is the operation of a recommissioned base
      metal mine. This investment represents less than 5% of the public mining
      companys outstanding common shares and was designated as
      available-for-sale and, as such, had been marked-to-market with the change
      in the fair value of the investment from acquisition to quarterly
      financial statements being recorded in Other Comprehensive Loss.                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | As at 31 January 2008, the Company determined that the
      investment has had an other than temporary decline in value. This
      determination was based on, among other factors, a significant drop in
      market price for the investment companys main product and a continued
      decline in the share price of the investment company. The initial
      acquisition cost of the investment was US$2,495,000 (C$2,618,000) and the
      fair value of the investment at 31 January 2008 was US$1,445,000
      (C$1,440,000). As a result, the Company recorded an investment loss of
      $1,050,000 in its income statement and reversed the amounts that had
      previously been recorded in Other Comprehensive Loss during the
      year.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | As at 31 January 2009, the Company determined that the
      investment has had an additional other than temporary decline in value.
      This determination was based on, among other factors, a continued drop in
      market price for the investment companys main product and a continued
      decline in the share price of the investment company. The fair value of
      the investment at 31 January 2009 was US$57,000. During the year, the
      Company recorded an additional investment losses totaling $1,365,000 due
      to declines in value.                                                                                                                                                                                           

F-34

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial Statements                                                       
|For the years ended 31 January 2010, 2009 and 2008                                               
|Tabular amounts in Thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

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

| |             | Bonus Shares |                       
| | ----------- | ------------ | ----------------------
| | Milestone 1 | 1,590,000    | issued                
| | Milestone 2 | 1,300,000    | (i) issued in May 2009
| | Milestone 3 | 2,350,000    | issued                
| | Milestone 4 | 3,640,000    | (iii)
      and (iv)  

| | (i)   | Milestone 2  Negotiation and completion of an off-take
      agreement with a senior metals producer for the purchase of
      nickel-hydroxide produced from the NorthMet Project, and / or an equity
      investment in the Company by such a producer or producers. The bonus
      shares allocated to Milestone 2 are valued at C$0.75. During the year
      ended 31 January 2010, the Company accrued $357,000 related to Milestone 2
      (2009 - $357,000; 2008 - $nil), these amounts were capitalized to Mineral
      Property, Plant and Equipment. This milestone was deemed to have been
      achieved in May 2009 and therefore the Company issued the shares to
      certain directors and insiders.
| | ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | (ii)  | Milestone 3  Completion of a bankable feasibility
      study which indicates that commercial production from the NorthMet
      Project is viable. This milestone was achieved on 25 September 2006 and
      therefore, during the year ended 31 January 2007, the Company expensed a
      C$1,762,500 ($1,289,000) bonus as consulting fees and allotted 2,350,000
      shares. These shares were issued in October 2006.                                                                                                                                                                                                                                                                                          
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | (iii) | Milestone 4  Commencement of commercial production at
      the NorthMet Project at a time when the Company has not less than 50%
      ownership interest.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | (iv)  | At the Annual General Meeting of shareholders of the
      Company, held on 17 June 2008, the disinterested shareholders approved the
      bonus shares for Milestone 4. The bonus shares allocated to Milestone 4
      are valued at US$3.80, the Companys closing trading price on 17 June
      2008. During the year ended 31 January 2010, the Company accrued
      $3,843,000 related to Milestone 4 (2009 - $3,583,000; 2008 - $nil), these
      amounts were capitalized to Mineral Property, Plant and
      Equipment.                                                                                                                                                                                      

F-35

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial Statements                                                       
|For the years ended 31 January 2010, 2009 and 2008                                               
|Tabular amounts in Thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

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

F-36

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial Statements                                                       
|For the years ended 31 January 2010, 2009 and 2008                                               
|Tabular amounts in Thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

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

| |                                       |   | 31 January |  |   | 31 January | 
| | ------------------------------------- | - | ---------- |  | - | ---------- | 
| |                                       |   | 2010       |  |   | 2009       | 
| | Held-for-trading (1)                  | $ | 21,282     |  | $ | 7,354      | 
| | Available-for-sale                    |   | 140        |  |   | 57         | 
| | Loans and receivables                 |   | 88         |  |   | 69         | 
| | Other financial
      liabilities (2) |   | 38,735     |  |   | 28,053     | 

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

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

Risks arising from financial
  instruments and risk management

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

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

Foreign exchange risk

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

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

F-37

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial Statements                                                       
|For the years ended 31 January 2010, 2009 and 2008                                               
|Tabular amounts in Thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

|15. | Financial Instruments and Risk Management-
      continued                                                                                              
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                         
|    | As at 31 January 2010, the Company is exposed to currency
      risk through the following assets and liabilities denominated in Canadian
      dollars:

| |                                 |   | 31 January |   |   | 31 January |  
| | ------------------------------- | - | ---------- | - | - | ---------- | -
| |                                 |   | 2010       |   |   | 2009       |  
| | Held-for-trading (1)            | $ | 157        |   | $ | 155        |  
| | Available-for-sale              |   | 140        |   |   | 57         |  
| | Loans and receivables           |   | 25         |   |   | 34         |  
| | Other financial liabilities (2) |   | (302       | ) |   | (255       | )
| |                                 |   |            |   |   |            |  
| |                                 | $ | 20         |   | $ | (9         | )

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

Based on the above net exposures, as at
  31 January 2010, a 10% change in the Canadian / United States exchange rate
  would impact the Companys earnings by $2,000.

