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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, 2014

OR

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

OR

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

Commission file number 001-32929

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

British Columbia, Canada(Jurisdiction
of incorporation or organization)

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

Douglas Newbyc/o Poly Met Mining
Inc.444 Cedar Street, Suite 2060St Paul, Minnesota 55101Tel: 651-389-4105Fax: 651-389-4101E-mail:
dnewby@polymetmining.com(Name, telephone, e-mail and/or
facsimile number and address of Company contact person)

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

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Name of each exchange on which registered

NYSE MKTTSX

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.275,575,392

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

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

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

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

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

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

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

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

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

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

2

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TABLE OF CONTENTS

|Part I        |                                                                                         |   
|------------- | --------------------------------------------------------------------------------------- | --
|              |                                                                                         |   
|ITEM
    1.   | IDENTITY
    OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS                               | 5 
|ITEM
    2.   | OFFER
    STATISTICS AND EXPECTED TIMETABLE                                             | 5 
|ITEM
    3.   | KEY
    INFORMATION                                                                     | 5 
|ITEM
    4.   | INFORMATION
    ON THE COMPANY                                                          | 13
|ITEM
    5.   | OPERATING
    AND FINANCIAL REVIEW AND PROSPECTS                                        | 30
|ITEM
    6.   | DIRECTORS,
    SENIOR MANAGEMENT AND EMPLOYEES                                          | 39
|ITEM
    7.   | MAJOR
      SHAREHOLDERS AND RELATED PARTY TRANSACTIONS                                 | 44
|ITEM
    8.   | FINANCIAL
    INFORMATION                                                               | 49
|ITEM
    9.   | THE
    OFFER AND LISTING                                                               | 50
|ITEM
    10.  | ADDITIONAL
    INFORMATION                                                              | 51
|ITEM
    11.  | QUANTITATIVE
    AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK                           | 60
|ITEM
    12.  | DESCRIPTION
    OF SECURITIES OTHER THAN EQUITY SECURITIES                              | 60
|              |                                                                                         |   
|Part II       |                                                                                         |   
|              |                                                                                         |   
|ITEM
    13.  | DEFAULT,
    DIVIDEND ARREARAGES AND DELINQUENCIES                                      | 61
|ITEM
    14.  | MATERIAL
      MODIFICATIONS TO THE RIGHT OF SECURITY HOLDERS AND USE OF
      PROCEEDS | 61
|ITEM
    15.  | CONTROLS
    AND PROCEDURES                                                             | 62
|ITEM
    16A. | AUDIT
      COMMITTEE FINANCIAL EXPERT                                                  | 63
|ITEM
    16B. | CODE
    OF ETHICS                                                                      | 63
|ITEM
    16C. | PRINCIPAL
      ACCOUNTANT FEES AND SERVICES                                            | 63
|ITEM
    16D. | EXEMPTIONS
    FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES                          | 64
|ITEM
    16E. | PURCHASES
      OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS            | 64
|ITEM
    16F. | CHANGES
    IN REGISTRANT'S CERTIFYING ACCOUNTANT                                       | 64
|ITEM
    16G. | CORPORATE
      GOVERNANCE                                                              | 64
|ITEM
    16H. | MINE
    SAFETY DISCLOSURE                                                              | 64
|              |                                                                                         |   
|Part III      |                                                                                         |   
|              |                                                                                         |   
|ITEM
    17.  | FINANCIAL
    STATEMENTS                                                                | 65
|ITEM
    18.  | FINANCIAL
    STATEMENTS                                                                | 65
|ITEM
    19.  | EXHIBITS                                                                                | 66

Financial Statements:

Management
      Report
    F-1Independent
      Auditor's Report
    F-2Consolidated
      Balance Sheets
    F-5Consolidated
      Statements of Loss and Comprehensive Loss
    F-6Consolidated
      Statements of Changes in Shareholders Equity
    F-7Consolidated
      Statements of Cash Flows
    F-8Notes
      to Consolidated Financial Statements
    F-9


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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

| | - | completion of environmental review on the expected
      timeframe;                                                                                                          
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | - | obtaining permits on a timely basis;                                                                                                                                         
| | - | general economic and business conditions, including
      changes in interest rates and exchange rates;                                                                      
| | - | changes in the resources market, including prices of
      natural resources, costs associated with mineral exploration and
      development, and other economic conditions;
| | - | natural phenomena;                                                                                                                                                           
| | - | actions by government authorities, including changes in
      government regulation;                                                                                         
| | - | uncertainties associated with legal proceedings;                                                                                                                             
| | - | 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.                                                                                                    

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

NOMENCLATURE

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

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PART I

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND
ADVISORS

Not required.

ITEM 2. OFFER STATISTICS AND EXPECTED
TIMETABLE

Not required.

ITEM 3. KEY INFORMATION

A.             
Selected Financial Data

The following selected financial data, as at January 31, 2014,
2013, 2012, and 2011, as at February 1, 2010, and for the years ended January
31, 2014, 2013, 2012, and 2011 are derived from our audited consolidated
financial statements included herein and filed previously. The selected
financial data should be read in conjunction with Item 5 - Operating and
Financial Review and Prospects, the consolidated financial statements and
related notes of the Company included under Item 18  Financial Statements" and
other financial information included elsewhere in this Form 20-F.

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

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

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

Year
      Ended1/31/2014
    
    
    Year
      Ended1/31/2013
    
    
    Year
      Ended1/31/2012
    
    
    Year
      Ended1/31/2011
    
    
    Opening
      BalanceSheet2/1/2010Revenue
    $
    
    
    $
    
    
    $
    
    
    $
    Income (loss) from Operations
    $
    
    
    $
    
    
    $
    
    
    $
    Net Loss
    $
    (8,132
    )
    $
    (6,626
    )
    $
    (3,045
    )
    $
    (6,662
    )Loss Per Share
    $
    (0.04
    )
    $
    (0.04
    )
    $
    (0.02
    )
    $
    (0.04
    )Diluted Net Loss Per Share
    $
    (0.04
    )
    $
    (0.04
    )
    $
    (0.02
    )
    $
    (0.04
    )Dividends Per Share
    $
    
    
    $
    
    
    $
    
    
    $
    Weighted Average Shares
    
    236,303,304
    
    
    178,949,306
    
    
    160,358,498
    
    
    149,444,955Working Capital
    $
    (1,872
    )
    $
    2,629
    
    $
    16,375
    
    $
    4,199
    
    $
    16,313Total Assets
    $
    287,525
    
    $
    236,127
    
    $
    189,571
    
    $
    156,736
    
    $
    149,692Long-Term and Convertible Debt
    $
    36,243
    
    $
    34,458
    
    $
    32,690
    
    $
    29,406
    
    $
    33,395Shareholders Equity
    $
    196,332
    
    $
    142,912
    
    $
    132,366
    
    $
    102,417
    
    $
    97,645Share Capital including Share    
      Capital Premium
    $
    243,337
    
    $
    184,222
    
    $
    170,566
    
    $
    143,248
    
    $
    132,066


5

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B.             
Capitalization and Indebtedness

Not Applicable

C.             
Reasons for the Offer and Use of Proceeds

Not Applicable

D.             
Risk Factors

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

RISKS RELATING TO OUR BUSINESS

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

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

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

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

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

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

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

6

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

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

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

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

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

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

We are dependent on our key personnel.

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

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

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

7

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

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

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

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

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

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

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

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

8

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

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

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

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

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

As a development stage company with no holdings in any
producing mines, we continue to incur losses and expect to incur losses in the
future. As at January 31, 2014, we had an accumulated deficit of $96.5 million.
We may not be able to achieve or sustain profitability in the future. If we do
not begin to generate revenues we may either have to suspend or cease
operations.

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

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

Since transitioning to a development stage entity in September
2006, PolyMet has raised US$177 million in equity and US$25 million initial
principal debt exchangeable into equity upon receipt of permits necessary to
build and operate the NorthMet Project.

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

9

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

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

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

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

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

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

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

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

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

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. These unprecedented disruptions in the credit
and financial markets have had a significant material adverse impact on a number
of financial institutions and have limited access to capital and credit for many
companies, including us. These disruptions could, among other things, make it
more difficult for us to obtain, or increase our cost of obtaining capital and
financing for our operations.

10

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RISKS RELATED TO THE OWNERSHIP OF OUR COMMON SHARES

We may experience volatility in our share price.

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

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

Our shares that are eligible for future sale may have an
adverse effect on the price of our common shares. As at January 31, 2014 there
were 275,575,392 of our common shares outstanding. The average trading volume
for the three months prior to January 31, 2014 was approximately 62,000 shares
per day on the TSX and 430,000 shares per day on the NYSE MKT. Sales of
substantial amounts of our common shares, or a perception that such sales could
occur, and the existence of options or warrants to purchase common shares and
debt convertible into common shares at prices that may be below the then current
market price of our common shares, could adversely affect the market price of
our common shares and could impair our ability to raise capital through the sale
of our equity securities.

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

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

Under our 2007 Omnibus Share Compensation Plan, as amended and
restated (Omnibus Plan), the aggregate number of our common shares that may be
issuable pursuant to the Omnibus Plan may not at any time exceed 10% of our
issued and outstanding common shares. As at January 31, 2014, the aggregate
number of our common shares issuable pursuant to the Omnibus Plan was 19,655,981
shares. Our bonus share incentive plan, or the Bonus Plan, was established for
our directors and key employees and was approved by the disinterested
shareholders at the Companys shareholders meeting held on May 28, 2004. Under
the Bonus Plan we may issue an additional 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 was approved in May 2004, modified
and further ratified and reconfirmed by shareholders most recently in July 2013.
Under the Shareholders Rights Plan, if a shareholder individually or in concert
with other shareholders acquires 20% or more of our outstanding common shares without complying with the Shareholders Rights Plan or
without the approval of our Board of Directors, all holders of record will have
a right to one common share for each common share owned. We have also entered
into agreements with certain key employees and officers that contain severance
provisions in the event of a take-over bid. The Shareholders Rights Plan and
the preceding agreements may make it more difficult for a third party to acquire
control of us, even if such a change of control is more beneficial to
shareholders.

11

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

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

Absence of Dividends.

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

12

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ITEM 4. INFORMATION ON THE COMPANY

A.             
History and Development of the Company

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

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

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

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

During the years ended January 31, 2014, 2013, and 2012 we made
net investments of $25.626 million, $18.404 million, and $16.137 million,
respectively to acquire property, and advance the environmental review and
permitting of our NorthMet Project.

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

B.             
Business Overview

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

In the years ended January 31, 2014, 2013, and 2012, 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 ore body. On November 15,
2005 and December 20, 2006, the Corporation entered into a total of three
Contracts for Deed with Cliffs Erie LLC, a subsidiary of Cliffs Natural
Resources Inc. (formerly Cleveland Cliffs, Inc.) (Cliffs), under which we now
own a 100,000 ton-per-day crushing and milling facility, a railroad and railroad
access rights connecting the Erie Plant to the NorthMet ore body, tailings
facilities, 120 railcars, locomotive fueling and maintenance facilities, water
rights and pipelines, large administrative offices on site and approximately
6,000 acres to the east and west of and contiguous to the existing tailing
facilities. As partial consideration, we have agreed to indemnify Cliffs for the
liability related to final reclamation and closure of the acquired property. See
additional discussion in section 4(D)(c)(ii).

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Environmental Review and
Permitting. To commence commercial production at our NorthMet Project,
various regulatory approvals are needed. The environmental review process is
very thorough:

| |  | 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 United States Army
      Corps of Engineers (USACE) as the lead federal agency (together, the
      Co-lead Agencies) for preparation of an Environmental Impact Statement
    (EIS) for our NorthMet Project.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  | In November 2009, the Co-lead Agencies published the PolyMet draft EIS,
      which marked the start of a period for public review and comment including two
      public meetings. The United States Environmental Protection Agency (EPA)
      issued an extensive comment letter and rating of the project and the draft EIS
    in its role as reviewer of projects that could impact the environment.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  | In June 2010, the Co-lead Agencies announced that they intended to complete
      the EIS process by preparing a supplemental draft EIS that incorporates a
      proposed land exchange with the United States Forest Service (USFS) and
      expands government agency cooperation. The USFS joined the USACE as a federal
    Co-lead Agency through the completion of the EIS process.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  | In June 2011, the EPA joined as a Cooperating Agency.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  | •	On December 6, 2013 the Co-lead Agencies published the supplemental draft EIS, which started a new period for public review and comment, including three public meetings, which ended on March 13, 2014.  The EPA rated the supplemental draft EIS EC-2, EC being one of four possible ratings, with the highest LO (Lack of Objections) typically applied to non-industrial projects such as the Upper Mississippi National Wildlife and Fish Refuge Comprehensive Conservation Plan Implementation.  The EC (Environmental Concerns) rating is the same as received by some other notable Minnesota projects including the Central Corridor Light Rail Project in the Twin Cities, the St. Croix River Crossing, and several other major highway improvement and bridge projects.  The end of the public review and comment period and EPA rating marks important and necessary steps forward so the EIS can be finalized and we can permit and build the mine.
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  | On December 16, 2013 the USACE published notice of our Section 404 Wetland
      Permit application, a key federal permit needed for construction and operation
      of the our NorthMet Project. The publication was subject to public review for
      90 days, which ended March 13, 2014 and included a public meeting in Duluth,
    MN on January 16, 2014.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

Completion of the final EIS, incorporating appropriate responses to public comments, and a subsequent adequacy decision by the MDNR and Record of Decision by the federal agencies are necessary before the land exchange can occur and various permits required to construct and operate the NorthMet Project can be issued.  We anticipate the land exchange will occur and permits be issued during late first quarter of calendar 2015.

Prior to receipt of these permits, we
will seek to secure production debt financing that would be available upon
receipt of key permits, with construction anticipated through the middle of
calendar year 2016.

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

Engineering and feasibility. We
retained Bateman Engineering Pty Ltd of Brisbane, Australia (Bateman) as the
coordinating consultant to prepare a Definitive Feasibility Study (the 2006
DFS). In September 2006 we reported that the DFS 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.

Between September 2006 and October 2007
we completed additional drilling and expanded the reserves. In May 2008 we
completed an internal update of the DFS (the 2008 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 2006 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.

In February 2011, we announced that we
anticipate building the NorthMet Project in two phases, the first to produce and
market concentrates containing copper, nickel, cobalt and precious metals, and
the second to process the nickel concentrate through a single autoclave,
resulting in production and sale of high grade copper concentrate, value added
nickel-cobalt hydroxide, and precious metals precipitate products.

The results of the 2007 drill program,
the 2008 DFS Update and the February 2011 revisions are described in the
technical report under NI 43-101 as amended, filed on EDGAR on April 5, 2013 and
on SEDAR on January 23, 2013 (the Technical Report).

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

With project design locked down in the
supplemental draft EIS, we are undertaking a complete review of capital and
operating costs based on detailed project plans. We anticipate issuing an
updated Technical Report under National Instrument 43-101 in the second calendar
quarter of 2014 (the 2014 Project Update).

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

Financing and corporate
development. Since transitioning to a development stage entity in September
2006 we have raised US$177 million in equity and US$25 million initial principal
debt exchangeable into equity upon receipt of permits necessary to build and
operate the NorthMet Project. We also have a loan of $4 million secured by land
acquired with proceeds from the loan.

See additional discussion in section
5(b).

C.             
Organizational Structure

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

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D.             
Property, Plant and Equipment

Mineral Property - NorthMet Project, Minnesota, USA

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

In the years ended January 31, 2014, 2013, and 2012, we
conducted exploration, development and acquisition activities only and did not
conduct any operations.

(a)             History

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

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

In 1987, the Minnesota Natural Resources Research Institute
(NRRI) published data suggesting the possibility of a large resource of PGMs
in the base of the Duluth Complex. In 1989, we acquired a 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 (which did not include the Erie Plant at that time) 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.

16

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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 located near our
NorthMet ore body from Cliffs. As consideration for the Cliffs Option, we paid
$500,000 prior to January 31, 2004 and issued to Cliffs 1,000,000 of our common
shares on March 30, 2004, valued at $229,320 to maintain our exclusive rights
until June 30, 2006. On September 15, 2005 we reached agreement with Cliffs on
the terms for the early exercise of our option and expansion of the assets to be
acquired to include 100% ownership of the Erie Plant (the Asset Purchase
Agreement). Under this agreement we agreed to pay Cliffs $1 million in cash,
6,200,547 million of our common shares valued at $7.564 million, and commence
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. On November
15, 2005, we consummated the Asset Purchase Agreement and completed the
acquisition thereunder. The final payment was made on June 30, 2008.

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.) for 2,000,000 of our common shares valued at
$6.16 million and $15.0 million payable in cash and two notes, each for $7
million. We closed the transaction on December 20, 2006 and repaid the
outstanding balance of the two $7 million notes plus accrued interest on
December 21, 2011.

The Erie Plant facility includes land, crushing and milling
equipment, extensive spare parts, plant site buildings, real estate, tailings
impoundments and workshops, access to extensive mining infrastructure, a
railroad connection to the site of the NorthMet ore body, a 120-railcar fleet,
locomotive fueling and maintenance facilities, water rights and pipelines, large
administrative offices on site and approximately 6,000 acres to the east and
west of and contiguous to our existing tailings facilities. We also assumed
certain liabilities associated with the property purchased above. See additional
discussion in section 4D(c)(ii).

Since inception, we have a cumulative deficit of $96.5 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.

17

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The following diagram illustrates the location of the NorthMet
Project.