Credit risk

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

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

Liquidity risk

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

Interest rate risk

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

As at 31 January 2010, the Company is
  exposed to interest rate risk through the following assets and liabilities:

| |                                 |   | 31 January |  |   | 31 January | 
| | ------------------------------- | - | ---------- |  | - | ---------- | 
| |                                 |   | 2010       |  |   | 2009       | 
| | Held-for-trading (1)            | $ | 21,282     |  | $ | 7,354      | 
| | Other financial liabilities (2) |   | 33,782     |  |   | 25,256     | 

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

F-38

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial Statements                                                       
|For the years ended 31 January 2010, 2009 and 2008                                               
|Tabular amounts in Thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

|15. | Financial Instruments and Risk Management- continued                                                                                                                                                                                       
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                            
|    | Investment risk                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                            
|    | The Companys investment in the common shares of a
      publicly traded Canadian mining company (see Note 13) bears investment
      risk. The maximum exposure to investment risk is equal to the carrying
      value of the investment.
|    |                                                                                                                                                                                                                                            
|    | As at 31 January 2010, the Company is exposed to
      investment risk through the following assets:                                                                                                                                       

| |                        |   | 31 January |  |   | 31 January | 
| | ---------------------- | - | ---------- |  | - | ---------- | 
| |                        |   | 2010       |  |   | 2009       | 
| | Available-for-sale (1) | $ | 140        |  | $ | 57         | 

(1) Includes investment.

Fair Value Measurements

PolyMets financial assets and
  liabilities are measured or disclosed at fair value on a recurring basis and
  classified in their entirety based on the lowest level of input that is
  significant to the fair value measurement. There are three levels of fair value
  hierarchy that prioritize the inputs to valuation techniques used to measure
  fair value, with level 1 inputs having the highest priority. The levels and the
  valuation techniques used to value the Companys financial assets and
  liabilities are described below:

| | Level 1  | Unadjusted quoted prices in
      active markets that are accessible at the measurement date for identical,
      unrestricted assets or liabilities.                                                                                                      
| | --------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |           |                                                                                                                                                                                                                                                            
| |           | Investments in marketable securities
      are valued using quoted market prices in active markets, obtained from
      securities exchanges. Accordingly, these items are included in Level 1 of the
      fair value hierarchy.                          
| |           |                                                                                                                                                                                                                                                            
| | Level 2  | Quoted prices in markets that
      are not active, quoted prices for similar assets or liabilities in active
      markets, or inputs that are observable, either directly or indirectly, for
      substantially the full term of the asset or liability.
| |           |                                                                                                                                                                                                                                                            
| | Level 3  | Unobservable (supported by
      little or no market activity) prices.                                                                                                                                                                                     

Cash equivalents are recorded at face
  value. Accounts receivable and advances are short-term in nature and represent
  the initial price of the good or service. Long term and convertible debt have
  been fair valued using assumptions with respect to interest rates relevant to
  similar debt taking into account the collateral involved.

F-39

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial Statements                                                       
|For the years ended 31 January 2010, 2009 and 2008                                               
|Tabular amounts in Thousands of U.S. Dollars except for
      price per share, shares and options

|15. | Financial Instruments and Risk Management- Continued                                                                         
|--- | -----------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                              
|    | The fair values of our financial assets and liabilities
      at 31 January 2010 are summarized in the following
      table:

|                                         | Fair Value  
      Quoted in 
      active 
      markets for 
      identical 
      assets 
      (Level 1) | Fair Value - 
      Significant 
      other 
      observable 
      inputs 
      (Level 2) | Fair Value - 
      Significant 
      unobservable 
      inputs 
      (Level 3) | Fair Value 
      - Total | Book 
      Value
|---------------------------------------- | -------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------- | ------------------------- | -----------------
|Assets                                   |                                                                                                                |                                                                                               |                                                                                    |                           |                  
|Cash and
      equivalents               | -                                                                                                              | -                                                                                             | 21,282                                                                             | 21,282                    | 21,282           
|Accounts receivable and advances         |                                                                                                                |                                                                                               | 88                                                                                 | 88                        | 88               
|Investment                               | 140                                                                                                            |                                                                                               | -                                                                                  | 140                       | 140              
|                                         | 140                                                                                                            | -                                                                                             | 21,370                                                                             | 21,510                    | 21,510           
|Liabilities                              |                                                                                                                |                                                                                               |                                                                                    |                           |                  
|Accounts payable and accrued liabilities | -                                                                                                              | -                                                                                             | 2,953                                                                              | 2,953                     | 2,953            
|Current portion of long term debt        | -                                                                                                              | -                                                                                             | 2,000                                                                              | 2,000                     | 2,000            
|Long term debt                           | -                                                                                                              | -                                                                                             | 8,529                                                                              | 8,529                     | 8,529            
|Convertible debt                         | -                                                                                                              | -                                                                                             | 25,253                                                                             | 25,253                    | 25,253           
|                                         | -                                                                                                              | -                                                                                             | 38,735                                                                             | 38,735                    | 38,735           

F-40

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial Statements                                                       
|For the years ended 31 January 2010, 2009 and 2008                                               
|Tabular amounts in Thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

|15. | Financial Instruments and Risk Management- Continued                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    | Capital Management                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    | Similar to other companies in the development stage, the
      Company is in discussions with certain parties to provide funding which
      will enable the Company to execute its business plan. With the completion
      of the DFS and taking into account the current permitting process the
      Company is in, PolyMet will require additional funds through Project
      construction. Funding for the Project could come from a number of sources
      and include internal cash flows (for the second stage of the
      construction), bank project financing and capital market financing. During
      the upcoming fiscal year, the Companys objective is to identify the
      source or sources from which it will obtain the capital required to
      complete the Project.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    | The Company has no externally imposed capital
      requirements. In the management of capital, the Company includes the
      components of shareholders equity, convertible debt and long-term debt.
      The Company manages the capital structure and makes adjustments to it
      depending on economic conditions and the rate of anticipated expenditures.
      To maintain or adjust the capital structure, the Company may attempt to
      issue new shares, issue new debt, acquire or dispose of assets.                                                                                                                                                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    | In order to assist in management of its capital
      requirements, the Company prepares expenditure budgets that are updated as
      necessary depending on various factors. The budgets are approved by the
      Companys Board of Directors.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    | Although the Company expects its current capital
      resources will be sufficient to carry out its plans and operations through
      31 January 2011, 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.                                                                                                                                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|16. | Differences Between Canadian and United States
      Generally Accepted Accounting Principles                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    | These consolidated financial statements are prepared in
      accordance with Canadian generally accepted accounting principles
      (GAAP). The U.S. Securities and Exchange Commission requires that
      financial statements of foreign registrants contain a reconciliation
      presenting the statements on the basis of accounting principles generally
      accepted in the U.S. U.S. GAAP also requires additional disclosures which
      are set out in this financial statement note. Any differences in
      accounting principles as they pertain to the accompanying consolidated
      financial statements are not material except as follows:                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    | a)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