Figure No. 1NorthMet Project Map



(b)             Location
/ Access / Climate

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

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

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|(c) | Claims and ownership                                                                                                                                                                
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                     
|    | (i)    NorthMet Leases                                                                                                                                                              
|    |                                                                                                                                                                                     
|    | Pursuant to two lease agreements, we lease certain lands
      covering 4,282 acres or 6.5 square miles located in St. Louis County,
      Minnesota, known as the NorthMet Project:

| |  | Pursuant to an agreement dated January 4, 1989,
      subsequently amended and assigned, we lease 4,162 acres from RGGS Land
      & Minerals Ltd., L.P (RGGS). The initial term of the renewable lease
      was 20 years and called for total lease payments of $1.475 million. We
      can, at our option, terminate the lease at any time by giving written
      notice to the lessor not less than 90 days prior to the effective
      termination date or can indefinitely extend the 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, 2014.
      The next payment is due in January 2015.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |   | 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 that
      we receive. Our recovery of $2.225 million in advance royalty payments is
      subject to the lessor receiving an amount not less than the amount of the
      annual lease payment due for that year.                                                                                                                                                                                                                                                                                                   
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  | Pursuant to an agreement effective December 1, 2008, we
      lease 120 acres from LMC Minerals. The initial term of the renewable lease
      is 20 years and calls for minimum annual lease payments of $3,000 for the
      first four years after which the minimum annual lease payment 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 or
      accrued to January 31, 2014. The next payment is due in November 2014.                                                                                                                                                                                    
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |   | The lease payments are considered advance royalty
      payments and will be deducted from future production royalties payable to
      the lessor, which range from 3% to 5% based on the net smelter return that
      we receive. Our recovery of $0.069 million in advance royalty payments is
      subject to the lessor receiving an amount not less than the amount of the
      annual lease payment due for that year.                                                                                                                                                                                                                                                                                                    

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

(ii)   The Erie Plant

The Erie Plant comprises a large
crushing, grinding and milling facility that was built by a consortium of steel
companies in the mid-1950s and processed low grade iron ore known as taconite
that was transported to the facility by railroad from nearby mines. In the
mid-1980s, the consortium was consolidated into a single owner  LTV Steel.
Pickands-Mather and 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 12 months ended January 31, 2014.

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

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.

19

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

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

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

The cost of acquisition of the Erie
Plant and associated infrastructure was $18.9 million in cash and 9,200,547
shares at a fair value of $13.953 million. 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 ourselves 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 intended to file a lawsuit in Federal court for alleged violations by
Cliffs Erie of National Pollutant Discharge Elimination System ("NPDES") permits
at three separate locations on the Cliffs Erie property.

On April 6, 2010 Cliffs entered a
consent decree with the Minnesota Pollution Control Agency (MPCA) under which it
is obligated to proceed with both short and long-term mitigation of the alleged
violations. As the indemnifying party, we are working closely with Cliffs on
fulfillment of Cliffs obligations under the consent decree. Field study
activities were completed in 2010 and 2011 and short-term mitigations were
initiated in 2011 as outlined in the plans and approved by the MPCA. Long-term
mitigation plans were submitted to the MPCA in April of 2012. In October 2012, a
response was received from the MPCA approving plans for pilot tests of various
treatment options to determine the best course of action.

As at January 31, 2014 we estimate the
total indemnification liability (including the additional liabilities associated
with the consent decree) to be approximately $60.4 million in present day costs
and, based on the expected timing of such payments, our cost of capital, and
anticipated inflation rates, we made a provision of $51.1 million in our
financial statements at that date.

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

20

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(d)             Environmental
Review and Permitting

We commenced the environmental review and permitting process in
early 2004. In October 2005, the MDNR published its Environmental Assessment
Worksheet Decision Document establishing the MDNR as the lead state agency and
the USACE as the lead federal agency for preparation of an EIS for the project.
In 2006 the Co-lead Agencies selected Environmental Resources Management (ERM)
as the independent environmental contractor (the EIS Contractor) to prepare
the EIS. ERM is a leading global provider of environmental, health and safety,
risk, and social consulting services. The EIS Contractor team includes members
with expertise and experience in mining non-ferrous ores. Several other
government agencies (including the USFS, the Bois Forte Band of Chippewa and the
Fond 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 laid out our 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
identifies the environmental impact of a proposed project as well as evaluating
alternatives and ways to mitigate potential impacts. We were involved in the
process of alternative/mitigation development and had input into the technical
and economic feasibility of potential alternatives and mitigations. The EIS
Contractor prepared a series of preliminary versions of the Draft EIS that were
reviewed and commented on by the Lead Agencies, other governmental agencies, and
PolyMet.

In November 2009, the Co-lead Agencies published the PolyMet
Draft EIS with formal notification of publication in the Minnesota Environmental
Quality Board (EQB) Monitor and the Federal Register, which 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 more than 3,700 comment letters,
including an extensive comment letter from the EPA in its role as reviewer of
projects that could impact the environment.

In June 2010 the Co-lead Agencies announced that they intended
to complete the EIS process by preparing a Supplemental Draft EIS ("SDEIS) that
incorporates a proposed land exchange with the USFS Superior National Forest and
expands government agency cooperation. The USFS joined the USACE as a federal
Co-lead Agency through the completion of the EIS process. In addition, in June
2011 the EPA joined as a Cooperating Agency.

In October 2010 the USACE and the USFS published a Notice of
Intent to complete the SDEIS to supplement and supersede the Draft EIS and
respond to concerns identified by the EPA and other comments on the Draft EIS
and Incorporate potential effects from the proposed land exchange between the
USFS Superior National Forest and us.

On December 6, 2013 the Co-lead Agencies published the SDEIS, which started a new period for public review and comment, including three public meetings, which ended on March 13, 2014.  The EPA rated the supplemental draft EIS EC-2, EC being one of four possible ratings, with the highest LO (Lack of Objections) typically applied to non-industrial projects such as the Upper Mississippi National Wildlife and Fish Refuge Comprehensive Conservation Plan Implementation.  The EC (Environmental Concerns) rating is the same as received by some other notable Minnesota projects including the Central Corridor Light Rail Project in the Twin Cities, the St. Croix River Crossing, and several other major highway improvement and bridge projects. The EC (Environmental Concerns) rating is the same as received by some other notable Minnesota projects including the Central Corridor Light Rail Project in the Twin Cities, the St. Croix River Crossing, and several other major highway improvement and bridge projects.  The end of the public review and comment period and EPA rating marks important and necessary steps forward so the EIS can be finalized and we can permit and build the mine.

21

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On December 16, 2013 the USACE published notice of our Section
404 Wetland Permit application, a key federal permit needed for construction and
operation of the our NorthMet Project. The publication was subject to public
review for 90 days, which ended March 13, 2014 and included a public meeting in
Duluth, MN on January 16, 2014.

Completion of the final EIS, incorporating appropriate responses to public comments, and a subsequent adequacy decision by the MDNR and Record of Decision by the federal agencies are necessary before the land exchange can occur and various permits required to construct and operate the NorthMet Project can be issued.  We anticipate the land exchange will occur and permits be issued during late first quarter of calendar 2015.

The major permits are:

****U.S. Army Corps of Engineers

- Section 404 Individual Permit for Impacted Wetlands

****Minnesota Department of Natural Resources

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

****Minnesota Pollution Control Agency

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

Prior to receipt of the permits, the Company will seek to
secure construction financing that would be available upon receipt of key
permits, with construction anticipated through the middle of calendar year
2016.

As at January 31, 2014, we had spent approximately $68.4
million on environmental review and permitting activities comprising $6.5
million expensed prior to October 2006 and $61.9 million since October 2006.

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

22

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(e)             History
of Exploration

Cautionary Note to United States Investors Concerning
      Estimates of Measured, Indicated and Inferred ResourcesThis section uses the terms measured resources,
      indicated resources, and inferred resources. We advise United States
      investors that while these terms are recognized and required by Canadian
      regulations (under NI- 43-101), the SEC does not recognize them. United
      States investors are cautioned not to assume that any part or all
      of the mineral deposits in these categories will ever be converted to
      reserves.In addition, inferred resources have a great amount of
      uncertainty as to their existence and economic and legal feasibility. It
      cannot be assumed that all or any part of an Inferred Mineral Resource
      will ever be upgraded to a higher category. Under Canadian Rules,
      estimates of Inferred Mineral Resources may not form the basis of
      Feasibility or Pre-Feasibility Studies, or economic studies except for a
      Preliminary Assessment as defined under NI 43-101. United States
      investors are cautioned not to assume that part or all of an inferred
      resource exists, or is economically or legally mineable.Important Notes and Assumptions Throughout.1. **The terms Mineral Resources and Reserves as used herein conform to the
      definitions** contained in NI 43-101.2. **Reserves are contained within the envelope of Measured & Indicated
      Mineral Resource.** Mineral Resources are not Reserves and do
      not have demonstrated economic viability.3. **Mineral Resources and Reserves have been calculated using the following
      metal prices:** Copper - $1.25/lb, Nickel - $5.60 per pound,
      Cobalt - $15.25/lb, Palladium - $210 per ounce, Platinum - $800 per
      ounce and Gold - $400 per ounce.4. **Base Case economics for the purpose of the Technical Report to NI 43-101
      standards are the** weighted average of the three-year trailing
      (60%) and two-year forward (40%) market prices using July 31, 2006
      as a reference for the three-year trailing price and average forward
      prices during July 2006 for forward prices. Specifically, these
      prices are: Copper - $2.25/lb, Nickel - $7.80 per pound, Cobalt -
      $16.34/lb, Palladium - $274 per ounce, Platinum - $1,040 per ounce and
      Gold - $540 per ounce.5. **The copper equivalent grade is calculated by multiplying the grade of each
      metal by the metal** price (in the same units) used in reserve
      and resource modeling (see note 3) and dividing the product by the
      copper price.6.
      The Net Metal Value (NMV) is calculated by summing the product of the
      grade of each metal, the metal price (in the same units) used in
      reserve and resource modeling (see note 3), the expected metal
      recovery, and the expected payment terms.


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

Since 1998 we have conducted a series of drilling programs
totaling 323 holes for approximately 172,000 feet of core and reverse
circulation drilling. These holes, combined with recompilation of all prior
work, for a total of 437 diamond and reverse circulation holes aggregating to
approximately 306,000 feet, were the basis of our December 2007 resource and
reserve estimates in our most recent Technical Report under NI 43-101 as
amended, filed on April 5, 2013.

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

23

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Mineral Resources and Mineral 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.)
The results of additional drilling through October 2007 resulted in a further
increase in measured and indicated mineral resources to 694 million short tons
from the 422 million short tons reported in the 2006 DFS. The 2008 updated
mineral resource estimates are based on the same cut-off grades used in the 2006
DFS  namely a Net Metal Value (NMV) of $7.42 per ton, reflecting mine
planning at a copper price of $1.25 per pound and a nickel price of $5.60 per
pound  see notes to the following table.

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

2008 Updated Mineral Resources compared with 2006 DFS Mineral
Resources

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


The increase in mineral resources reflects two changes:

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

The mineral resource estimate update was completed by Pierre
Desautels of AGP Mining Consultants in Toronto working closely with PolyMets
chief geologist, at the time, Richard Patelke. A NI 43-101 compliant report
describing this increase filed on EDGAR on April 5, 2013 and on SEDAR on January
23, 2013.

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

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

24

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

Updated Mineral Reserves compared with DFS Mineral Reserves

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


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

(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.

25

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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 shallow dipping, near surface though 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.

26

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(g)            
Development Plans

The 2006 DFS prepared by Bateman 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 2006 DFS, we have recognized the commercial potential to sell
concentrates during the construction and commissioning of the new
hydrometallurgical facilities.

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

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

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

We plan to complete the 2014 DFS Update during the second
calendar quarter of 2014 now that the project development plans analyzed in the
SDEIS have been finalized, which will include process and project improvements,
and will incorporate the environmental controls agreed with the Co-lead Agencies
and the EPA.

Saleable ProductsThe DFS describes three products
from NorthMet. During construction and commissioning of the hydrometallurgical
plant, we anticipate that we will sell separate copper and nickel concentrates.
Once the smaller-scale hydrometallurgical plant is operational, our long term
products will comprise copper concentrate, a mixed hydroxide of nickel and
cobalt that will be shipped to a third-party processor to produce nickel and
cobalt metals, and a precious metals precipitate that will be shipped to a
third-party refiner for production of palladium, platinum and gold.

In October 2008 we entered into an agreement with Glencore AG, a wholly owned subsidiary of Glencore Xstrata plc (together “Glencore”) whereby Glencore will purchase our production of concentrates, metals, or intermediate products at prevailing market terms at the time of delivery for at least the first 5 years of production.

Capital CostsOur 2008 DFS Update set out total
capital cost of $601.9 million, reflecting both cost inflation and design scope
changes since the 2006 DFS, including facilities needed to ship concentrate
during the construction and commissioning of the new hydrometallurgical plant.
This staged approach shortened the initial construction period, makes the
project less sensitive to the delivery schedule for long lead time equipment
such as autoclave vessels, and means that we can commence operations of the
mine, the existing crushing and milling plant, the existing tailings disposal
facilities, and the new flotation circuit, before starting the new
hydrometallurgical plant.

27

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2008 DFS Update Capital Costs(US dollars, millions)

|                                   |  |              |  |  | Change   |  |  | Initial Concentrate | 
|---------------------------------- |  | ------------ |  |  | -------- |  |  | ------------------- | 
|                                   |  | Full Project |  |  | from     |  |  | Sales               | 
|                                   |  |              |  |  | 2006 DFS |  |  |                     | 
|                                   |  |              |  |  |          |  |  |                     | 
|2006 DFS                           |  | 379.8        |  |  |          |  |  | 138.7               | 
|Escalation and other scope changes |  | 137.0        |  |  | 36%      |  |  | 108.9               | 
|Environmental measures             |  | 85.1         |  |  |          |  |  | 64.7                | 
|Total Change                       |  | 222.1        |  |  | 58%      |  |  | 173.6               | 
|TOTAL                              |  | 601.9        |  |  |          |  |  | 312.3               | 

Further simplification of the metallurgical process reported in
2011 eliminated the planned copper solvent-extraction/electro-winning circuit,
representing approximately $127 million of the total $602 million capital costs,
but had no effect on the capital cost for the concentrates-only phase of the
project.

2008 DFS Update Operating Plans and CostsThe
overall mining and operating plan remained the same as that defined in the 2006
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 increased to $13.33
from $11.02 in the 2006 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 was estimated at $4.31 per ton compared with $3.80
per ton in the 2006 DFS. The increase in mining costs was partially offset by
the lower strip ratio, larger mining equipment, and owner versus contractor
operation.

The economic analysis is based on SEC-reserve standards using
prices at the time, namely the three-year trailing average at April 30, 2008.
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 2008 DFS Update prices translate into copper cash costs of
$1.05 per pound using a co-product basis to calculate costs, compared with the
2006 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 2006 DFS.

We plan to complete the 2014 Project Update during the course
of our current fiscal year to reflect all project changes that were incorporated
into the SDEIS.

28

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(h)            
Regulations and Government Rules

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

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

Section 219 of the Iran Threat Reduction and Syria Human Rights
Act of 2012 (ITRA), effective August 10, 2012, added a new subsection (r) to
Section 13 of the Exchange Act, which requires issuers that file annual or
quarterly reports with the SEC (including Form 20-F annual reports) to disclose
in these reports whether, during the reporting period, they or any of their
affiliates (as defined in Rule 12b-2 under the Exchange Act) have knowingly
engaged in specified activities or transactions relating to Iran, including
activities not prohibited by U.S. law and conducted outside the U.S. by non-U.S.
affiliates in compliance with applicable laws. Issuers must also file a notice
with the SEC if any disclosable activities under ITRA have been included in an
annual or quarterly report.

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

During the period from February 1, 2013
until January 31, 2014, non-U.S. affiliates of the largest shareholder of the
Company (non-U.S. Shareholder Affiliates) entered into sales contracts for
agricultural products as well as sale and purchase contracts for metal oxides
and metals with Iranian entities, wholly or majority owned by the GOI. All
contracts were conducted in compliance with applicable sanction laws and, where
required, with the necessary prior approvals by the relevant governmental
authorities.

The gross revenue of the non-U.S
Shareholder Affiliates related to these contracts did not exceed the value of
$206 million for the twelve months ended January 31, 2014. This figure includes
the gross revenue of goods sold in the period but purchased in previous periods.
The non-U.S. Shareholder Affiliates do not allocate net profit on a
country-by-country or activity-by-activity basis, but estimate the net profit
attributable to the contracts with the GOI would not exceed a small fraction of
the gross revenue from such contracts. It is not possible to determine
accurately the precise net profit attributable to these contracts.

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

In compliance with applicable economic
sanctions and in conformity with U.S. secondary sanctions, the non-U.S.
Shareholder Affiliates expect to continue to engage in similar activities in the
future relating to agricultural products.

Neither the Company nor any of its subsidiaries (i) engaged in
any transactions or activities requiring disclosure under ITRA nor (ii) were
involved in the transactions described in this section. As of the date of this
report, the Company is not aware of any other activity, transaction or dealing
by us or any of its affiliates during the fiscal year ended January 31, 2014
that requires disclosure in this report under Section 13(r) of the Exchange
Act.

ITEM 4A. UNRESOLVED STAFF COMMENTS

None.

29

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ITEM 5. OPERATING AND FINANCIAL REVIEW AND
PROSPECTS

(a)             Operating
Results

This discussion and analysis should be read in conjunction with
our consolidated financial statements and related notes for the years ended
January 2014, 2013, and 2012 appearing under Item 18  Financial Statements and
listed under Item 19  Exhibits.

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

Summary of Key Developments During the Fiscal Year Ended
January 31, 2014

During the year ended January 31, 2014, and through the date of
the filing of this Annual Report, we continued to advance our NorthMet Project
including the activities noted below.

Key Developments  Environmental Review

On December 6, 2013 the Co-lead Agencies published the supplemental draft EIS, which started a new period for public review and comment, including three public meetings, which ended on March 13, 2014.  The EPA rated the supplemental draft EIS EC-2, EC being one of four possible ratings, with the highest LO (Lack of Objections) typically applied to non-industrial projects such as the Upper Mississippi National Wildlife and Fish Refuge Comprehensive Conservation Plan Implementation.  The EC (Environmental Concerns) rating is the same as received by some other notable Minnesota projects including the Central Corridor Light Rail Project in the Twin Cities, the St. Croix River Crossing, and several other major highway improvement and bridge projects.  The end of the public review and comment period and EPA rating marks important and necessary steps forward so the EIS can be finalized and we can permit and build the mine.

On December 16, 2013 the USACE published notice of our Section
404 Wetland Permit application, a key federal permit needed for construction and
operation of the our NorthMet Project. The publication was subject to public
review for 90 days, which ended March 13, 2014 and included a public meeting in
Duluth, MN on January 16, 2014.

Other Key Developments

On May 14, 2013, the Company exercised its Option to Purchase
and Agreement for Development of Wetland Credit Acres with Burns Enterprises,
LLC for lands located in St. Louis County, Minnesota. The transaction closed on
June 19, 2013 with the final land purchase payment made February 14, 2014. The
Company is committed to pay $0.242 million over the next several years for
development of wetland credits.

On May 24, 2013, the Company filed the final prospectus for an
offering of rights ("Rights") to holders of common shares of the Company to
raise up to $60.480 million in gross proceeds (the "Rights Offering"). Every
shareholder received one Right for each common share owned on June 4, 2013, the
Record Date, and two Rights entitled the holder to acquire one new common share
of the Company at $0.66 per share. The Rights expired on July 3, 2013.

Under the terms of a Standby Purchase Agreement, Glencore
agreed to purchase any common shares not subscribed for by holders of Rights,
subject to certain conditions and limitations guaranteeing a minimum of $53.0
million in gross proceeds. Because the Rights Offering was oversubscribed,
Glencore did not purchase any shares under its standby commitment.

30

---

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

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

Summary of Operating Results

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

|                                 |  | Year Ended January 31, |  
|-------------------------------- |  | ---------------------- | -
|                                 |  | 2014                   |  
|Revenue                          |  | -                      |  
|Loss for the Year                |  | (8,132                 | )
|Loss per Share                   |  | (0.04                  | )
|Total Assets                     |  | 287,525                |  
|Long-Term and Convertible Debt   |  | 36,243                 |  
|Total
      Shareholders Equity |  | 196,332                |  

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

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

Loss for the year:During the year ended January 31,
2014, we incurred a loss of $8.132 million ($0.04 loss per share) compared to a
loss of $6.626 million ($0.04 loss per share) during the year ended January 31,
2013. The increase in the net loss for the year was primarily attributable to
the following:

- an increase in shareholder, investor, and public relations in the current
  year period to $2.075 million (prior year period - $0.571 million) relating to
  public relations campaigns in advance of SDEIS public comment period and
  investor relations campaigns in advance of the Rights Offering; and
- an increase in finance income and costs in the current year to $1.465
  million (prior year - $0.821 million) primarily due to an increase in the
  accretion of the environmental rehabilitation provision as a result of the
  increased liability and increase in the discount rate.

These items were partially offset by the following:

- a decrease in share-based compensation in the current year to $1.697
  million (prior year - $2.255 million) primarily due to a shareholder approved
  modification of the expiry dates of outstanding share options in the prior
  year.

Year ended January 31, 2013 compared with the year ended
January 31, 2012

Overall:Our focus for the fiscal year ended January 31,
2013 was to provide the Lead Agencies with input into the SDEIS and permit work
at our NorthMet Project, and obtain additional financing.

Loss for the year:During the year ended January 31,
2013, we incurred a loss of $6.626 million ($0.04 loss per share) compared to a
loss of $3.045 million ($0.02 loss per share) during the year ended January 31,
2012. The increase in the net loss for the year was primarily attributable to
the following:

- an increase in share-based compensation in the year ended January 31, 2013
  to $2.255 million (year ended January 31, 2012 - $0.625 million) relating to
  grants of options, restricted shares, and restricted share units, amortization
  of previously issued options, bonus shares, restricted shares, and restricted share units, and a
  shareholder approved modification of the expiry dates of outstanding share
  options;

31

---

- an increase in salaries and benefits in the year ended January 31, 2013 to
  $1.394 million (prior year ended January 31, 2012 - $0.664 million) relating
  to restructuring and termination benefits incurred;
- an increase in filing and regulatory fees in the year ended January 31,
  2013 to $0.281 million (year ended January 31, 2012 - $0.099 million) related
  to renewal of the universal shelf registration;
- a decrease in the non-cash future income tax recovery in the year to $nil
  (year ended January 31, 2012 - $0.657 million) relating to prior year
  expiration of share purchase warrants; and
- an increase in finance income and costs in the year ended January 31, 2013
  to $0.821 million (year ended January 31, 2012 - $0.351 million) primarily due
  to an increase in the accretion of the environmental rehabilitation provision
as a result of the increased liability and increase in the discount rate.

These items were partially offset by the following:

- a decrease in professional fees in the year ended January 31, 2013 to
  $0.374 million (year ended January 31, 2012 - $0.740 million) primarily due to
  transition to IFRS in the prior year.

(b)             Liquidity
and Capital Resources

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

Substantially all cash and cash equivalents are held in United
States currency. Our cash is primarily held in deposits and bearer deposits of a
major Canadian bank and does not include any exposure to asset-backed commercial
paper.

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

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

Although we plan to have the resources to carry out our plans
and operations through January 31, 2015, we do not currently have sufficient
capital to meet our estimated project capital expenditure requirements and are
currently in discussions to arrange sufficient capital to meet these
requirements. During the upcoming fiscal year, our objective is to identify the
source or sources from which we will obtain the capital required to complete the
Project. See additional discussion of environmental review and permitting in
section 4(D)(d) and development plans in section 4(D)(g).

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

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

32

---

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

Cash provided by financing activities for the year ended
January 31, 2014 was $58.372 million compared to cash provided in the year ended
January 31, 2013 of $10.130 million. The current year includes funding from the
Rights Offering. The prior year includes exercise of share options and funding
from share issuances to Glencore.

Cash used in investing activities for the year ended January
31, 2014 was $25.626 million compared to cash used in the year ended January 31,
2013 of $18.404 million. The increase was primarily due to increased spending on
permitting prior to publication of the supplement draft EIS in December
2013.

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

Year Ended January 31, 2013 compared with the year ended
January 31, 2012

As at January 31, 2013 we had working capital of $2.629 million
compared with working capital of $16.375 million as at January 31, 2012
consisting primarily of cash of $8.088 million (January 31, 2012 - $17.478
million), amounts receivable of $0.830 million (January 31, 2012 - $0.440
million), prepaid expenses of $0.771 million (January 31, 2012 - $0.934
million), accounts payable and accrued liabilities of 5.269 million (January 31,
2012 - $1.679 million), and the current portion of environmental rehabilitation
provision of $1.808 million (January 31, 2012 - $0.828 million).

Cash used in operating activities in the year ended January 31,
2013 was $1.116 million compared to cash used in the year ended January 31, 2012
of $2.955 million. The variance in cash is primarily due to changes in non-cash
working capital balances and the above noted operating variances.

Cash provided by financing activities for the year ended
January 31, 2013 was $10.130 million compared to cash provided in the year ended
January 31, 2012 of $26.209 million. The current year includes funding of the
2010 Glencore financing Tranche 3 and exercise of share options. The prior year
includes funding of the 2010 Glencore financing Tranche 2, the 2011 Glencore
financing, the IRRRB loan, and exercise of share options, partially offset by
the repayment of the Cliffs loan.

Cash used in investing activities for the year ended January
31, 2013 was $18.404 million compared to cash used in the year ended January 31,
2012 of $16.137 million. The increase was primarily due to cash consideration
paid to enter into wetland credit options and development agreements. See
further discussion in the Other Key Developments section above.

Total cash for the year ended January 31, 2013 decreased by
$9.390 million for a balance of $8.088 million compared to the year ended
January 31, 2012 where cash increased $7.117 million to a balance of $17.478
million.

33

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Financing Activities

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

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

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

| |  | 78,724,821 shares representing 28.6% of our issued and
      outstanding common shares;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |  | $25.0 million initial principal floating rate secured
      debentures due September 30, 2014. Including capitalized and accrued
      interest as at January 31, 2014, these debentures are exchangeable at
      $1.2920 per share into 24,741,611 of our common shares upon us giving
      Glencore notice that we have received permits necessary to start
      construction of NorthMet and availability of senior construction finance
      in a form reasonably acceptable to Glencore or are repayable on September
      30, 2014. Subsequent to January 31, 2014, the Company obtained an
      extension of the due date to the earlier of (i) PolyMet giving Glencore
      ten days notice that PolyMet has received permits necessary to start
      construction of NorthMet and availability of senior construction finance,
      in a form reasonably acceptable to Glencore (the "Early Maturity Event"),
      and (ii) September 30, 2015. The exercise price of the exchange warrants
      and the number of warrants are subject to conventional anti-dilution
      provisions which were triggered upon close of the Rights Offering; and
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |  | Glencore holds warrants to purchase 6,458,001 common
      shares at $1.3007 per share at any time until December 31, 2015, subject
      to mandatory exercise if the 20-day Value Weighted Average Price (VWAP)
      of our common shares is equal to or greater than 150% of the exercise
      price and we provides notice to Glencore that we have received permits
      necessary to start construction of NorthMet and availability of senior
      construction finance, in a form reasonably acceptable to Glencore. The
      exercise price of the purchase warrants and the number of warrants are
      subject to conventional anti-dilution provisions which were triggered upon
      close of the Rights Offering.                                                                                                                                                                                                                                                                                                                                                                                                                               

If Glencore were to exercise all of its rights and obligations
under these agreements, it would own 109,924,433 of our common shares,
representing 35.8% on a partially diluted basis, that is, if no other options or
warrants were exercised or 33.5% on a fully diluted basis.

34

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On April 10, 2013, we amended our previous financing
arrangement and issued a new Tranche E debenture (2013 Debenture) with the
principal amount of $20.0 million to Glencore and Glencore agreed to a Standby
Purchase Agreement (Standby) related to a proposed $60.480 million Rights
Offering by the Company. Under the Standby, Glencore agreed to purchase any
common shares offered under the Rights Offering that were not subscribed for by
holders of the rights, subject to certain conditions and limitations. The 2013
Debenture carried a fixed interest rate of 4.721% per annum payable in cash
monthly and matured on the earlier of (i) closing of the Rights Offering by us
or (ii) May 1, 2014. We provided security by way of a guarantee and by our
assets and our wholly-owned subsidiary. The sale of the 2013 Debenture was
consummated on April 11, 2013. We accounted for the 2013 Debenture issued
initially at fair value and subsequently at its amortized cost. Transaction
costs for the financing were $0.103 million. The 2013 Debenture was repaid upon
the closing of the Rights Offering on July 5, 2013.

Glencore purchased PolyMet common shares for $20.960 million in
the Rights Offering, which closed on July 5, 2013.

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

Iron Range Resources & Rehabilitation Board
("IRRRB")On June 30, 2011 we closed a $4.000 million loan from the
IRRRB, a development agency created by the State of Minnesota to stabilize and
enhance the economy of northeastern Minnesota. At the same time, we exercised
our options to acquire two tracts of land as part of the proposed land exchange
with the USFS. The loan is secured by the land acquired, carries a fixed
interest rate of 5% per annum, compounded annually if not paid, and is repayable
on the earlier of June 30, 2016 or the date which the related land is exchanged
with the USFS (not expected to occur within 12 months from January 31, 2014). We
issued warrants giving the IRRRB the right to purchase 400,000 of our common
shares at $2.50 per share at any time until the earlier of June 30, 2016, the
date the land is exchanged with the USFS or an alternative date as determined
between the parties as the due date of the loan. Effective July 5, 2013, we
increased the number of common shares issuable to 461,286 and reduced the
exercise price to $2.1678, to reflect the dilutive effect of the 91.6 million
common shares that were issued at $0.66 per share in connection with the Rights
Offering.

AG for Waterfowl, LLP ("AG") FinancingOn March 9,
2012 we acquired a secured interest in land (AG Land) owned by AG that is
permitted for restoration to wetland. AG was subsequently acquired by
Environmental Investment Partners (EIP) and we consented to the assignment of
the agreement to EIP on September 7, 2012. EIP will restore the wetlands and,
upon completion, wetland credits are to be issued by the proper governmental
authorities. We plan to use the wetland credits to offset wetlands disturbed
during construction and operation of the NorthMet Project. We hold a first
mortgage on the AG land, which will be proportionately released as wetland
credits are transferred to us. We have the option to exercise five separate
phases of wetland credit development. Any option not exercised by February 28,
2017 will expire and the remaining mortgage, if any, will be released. As at
January 31, 2014, we had exercised the option on phase 1.

We paid initial consideration of $2.0 million cash and issued
2,788,902 of our common shares valued at $3.375 million (of which 371,854 held
in escrow pending completion of construction of the first phase) and a warrant
to purchase 1,083,333 of our common shares at $1.50 per share at any time until
December 31, 2015 as consideration for a $5.9 million mortgage to secure
performance by EIP. The exercise price of the exchange warrants and the number
of warrants are subject to conventional anti-dilution provisions. Effective July
5, 2013, we increased the number of common shares issuable to 1,249,315 and
reduced the exercise price to $1.3007, to reflect the dilutive effect of the
91.6 million common shares that were issued at $0.66 per share in connection
with the Rights Offering.

35

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In addition to the initial consideration, performance
commitments for phase 1 totaling $0.68 million will be due over the seven years
following wetland construction completion for ongoing maintenance by AG.
Performance payments totaling $1.063 million per phase for completion and
maintenance of phase 2 through 5 will only be incurred if and when we exercise
our option on those phases, and will be due over the seven years following
completion of each phase. If wetland credits are issued by the proper
governmental authorities before the seven-year anniversary, any unpaid amounts
are due upon issuance of the wetland credits.

Rights OfferingOn May 24, 2013, we filed the final
prospectus for an offering of rights ("Rights") to holders of our common shares
to raise up to $60.480 million in gross proceeds (the "Rights Offering"). Every
shareholder received one Right for each common share owned on June 4, 2013, the
Record Date, and two Rights entitled the holder to acquire one new common share
at $0.66 per share. The Rights expired on July 3, 2013.

Under the terms of a Standby Purchase Agreement, Glencore
agreed to purchase any common shares not subscribed for by holders of Rights,
subject to certain conditions and limitations guaranteeing a minimum of $53.0
million in gross proceeds. Because the Rights Offering was oversubscribed,
Glencore did not purchase any shares under its standby commitment.

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

Other FinancingsDuring the year ended January 31,
2014 we issued no shares (prior year period  185,000) upon exercise of options
for proceeds of $nil (prior year period - $148,000).

During the year ended January 31, 2014, we also issued 140,123
shares (prior year period  87,174) as partial payment for options to purchase
land.

Escrowed SecuritiesAs at January 31, 2014, we had
the following outstanding securities held in escrow:

|                           | Number
      of Securities |                    
|-------------------------- | -------------------------- | -------------------
|Designation of
      Class | held
      in Escrow       | Percentage of Class
|Common shares (1)          | 371,854                    | 0.01%              
|Common shares (2)          | 618,529                    | 0.02%              

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

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

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

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

36

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(d)             Trend
Information

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

(e)            
Off-Balance Sheet Arrangements

None.

(f)            
Tabular Disclosure of Contractual Obligations

The following table lists as at January 31, 2014 information
with respect to our known contractual obligations:

Less
      than
    
    
    1 
      3
    
    
    4 
      5
    
    
    After
      5Contractual
      Obligations (in 000s)
    
    Total
    
    
    1
      year
    
    
    years
    
    
    years
    
    
    yearsAccounts payable and accrued liabilities
    $
    3,806
    
    $
    3,806
    
    $
    -
    
    $
    -
    
    $
    -Long-term debt
    
    5,110
    
    
    -
    
    
    5,110
    
    
    -
    
    
    -Convertible debt
    
    33,019
    
    
    33,019
    
    
    -
    
    
    -
    
    
    -Environmental rehabilitation provision
    
    60,448
    
    
    1,504
    
    
    28,070
    
    
    917
    
    
    29,957Firm Commitments
    
    3,300
    
    
    2,506
    
    
    594
    
    
    168
    
    
    32Total
    $
    105,683
    
    $
    40,835
    
    $
    33,774
    
    $
    1,085
    
    $
    29,989


(g)             Critical
Accounting Policies

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

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

(i)    
Determination of mineral reserves

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

(ii)    Impairment of
non-financial assets

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

37

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For its mineral property interest the
Company considers both external and internal sources of information in assessing
whether there are any indications of impairment. External sources of information
the Company considers include changes in the market, economic and legal
environment in which the Company operates that are not within its control and
affect the recoverable amount of mineral property interests. Internal sources of
information the Company considers include indications of economic performance of
the asset. No impairment loss for its mineral property interests was recorded
for the year ended January 31, 2014 or 2013.

(iii)   Provisions for
Environmental Rehabilitation Costs

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

Upon initial recognition of provisions
for environmental rehabilitation costs, a corresponding increase to the carrying
amount of the related asset is recorded and amortized over the life of the
asset. The estimates are based principally on legal and regulatory requirements.
Following initial recognition of the environmental rehabilitation provision, the
carrying amount of the liability is accreted to its future value over the life
of the asset, reduced for actual reclamation payments incurred, adjusted for
changes to the current market-based discount rate, and adjusted for changes in
the amount and timing of the underlying cash flows needed to settle the
obligation.

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

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

38

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ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND
EMPLOYEES

A.             
Directors and Senior Management

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

Vacancies on the Board of Directors are filled by election from
nominees chosen by the remaining Directors and the persons filling those
vacancies will hold office until the next annual general meeting of
shareholders, at which time they may be re-elected or replaced.