F-41

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial Statements                                                       
|For the years ended 31 January 2010, 2009 and 2008                                               
|Tabular amounts in Thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

|16. | Differences Between Canadian and United States
      Generally Accepted Accounting Principles- Continued                            
|--- | ------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                     
|    | The effects of the above difference in accounting
      principle on convertible debt and shareholders equity are as
      follows:

| |                                            |   | 2010   |  |   | 2009   |  |   | 2008   | 
| | ------------------------------------------ | - | ------ |  | - | ------ |  | - | ------ | 
| | Convertible Debt  Canadian GAAP basis     | $ | 25,253 |  | $ | 13,943 |  | $ | -      | 
| | Convertible Debt  US GAAP basis           | $ | 25,503 |  | $ | 14,193 |  | $ | -      | 
| | Shareholders Equity  Canadian GAAP basis | $ | 97,567 |  | $ | 70,335 |  | $ | 68,437 | 
| | Shareholders Equity  US GAAP basis       | $ | 97,317 |  | $ | 70,085 |  | $ | 68,437 | 

| | (b) Development Stage Company                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | The Company meets the definition of a
      development stage enterprise under United States Accounting Standard
      Codification (ASC) 915 (formerly Statement of Financial Accounting
      Standards (SFAS) No. 7), Accounting and Reporting by Development Stage
      Enterprises. The following additional disclosures are required under this
      standard. Management has determined, in accordance with ASC 915 that the
      Company was dormant for a period to 31 January 2002, as such the required
      disclosures have been included commencing from 1 February 2003.

F-42

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial Statements                                                       
|For the years ended 31 January 2010, 2009 and 2008                                               
|Tabular amounts in Thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

|16. | Differences Between Canadian and United States
      Generally Accepted Accounting Principles- Continued                     
|--- | -----------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                              
|    | Consolidated Statements of Loss, Other Comprehensive Loss
      and DeficitCumulative from 1 February 2003 to 31 January 2010

|                                                            |  | Cumulative    |  
|----------------------------------------------------------- |  | ------------- | -
|                                                            |  | from 1        |  
|                                                            |  | February 2003 |  
|                                                            |  | to 31 January |  
|                                                            |  | 2010          |  
|                                                            |  | (unaudited)   |  
|Pre-feasibility Costs                                       |  | 21,679        |  
|                                                            |  |               |  
|                                                            |  |               |  
|General and Administrative                                  |  |               |  
|Amortization                                                |  | 131           |  
|Asset retirement obligation accretion                       |  | 1,565         |  
|Consulting fees                                             |  | 3,036         |  
|Investor relations and financing                            |  | 1,262         |  
|Office and corporate wages                                  |  | 6,278         |  
|Professional fees                                           |  | 2,634         |  
|Shareholders information                                   |  | 1,150         |  
|Stock-based compensation                                    |  | 11,331        |  
|Transfer agent and filing fees                              |  | 730           |  
|Travel                                                      |  | 2,364         |  
|Warrant amendment                                           |  | 5,464         |  
|                                                            |  | 35,945        |  
|                                                            |  |               |  
|Other Expenses (Income)                                     |  |               |  
|Interest income, net                                        |  | (1,905        | )
|Loss (gain) on foreign exchange                             |  | (161          | )
|Gain on sale of resource
      properties                   |  | (220          | )
|Loss on sale of property, plant and equipment               |  | 9             |  
|Investment loss                                             |  | 2,415         |  
|Rental income                                               |  | (427          | )
|                                                            |  | (289          | )
|                                                            |  |               |  
|Cumulative Loss for the Period and
      Comprehensive Loss |  | 57,335        |  
|                                                            |  |               |  
|Other Comprehensive Income                                  |  |               |  
|Unrealized gain on investment                               |  | (71           | )
|Comprehensive Loss                                          |  | 57,264        |  
|                                                            |  |               |  
|Deficit Beginning of the Period                             |  | 14,214        |  
|                                                            |  |               |  
|Deficit End of the Period                                   |  | 71,549        |  

F-43

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial Statements                                                       
|For the years ended 31 January 2010, 2009 and 2008                                               
|Tabular amounts in Thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

|16. | Differences Between Canadian and United States
      Generally Accepted Accounting Principles- Continued                              
|--- | --------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                       
|    | Consolidated
      Statements of Changes in Shareholders Equity (unaudited)Cumulative from 1
        February 2003 to 31 January 2010