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

| | Name              | Age | Position                                                            
| | ----------------- | --- | --------------------------------------------------------------------
| | W. Ian L. Forrest | 75  | Chairman,
      Independent Director                                
| | Jonathan Cherry   | 44  | Director, President, and Chief
      Executive Officer              
| | David Dreisinger  | 56  | Independent
      Director                                          
| | Alan R. Hodnik    | 54  | Independent Director                                                
| | William Murray    | 65  | Director                                                            
| | Stephen Rowland   | 52  | Independent Director                                                
| | Michael M. Sill   | 52  | Independent
      Director                                          
| | Frank L. Sims     | 63  | Independent Director                                                
| | Douglas J. Newby  | 55  | Chief Financial
      Officer                                       
| | Joseph Scipioni   | 60  | Chief Operating Officer                                             
| | Bradley Moore     | 53  | Executive Vice
      President, Environmental & Governmental Affairs
| | Ryan Vogt         | 36  | Corporate Controller                                                
| | Stephanie Hunter  | 43  | Corporate
      Secretary                                           

W. Ian L. Forrest has served as a member of our board of directors since October 2003, as our Co-Chair since January 2011 and our Chairman since July 2012.  Mr. Forrest previously served as Chairman of our board until February 2008.  He also serves as the Chair on our business development and risk management committee and also serves on our audit, compensation, capital finance and nominating and corporate governance committees. Having played an important role in our revival in 2003, he was appointed Chairman in May 2004.  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 served as a director of Tanager Energy Inc. (formerly MGold Resources Inc.) until October, 2011 and Belmore Resources (Holdings) plc until July, 2011 when it was acquired by Lundin Mining Ltd.   He currently serves on the boards of Georex SA and Poros SAS.  Mr. Forrest was a director of Viatrade plc, which was put into receivership in August 2009.  Mr. Forrest currently resides in Vaud, Switzerland.

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

39

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Dr. David Dreisinger has served as a member of our board of directors since October 2003.  He serves on our safety, health and environmental, audit, technical steering and on our nominating and corporate governance committees.  Since 1988, Dr. Dreisinger has been a member of the faculty at the University of British Columbia in the Department of Materials Engineering and is currently Professor and Chairholder of the Industrial Research and Chair in Hydrometallurgy.  He has published over 200 papers and has been extensively involved as a process consultant in industrial research programs with metallurgical companies. Dr. Dreisinger has participated in 16 U.S. patents for work in areas such as pressure leaching, ion exchange removal of impurities from process solutions, use of thiosulfate as an alternative to cyanide in gold leaching, and leach-electrolysis treatment of copper recovery from sulfide ores, and the Sepon Copper Process for copper recovery from sulfidic-clayey ores.   Dr. Dreisinger serves as a director of Search Minerals, Inc. and as Vice President – Metallurgy for each of Baja Mining Corp, Clifton Star Resources and South American Silver Corp.  Dr. Dreisinger currently resides in British Columbia, Canada.

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

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

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

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

40

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Frank L. Sims has served as a member of our board of
directors since February 2008 and as our Co-Chair from January 2011 to July
2012. He also serves as the chair of our nominating and corporate governance
committee and also serves on both our compensation and capital finance
committees. 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
and South Jersey Industries. 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.

Douglas J. Newby has served as our Chief Financial
Officer since November 2005. Mr. Newby has more than 30 years of experience in
the evaluation and financing of mining companies and projects around the world.
Before coming to PolyMet, Mr. Newby served variously as a Director, Executive
Vice President, interim Chairman, President and Chief Executive Officer of
Western Goldfields, Inc. (now New Gold, Inc.) a US-based gold mining company.
Mr. Newby has also been President of Proteus Capital Corp., a corporate advisory
firm that specializes in the natural resource industries, since July 2001. Mr.
Newby served as Managing Director of Proteus Consultants Ltd. from January 1991
to July 2001 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. Since June 2011 Mr. Newby has
served as a director of Coronet Metals, Inc., a Canadian company developing a
gold mine in Peru. 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.

Joseph Scipioni has served as our Chief Operating Officer since March 2007.  Prior to July 2012, Mr. Scipioni also served as our President and Chief Executive Officer and as a member of our board of directors since February 2008 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, is an officer of the Minnesota Section of the Society of Mining, Metallurgy and Exploration (SME), and serves as an executive officer of Mining Minnesota.  Mr. Scipioni currently resides in Minnesota, United States.

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

Ryan Vogt has served as our Corporate Controller since
July 2012. Mr. Vogt has over 13 years of experience with accounting, financial
reporting, and internal controls. From April 2004 to April 2012, he was an
assistant controller at World Data Products, Inc. and from April 2012 to present
he has been with the Company. Prior to April 2004, Mr. Vogt was a financial
statement auditor at KPMG LLP. Mr. Vogt is a Certified Public Accountant. Mr.
Vogt currently resides in Minnesota, United States.

Stephanie Hunter has served as our Manager, Corporate Operations since April 2004 and as our Corporate Secretary since November 2012.  Mrs. Hunter has over 20 years of legal experience with public companies and over 10 years within the mining sector. From January 1999 to March 2004, she was a senior legal administrator and corporate law clerk at Stikeman Elliott LLP and from April 2004 to present she has been with the Company.  Prior to January 1999, Mrs. Hunter was a Corporate Records Clerk at Holmes Greenslade LLP. Mrs. Hunter has extensive experience in administration of public companies, statutory and regulatory compliance requirements and maintenance of company records.  Mrs. Hunter currently resides in Ontario, Canada.

41

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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, 2014:

Named Executive Officer
    SalariesCommissionsand Bonuses
    Options /RestrictedShare Units
    Pension,Retirementand SimilarBenefits(1)
    TotalCompensationJonathan Cherry, President and Chief Executive Officer
    $459,600
    $612,000
    $15,300
    $1,086,900Douglas Newby, Chief Financial Officer
    $292,800
    $238,600
    $7,500
    $538,900Joseph Scipioni, Chief Operating Officer
    $200,000
    $23,300
    $12,000
    $235,300Bradley Moore, Executive Vice President, Environmental
      & Governmental Affairs
    $216,200
    $174,200
    $11,100
    $401,500


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

During the fiscal year ended January 31, 2014, we had four
Named Executive Officers (NEOs) (for the purposes of applicable securities
legislation), namely:

| | (a) | Jonathan Cherry, President and Chief Executive
      Officer;                       
| | --- | ------------------------------------------------------------------------------------
| |     |                                                                                     
| | (b) | Douglas Newby, Chief Financial Officer;                                             
| |     |                                                                                     
| | (c) | Joseph Scipioni, Chief Operating Officer; and                                       
| |     |                                                                                     
| | (d) | Bradley Moore, Executive Vice President, Environmental
      & Governmental Affairs.

Other than the arrangements noted in the table below, during
the fiscal year ended January 31, 2014, no compensation was paid or is payable
by us to the directors of the Company, other than the Named Executive Officers
(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;

Director
    Directors Fees
    Options/RestrictedShare
      Units
    TotalCompensationW. Ian L. ForrestDavid DreisingerAlan R. HodnikWilliam MurrayStephen RowlandMichael M.
      SillFrank L. Sims
    $ 50,00040,00040,00040,00040,00040,00040,000
    440,000116,000116,000116,000171,400116,000116,000
    $ 490,000156,000156,000156,000211,400156,000156,000


During the quarter ended January 31, 2012, we sold a used drill
for $3.680 million. A company controlled by one of our Directors, Michael M.
Sill, received a commission of $0.200 million related to this sale.

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

42

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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.

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

Our Audit Committee consists of Michael M. Sill (Chair), W. Ian
L. Forrest, Frank L. Sims, and Dr. David Dreisinger, all of whom are independent
directors. Mr. Forrest meets the criteria of an Audit Committee Financial
Expert under the applicable rules and regulations of the SEC and such
designation has been ratified by the Board of Directors. The Audit Committee
oversees our auditing procedures, receives and accepts the reports of our
independent 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.

Our Compensation Committee consists of Alan R. Hodnik (Chair),
W. Ian L. Forrest and Frank L. Sims. 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
Frank L. Sims (Chair), W. Ian L. Forrest, Alan R. Hodnik, Stephen Rowland and
David Dreisinger. The committee (1) identifies individuals qualified to become
members of the Board, (2) selects, or recommends to the Board, the director
nominees for the next annual shareholders meeting, (3) selects candidates to
fill any vacancies on the Board, and (4) develops and recommends to the Board a
set of corporate governance principles applicable to PolyMet.

D.             
Employees

As at January 31, 2014 we had 24 full-time employees, with 1
located in our Toronto office, 15 located in our Hoyt Lakes office, and 8
located in our St. Paul office.None of our employees are covered by a
collective bargaining agreement. We believe that our relations with our
employees are good.

As at January 31, 2014, we had 2 consultants working out of our
Minnesota offices.

E.             
Share Ownership

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

43

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ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

A.             
Officers, Directors and Major Shareholders

The following table sets forth certain information that has been provided to us regarding the beneficial ownership of our common shares as of April 21, 2014 by those known to our management to be (i) the beneficial owner of more than 5% of our outstanding common shares, (ii) our directors, (iii) our current officers identified under Item 6(A), and (iv) all officers and directors as a group.

|Name and Address of                                |  | Amount and Nature of     |  | Percent of       
|-------------------------------------------------- |  | ------------------------ |  | -----------------
|Beneficial
      Owner(1)                          |  | Beneficial Ownership (2) |  | Common Shares (3)
|William Murray (4)                                 |  | 3,995,464                |  | 1.44%            
|W. Ian L. Forrest (5)                              |  | 3,629,500                |  | 1.31%            
|Jonathan Cherry (6)                                |  | 2,832,240                |  | 1.02%            
|Frank Sims (7)                                     |  | 2,455,595                |  | *                
|David Dreisinger (8)                               |  | 2,314,450                |  | *                
|Douglas J. Newby (9)                               |  | 1,798,286                |  | *                
|Joseph Scipioni (10)                               |  | 1,115,500                |  | *                
|Michael M. Sill (11)                               |  | 1,030,201                |  | *                
|Stephen Rowland (12)                               |  | 900,000                  |  | *                
|Alan R. Hodnik(13)                                 |  | 850,500                  |  | *                
|Bradley Moore (14)                                 |  | 580,794                  |  | *                
|Ryan Vogt (15)                                     |  | 305,774                  |  | *                
|Stephanie Hunter (16)                              |  | 185,000                  |  | *                
|                                                   |  |                          |  |                  
|Total directors and officers as a group
      (17) |  | 21,993,304               |  | 7.65%            
|                                                   |  |                          |  |                  
|*Less than 1.00%                                   |  |                          |  |                  
|                                                   |  |                          |  |                  
|5% or more shareholders:                           |  |                          |  |                  
|Glencore (18)                                      |  | 110,112,039              |  | 35.86%           
|Baarermattstrasse 3                                |  |                          |  |                  
|CH-6341 Baar                                       |  |                          |  |                  
|Switzerland                                        |  |                          |  |                  

|(1) | The address of each person, unless otherwise noted, is
      c/o PolyMet Mining Corp., 100 King Street West, Suite 5700, Toronto,
      Ontario M5X 1C7.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|(2) | The number of shares beneficially owned by each person or
      group includes common shares that such person or group had the right to
      acquire on or within 60 days after that date, including, but not limited
      to, upon the exercise of options and vesting and release of restricted
      stock units. To our knowledge, except as otherwise indicated in the
      footnotes to this table and subject to applicable community property laws,
      each shareholder named in the table has the sole power to vote or direct
      the voting of (voting power) and the sole power to sell or otherwise
      direct the disposition of (dispositive power) the shares set forth
      opposite such shareholders name.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|(3) | For each person and group included in the table, percentage ownership is calculated by dividing the number of shares beneficially owned by such person or group as described above by the sum of the 275,650,392 common shares outstanding on April 21, 2014 and the number of common shares that such person or group had the right to acquire on or within 60 days of that date, including, but not limited to, upon the exercise of options and upon vesting and payment of restricted stock units.                                                                                                                                                                                                                                   

44

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|(4) | Includes 1,164,700 common shares directly owned by Mr.
      Murray and 1,430,764 common shares held in the name of Group 4 Ventures of
      which he is the sole shareholder, 300,000 common shares issuable upon
      exercise of options at an exercise price of CDN$1.1793 per share set to
      expire on September 19, 2015, 450,000 common shares issuable upon exercise
      of options at an exercise price of CDN$2.3932 per share set to expire on
      March 20, 2016, 200,000 common shares issuable upon exercise of options at
      an exercise price of $0.7110 per share set to expire on February 17, 2019,
      150,000 common shares issuable upon exercise of options at an exercise
      price of $0.8237 per share set to expire July 11, 2022 and 300,000 common
      shares issuable upon exercise of options at an exercise price of $0.9520
      per share set to expire December 16, 2023. In addition, Mr. Murray has the
      right, upon certain milestones, to receive 70,016 common shares issuable
      under Restricted Share Units for which he currently has neither voting nor
      dispositive rights.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|(5) | Includes 2,217,000 common shares owned in the name of
      Micor Trading SA of which Mr. Forrest is a director and has voting and
      dispositive control, 562,500 common shares owned in the name of Panares
      Resources Inc. of which he is a director and has voting and dispositive
      control, 150,000 common shares issuable upon exercise of options at an
      exercise price of CDN$1.1793 per share set to expire on September 19,
      2015, 250,000 common shares issuable upon exercise of options at an
      exercise price of CDN$2.3932 per share set to expire on March 20, 2016,
      150,000 common shares issuable upon exercise of options at an exercise
      price of $0.7110 per share set to expire on February 17, 2019 and 300,000
      common shares issuable upon exercise of options at an exercise price of
      $0.9520 per share set to expire December 16, 2023. In addition, Mr.
      Forrest has the right, upon certain milestones, to receive 29,792 common
      shares issuable under Restricted Share Units for which he currently has
      neither voting nor dispositive rights.            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|(6) | Includes 466,544 common shares directly owned by Mr.
      Cherry, 137,029 restricted common shares for which he has voting power but
      does not currently have dispositive control, 1,666,667 common shares
      issuable upon exercise of options at an exercise price of $0.7613 per
      share set to expire on June 21, 2022 and 562,000 common shares issuable
      upon exercise of options at an exercise price of $0.9800 set to expire
      January 17, 2014. In addition, Mr. Cherry holds currently un-exercisable
      options to acquire 833,333 common shares at an exercise price of $0.7613
      per share set to expire on June 21, 2022 and has the right, upon certain
      milestones, to receive 195,750 common shares issuable under Restricted
      Share Units for which he currently has neither voting nor dispositive
      rights.                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|(7) | Includes 1,305,595 common shares directly owned by Mr. Sims, 200,000 common shares issuable upon exercise of options at an exercise price of $2.3585 per share set to expire on February 15, 2018, 200,000 common shares issuable upon exercise of options at an exercise price of $0.7110 per share set to expire on February 17, 2019, 250,000 common shares issuable upon exercise of options at an exercise price of $1.7689 per share set to expire on March 10, 2021, 200,000 common shares issuable upon exercise of options at an exercise price of $1.0318 per share set to expire on March 8, 2022 and 300,000 common shares issuable upon exercise of options at an exercise price of $0.9520 per share set to expire December 16, 2023.    In addition, Mr. Sims currently holds un-exercisable options to acquire 200,000 common shares at an exercise price of $2.3585 per share set to expire on February 15, 2018 and has the right, upon certain milestones, to receive 29,792 common shares issuable under Restricted Share Units for which he currently has neither voting nor dispositive rights.                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|(8) | Includes 1,314,450 common shares directly owned by Dr.
      Dreisinger, 150,000 common shares issuable upon exercise of options at an
      exercise price of CDN$1.1793 per share set to expire on September 19,
      2015, 250,000 common shares issuable upon exercise of options at an
      exercise price of CDN$2.3932 per share set to expire on March 20, 2016,
      150,000 common shares issuable upon exercise of options at an exercise
      price of $0.7110 per share set to expire on February 17, 2019, 150,000
      common shares issuable upon exercise of options at an exercise price of
      $0.92 per share set to expire on January 7, 2023 and 300,000 common shares
      issuable upon exercise of options at an exercise price of $0.9520 per
      share set to expire December 16, 2023. Mr. Dreisinger has the right, upon
      certain milestones, to receive 29,792 common shares issuable under
      Restricted Share Units for which he currently has neither voting nor
      dispositive rights.                                                                                                             

45

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|(9)  | Includes 247,500 common shares held in the name of
      Proteus Capital Corp. of which Mr. Newby is the President and controlling
      shareholder, 141,786 common shares directly owned by Mr. Newby, 80,000
      restricted common shares for which he has voting power but does not
      currently have dispositive control, 100,000 common shares issuable upon
      exercise of options at an exercise price of CDN$0.9972 per share set to
      expire on December 5, 2015, 500,000 common shares issuable upon exercise
      of options at an exercise price of CDN$2.5753 per share set to expire on
      March 20, 2016, 200,000 common shares issuable upon exercise of options at
      an exercise price of $1.0318 per share set to expire on March 8, 2022,
      100,000 common shares issuable upon exercise of options at an exercise
      price of $0.7977 per share set to expire on January 7, 2023 and 219,000
      common shares issuable upon exercise of options at an exercise price of
      $0.9800 set to expire January 17, 2014 in Mr. Newbys name; and 210,000
      common shares issuable upon exercise of options at an exercise price of
      CDN$1.1793 per share set to expire on September 19, 2015 held in the name
      of Proteus Capital Corp. In addition, Mr. Newby has the right, upon
      certain milestones, to receive 156,339 common shares issuable under
      Restricted Share Units for which he currently has neither voting nor
      dispositive rights.
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|(10) | Includes 370,500 common shares directly owned by Mr.
      Scipioni, 45,000 restricted common shares for which he has voting power
      but does not currently have dispositive control, 200,000 common shares
      issuable upon exercise of options at an exercise price of CDN$2.5753 per
      share set to expire on June 19, 2016, 300,000 common shares issuable upon
      exercise of options at an exercise price of CDN$2.8614 per share set to
      expire on January 5, 2017, and 200,000 common shares issuable upon
      exercise of options at an exercise price of $0.7110 per share set to
      expire on February 17, 2019. In addition, Mr. Scipioni holds currently
      un-exercisable options to acquire 250,000 common shares at an exercise
      price of $2.5319 per share set to expire on March 12, 2017 and 100,000
      common shares at an exercise price of $2.3585 per share set to expire on
      February 15, 2018. In addition, Mr. Scipioni has the right, upon certain
      milestones, to receive 23,810 common shares issuable under Restricted
      Share Units for which he currently has neither voting nor dispositive
      rights.                                                                                                                                                                                                                                                                                                                                    
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|(11) | Includes 251,500 common shares directly owned by Mr.
      Sill, 6,201 common shares held in the name of Matthew Sill, 22,500 common
      shares held in the name of Michael R. Sill Family Trust, of which Mr. Sill
      is a trustee, 250,000 common shares issuable upon exercise of options by
      Mr. Sill at an exercise price of USD $1.7689 per share set to expire on
      March 10, 2021, 200,000 common shares issuable upon exercise of options at
      an exercise price of $1.0318 per share set to expire on March 8, 2022 and
      300,000 common shares issuable upon exercise of options at an exercise
      price of $0.9520 per share set to expire December 16, 2023. In addition,
      Mr. Sill has the right, upon certain milestones, to receive 29,792 common
      shares issuable under Restricted Share Units for which he currently has
      neither voting nor dispositive rights.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|(12) | Includes 150,000 common shares directly owned by Mr.
      Rowland, 250,000 common shares issuable upon exercise of options by Mr.
      Rowland at an exercise price of $1.0318 per share set to expire on March
      8, 2022, 300,000 common shares issuable upon exercise of options at an
      exercise price of $0.9520 per share set to expire December 16, 2023 and
      200,000 common shares issuable upon exercise of options at an exercise
      price of $0.9300 per share set to expire January 9, 2024. In addition, Mr.
      Rowland has the right, upon certain milestones, to receive 29,792 common
      shares issuable under Restricted Share Units for which he currently has
      neither voting nor dispositive rights.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|(13) | Includes 100,500 common shares directly owned by Mr.
      Hodnik, 250,000 common shares issuable upon exercise of options by Mr.
      Hodnik at an exercise price of USD $1.7689 per share set to expire on
      March 10, 2021, 200,000 common shares issuable upon exercise of options at
      an exercise price of $1.0318 per share set to expire on March 8, 2022 and
      300,000 common shares issuable upon exercise of options at an exercise
      price of $0.9520 per share set to expire December 16, 2023. In addition,
      Mr. Hodnik has the right, upon certain milestones, to receive 29,792
      common shares issuable under Restricted Share Units for which he currently
      has neither voting nor dispositive rights.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|(14) | Includes 90,794 common shares directly owned by Mr.
      Moore, 30,000 restricted common shares for which he has voting power but
      does not currently have dispositive control, 200,000
  common shares issuable upon exercise of options at an exercise
      price of $1.8816 per share set to expire on January 25, 2021, 100,000
      common shares issuable upon exercise of options at an exercise price of
      $1.0318 per share set to expire on March 8, 2022 and 160,000 common shares
      issuable upon exercise of options at an exercise price of $0.9800 per
      share set to expire January 17, 2024. In addition, Mr. Moore holds
      currently un-exercisable options to acquire 100,000 common shares at an
      exercise price of $1.8816 per share set to expire on January 25, 2021 and
      has the right, upon certain milestones, to receive 55,720 common shares
      issuable under Restricted Share Units for which he currently has neither
  voting nor dispositive rights.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

46

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|(15) | Includes 63,274 common shares directly owned by Mr. Vogt,
      7,500 restricted common shares for which he has voting power but does not
      currently have dispositive control, 100,000 common shares issuable upon
      exercise of options at an exercise price of $1.0058 per share set to
      expire on April 2, 2022, 50,000 common shares issuable upon exercise of
      options at an exercise price of $0.8671 per share set to expire on July
      25, 2022 and 85,000 common shares issuable upon exercise of options at an
      exercise price of $0.9800 set to expire January 17, 2024. In addition, Mr.
      Vogt has the right, upon certain milestones, to receive 29,762 common
      shares issuable under Restricted Share Units for which he currently has
      neither voting nor dispositive rights.
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|(16) | Includes 5,000 common shares directly owned by Mrs.
      Hunter, 80,000 common shares issuable upon exercise of options by Ms.
      Hunter at an exercise price of $1.1793 per share set to expire on
      September 19, 2015, 50,000 common shares issuable upon exercise of options
      at an exercise price of CAD$2.3932 per share set to expire on March 20,
      2016, and 50,000 common shares issuable upon exercise of options at an
      exercise price of $0.7110 per share set to expire on January 30, 2019. In
      addition, Mrs. Hunter has the right, upon certain milestones, to receive
      34,263 common shares issuable under Restricted Share Units for which she
      currently has neither voting nor dispositive rights.                                                                          
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|(17) | Includes 9,911,108 common shares owned, 11,782,667 common
      shares issuable upon exercise of options, and 299,529 restricted common
      shares for which the holder has voting power but does not currently have
      dispositive control. Does not include 681,732 common shares issuable under
      Restricted Share Units for which the holder currently has neither voting
      nor dispositive rights nor currently un-exercisable options to acquire
      1,483,333 common shares.                                                                                                                                                                                                                                                                                                                                    
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|(18) | Includes 78,724,821 common shares owned, $25 million
      initial principal debentures exchangeable into 24,929,217 of our common
      shares (including interest capitalized as at March 31, 2014) and warrants
      to acquire 6,458,001 of our common shares at $1.3007 per
  share.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

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

As at April 21, 2014, there were 338 holders of record of our common shares of which 264 were U.S. residents owning 23.8% of our outstanding common shares.

47

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B.             
Related Party Transactions

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

Year ended January 31,(in
      $000s)
    
    2014
    
    
    2013
    
    
    2012Salaries and other short-term
      benefits
    $
    1,718
    
    $
    1,468
    
    $
    950Other long-term benefits
    
    60
    
    
    54
    
    
    32Termination benefits
    
    -
    
    
    279
    
    
    -Share-based payments (1)
    
    2,366
    
    
    2,102
    
    
    738Commission on sale of used
      drill
    
    -
    
    
    -
    
    
    200$
    4,144
    
    $
    3,903
    
    $
    1,920


(1)Share-based payment represents the fair value determined at
grant date to be expensed over the vesting period. There are agreements with key
employees that contain severance provisions for termination without cause or in
the event of a take-over bid. Other than the President and Chief Executive
Officer, none of PolyMets other directors has a service contract with the
Company providing for benefits upon termination of his employment.

During the year ended January 31, 2012, we sold a used drill
rig for $3.680 million. A company controlled by one of our directors, Michael M.
Sill, received a commission of $0.200 million related to this sale.

As a result of Glencores ownership of 28.6% of the Company it
is also a related party. Transactions with Glencore are described in Item 5(b)
above.

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

C.             
Interests of experts and counsel.

Not applicable.

48

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ITEM 8. FINANCIAL INFORMATION

A.             
Consolidated Statements and Other Financial Information

See Item 18.

Legal Proceedings and Regulatory Actions

To the knowledge of Companys management, there are no material
legal proceedings or regulatory actions outstanding to which the Company is a
party, or to which any of its property is subject to during the financial year
ended January 31, 2014, and no such proceedings or regulatory actions are known
to the Company to be threatened or pending, as of the date hereof.

Dividend Policy

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

B.             
Significant Changes

On April 25, 2014 PolyMet and Glencore extended the term of the Series A-D debentures and the expiration date of the associated Exchange Warrants to the earlier of the Early Maturity Event (as previously defined) or September 30, 2015.  All other terms of both the debentures and the warrants described in Note 8 are unchanged.  See further discussion of Glencore Financings in section 5(b).

49

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ITEM 9. THE OFFER AND LISTING

A.             
The Offer and Listing Details

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

Fiscal YearEnded
    TSX
    NYSE MKTHigh
    Low
    High
    Low(CDN$)
    (CDN$)
    (US$)
    (US$)January 31, 2014
    1.34
    0.69
    1.28
    0.67January 31, 2013
    1.37
    0.73
    1.37
    0.70January 31, 2012
    2.61
    1.00
    2.65
    0.97January 31, 2011
    3.56
    1.33
    3.38
    1.26January 31, 2010
    3.89
    0.72
    3.79
    0.57


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

Fiscal QuarterEnded
    TSX
    NYSE MKTHigh
    Low
    High
    Low(CDN$)
    (CDN$)
    (US$)
    (US$)January 31, 2014
    1.34
    0.77
    1.28
    0.74October 31, 2013
    0.91
    0.69
    0.88
    0.67July 31, 2013
    1.21
    0.74
    1.19
    0.68April 30, 2013
    1.27
    1.02
    1.25
    0.99January 31, 2013
    1.12
    0.85
    1.13
    0.87October 31, 2012
    1.20
    0.99
    1.20
    1.00July 31, 2012
    1.14
    0.73
    1.14
    0.70April 30, 2012
    1.37
    1.01
    1.37
    1.01


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

Month
      Ended
    TSX
    NYSE MKTHigh
    Low
    Total
      Volume
    High
    Low
    Total
      Volume(CDN$)
    (CDN$)
    (#)
    (US$)
    (US$)
    (#)April 1 – 21, 2014
    1.55
    1.46
    396,100
    1.41
    1.33
    4,347,000March 31, 2014
    1.66
    1.26
    1,341,800
    1.50
    1.14
    14,285,100February 28, 2014
    1.32
    1.05
    751,400
    1.20
    1.00
    7,334,700January 31, 2014
    1.19
    0.95
    481,200
    1.08
    0.88
    6,305,000December 31, 2013
    1.26
    0.90
    1,351,100
    1.19
    0.85
    8,544,700November 30, 2013
    1.34
    0.79
    2,077,200
    1.28
    0.74
    11,807,100October 31, 2013
    0.84
    0.69
    944,100
    0.83
    0.67
    5,751,100September 30, 2013
    0.88
    0.80
    410,100
    0.85
    0.77
    3,329,800August 31, 2013
    0.91
    0.77
    624,200
    0.88
    0.75
    4,719,300July 31, 2013
    0.90
    0.72
    2,845,300
    0.86
    0.68
    9,772,000June 30, 2013
    1.11
    0.71
    2,073,600
    1.07
    0.70
    6,696,800May 31, 2013
    1.20
    1.04
    660,500
    1.19
    1.01
    4,117,900April 30, 2013
    1.21
    1.02
    274,400
    1.20
    1.01
    2,843,900March 31, 2013
    1.26
    1.16
    601,100
    1.23
    1.13
    2,699,100February 28, 2013
    1.27
    1.07
    1,058,600
    1.25
    1.07
  4,623,800


50

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B.             
Plan of Distribution

Not applicable.

C.             
Markets

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

D.             
Selling Shareholders

Not applicable.

E.             
Dilution

Not applicable.

F.             
Expenses of the Issue

Not applicable.

ITEM 10. ADDITIONAL INFORMATION

A.             
Share Capital

Not Applicable.

B.             
Memorandum and Articles of Association

Incorporation

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

Powers and Functions of the Directors

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

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

51

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

Rights and Restrictions Attached to the Shares

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

Alteration of Share Rights

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

Annual General Meetings

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

Foreign Ownership Limitations

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

Change of Control

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

Share Ownership Reporting Obligations

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

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

52

---

C.             
Material Contracts

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

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

D.             
Exchange Controls

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

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

E.             
Taxation

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

Certain Canadian Federal Income Tax
ConsequencesThe following summary reflects our opinion of the
material Canadian federal income tax considerations generally applicable to
holders of our common shares 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.

Dividends on Common SharesIn 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.
Share dividends received by non-residents from us are taxable by Canada as
ordinary dividends and therefore the withholding tax rates will be applicable.

53

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Disposition of Common SharesA non-resident of Canada
is generally 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 non-resident holder previously held the shares while resident in
Canada. We believe that the value of our common shares is not derived from real
property situated inside Canada.

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, 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.

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 exceeds the paid-up capital of such shares. The amount of
such dividend will be subject to withholding tax as described above.

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

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

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

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

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

Distributions on Common SharesSubject 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.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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F.             
Dividends and Paying Agents

Not Applicable.

G.             
Statement by Experts

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

- Pierre Desautels, P. Eng., of AGP Mining Consultants Inc.;
- Gordon Zurowski, P. Eng., of AGP Mining Consultants Inc.;
- Karl Everett, P. Eng., of Foth Infrastructure & Environment LLC;
- David Dreisinger, Director of PolyMet Mining Corp.; and
- William Murray, Director of PolyMet Mining Corp.

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

H.             
Documents on Display

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

Farris LLPc/o Farris, Vaughan,
Wills & Murphy LLP2500 - 700 W Georgia StVancouver BCCanada
V7Y 1B3

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

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

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

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

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

I. Subsidiary Information

Not Applicable

ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT
MARKET RISK

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

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

Based on net exposures as at January 31, 2014, a 10% change in
the Canadian / United States exchange rate would have impacted the Companys
loss by approximately $8,100.

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

ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY
SECURITIES

Not Applicable.

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PART II

ITEM 13. DEFAULT, DIVIDEND ARREARAGES AND
DELINQUENCIES

None.

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

Shareholder Rights Plan

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

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

The Rights issued under the Rights Plan become exercisable only
if a party acquires 20% or more of the Company's common shares without complying
with the Rights Plan or without the approval of non-abstaining Board of
Directors. Each Right entitles the registered holder to purchase one common
share of the Company at the price of CDN$43.06 per share, subject to adjustment
which was triggered upon close of the Rights Offering (the Exercise Price).
However, if a Flip-in Event (as defined in the Rights Plan) occurs, each Right
would then entitle the registered holder to purchase that number of common
shares having a market value at the date of the Flip-in Event equal to twice the
Exercise Price upon payment of the Exercise Price.

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

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ITEM 15. CONTROLS AND PROCEDURES

A. Evaluation of Disclosure Controls and Procedures

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

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

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

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

Management has assessed the effectiveness of our internal
control over financial reporting as at January 31, 2014. In making its
assessment, management has used the criteria established in Internal Control
- Integrated Framework (1992) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) to evaluate our internal
control over financial reporting.

Based on its assessment, management has concluded that, as at
January 31, 2014, our internal control over financial reporting is
effective.

C. Attestation Report of the Registered Public Accounting
Firm

The effectiveness of the Company's internal control over
financial reporting as of January 31, 2014, has been audited by
PricewaterhouseCoopers LLP, independent auditors, as stated in their report
which appears herein.

D. Changes in Internal Controls

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

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ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT

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

ITEM 16B. CODE OF ETHICS

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

The Code of Ethics is included as Exhibit 11.1.

ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND
SERVICES

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

Financial YearEnding
    Audit Fees
    Audit RelatedFees
    Tax Fees
    All Other FeesJanuary 31, 2014
    CDN $185,000
    CDN $85,500
    CDN $22,300
    CDN $NilJanuary 31, 2013
    CDN $249,000
    CDN $98,400
    CDN $18,000
    CDN $Nil


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

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

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

Pre-Approval Policies and Procedures

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

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

Not applicable.

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

Not applicable.

ITEM 16F. CHANGES IN REGISTRANTS CERTIFYING
ACCOUNTANT

Not applicable.

ITEM 16G. CORPORATE GOVERNANCE

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

ITEM 16H. MINE SAFETY DISCLOSURE

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

64

---

PART III

ITEM 17. FINANCIAL STATEMENTS

Not applicable.

ITEM 18. FINANCIAL STATEMENTS

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

Index to Financial Statements

Description
    
    PageManagement
      Report
    
    F-1Independent
      Auditors Report
    
    F-2Consolidated
      Balance Sheets
    
    F-5Consolidated
      Statements of Loss and Comprehensive Loss
    
    F-6Consolidated
      Statements of Changes in Shareholders Equity
    
    F-7Consolidated
      Statements of Cash Flows
    
    F-8Notes
      to Consolidated Financial Statements
    
    F-9


65

---



POLYMET MINING
CORP.

CONSOLIDATED FINANCIAL STATEMENTS

As at January 31, 2014 and 2013And for the years ended January 31, 2014, 2013,
and 2012

---

Management Report

Managements Responsibility for Consolidated Financial
Statements

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

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

Managements Annual Report on Internal Control over
Financial Reporting

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

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

Management has assessed the effectiveness of the Companys
internal control over financial reporting as at January 31, 2014. In making its
assessment, management has used the criteria established in Internal Control
- Integrated Framework (1992) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) to evaluate the Companys
internal control over financial reporting. Based on this assessment, management
has concluded that the Companys internal control over financial reporting was
effective as at that date.

The effectiveness of the Companys internal control over
financial reporting as at January 31, 2014 has been audited by
PricewaterhouseCoopers LLP, our independent auditors, as stated in their report,
which appears herein.

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

---

April 25, 2014



Independent Auditors Report

To the Shareholders of PolyMet Mining Corp.

We have completed integrated audits of PolyMet Mining
  Corp.s 2014, 2013 and 2012 consolidated financial statements and its internal control
  over financial reporting as at January 31, 2014. Our opinions, based on our
  audits are presented below.

Report on the consolidated financial statementsWe
  have audited the accompanying consolidated financial statements of PolyMet
  Mining Corp., which comprise the consolidated balance sheets as at January 31,
  2014 and 2013 and the consolidated statements of loss and comprehensive loss,
  changes in shareholders equity and cash flows for each of the years in the
  three-year period ended January 31, 2014, and the related notes, which comprise
  a summary of significant accounting policies and other explanatory
  information.