|                                                                  |  |                 |  |  |            |  |  |        |   |  |                     |   |  | Accumulated   |  |  |         |   |  |        |  
|----------------------------------------------------------------- |  | --------------- |  |  | ---------- |  |  | ------ | - |  | ------------------- | - |  | ------------- |  |  | ------- | - |  | ------ | -
|                                                                  |  |                 |  |  |            |  |  |        |   |  |                     |   |  | Other         |  |  |         |   |  |        |  
|                                                                  |  | Issue Price     |  |  |            |  |  |        |   |  |                     |   |  | Comprehensive |  |  |         |   |  |        |  
|                                                                  |  | Per
      Share |  |  | Shares     |  |  | Amount |   |  | Contributed Surplus |   |  | Income        |  |  | Deficit |   |  | Total  |  
|Balance  31 January 2003                                         |  |                 |  |  | 32,657,526 |  |  | 14,183 |   |  | -                   |   |  | -             |  |  | (14,214 | ) |  | (31    | )
|Loss for the year                                                 |  |                 |  |  | -          |  |  | -      |   |  | -                   |   |  | -             |  |  | (147    | ) |  | (147   | )
|Shares issued for cash:                                           |  |                 |  |  |            |  |  |        |   |  |                     |   |  |               |  |  |         |   |  |        |  
|Private
      placements, net of finders fees and issuance costs |  | 0.09            |  |  | 11,708,318 |  |  | 999    |   |  | -                   |   |  | -             |  |  | -       |   |  | 999    |  
|Share subscriptions received                                      |  | -               |  |  | -          |  |  | 763    |   |  | -                   |   |  | -             |  |  | -       |   |  | 763    |  
|Exercise of
      warrants                                        |  | 0.08            |  |  | 486,610    |  |  | 41     |   |  | -                   |   |  | -             |  |  | -       |   |  | 41     |  
|Exercise of options                                               |  | 0.06            |  |  | 89,600     |  |  | 5      |   |  | -                   |   |  | -             |  |  | -       |   |  | 5      |  
|Shares issued to settle debt                                      |  | 0.07            |  |  | 50,000     |  |  | 4      |   |  | -                   |   |  | -             |  |  | -       |   |  | 4      |  
|Stock-based compensation                                          |  |                 |  |  | -          |  |  | -      |   |  | 55                  |   |  | -             |  |  | -       |   |  | 55     |  
|Balance 31 January 2004                                           |  |                 |  |  | 44,992,054 |  |  | 15,995 |   |  | 55                  |   |  | -             |  |  | (14,361 | ) |  | 1,689  |  
|Loss for the year                                                 |  | -               |  |  | -          |  |  | -      |   |  | -                   |   |  | -             |  |  | (4,416  | ) |  | (4,416 | )
|Shares issued for cash:                                           |  |                 |  |  |            |  |  |        |   |  |                     |   |  |               |  |  |         |   |  |        |  
|Private placements, net of finders fees and issuance costs       |  | 0.58            |  |  | 2,955,626  |  |  | 1,715  |   |  | -                   |   |  | -             |  |  | -       |   |  | 1,715  |  
|Share
      subscriptions received                                |  | -               |  |  | -          |  |  | (763   | ) |  | -                   |   |  | -             |  |  | -       |   |  | (763   | )
|Exercise of warrants                                              |  | 0.16            |  |  | 5,277,573  |  |  | 829    |   |  | -                   |   |  | -             |  |  | -       |   |  | 829    |  
|Exercise of
      options                                         |  | 0.07            |  |  | 1,088,400  |  |  | 81     |   |  | -                   |   |  | -             |  |  | -       |   |  | 81     |  
|Shares issued for
      property                                  |  | 0.23            |  |  | 1,000,000  |  |  | 229    |   |  | -                   |   |  | -             |  |  | -       |   |  | 229    |  
|Stock-based compensation                                          |  | -               |  |  | -          |  |  | -      |   |  | 993                 |   |  | -             |  |  | -       |   |  | 993    |  
|Fair value of stock
      options exercised                       |  | -               |  |  | -          |  |  | 42     |   |  | (42                 | ) |  | -             |  |  | -       |   |  | -      |  
|Shares allotted for exercise of
      warrants                    |  | 0.12            |  |  | 224,925    |  |  | 26     |   |  | -                   |   |  | -             |  |  | -       |   |  | 26     |  
|Shares allotted for bonus                                         |  | 0.55            |  |  | 1,590,000  |  |  | 873    |   |  | -                   |   |  | -             |  |  | -       |   |  | 873    |  
|Balance 31 January 2005                                           |  |                 |  |  | 57,128,578 |  |  | 19,027 |   |  | 1,006               |   |  | -             |  |  | (18,777 | ) |  | 1,256  |  

F-44

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial Statements                                                       
|For the years ended 31 January 2010, 2009 and 2008                                               
|Tabular amounts in Thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

|16. | Differences Between Canadian and United States
      Generally Accepted Accounting Principles- Continued                                          
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                   
|    | Consolidated Statements
      of Changes in Shareholders Equity (unaudited) (continued)Cumulative from 1
        February 2003 to 31 January 2010

|                                                                  |  |                 |  |  |             |  |  |        |  |  |                     |   |  | Accumulated   |  |  |         |   |  |         |  
|----------------------------------------------------------------- |  | --------------- |  |  | ----------- |  |  | ------ |  |  | ------------------- | - |  | ------------- |  |  | ------- | - |  | ------- | -
|                                                                  |  |                 |  |  |             |  |  |        |  |  |                     |   |  | Other         |  |  |         |   |  |         |  
|                                                                  |  | Issue Price     |  |  |             |  |  |        |  |  |                     |   |  | Comprehensive |  |  |         |   |  |         |  
|                                                                  |  | Per
      Share |  |  | Shares      |  |  | Amount |  |  | Contributed Surplus |   |  | Income        |  |  | Deficit |   |  | Total   |  
|Balance 31 January 2005 (brought forward)                         |  |                 |  |  | 57,128,578  |  |  | 19,027 |  |  | 1,006               |   |  | -             |  |  | (18,777 | ) |  | 1,256   |  
|Loss for the year                                                 |  | -               |  |  | -           |  |  | -      |  |  | -                   |   |  | -             |  |  | (15,976 | ) |  | (15,976 | )
|Shares issued for cash:                                           |  |                 |  |  |             |  |  |        |  |  |                     |   |  |               |  |  |         |   |  |         |  
|Private
      placements, net of finders fees and issuance costs |  | 0.66            |  |  | 29,347,568  |  |  | 15,827 |  |  | 3,653               |   |  | -             |  |  | -       |   |  | 19,480  |  
|Exercise of warrants                                              |  | 0.58            |  |  | 5,700,628   |  |  | 3,296  |  |  | -                   |   |  | -             |  |  | -       |   |  | 3,296   |  
|Exercise of
      options                                         |  | 0.11            |  |  | 1,795,852   |  |  | 197    |  |  | -                   |   |  | -             |  |  | -       |   |  | 197     |  
|Shares issued for
      property                                  |  | 1.22            |  |  | 6,200,547   |  |  | 7,564  |  |  | -                   |   |  | -             |  |  | -       |   |  | 7,564   |  
|Stock-based compensation                                          |  | -               |  |  | -           |  |  | -      |  |  | 3,523               |   |  | -             |  |  | -       |   |  | 3,523   |  
|Fair value of stock options exercised                             |  | -               |  |  | -           |  |  | 98     |  |  | (98                 | ) |  | -             |  |  | -       |   |  | -       |  
|Balance 31 January 2006                                           |  |                 |  |  | 100,173,173 |  |  | 46,009 |  |  | 8,084               |   |  | -             |  |  | (34,753 | ) |  | 19,340  |  
|Loss for the year                                                 |  | -               |  |  | -           |  |  | -      |  |  | -                   |   |  | -             |  |  | (18,126 | ) |  | (18.126 | )
|Issuance of shares for bonus                                      |  | 0.55            |  |  | 2,350,000   |  |  | 1,289  |  |  | -                   |   |  | -             |  |  | -       |   |  | 1,289   |  
|Shares issued for cash:                                           |  |                 |  |  |             |  |  |        |  |  |                     |   |  |               |  |  |         |   |  |         |  
|Exercise of
      warrants                                        |  | 0.98            |  |  | 14,662,703  |  |  | 17,963 |  |  | (3,653              | ) |  | -             |  |  | -       |   |  | 14,310  |  
|Exercise of options                                               |  | 0.35            |  |  | 2,193,000   |  |  | 765    |  |  | -                   |   |  | -             |  |  | -       |   |  | 765     |  
|Shares issued for property                                        |  | 3.08            |  |  | 2,000,000   |  |  | 6,160  |  |  | -                   |   |  | -             |  |  | -       |   |  | 6,160   |  
|Stock-based
      compensation                                    |  | -               |  |  | -           |  |  | -      |  |  | 4,723               |   |  | -             |  |  | -       |   |  | 4,723   |  
|Warrants issued for deferred financing
      costs                |  | -               |  |  | -           |  |  | -      |  |  | 1,197               |   |  | -             |  |  | -       |   |  | 1,197   |  
|Fair value of stock options exercised                             |  | -               |  |  | -           |  |  | 737    |  |  | (737                | ) |  | -             |  |  | -       |   |  | -       |  
|Balance  31 January 2007                                         |  |                 |  |  | 121,378,876 |  |  | 72,923 |  |  | 9,614               |   |  | -             |  |  | (52,879 | ) |  | 29,658  |  

F-45

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial Statements                                                       
|For the years ended 31 January 2010, 2009 and 2008                                               
|Tabular amounts in Thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

|16. | Differences Between Canadian and United States
      Generally Accepted Accounting Principles- Continued                                          
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                   
|    | Consolidated Statements
      of Changes in Shareholders Equity (unaudited) (continued)Cumulative from 1
        February 2003 to 31 January 2010

|                                                                 |  |                 |  |  |             |  |  |         |  |  |                     |   |  | Accumulated   |  |  |         |   |  |        |  
|---------------------------------------------------------------- |  | --------------- |  |  | ----------- |  |  | ------- |  |  | ------------------- | - |  | ------------- |  |  | ------- | - |  | ------ | -
|                                                                 |  |                 |  |  |             |  |  |         |  |  |                     |   |  | Other         |  |  |         |   |  |        |  
|                                                                 |  | Issue Price     |  |  |             |  |  |         |  |  |                     |   |  | Comprehensive |  |  |         |   |  |        |  
|                                                                 |  | Per
      Share |  |  | Shares      |  |  | Amount  |  |  | Contributed Surplus |   |  | Income        |  |  | Deficit |   |  | Total  |  
|Balance  31 January 2007 (brought forward)                      |  |                 |  |  | 121,378,876 |  |  | 72,923  |  |  | 9,614               |   |  | -             |  |  | (52,879 | ) |  | 29,658 |  
|Loss for the year                                                |  | -               |  |  | -           |  |  | -       |  |  | -                   |   |  | -             |  |  | (4,124  | ) |  | (4,124 | )
|Shares and warrants
      issued:                                |  |                 |  |  |             |  |  |         |  |  |                     |   |  |               |  |  |         |   |  |        |  
|Exercise of
      options                                        |  | 0.66            |  |  | 462,200     |  |  | 303     |  |  | -                   |   |  | -             |  |  | -       |   |  | 303    |  
|Fair value of stock options exercised                            |  | -               |  |  | -           |  |  | 212     |  |  | (212                | ) |  | -             |  |  | -       |   |  | -      |  
|Private placement,
      net of finders fees and issuance costs |  | 2.61            |  |  | 15,149,999  |  |  | 31,177  |  |  | 8,346               |   |  | -             |  |  | -       |   |  | 39,523 |  
|Stock-based compensation                                         |  | -               |  |  | -           |  |  | -       |  |  | 3,077               |   |  | -             |  |  | -       |   |  | 3,077  |  
|Balance  31 January 2008                                        |  |                 |  |  | 136,991,075 |  |  | 104,615 |  |  | 20,825              |   |  | -             |  |  | (57,003 | ) |  | 68,437 |  
|Loss for the year                                                |  | -               |  |  | -           |  |  | -       |  |  | -                   |   |  | -             |  |  | (5,523  | ) |  | (5,523 | )
|Shares and warrants issued:                                      |  |                 |  |  |             |  |  |         |  |  |                     |   |  |               |  |  |         |   |  |        |  
|Exercise of options                                              |  | 1.45            |  |  | 312,800     |  |  | 452     |  |  | -                   |   |  | -             |  |  | -       |   |  | 452    |  
|Fair value of
      stock options exercised                      |  | -               |  |  | -           |  |  | 245     |  |  | (245                | ) |  | -             |  |  | -       |   |  | -      |  
|Convertible debt 
      conversion factor and warrants          |  | -               |  |  | -           |  |  | -       |  |  | 441                 |   |  | -             |  |  | -       |   |  | 441    |  
|Accrual of Milestones 2 and 4 Bonus
      Shares                 |  | -               |  |  | -           |  |  | -       |  |  | 3,912               |   |  | -             |  |  | -       |   |  | 3,912  |  
|Amendment to previously
      issued warrants                    |  | -               |  |  | -           |  |  | -       |  |  | 544                 |   |  | -             |  |  | -       |   |  | 544    |  
|Stock-based compensation                                         |  | -               |  |  | -           |  |  | -       |  |  | 1,822               |   |  | -             |  |  | -       |   |  | 1,822  |  
|Balance  31 January 2009                                        |  |                 |  |  | 137,303,875 |  |  | 105,312 |  |  | 27,299              |   |  | -             |  |  | (62,526 | ) |  | 70,085 |  