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

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

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

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

---

OpinionIn our opinion, the consolidated financial
statements present fairly, in all material respects, the financial position of
PolyMet Mining Corp. as at January 31, 2014 and 2013 and its financial
performance and its cash flows for each of the years in the three-year period
ended January 31, 2014 in accordance with International Financial Reporting
Standards as issued by the International Accounting Standards Board.

Report on internal control over financial
  reportingWe have also audited PolyMet Mining Corp.s internal control
  over financial reporting as at January 31, 2014 based on criteria established in
  Internal Control - Integrated Framework (1992), issued by the Committee of
  Sponsoring Organizations of the Treadway Commission (COSO).

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

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

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

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

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

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

OpinionIn our opinion, PolyMet Mining Corp.
maintained, in all material respects, effective internal control over financial
reporting as at January 31, 2014, based on criteria established in Internal
Control - Integrated Framework (1992) issued by COSO.

(signed) PricewaterhouseCoopers LLP

Chartered AccountantsVancouver, British Columbia

---

PolyMet Mining Corp.(a development stage company)Consolidated
Balance SheetsAll figures in Thousands of U.S. Dollars

|                                                                  |   | January 31, |   |   | January 31, |  
|----------------------------------------------------------------- | - | ----------- | - | - | ----------- | -
|                                                                  |   | 2014        |   |   | 2013        |  
|ASSETS                                                            |   |             |   |   |             |  
|                                                                  |   |             |   |   |             |  
|Current                                                           |   |             |   |   |             |  
|Cash and cash equivalents                                         | $ | 32,790      |   | $ | 8,088       |  
|Amounts
      receivable                                          |   | 1,420       |   |   | 830         |  
|Investment                                                        |   | -           |   |   | 17          |  
|Prepaid
      expenses                                            |   | 1,195       |   |   | 771         |  
|                                                                  |   | 35,405      |   |   | 9,706       |  
|Non-Current                                                       |   |             |   |   |             |  
|Mineral Property, Plant
      and Equipment (Notes 3 and 4)       |   | 246,028     |   |   | 220,429     |  
|Wetland
      Credit Intangible (Note 5)                          |   | 6,092       |   |   | 5,992       |  
|Total Assets                                                      | $ | 287,525     |   | $ | 236,127     |  
|                                                                  |   |             |   |   |             |  
|LIABILITIES                                                       |   |             |   |   |             |  
|                                                                  |   |             |   |   |             |  
|Current                                                           |   |             |   |   |             |  
|Accounts
      payable and accrued liabilities                    | $ | 3,806       |   | $ | 5,269       |  
|Convertible debt (Note
      9)                                   |   | 31,967      |   |   | -           |  
|Environmental rehabilitation provision (Note 6)                   |   | 1,504       |   |   | 1,808       |  
|                                                                  |   | 37,277      |   |   | 7,077       |  
|Non-Current                                                       |   |             |   |   |             |  
|Long term debt (Note
      7)                                     |   | 4,276       |   |   | 3,950       |  
|Convertible debt (Note 9)                                         |   | -           |   |   | 30,508      |  
|Environmental
      rehabilitation provision (Note 6)             |   | 49,640      |   |   | 51,680      |  
|                                                                  |   |             |   |   |             |  
|Total Liabilities                                                 |   | 91,193      |   |   | 93,215      |  
|                                                                  |   |             |   |   |             |  
|SHAREHOLDERS EQUITY                                              |   |             |   |   |             |  
|                                                                  |   |             |   |   |             |  
|Share Capital (Note 10)                                           |   | 240,330     |   |   | 181,215     |  
|Share Premium (Notes 8 and
      10)                              |   | 3,007       |   |   | 3,007       |  
|Equity Reserves                                                   |   | 49,543      |   |   | 47,106      |  
|Deficit                                                           |   | (96,548     | ) |   | (88,416     | )
|                                                                  |   |             |   |   |             |  
|Total Shareholders Equity                                        |   | 196,332     |   |   | 142,912     |  
|                                                                  |   |             |   |   |             |  
|Total Liabilities and Shareholders Equity                        | $ | 287,525     |   | $ | 236,127     |  
|                                                                  |   |             |   |   |             |  
|Nature of Business and
      Liquidity(Note 1)                    |   |             |   |   |             |  
|Commitments and Contingencies(Notes 3, 5, 6, 7, 8, 9, 10, and 15) |   |             |   |   |             |  
|Subsequent Events(Note 17)                                        |   |             |   |   |             |  

ON BEHALF OF THE BOARD OF DIRECTORS:

|/S/ Jonathan
      Cherry | , Director | /S/
      William Murray | , Director
|------------------------- | ---------- | ------------------------ | ----------

- See Accompanying Notes 

---

PolyMet Mining Corp.(a development stage company)Consolidated Statements of Loss and Comprehensive LossAll figures in Thousands of U.S. Dollars, except per share
amounts

|                                                                                           |   | For the years ended January 31, |  
|------------------------------------------------------------------------------------------ | - | ------------------------------- | -
|                                                                                           |   | 2014                            |  
|General and Administrative                                                                 |   |                                 |  
|Salaries and benefits                                                                      | $ | 1,379                           |  
|Share-based
      compensation (Note 10)                                                   |   | 1,697                           |  
|Director fees and expenses                                                                 |   | 293                             |  
|Consulting fees                                                                            |   | 28                              |  
|Professional fees                                                                          |   | 398                             |  
|Filing and
      regulatory fees                                                           |   | 81                              |  
|Shareholder, investor, and
      public relations                                          |   | 2,075                           |  
|Travel                                                                                     |   | 295                             |  
|Rent and other office expenses                                                             |   | 225                             |  
|Insurance                                                                                  |   | 157                             |  
|Amortization                                                                               |   | 26                              |  
|                                                                                           |   | 6,654                           |  
|                                                                                           |   |                                 |  
|Other Expenses (Income)                                                                    |   |                                 |  
|Finance costs (Note 11)                                                                    |   | 1,465                           |  
|Loss (gain) on
      foreign exchange                                                      |   | 18                              |  
|Gain on asset held for sale
      (Note 4)                                                 |   | -                               |  
|Loss on sale of
      investment                                                           |   | 48                              |  
|Rental income                                                                              |   | (53                             | )
|                                                                                           |   | 1,478                           |  
|                                                                                           |   |                                 |  
|Loss for the year before
      tax                                                         |   | 8,132                           |  
|Income tax recovery                                                                        |   | -                               |  
|Loss for the year                                                                          |   | 8,132                           |  
|                                                                                           |   |                                 |  
|Other Comprehensive Loss                                                                   |   |                                 |  
|Components of other comprehensive income that are
         reclassified to profit or loss: |   |                                 |  
|Unrealized loss
      (gain) on investment                                                 |   | (7                              | )
|Reclassification adjustment on
      sale of investment                                    |   | (48                             | )
|Total Comprehensive Loss for the year                                                      | $ | 8,077                           |  
|                                                                                           |   |                                 |  
|Basic and Diluted Loss per Share                                                           | $ | (0.04                           | )
|                                                                                           |   |                                 |  
|Weighted Average Number of Shares                                                          |   | 236,303,304                     |  

- See Accompanying Notes -

---

PolyMet Mining Corp.(a
developmentstagecompany)ConsolidatedStatements of Changesin Shareholders EquityAll figures inThousandsof
U.S.Dollars,except forShares

|                                                                |  | Share Capital (authorized = unlimited) |  |   | Equity Reserves |  |   |         |   |   |              |  
|--------------------------------------------------------------- |  | -------------------------------------- |  | - | --------------- |  | - | ------- | - | - | ------------ | -
|                                                                |  |                                        |  |   | Paid-in         |  |   |         |   |   | Warrants and |  
|                                                                |  | Issued                                 |  |   | Share           |  |   | Share   |   |   | Share-based  |  
|                                                                |  | Shares                                 |  |   | Capital         |  |   | Premium |   |   | Payments     |  
|Balance - February 1, 2011                                      |  | 154,825,791                            |  | $ | 142,373         |  | $ | 875     |   | $ | 37,920       |  
|Loss and comprehensive loss for the period                      |  | -                                      |  |   | -               |  |   | -       |   |   | -            |  
|Equity offering and issuance
      costs (Note 9 & 10)          |  | 13,333,333                             |  |   | 15,162          |  |   | 4,667   |   |   | -            |  
|Equity offering and issuance costs (Note 9
      & 10)          |  | 5,000,000                              |  |   | 9,103           |  |   | 875     |   |   | -            |  
|Exercise of options                                             |  | 1,185,000                              |  |   | 902             |  |   | -       |   |   | -            |  
|Fair value transfer on exercised options                        |  | -                                      |  |   | 663             |  |   | -       |   |   | (663         | )
|Restricted shares held in
      trust                           |  | 259,000                                |  |   | -               |  |   | -       |   |   | -            |  
|Land purchase options                                           |  | 135,000                                |  |   | 231             |  |   | -       |   |   | -            |  
|Refinancing of convertible
      debt                           |  | -                                      |  |   | -               |  |   | (4,285  | ) |   | 4,285        |  
|Issuance of convertible debt warrants                           |  | -                                      |  |   | -               |  |   | -       |   |   | 550          |  
|Income tax recovery on
      warrant expiration                 |  | -                                      |  |   | -               |  |   | -       |   |   | (657         | )
|Share-based compensation                                        |  | -                                      |  |   | -               |  |   | -       |   |   | 962          |  
|Bonus Share cost amortization                                   |  | -                                      |  |   | -               |  |   | -       |   |   | 1,235        |  
|Balance - January 31, 2012                                      |  | 174,738,124                            |  | $ | 168,434         |  | $ | 2,132   |   | $ | 43,632       |  
|Loss and comprehensive loss
      for the period                |  | -                                      |  |   | -               |  |   | -       |   |   | -            |  
|Equity offering and issuance costs (Note 9
      & 10)          |  | 5,000,000                              |  |   | 9,107           |  |   | 875     |   |   | -            |  
|Exercise of options (Note 10)                                   |  | 185,000                                |  |   | 148             |  |   | -       |   |   | -            |  
|Fair value transfer on exercised options
      (Note 10)        |  | -                                      |  |   | 62              |  |   | -       |   |   | (62          | )
|Purchase of wetland credit
      intangibles (Note 5)           |  | 2,788,902                              |  |   | 3,375           |  |   | -       |   |   | 525          |  
|Restricted shares held in trust (Note 10)                       |  | 450,882                                |  |   | -               |  |   | -       |   |   | -            |  
|Land purchase options                                           |  | 87,174                                 |  |   | 89              |  |   | -       |   |   | -            |  
|Share option modification (Note 10)                             |  | -                                      |  |   | -               |  |   | -       |   |   | 795          |  
|Share-based compensation
      (Note 10)                        |  | -                                      |  |   | -               |  |   | -       |   |   | 1,884        |  
|Bonus Share cost amortization (Note 10)                         |  | -                                      |  |   | -               |  |   | -       |   |   | 387          |  
|Balance - January 31, 2013                                      |  | 183,250,082                            |  | $ | 181,215         |  | $ | 3,007   |   | $ | 47,161       |  
|Loss and comprehensive loss for the period                      |  | -                                      |  |   | -               |  |   | -       |   |   | -            |  
|Rights offering and issuance
      costs (Note 9 & 10)          |  | 91,636,202                             |  |   | 58,372          |  |   | -       |   |   | -            |  
|Land purchase options                                           |  | 140,123                                |  |   | 125             |  |   | -       |   |   | -            |  
|Fair value transfer on
      restricted share vesting (Note 10) |  | -                                      |  |   | 80              |  |   | -       |   |   | (80          | )
|Share-based compensation (Note 10)                              |  | 548,985                                |  |   | 538             |  |   | -       |   |   | 1,773        |  
|Bonus Share cost amortization (Note 10)                         |  | -                                      |  |   | -               |  |   | -       |   |   | 689          |  
|Balance - January 31, 2014                                      |  | 275,575,392                            |  | $ | 240,330         |  | $ | 3,007   |   | $ | 49,543       |  

- See Accompanying Notes -

---

PolyMet Mining Corp.(a development stage company)Consolidated Statements of Cash FlowsAll figures in
Thousands of U.S. Dollars

|                                                                   |   | For the years ended January 31, |  
|------------------------------------------------------------------ | - | ------------------------------- | -
|                                                                   |   | 2014                            |  
|Operating Activities                                               |   |                                 |  
|Loss for the year                                                  | $ | (8,132                          | )
|Items not involving cash                                           |   |                                 |  
|Amortization                                                       |   | 26                              |  
|Accretion of
      environmental rehabilitation provision (Note 6) |   | 1,521                           |  
|Share-based compensation (Note 10)                                 |   | 1,697                           |  
|Income tax recovery                                                |   | -                               |  
|Unrealized foreign exchange loss                                   |   | 10                              |  
|Loss on sale of
      investment                                   |   | 48                              |  
|Gain on
      asset held for sale (Note 4)                         |   | -                               |  
|Changes in non-cash working capital                                |   |                                 |  
|Amounts
      receivable                                           |   | (590                            | )
|Prepaid expenses                                                   |   | (424                            | )
|Accounts
      payable and accrued liabilities                     |   | (2,190                          | )
|Net cash used in operating activities                              |   | (8,034                          | )
|                                                                   |   |                                 |  
|Financing Activities                                               |   |                                 |  
|Proceeds from share issuance,
      net of costs (Note 10)         |   | 58,372                          |  
|Debenture funding (Note 7 & 8)                                     |   | 20,000                          |  
|Debenture repayment (Note 7
      & 8)                             |   | (20,000                         | )
|Net cash provided by financing activities                          |   | 58,372                          |  
|                                                                   |   |                                 |  
|Investing Activities                                               |   |                                 |  
|Purchase of property, plant
      and equipment (Note 4)           |   | (25,224                         | )
|Capitalized interest and fees paid (Note 8)                        |   | (100                            | )
|Purchase of Wetland Credit
      Intangible (Note 5)               |   | -                               |  
|Proceeds from sale of investment                                   |   | 24                              |  
|Proceeds from sale of asset
      held for sale (Note 4)           |   | -                               |  
|Net cash used in investing activities                              |   | (25,626                         | )
|                                                                   |   |                                 |  
|Net Increase (Decrease) in Cash and Cash Equivalents               |   | 24,712                          |  
|Effect of foreign exchange on Cash and
      Cash Equivalents      |   | (10                             | )
|Cash and Cash Equivalents - Beginning of year                      |   | 8,088                           |  
|Cash and Cash Equivalents - End of year                            | $ | 32,790                          |  

Supplemental Disclosure with Respect to Statement of Cash
Flows(Note 12)

- See Accompanying Notes -

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial
      Statements                                                 
|As at January 31, 2014 and 2013 and for the years ended
      January 31, 2014, 2013, and 2012   
|Tabular amounts in thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

|1. | Nature of Business and Liquidity                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | PolyMet Mining Corp. (PolyMet or the Company) was
      incorporated in British Columbia, Canada on March 4, 1981 under the name
      Fleck Resources Ltd. The Company changed its name from Fleck Resources to
      PolyMet Mining Corp. on June 10, 1998. The Company is engaged in the
      exploration and development, when warranted, of natural resource
      properties. The Companys primary mineral property is the NorthMet Project
      (NorthMet or Project), a polymetallic project in northeastern
      Minnesota, USA which comprises the NorthMet copper-nickel-precious metals
      ore body and the Erie Plant, a large processing facility located
      approximately six miles from the ore body. The realization of the
      Companys investment in NorthMet and other assets is dependent upon
      various factors, including the existence of economically recoverable
      mineral reserves, the ability to complete the environmental review and
      obtain permits necessary to construct and operate NorthMet, the ability to
      obtain financing necessary to complete the exploration and development of
      NorthMet, and future profitable operations or alternatively, disposal of
      the investment on an advantageous basis.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | On September 25, 2006, the Company received the results
      of a Definitive Feasibility Study prepared by Bateman Engineering Pty Ltd
      and NorthMet moved from the exploration stage to the development stage. An
      updated Technical Report under NI 43-101 was filed in January
  2013.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | The corporate address and records office of the Company
      are located at 100 King Street West, Suite 5700, Toronto, Ontario, Canada
      M5X 1C7, and 700 West Georgia, 25thFloor, Vancouver, British
      Columbia, Canada, V7Y 1B3, respectively. The executive office of Poly Met
      Mining, Inc. (PolyMet US), the Companys wholly-owned subsidiary, is
      located at 444 Cedar Street, Suite 2060, St. Paul, Minnesota, United
      States of America, 55101.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | Liquidity risk is the risk the Company will not be able to meet its financial obligations as they become due and arises through the excess of financial obligations over available financial assets due at any point in time.  As at January 31, 2014, PolyMet had cash of $32.790 million and working capital deficiency of $1.872 million. The working capital deficiency relates to the $31.967 million convertible debenture due to Glencore AG, a wholly owned subsidiary of Glencore Xstrata plc (together “Glencore”) becoming a current liability on the basis it was to mature on September 30, 2014.  Subsequent to year-end, PolyMet and Glencore agreed on April 25, 2014 to extend the maturity date of the convertible debenture to the earlier of the Early Maturity Event (as defined in Note 9) or September 30, 2015 (see Note 17).                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|2. | Summary of Significant Accounting
  Policies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | a)    Statement of
      Compliance                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | The consolidated financial statements of PolyMet Mining Corp. have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).  The financial statements were approved by the Board of Directors on April 25, 2014.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | b)    Basis of Consolidation and
      Presentation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | The consolidated financial statements have been prepared
      under the historical cost convention, as modified by the revaluation of
      financial assets classified as available-for-sale. All dollar amounts
      presented are in United States (US) dollars unless otherwise
      specified.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | The consolidated financial statements include the
      accounts of the Company and its wholly-owned subsidiary. Inter-company
      balances and transactions have been eliminated on
  consolidation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