F-46

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial Statements                                                       
|For the years ended 31 January 2010, 2009 and 2008                                               
|Tabular amounts in Thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

|16. | Differences Between Canadian and United States
      Generally Accepted Accounting Principles- Continued                                          
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                   
|    | Consolidated Statements
      of Changes in Shareholders Equity (unaudited) (continued)Cumulative from 1
        February 2003 to 31 January 2010

|                                                  |  |                 |  |  |             |  |  |         |  |  |                     |   |  | Accumulated   |  |  |         |   |  |        |  
|------------------------------------------------- |  | --------------- |  |  | ----------- |  |  | ------- |  |  | ------------------- | - |  | ------------- |  |  | ------- | - |  | ------ | -
|                                                  |  |                 |  |  |             |  |  |         |  |  |                     |   |  | Other         |  |  |         |   |  |        |  
|                                                  |  | Issue Price     |  |  |             |  |  |         |  |  |                     |   |  | Comprehensive |  |  |         |   |  |        |  
|                                                  |  | Per
      Share |  |  | Shares      |  |  | Amount  |  |  | Contributed Surplus |   |  | Income        |  |  | Deficit |   |  | Total  |  
|Balance  31 January 2009 (brought
      forward) |  |                 |  |  | 137,303,875 |  |  | 105,312 |  |  | 27,299              |   |  | -             |  |  | (62,526 | ) |  | 70,085 |  
|Loss for the year                                 |  | -               |  |  | -           |  |  | -       |  |  | -                   |   |  | -             |  |  | (9,023  | ) |  | (9,023 | )
|Other comprehensive
      income for the year     |  | -               |  |  | -           |  |  | -       |  |  | -                   |   |  | 71            |  |  | -       |   |  | 71     |  
|Shares and warrants issued:                       |  |                 |  |  |             |  |  |         |  |  |                     |   |  |               |  |  |         |   |  |        |  
|Equity offering and issuance costs                |  | 2.60            |  |  | 9,433,962   |  |  | 24,501  |  |  | -                   |   |  | -             |  |  | -       |   |  | 24,501 |  
|Exercise of
      options                         |  | 0.62            |  |  | 775,000     |  |  | 477     |  |  | -                   |   |  | -             |  |  | -       |   |  | 477    |  
|Fair value of stock options exercised             |  | -               |  |  | -           |  |  | 307     |  |  | (307                | ) |  | -             |  |  | -       |   |  | -      |  
|Exercise of
      warrants                        |  | 2.94            |  |  | 167,954     |  |  | 494     |  |  | -                   |   |  | -             |  |  | -       |   |  | 494    |  
|Fair value of warrants exercised                  |  | -               |  |  | -           |  |  | 254     |  |  | (254                | ) |  | -             |  |  | -       |   |  | -      |  
|Convertible debt  conversion factor              |  | -               |  |  | -           |  |  | -       |  |  | 352                 |   |  | -             |  |  | -       |   |  | 352    |  
|Accrual of Milestones 2
      and 4 Bonus Shares  |  | -               |  |  | -           |  |  | -       |  |  | 4,200               |   |  | -             |  |  | -       |   |  | 4,200  |  
|Amendment to previously issued warrants           |  | -               |  |  | -           |  |  | -       |  |  | 4,920               |   |  | -             |  |  | -       |   |  | 4,920  |  
|Issuance of Milestone 2
      Bonus Shares        |  | 0.55            |  |  | 1,300,000   |  |  | 721     |  |  | (721                | ) |  | -             |  |  | -       |   |  | -      |  
|Stock-based compensation                          |  | -               |  |  | -           |  |  | -       |  |  | 1,240               |   |  | -             |  |  | -       |   |  | 1, 240 |  
|Balance  31 January 2010                         |  |                 |  |  | 148,980,791 |  |  | 132,066 |  |  | 36,729              |   |  | 71            |  |  | (71,549 | ) |  | 97,317 |  

F-47

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial Statements                                                       
|For the years ended 31 January 2010, 2009 and 2008                                               
|Tabular amounts in Thousands of U.S. Dollars except for
      price per share, shares and options

|16. | Differences Between Canadian and United States
      Generally Accepted Accounting Principles- Continued
|--- | --------------------------------------------------------------------------------------------------------
|    |                                                                                                         
|    | Consolidated Statements of Cash FlowsCumulative
        from 1 February 2003 to 31 January 2010         

|                                                                    |   | Cumulative   |  
|------------------------------------------------------------------- | - | ------------ | -
|                                                                    |   | from 1       |  
|                                                                    |   | February     |  
|                                                                    |   | 2003 to 31   |  
|                                                                    |   | January 2010 |  
|                                                                    |   | (unaudited)  |  
|Operating Activities                                                |   |              |  
|Loss for the period                                                 | $ | (57,335      | )
|Items not involving cash                                            |   |              |  
|Consulting fees and Office and Corporate wages                      |   | 2,161        |  
|Amortization                                                        |   | 131          |  
|Asset
      retirement obligation                                   |   | 1,565        |  
|Investment loss                                                     |   | 2,415        |  
|Stock-based compensation                                            |   | 11,331       |  
|Warrant amendment                                                   |   | 5,464        |  
|Gain on
      sale of resource properties                           |   | (220         | )
|Loss on sale of property,
      plant and equipment                 |   | 9            |  
|Changes in non-cash working
      capital items                     |   |              |  
|Accounts receivable and
      advances                              |   | (82          | )
|Prepaid
      expenses                                              |   | (512         | )
|Accounts payable and
      accrued liabilities                      |   | 710          |  
|Net cash used in operating
      activities                         |   | (34,363      | )
|                                                                    |   |              |  
|Financing Activities                                                |   |              |  
|Share capital - for cash                                            |   | 106,730      |  
|Long-term debt repayment                                            |   | (5,900       | )
|Convertible debt                                                    |   | 24,277       |  
|Share subscriptions received                                        |   | 763          |  
|Deferred financing costs                                            |   | (597         | )
|Net cash provided by financing
      activities                     |   | 125,273      |  
|                                                                    |   |              |  
|Investing Activities                                                |   |              |  
|Purchase of investment                                              |   | (2,495       | )
|Proceeds on disposal of
      equipment                             |   | 33           |  
|Proceeds on sale of resource property                               |   | 220          |  
|Purchase of mineral property,
      plant and equipment             |   | (67,389      | )
|Net cash used in investing activities                               |   | (69,631      | )
|                                                                    |   |              |  
|Net Increase (Decrease) in Cash and Cash Equivalents
      Position |   | 21,279       |  
|Cash and Cash Equivalents Position -
      Beginning of Period      |   | 3            |  
|Cash and Cash
      Equivalents Position - End of Period            | $ | 21,282       |  

F-48

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial Statements                                                       
|For the years ended 31 January 2010, 2009 and 2008                                               
|Tabular amounts in Thousands of U.S. Dollars except for
      price per share, shares and options

|16. | Differences Between Canadian and United States
      Generally Accepted Accounting Principles- Continued
|--- | --------------------------------------------------------------------------------------------------------
|    |                                                                                                         
|    | Consolidated Schedules of Pre-Feasibility
      CostsCumulative from 1 February 2003 to 31 January 2010 

|                                            |   | Cumulative  | 
|------------------------------------------- | - | ----------- | 
|                                            |   | from 1      | 
|                                            |   | February    | 
|                                            |   | 2003 to 31  | 
|                                            |   | January     | 
|                                            |   | 2010        | 
|                                            |   | (unaudited) | 
|                                            |   |             | 
|Direct                                      |   |             | 
|Camp and general                            | $ | 298         | 
|Consulting fees                             |   | 1,846       | 
|Drilling                                    |   | 3,169       | 
|Engineering                                 |   | 1,441       | 
|Environmental                               |   | 6,130       | 
|Geological and geophysical                  |   | 303         | 
|Land lease, taxes and
      licenses        |   | 469         | 
|Metallurgical                               |   | 2,275       | 
|Mine planning                               |   | 3,597       | 
|Permitting                                  |   | 321         | 
|Plant maintenance and
      repair          |   | 725         | 
|Sampling                                    |   | 1,001       | 
|Scoping study                               |   | 104         | 
|                                            |   |             | 
|Cumulative Total Costs for the
      Period | $ | 21,679      | 

F-49

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial Statements                                                       
|For the years ended 31 January 2010, 2009 and 2008                                               
|Tabular amounts in Thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

|16. | Differences Between Canadian and United States
      Generally Accepted Accounting Principles-   
|--- | -------------------------------------------------------------------------------------------------
|    |                                                                                                  
|    | Continued                                                                                        
|    |                                                                                                  
|    | (c) Mineral Rights                                                                               
|    |                                                                                                  
|    | The total amount paid for mineral rights to 31 January
      2010 was $1,775,000.                
|    |                                                                                                  
|    | (d) Accounts Payable                                                                             
|    |                                                                                                  
|    | The components of accounts payable and accrued
      liabilities as at 31 January are as follows:

| |                              |   | 2010  |  |   | 2009  | 
| | ---------------------------- | - | ----- |  | - | ----- | 
| |                              |   |       |  |   |       | 
| | Operating payables           |   | 376   |  |   | 192   | 
| | Project development payables |   | 1,561 |  |   | 1,162 | 
| | Equipment payables           |   | 1,016 |  |   | 1,443 | 
| |                              |   |       |  |   |       | 
| | Total                        | $ | 2,953 |  | $ | 2,797 | 

(e) Stock-Based Compensation

As at 31 January 2009, there were
  1,752,500 unvested stock options with an average grant date fair value of $1.21
  per option. As at 31 January 2010, there were 1,855,000 unvested stock options
  with an average grant date fair value of $1.24 per option. During the year ended
  31 January 2010, no additional stock options vested.

The intrinsic value of a stock option
  is the difference between the current market price for PolyMets common shares
  and the exercise price of the option. At 31 January 2010, the aggregate
  intrinsic value of vested and unvested stock options, based on the 29 January
  2010 closing price for PolyMets common shares of $2.90 was $11,583,000.

The weighted average remaining
  contractual term of all stock options outstanding as at 31 January 2010 is 3.86
  years. The weighted average remaining contractual term of all stock options
  vested as at 31 January 2010 was 3.74 years.

The unrecognized compensation cost for
  non-vested stock options at 31 January 2010 was $479,000. The weighted average
  period over which it is expected to be recognized is 2.53 years.

PolyMet records stock-based
  compensation expense as a separate line item in the Companys consolidated
  statements of loss, other comprehensive loss and deficit. If stock-based
  compensation had been recorded on the same line as cash compensation for the
  individuals who received the stock options, $915,000 for the year ended 31
  January 2010, $487,000 for the year ended 31 January 2009 and $635,000 for the
  year ended 31 January 2008 would have been recorded under office and corporate
  wages expense.

The Company has estimated the expected
  life of incentive stock options to be 2.3 years based on historic option
  exercise patterns and the timeline for material developments in the past and
  anticipated in future.

F-50

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial Statements                                                       
|For the years ended 31 January 2010, 2009 and 2008                                               
|Tabular amounts in Thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

|16. | Differences Between Canadian and United States
      Generally Accepted Accounting Principles-                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | Continued                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | f)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | Accounting Standards Update No. 2010-06, Fair Value
      Measurements Disclosures                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | In January 2010, the Financial Statement Accounting Board
      (FASB) issued Accounting Standards Update No. 2010-06, Fair Value
        Measurements Disclosureswhich amends Subtopic 820-10 of the FASB
      Accounting Standards Codification to require new disclosures for fair
      value measurements and provides clarification for existing disclosure
      requirements. More specifically, this update will require (a) an entity to
      disclose separately the amounts of significant transfers in and out of
      Levels 1 and 2 fair value measurements and to describe the reasons for the
      transfers; and (b) information about purchases, sales and issuances and
      settlements to be presented separately (i.e. present the activity on a
      gross basis rather than net) in the reconciliation for fair value
      measurements using significant unobservable inputs (Level 3 inputs). This
      update clarifies existing disclosure requirements for the level of
      disaggregation used for classes of assets and liabilities measured at fair
      value and requires disclosures about the valuation techniques and inputs
      used to measure fair value for both recurring and nonrecurring fair value
      measurements using Level 2 and Level 3 inputs. The Company is evaluating
      the impact that the adoption of this statement would have on its
      consolidated financial statement footnote
      disclosures.