1

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial
      Statements                                                 
|As at January 31, 2014 and 2013 and for the years ended
      January 31, 2014, 2013, and 2012   
|Tabular amounts in thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

|2. | Summary of Significant Accounting Policies-
      Continued                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | c)    Critical Accounting Estimates and
      Judgments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | The preparation of the consolidated financial statements
      in conformity with IFRS as issued by IASB requires the use of certain
      critical accounting estimates. These critical accounting estimates require
      management to make judgments and estimates that affect the reported
      amounts of assets and liabilities and disclosures of contingent assets and
      liabilities as at the date of the financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | Critical accounting estimates and judgments used in the
      preparation of these consolidated financial statements are as
    follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | (i)    Determination of mineral
      reserves                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | Reserves are estimates of the amount of product that can
      be economically and legally extracted from the Companys property. In
      order to estimate reserves, estimates are required about a range of
      geological, technical and economic factors, including quantities,
      production techniques, production costs, capital costs, transport costs,
      demand, prices and exchange rates. Estimating the quantity of reserves
      requires the size, shape and depth of deposits to be determined by
      analyzing geological data. This process may require complex and difficult
      geological judgments to interpret the data. In addition, management will
      form a view of forecast sales prices, based on current and long-term
      historical average price trends. Changes in the proven and probable
      reserves estimates may impact the carrying value of property, plant and
      equipment, restoration provisions, recognition of deferred tax amounts and
      depreciation, depletion and amortization.                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | (ii)   Impairment of non-financial
      assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | The carrying amounts of the Companys non-financial
      assets, including mineral property, plant and equipment, and wetland
      credit intangible are reviewed at each reporting date or when events or
      changes in circumstances occur that indicate the asset may not be
      recoverable to determine whether there is any indication of impairment. If
      any such indication exists, the assets recoverable amount is estimated at
      the greater of its value in use and its fair value less costs of disposal.
      In assessing value in use, the estimated future cash flows are discounted
      to their present value using a pre-tax discount rate that reflects current
      market assessments of the time value of money and the risks specific to
      the asset. An impairment loss is recognized if the carrying amount of an
      asset exceeds its estimated recoverable amount. An impairment loss
      previously recorded is reversed if there has been a change in the
      estimates used to determine the recoverable amount resulting in an
      increase in the estimated service potential of an asset.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | For its mineral property interest the Company considers
      both external and internal sources of information in assessing whether
      there are any indications of impairment. External sources of information
      the Company considers include changes in the market, economic and legal
      environment in which the Company operates that are not within its control
      and affect the recoverable amount of mineral property interests. Internal
      sources of information the Company considers include indications of
      economic performance of the asset. No impairment loss for its mineral
      property interest was recorded for the year ended January 31, 2014 or
      2013.                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | The carrying value of mineral property, plant, and
      equipment, and wetland credit intangible at the balance sheet date is
      disclosed in Note 4 and Note 5, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

2

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial
      Statements                                                 
|As at January 31, 2014 and 2013 and for the years ended
      January 31, 2014, 2013, and 2012   
|Tabular amounts in thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

|2. | Summary of Significant Accounting Policies-
      Continued                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | c)    Critical Accounting
      Estimates and Judgments- Continued                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | (iii)  Provision for Environmental Rehabilitation
      Costs                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | Provisions for environmental rehabilitation costs
      associated with mineral property, plant and equipment, are recognized when
      the Company has a present legal or constructive obligation that can be
      estimated reliably, and it is probable an outflow of economic benefits
      will be required to settle the obligation. Provisions are determined by
      discounting the expected future cash flows at a pre-tax rate that reflects
      current market assessments of the time value of money and the risks
      specific to the liability.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | Upon initial recognition of provisions for environmental
      rehabilitation costs, a corresponding increase to the carrying amount of
      the related asset is recorded and amortized over the life of the asset.
      The estimates are based principally on legal and regulatory requirements.
      Following initial recognition of the environmental rehabilitation
      provision, the carrying amount of the liability is accreted to its future
      value over the life of the asset, reduced for actual reclamation payments
      incurred, adjusted for changes to the current market-based discount rate,
      and adjusted for changes in the amount and timing of the underlying cash
      flows needed to settle the obligation.                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | It is possible that the Companys estimates of its
      ultimate environmental rehabilitation liabilities could be affected by
      changes in regulations, changes in the extent of environmental
      rehabilitation required, changes in the means of rehabilitation, changes
      in the extent of responsibility for the financial liability or changes in
      cost estimates. The operations of the Company may in the future be
      affected from time to time in varying degrees by changes in environmental
      regulations, including those for future removal and site restoration
      costs. Both the likelihood of new regulations and their overall effect
      upon the Company may vary greatly and are not predictable.                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | The Companys provision for environmental rehabilitation
      cost obligations represents managements best estimate of the present
      value of the future cash outflows required to settle the liability. See
      additional discussion in Note 6.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | d)    Foreign Currency
      Translation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | The US dollar is the functional currency of the Company
      and its controlled entities. Amounts in these consolidated financial
      statements are expressed in US dollars unless otherwise stated.
      Transactions in foreign currencies are translated into the functional
      currency at the exchange rates at the date of the transactions. Monetary
      assets and liabilities of the Companys operations denominated in a
      currency other than the U.S. dollar are translated using exchange rates
      prevailing at the balance sheet date. Non-monetary items that are measured
      in terms of historical cost in a foreign currency are translated using the
      exchange rates on the dates of the initial transactions. Revenue and
      expense items are translated at the exchange rates in effect at the date
      of the underlying transaction, except for amortization related to
      non-monetary assets, which are translated at historical exchange rates.
      Exchange differences are recognized in net loss in the year in which they
      arise.

3

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial
      Statements                                                 
|As at January 31, 2014 and 2013 and for the years ended
      January 31, 2014, 2013, and 2012   
|Tabular amounts in thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

|2. | Summary of Significant Accounting Policies-
      Continued                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | e)    Cash and Cash
      Equivalents                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | The Company considers cash and cash equivalents to
      include amounts held in banks and highly liquid investments with
      maturities at point of purchase of three months or less.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | f)    Financial
  Assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | All financial assets are initially recorded at fair value
      and designated upon inception as one of the following four categories:
      held to maturity, available for sale, loans and receivables or at fair
      value through profit or loss (FVTPL). Financial assets classified as
      FVTPL are measured at fair value with unrealized gains and losses
      recognized through profit and loss. Financial assets classified as loans
      and receivables and held to maturity are measured at amortized cost using
      the effective interest method less any allowance for impairment. The
      effective interest method is a method of calculating the amortized cost of
      a financial asset and of allocating interest income over the relevant
      period. The effective interest rate is the rate that exactly discounts
      estimated future cash receipts (including all fees paid or received that
      form an integral part of the effective interest rate, transaction costs
      and other premiums or discounts) through the expected life of the
      financial asset, or, where appropriate, a shorter period. Financial assets
      classified as available for sale are measured at fair value with
      unrealized gains and losses recognized in other comprehensive loss except
      when there is objective evidence that the asset is impaired, the
      cumulative loss that had been recognized in other comprehensive loss shall
      be reclassified from equity to profit or loss as a reclassification
      adjustment. Transactions costs associated with FVTPL financial assets are
      expensed as incurred, while transaction costs associated with all other
      financial assets are included in the initial carrying amount of the asset.
      See additional discussion in Note 16.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | g)    Mineral Property, Plant
      and Equipment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | Mineral Property                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | Mineral property costs, aside from mineral property
      acquisition costs, incurred prior to determination of the Definitive
      Feasibility Study (DFS) are expensed as incurred and expenditures
      incurred subsequent to the DFS and mineral property acquisition costs are
      capitalized until the property is placed into production, sold, allowed to
      lapse or abandoned. As a result of the DFS, NorthMet entered the
      development stage effective October 1, 2006. The Company has capitalized
      mineral property development expenditures related to NorthMet from that
      date.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | Upon commencement of production, mineral properties and
      acquisition costs relating to mines are amortized on a unit of production
      basis over the estimated proven and probable mineral reserves not to
      exceed the assets useful lives.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

4

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial
      Statements                                                 
|As at January 31, 2014 and 2013 and for the years ended
      January 31, 2014, 2013, and 2012   
|Tabular amounts in thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

|2. | Summary of Significant Accounting Policies-
      Continued                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | g)    Mineral Property, Plant and
      Equipment- Continued                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | Plant and Equipment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | Plant and equipment are recorded at historical cost less
      accumulated depreciation and if applicable, accumulated impairment losses.
      Subsequent costs are included in the assets carrying amount or recognized
      as a separate asset, as appropriate, if it is probable that the future
      economic benefits embodied within the part will flow to the Company and
      its cost can be measured reliably. The carrying amount of a replaced part
      is derecognized. All other repairs and maintenance are charged to the
      statement of loss and comprehensive loss during the period in which they
      are incurred. Plant and equipment is depreciated over the estimated life
      of the related assets calculated on a unit of production or straight-line
      basis, as appropriate.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | Depreciation of plant and equipment is calculated using
      the cost of the asset, less its residual value, on a straight-line basis
      over the estimated useful life of the asset. Estimated useful lives are as
      follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

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

h)    Wetland Credit
Intangible

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

i)    Financial
Liabilities

All financial liabilities are initially
recorded at fair value and designated upon inception as FVTPL or other financial
liabilities. Financial liabilities classified as other financial liabilities are
initially recognized at fair value less directly attributable transaction costs.
After initial recognition, other financial liabilities are subsequently measured
at amortized cost using the effective interest method. The effective interest
method is a method of calculating the amortized cost of a financial liability
and of allocating interest expense over the relevant period. The effective
interest rate is the rate that exactly discounts estimated future cash payments
through the expected life of the financial liability. Financial liabilities
classified as FVTPL include financial liabilities held for trading and financial
liabilities designated upon initial recognition as FVTPL. Derivatives, including
separated embedded derivatives, are also classified as held for trading unless
they are designated as effective hedging instruments. Transaction costs on
financial liabilities classified as FVTPL are expensed as incurred. At the end
of each reporting period subsequent to initial recognition, financial
liabilities at FVTPL are measured at fair value, with changes in fair value
recognized directly in profit or loss in the period in which they arise. The net
gain or loss recognized in profit or loss excludes any interest paid on the
financial liabilities. See additional discussion in Note 16.

5

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial
      Statements                                                 
|As at January 31, 2014 and 2013 and for the years ended
      January 31, 2014, 2013, and 2012   
|Tabular amounts in thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

|2. | Summary of Significant Accounting Policies-
      Continued                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | j)    Borrowing
  costs                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | Borrowing costs directly attributable to the acquisition,
      construction or production of a qualifying asset are capitalized as part
      of the cost of that asset until such time as the asset is substantially
      complete and ready for its intended use or sale. Where funds have been
      borrowed specifically to finance an asset, the amount capitalized is the
      actual borrowing costs incurred. Where the funds used to finance an asset
      form part of general borrowings, the amount capitalized is calculated
      using a weighted average of rates applicable to relevant borrowings of the
      Company during the period. Other borrowing costs not directly attributable
      to a qualifying asset are expensed in the year incurred.                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | k) Share-Based
      Compensation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | All share-based compensation awards made to directors,
      employees and non-employees are measured and recognized using a fair value
      based method. For directors and employees, or those providing services
      similar to employees, the fair value of options is determined using the
      Black- Scholes option pricing model, and is amortised straight-line over
      the vesting period. Awards issued to non-employees are recognized based on
      the fair value of the goods or services received and recognized over the
      vesting period. The fair value of the bonus shares, restricted shares, and
      restricted share units is calculated using the intrinsic value of the
      shares at issuance, and is amortised straight-line over the vesting
      period.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | The fair value of the award is accrued and charged either
      to operations or mineral property plant and equipment, with the offsetting
      credit to warrants and share-based payment reserve, on a graded method
      over the vesting period. If and when share options are ultimately
      exercised or bonus shares, restricted shares, and restricted share units
      vest, the applicable amounts from the warrants and share-based payment
      reserve are transferred to share capital.                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | Certain awards vest upon achievement of a specified
      performance condition. On a quarterly basis, management assesses the
      probability of achieving those performance conditions using the best
      available information, and estimates the appropriate vesting
  period.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | When the Company amends the terms of share options, the
      incremental change in the fair value of the options due to the amendment,
      as determined using the Black-Scholes option pricing model, is recognized
      over the vesting period in the statement of loss or capitalized as
      appropriate.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | l)    Share Purchase
      Warrants                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | The Company issues share purchase warrants in connection
      with certain equity transactions. The fair value of the warrants, as
      determined using the Black-Scholes option pricing model or fair value of
      goods or services received, is credited to the warrants and share-based
      payment reserve. The recorded value of share purchase warrants is
      transferred to share capital upon exercise.                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | m) Loss Per
  Share                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | Loss per share is computed by dividing the loss for the
      year by the weighted average number of common shares outstanding during
      the year. Basic and diluted loss per share for each year presented are the
      same as the effect of potential issuances of shares under warrant or share
      option agreements would, in total, be
anti-dilutive.                                                                                                                                                                                                                                                                                                                                                                                                                                    

6

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial
      Statements                                                 
|As at January 31, 2014 and 2013 and for the years ended
      January 31, 2014, 2013, and 2012   
|Tabular amounts in thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

|2. | Summary of Significant Accounting Policies-
      Continued                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | n)    Income Taxes and Deferred
      Taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | The income tax expense or benefit for the year consists
      of two components: current and deferred.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | Current tax is the expected tax payable or receivable on
      the taxable profit or loss for the year. Current tax is calculated using
      tax rates and laws that were enacted or substantively enacted at the
      balance sheet date in each of the jurisdictions and includes any
      adjustments for taxes payable or recovery in respect of prior
    periods.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | Taxable profit or loss differs from profit or loss as
      reported in the Consolidated Statements of Comprehensive Loss because of
      items of income or expense that are taxable or deductible in other years,
      and items that are never taxable or deductible.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | Deferred tax is recognized on temporary differences
      between the carrying amounts of assets and liabilities in the financial
      statements and the corresponding tax basis used in the computation of
      taxable profit. Deferred tax liabilities are generally recognized for all
      taxable temporary differences not eligible for offset. Deferred tax assets
      are generally recognized for all deductible temporary differences, loss
      carry forwards and tax credit carry forwards to the extent that it is
      probable that taxable profits will be available against which they can be
      utilized. To the extent that the Company does not consider it to be
      probable that taxable profits will be available against which deductible
      temporary differences, loss carry forwards, and tax credit carry forwards
      can be utilized, a deferred tax asset is not recognized.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | Deferred tax assets and liabilities are not recognized if
      the temporary difference arises from the initial recognition (other than
      in a business combination) of other assets and liabilities in a
      transaction that affects neither the taxable profit nor the accounting
      profit.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | o)    Adoption of New or Amended
      IFRS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | On February 1, 2013, the Company adopted the following
      new or amended accounting standards that were previously issued by the
      IASB, which did not have a significant impact on the Companys
      consolidated financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | IFRS 10  Consolidation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | IFRS 10 requires an entity to consolidate an investee
      when it is exposed, or has rights, to variable returns from its
      involvement with the investee and has the ability to affect those returns
      through its power over the investee. Under existing IFRS, consolidation is
      required when an entity has the power to govern the financial and
      operating policies of an entity so as to obtain benefits from its
      activities. IFRS 10 replaces SIC-12 ConsolidationSpecial Purpose Entities
      and parts of IAS 27 Consolidated and Separate Financial Statements. IFRS
      10 is effective for annual periods beginning on or after January 1,
      2013.                                                                                                                                                                                                                              

7

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial
      Statements                                                 
|As at January 31, 2014 and 2013 and for the years ended
      January 31, 2014, 2013, and 2012   
|Tabular amounts in thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

|2. | Summary of Significant Accounting Policies-
      Continued                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | o)    Adoption of New or Amended IFRS- Continued                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | IFRS 11 - Joint Arrangements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | IFRS 11 requires a venturer to classify its interest in a
      joint arrangement as a joint venture or joint operation. Joint ventures
      will be accounted for using the equity method of accounting whereas for a
      joint operation the venturer will recognize its share of the assets,
      liabilities, revenue and expenses of the joint operation. Under existing
      IFRS, entities have the choice to proportionately consolidate or equity
      account for interests in joint ventures. IFRS 11 supersedes IAS 31,
      Interests in Joint Ventures, and SIC-13, Jointly Controlled
      EntitiesNon-monetary Contributions by Venturers. IFRS 11 is effective for
      annual periods beginning on or after January 1, 2013.                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | IFRS 12  Disclosure of Interests in Other
      Entities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | IFRS 12 establishes disclosure requirements for interests
      in other entities, such as joint arrangements, associates, special purpose
      vehicles and off balance sheet vehicles. The standard carries forward
      existing disclosures and also introduces significant additional disclosure
      requirements that address the nature of, and risks associated with, an
      entitys interests in other entities. IFRS 12 is effective for annual
      periods beginning on or after January 1, 2013, with early adoption
      permitted.                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | IFRS 13 - Fair Value Measurement                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | IFRS 13 is a comprehensive standard for fair value
      measurement and disclosure requirements for use across all IFRS standards.
      The new standard clarifies that fair value is the price that would be
      received to sell an asset, or paid to transfer a liability in an orderly
      transaction between market participants, at the measurement date. It also
      establishes disclosures about fair value measurement. Under existing IFRS,
      guidance on measuring and disclosing fair value is dispersed among the
      specific standards requiring fair value measurements and in many cases
      does not reflect a clear measurement basis or consistent disclosures. IFRS
      13 is effective for annual periods beginning on or after January 1,
      2013.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | IFRIC 20  Stripping Costs in the Production Phase of
      a Surface Mine                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | IFRIC 20 addresses accounting issues regarding waste
      removal costs incurred in surface mining activities during the production
      phase of a mine, referred to as production stripping costs. The new
      interpretation addresses the classification and measurement of production
      stripping costs as either inventory or as a tangible or intangible
      non-current stripping activity asset. The standard also provides
      guidance for the depreciation or amortization and impairment of such
      assets. IFRIC 20 is effective for reporting years beginning on or after
      January 1, 2013, although earlier application is permitted.                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | IAS 1  Presentation of Items of Other Comprehensive
      Income                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | The amendments of IAS 1 change the grouping of items
      presented in other comprehensive income. Items that could be reclassified
      (or recycled) to net earnings at a future point in time would be
      presented separately from items that will never be reclassified. The
      amendment becomes effective for annual periods beginning on or after July
      1, 2012.                                                                                                                                                                                                                                                                                                                                                                                                         