F-51

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ITEM 19. EXHIBITS

|Exhibit |                                                                                                                                                      | Footnote
|------- | ---------------------------------------------------------------------------------------------------------------------------------------------------- | --------
|No.     | Description                                                                                                                                          | Ref.    
|1.1     | Certificate of
        Incorporation.                                                                                                                | (2)     
|1.2     | Certificate of Change of Name.                                                                                                                       | (2)     
|1.3     | Articles of Incorporation
        of PolyMet Mining Corp.                                                                                            | (2)     
|4.1     | Incentive Stock Option Plan.                                                                                                                         | (2)     
|4.2     | Shareholder Rights
        Plan Agreement.                                                                                                           | (2)     
|4.3     | Contract for Deed between us
        and Cleveland Cliffs, Ohio, dated November 15, 2005.                                                            | (2)     
|4.4     | Contract for
        Deed between us and Cleveland Cliffs, Ohio, dated December 20, 2006                                                             | (1)     
|4.5     | Purchase Agreement between us
        and Glencore, dated October 31, 2008                                                                           | (8)     
|4.6     | Floating Rate
        Secured Debenture between us and Glencore, dated October 31, 2008                                                              | (8)     
|4.7     | Parent Guarantee between PolyMet
        Mining Corp. and Glencore, dated October 31, 2008                                                           | (8)     
|4.8     | Security Agreement
        between PolyMet Mining Corp. and Glencore, dated October 31, 2008                                                         | (8)     
|4.9     | Security Agreement between Poly
        Met Mining, Inc. and Glencore, dated October 31, 2008                                                        | (8)     
|4.10    | Pledge Agreement
        between us and Glencore, dated October 31, 2008                                                                             | (8)     
|4.11    | Exchange Warrant of PolyMet Mining
        Corp., dated October 31, 2008                                                                             | (8)     
|4.12    | Purchase Warrant
        of PolyMet Mining Corp., dated October 31, 2008                                                                             | (8)     
|4.13    | Amendment Letter number 11 to
        Purchase Agreement between us and Glencore                                                                     | (9)     
|6.1     | 2007 PolyMet
        Omnibus Share Compensation Plan                                                                                                 | (7)     
|8.1     | List of Subsidiaries.                                                                                                                                | (2)     
|11.1    | Code of Ethics.                                                                                                                                      | (3)     
|11.2    | Statement of Corporate Governance
        Practices, including Audit Mandate and Charter.                                                            | (4)     
|12.1    | Certification
        of Principal Executive Officer pursuant to 17 C.F.R. 240.13a-14(a).                                                            | *       
|12.2    | Certification
        of Principal Financial Officer pursuant to 17 C.F.R. 240.13a-14(a).                                                            | *       
|13.1    | Certification
        of Principal Executive Officer and Principal Financial Officer pursuant
        to 17 C.F.R. 240.13a-14(b) and 18 U.S.C. 1350. | *       
|14.1    | Amended and Restated Shareholder
        Rights Plan                                                                                                 | (7)     
|15.1    | Technical Report
        on NorthMet Project by P. Downey and Associates, dated July 2004                                                            | (5)     

- 61 -

---

|15.2  | Subscription Agreement dated as of July 19, 2004, between
      us and certain investor(s).                        | (2)
|----- | ------------------------------------------------------------------------------------------------------------------ | ---
|15.3  | Subscription Agreement dated as of February 11, 2005,
      between us and certain investor(s).                    | (2)
|15.4  | Subscription Agreement closing on August 29, 2005,
      between us and certain investor(s).                       | (2)
|15.5  | Subscription Agreement dated as of September 21, 2005,
      between us and certain investor(s).                   | (2)
|15.6  | Form of Canadian Subscription Agreement between us and
      certain investor (s).                                 | (1)
|15.7  | Form of U.S. Subscription Agreement between us and
      certain investor(s).                                      | (1)
|15.8  | Lease Agreement between us and U.S. Steel Corporation,
      dated January 4, 1989.                                | (2)
|15.9  | Notice of Assignment of the Lease Agreement from U.S.
      Steel Corporation to RGGS Land and Minerals, Ltd. L.P. | (2)
|15.10 | Nominating and Corporate Governance Committee Charter                                                              | (7)
|15.11 | Technical Report on NorthMet Project by P.J. Hunter C.
      Eng. CP dated October 2006                            | (6)
|15.12 | Consent of Independent Registered Public Accounting Firm                                                           | *  
|16.1  | Audit Committee Charter                                                                                            | (7)
|17.1  | Executive employment agreement with Mr. William Murray
      dated July 1, 2007 and amended January 25, 2008       | (7)
|17.2  | Executive employment agreement with Mr. Douglas Newby
      dated July 1, 2007                                     | (7)
|17.3  | Executive employment agreement with Mr. Joseph Scipioni
      dated July 1, 2007                                   | (7)
|17.4  | Employment agreement with Mr. Niall Moore dated May 6,
      2007 and amended January 25, 2008                     | (7)

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

- 62 -

---

|(8) | Incorporated by reference to our Form 13-D relating to
      our Purchase Agreement filed on November 10, 2008.
|--- | ---------------------------------------------------------------------------------------------------------------
|(9) | Incorporate by reference to our Report on Form 6-K filed
      on November 23, 2009.                           

- 63 -

---

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 amended Annual Report on its behalf.

|Dated: April 30, 2010          |                          
|------------------------------ | -------------------------
|                               | POLYMET MINING CORP.     
|                               |                          
|                               | /s/
      Joseph Scipioni
|                               | Name: Joseph Scipioni    
|Title: Chief Executive Officer |                          

- 64 -

---