8

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial
      Statements                                                 
|As at January 31, 2014 and 2013 and for the years ended
      January 31, 2014, 2013, and 2012   
|Tabular amounts in thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

|2. | Summary of Significant Accounting Policies-
      Continued                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | p)    Future Accounting
    Changes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | The Company anticipates that all of the relevant
      pronouncements will be adopted in the Companys accounting policy for the
      first period beginning after the effective date of the pronouncement.
      Information on new standards, amendments and interpretations that are
      expected to be relevant to the Companys financial statements is provided
      below. Certain other new standards and interpretations have been issued
      but are not expected to have a material impact on the Companys financial
      statements and are therefore not discussed below.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | IFRS 9  Financial Instruments - Classification and
      Measurement                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | The IASB has suspended the originally planned effective
      date of January 1, 2015 for IFRS 9. The IASB issued IFRS 9 as the first
      step in its project to replace IAS 39: Financial Instruments  recognition
      and measurement. The Company will commence assessing the impact of this
      new standard upon the announcement of its new effective date.                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | IFRIC 21  Levies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | IFRIC 21 is an interpretation of IAS 37 and addresses the
      accounting for an obligation to pay a levy that is not an income tax. The
      Company is currently assessing the impact of adopting IFRIC 21 on its
      consolidated financial statements, including the applicability of early
      adoption.                                                                                                                                                                                                                                                                           

9

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial
      Statements                                                 
|As at January 31, 2014 and 2013 and for the years ended
      January 31, 2014, 2013, and 2012   
|Tabular amounts in thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

|3. | Mineral Property Agreements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | NorthMet, Minnesota, U.S.A.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | Pursuant to an agreement dated January 4, 1989,
      subsequently amended and assigned, the Company leases certain property in
      St. Louis County, Minnesota from RGGS Land & Minerals Ltd., L.P. The
      initial term of the renewable lease was 20 years and called for total
      lease payments of $1.475 million. The Company can, at its option,
      terminate the lease at any time by giving written notice to the lessor not
      less than 90 days prior to the effective termination date or can
      indefinitely extend the 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, 2014. The next payment is due in
      January 2015.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | 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 $2.225 million in
      advance royalty payments is subject to the lessor receiving an amount not
      less than the amount of the annual lease payment due for that
  year.                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | Pursuant to an agreement effective December 1, 2008, the
      Company leases certain property in St. Louis County, Minnesota from LMC
      Minerals. The initial term of the renewable lease is 20 years and calls
      for minimum annual lease payments of $3,000 for the first four years after
      which the minimum annual lease payment 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 or accrued to January 31,
      2014. The next payment is due in November 2014.                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | The lease payments are considered advance royalty
      payments and will be deducted from future production royalties payable to
      the lessor, which range from 3% to 5% based on the net smelter return that
      we receive. The Companys recovery of $0.069 million in advance royalty
      payments is subject to the lessor receiving an amount not less than the
      amount of the annual lease payment due for that year.                                                                                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | Pursuant to the leases, PolyMet holds mineral rights and the right to mine upon receiving the required permits.  PolyMet has proposed to acquire surface rights through a land exchange with the United States Forest Service (Note 7).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

10

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial
      Statements                                                 
|As at January 31, 2014 and 2013 and for the years ended
      January 31, 2014, 2013, and 2012   
|Tabular amounts in thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

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

| |                                               |   |          |   |   | Other fixed |   |   |         |  
| | --------------------------------------------- | - | -------- | - | - | ----------- | - | - | ------- | -
| | Net Book
      Value                          |   | NorthMet |   |   | assets      |   |   | Total   |  
| | Balance at February 1, 2012                   | $ | 170,430  |   | $ | 259         |   | $ | 170,689 |  
| | Additions                                     |   | 19,438   |   |   | 27          |   |   | 19,465  |  
| | Changes to
      environmental rehabilitation |   |          |   |   |             |   |   |         |  
| | provision (Note 6)                            |   | 30,425   |   |   | -           |   |   | 30,425  |  
| | Amortization                                  |   | -        |   |   | (150        | ) |   | (150    | )
| | Balance at January 31, 2013                   | $ | 220,293  |   | $ | 136         |   | $ | 220,429 |  
| | Additions                                     |   | 27,937   |   |   | 38          |   |   | 27,975  |  
| | Changes to environmental
      rehabilitation |   |          |   |   |             |   |   |         |  
| | provision (Note 6)                            |   | (2,350   | ) |   | -           |   |   | (2,350  | )
| | Amortization                                  |   | -        |   |   | (26         | ) |   | (26     | )
| | Balance at January 31, 2014                   | $ | 245,880  |   | $ | 148         |   | $ | 246,028 |  

| |                                                       |   | January 31, |  |   | January 31, | 
| | ----------------------------------------------------- | - | ----------- |  | - | ----------- | 
| | NorthMet                                              |   | 2014        |  |   | 2013        | 
| |                                                       |   |             |  |   |             | 
| | Mineral property acquisition and interest
      costs | $ | 46,334      |  | $ | 44,514      | 
| | Mine plan and development                             |   | 38,065      |  |   | 35,688      | 
| | Environmental                                         |   | 61,866      |  |   | 46,198      | 
| | Consulting and wages                                  |   | 34,630      |  |   | 29,132      | 
| | Environmental rehabilitation (Note 6)                 |   | 49,000      |  |   | 51,350      | 
| | Site activities                                       |   | 15,036      |  |   | 12,462      | 
| | Mine equipment                                        |   | 949         |  |   | 949         | 
| |                                                       |   |             |  |   |             | 
| | Total                                                 | $ | 245,880     |  | $ | 220,293     | 

Erie Plant, Minnesota, U.S.A.

In October 2003, the Company entered
into an option with Cliffs Natural Resources Inc. (Cliffs) to purchase 100%
ownership of large parts of the former LTV Steel Mining Company ore processing
plant in northeastern Minnesota (the Erie Plant). The Company paid $0.500
million in cash and issued 1,000,000 common shares (at fair value of $0.229
million) for this option, which it exercised on November 15, 2005 under the
Asset Purchase Agreement with Cliffs (Cliffs I).

On December 20, 2006, the Company
closed a transaction (Cliffs 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 cost of acquisition of the Erie
Plant and associated infrastructure was $18.9 million in cash and 9,200,547
shares at a fair market value of $13.953 million.

11

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial
      Statements                                                 
|As at January 31, 2014 and 2013 and for the years ended
      January 31, 2014, 2013, and 2012   
|Tabular amounts in thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

|4. | Mineral Property, Plant and Equipment-
      Continued                                                                                                                                                                                                                                                                                                                                                                                                                                         
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | The Company assumed certain ongoing site-related
      environmental and reclamation obligations as a result of the above
      purchases (Note 6). 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 Companys obligations will
      be direct with the governing bodies.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | During the year ended January 31, 2014, the Company
      capitalized 100% of borrowing costs on long- term (Note 7), convertible
      debt (Note 9), and other debentures (Note 8) in the amount of $2.111
      million (January 31, 2013 - $1.768 million) as part of the cost of
      NorthMet assets.                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | As NorthMet assets are not in use or capable of operating
      in a manner intended by management, no amortization of these assets has
      been recorded to January 31, 2014.                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | At April 30, 2010, certain equipment was classified as
      assets held for sale. During the year ended January 31, 2012 the assets
      were sold for cash of $3.492 million resulting in a gain of $0.072
      million.                                                                                                                                                                                                                                                                   

12

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial
      Statements                                                 
|As at January 31, 2014 and 2013 and for the years ended
      January 31, 2014, 2013, and 2012   
|Tabular amounts in thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

|5. | Wetland Credit Intangible                                
|-- | ---------------------------------------------------------
|   |                                                          
|   | Details of Wetland Credit Intangibles are as
    follows:

| |                                                       |   | January 31, |  |   | January 31, | 
| | ----------------------------------------------------- | - | ----------- |  | - | ----------- | 
| |                                                       |   | 2014        |  |   | 2013        | 
| | Wetland Credit Intangible 
      Exercised options   | $ | 1,579       |  | $ | 1,579       | 
| | Wetland Credit Intangible  Unexercised
      options |   | 4,513       |  |   | 4,413       | 
| |                                                       | $ | 6,092       |  | $ | 5,992       | 

On March 9, 2012 the Company acquired a
secured interest in land (AG Land) owned by AG for Waterfowl, LLP ("AG") that
is permitted for restoration to wetland. AG was subsequently acquired by
Environmental Investment Partners (EIP) and the Company consented to the
assignment of the agreement to EIP on September 7, 2012. EIP will restore the
wetlands and, upon completion, wetland credits are to be issued by the proper
governmental authorities. The Company plans to use the wetland credits to offset
wetlands disturbed during construction and operation of NorthMet. The Company
holds a first mortgage on the AG Land, which will be proportionately released as
wetland credits are transferred to the Company. The Company has the option to
exercise five separate phases of wetland credit development. Any option not
exercised by February 28, 2017 will expire and the remaining mortgage, if any,
will be released. As at January 31, 2014, the Company had exercised the option
on phase 1.

The Company paid initial consideration
of $2.0 million cash and issued 2,788,902 of the Companys common shares valued
at $3.375 million (of which 371,854 held in escrow pending completion of
construction of the first phase) and a warrant to purchase 1,083,333 of the
Companys common shares at $1.50 per share at any time until December 31, 2015
as consideration for a $5.9 million mortgage to secure performance by EIP. Since
the Company expects to exercise each of the remaining options prior to
expiration, the total consideration was allocated to each phase. The exercise
price of the exchange warrants and the number of warrants are subject to
conventional anti-dilution provisions. Effective July 5, 2013, the Company
increased the number of common shares issuable to 1,249,315 and reduced the
exercise price to $1.3007, to reflect the dilutive effect of the 91.6 million
common shares that were issued at $0.66 per share in connection with the Rights
Offering (the Rights Offering) (Note 10).

In addition to the initial
consideration, performance commitments for phase 1 totaling $0.68 million will
be due over the seven years following wetland construction completion for
ongoing maintenance by EIP. Performance payments totaling $1.063 million per
phase for completion and maintenance of phase 2 through 5 will only be incurred
if and when the Company exercises its option on those phases and will be due
over the seven years following completion of each phase. If wetland credits are
issued by the proper governmental authorities before the seven-year anniversary,
any unpaid amounts are due upon issuance of the wetland credits.

13

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial
      Statements                                                 
|As at January 31, 2014 and 2013 and for the years ended
      January 31, 2014, 2013, and 2012   
|Tabular amounts in thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

|6. | Environmental Rehabilitation Provision                                 
|-- | -----------------------------------------------------------------------
|   |                                                                        
|   | Details of Environmental Rehabilitation Provision are as
      follows:

| |                                                                  |   | Year ended  |   |   | Year ended  |  
| | ---------------------------------------------------------------- | - | ----------- | - | - | ----------- | -
| |                                                                  |   | January 31, |   |   | January 31, |  
| |                                                                  |   | 2014        |   |   | 2013        |  
| | Environmental Rehabilitation
      Provision  beginning of year | $ | 53,488      |   | $ | 22,836      |  
| | Change in estimated liability                                    |   | 2,430       |   |   | 31,845      |  
| | Liabilities
      discharged                                     |   | (1,515      | ) |   | (565        | )
| | Accretion expense                                                |   | 1,521       |   |   | 792         |  
| | Change in
      risk-free interest rate                          |   | (4,780      | ) |   | (1,420      | )
| | Environmental Rehabilitation Provision  end
      of year       |   | 51,144      |   |   | 53,488      |  
| | Less current
      portion                                       |   | (1,504      | ) |   | (1,808      | )
| |                                                                  |   |             |   |   |             |  
| | Non-current portion                                              | $ | 49,640      |   | $ | 51,680      |  

As part of the consideration for the
Cliffs Purchase Agreements (Note 4), the Company indemnified Cliffs for the
liability related to 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. Once
the Company obtains its permit to mine the environmental and reclamation
obligations will be direct with the governing bodies. The Companys provisions
for future site closure and reclamation costs are based upon existing
reclamation requirements. It is not currently possible to estimate the impact on
operating results, if any, of future legislative or regulatory developments.

In April 2010, Cliffs entered into a
consent decree with the Minnesota Pollution Control Agency (MPCA) relating to
alleged violations on the Cliffs Erie Property. This consent decree required
both short and long-term mitigation. Field study activities were completed in
2010 and 2011 and short-term mitigations were initiated in 2011 as outlined in
the plans and approved by the MPCA. In April 2012, long-term mitigation plans
were submitted to the MPCA for its review and approval. In October 2012, a
response was received from the MPCA approving plans for pilot tests of various
treatment options to determine the best course of action. Although there is
substantial uncertainty related to applicable water quality standards,
engineering scope, and responsibility for the financial liability, the October
2012 response from the MPCA and subsequent communication provides clarification
to the potential liability for the long-term mitigation included in the
Companys environmental rehabilitation provision. This resulted in a $2.4
million increase to the provision during the year ended January 31, 2014 and a
$31.8 million increase to the provision during the year ended January 31, 2013.

The Company’s best estimate of the environmental rehabilitation provision at January 31, 2014 was $51.1 million (January 31, 2013 - $53.5 million) based on estimated cash flows required to settle this obligation in present day costs of $27.3 million (January 31, 2013 - $24.5 million) for Cliffs I and $33.1 million (January 31, 2013 - $33.0 million) for Cliffs II, an annual inflation rate of 2.00% (January 31, 2013 – 2.00%) and a risk-free interest rate of 3.35% (January 31, 2013 – 2.79%).  Payments are expected to occur over a period of approximately 34 years.

14

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial
      Statements                                                 
|As at January 31, 2014 and 2013 and for the years ended
      January 31, 2014, 2013, and 2012   
|Tabular amounts in thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

|7. | Long Term Debt                             
|-- | -------------------------------------------
|   |                                            
|   | Details of Long Term Debt are as
  follows:

| |                                          |   | Year ended  |  |   | Year ended  | 
| | ---------------------------------------- | - | ----------- |  | - | ----------- | 
| |                                          |   | January 31, |  |   | January 31, | 
| |                                          |   | 2014        |  |   | 2013        | 
| | Long Term Debt  beginning of
      year | $ | 3,950       |  | $ | 3,672       | 
| | Accretion and capitalized
      interest |   | 326         |  |   | 278         | 
| | Long Term Debt  end of year             |   | 4,276       |  |   | 3,950       | 
| | Less current portion                     |   | -           |  |   | -           | 
| |                                          |   |             |  |   |             | 
| | Non-current portion                      | $ | 4,276       |  | $ | 3,950       | 

On June 30, 2011 the Company closed a
$4.0 million loan from Iron Range Resources & Rehabilitation Board
("IRRRB"), a development agency created by the State of Minnesota to stabilize
and enhance the economy of northeastern Minnesota. At the same time, the Company
exercised its options to acquire two tracts of land as part of the proposed land
exchange with the U.S. Forest Service (USFS). The loan is secured by the land
acquired, carries a fixed interest rate of 5% per annum, compounded annually,
and is repayable on the earlier of June 30, 2016 or the date which the related
land is exchanged with the USFS (not expected to occur within 12 months from
January 31, 2014). The Company has issued warrants giving the IRRRB the right to
purchase 400,000 shares of its common shares at $2.50 per share at any time
until the earlier of June 30, 2016, the date the land is exchanged with the USFS
or an alternative date as determined between the parties as the due date of the
loan (IRRRB Warrants). Effective July 5, 2013, the Company increased the
number of common shares issuable to 461,286 and reduced the exercise price to
$2.1678, to reflect the dilutive effect of the 91.6 million common shares that
were issued at $0.66 per share in connection with the Rights Offering (Note 10).
All long term debt borrowing costs were eligible for capitalization and 100% of
these costs were capitalized during the year ended January 31, 2014.

Pursuant to Cliffs II (Note 4) the
Company signed two notes payable to Cliffs totaling $14.0 million. The first
note was paid in quarterly installments equal to $0.250 million with the first
payment on December 31, 2006 for total repayment of $7.0 million with the
balance due upon receipt of production financing. The second note was paid in
quarterly installments equal to $0.250 million commencing on December 31, 2009
for total repayment of $7.0 million with the balance due on December 31, 2011.
Both of these notes were repaid in full in December 2011.

15

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial
      Statements                                                 
|As at January 31, 2014 and 2013 and for the years ended
      January 31, 2014, 2013, and 2012   
|Tabular amounts in thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

|8. | Glencore Financing                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | Since October 31, 2008 the Company and Glencore have
      entered into a series of financing agreements and a marketing agreement
      whereby Glencore committed to purchase all of the Companys production of
      concentrates, metal, or intermediate products on market terms at the time
      of delivery for at least the first five years of production. As part of
      the 2013 financing agreement, PolyMet and Glencore entered into a
      Corporate Governance Agreement whereby from January 1, 2014 as long as
      Glencore holds 10% or more of PolyMet's shares (on a fully diluted basis)
      Glencore shall have the right, but not obligation to designate at least
      one director and not more than the number of directors proportionate to
      Glencore's fully diluted ownership of PolyMet, rounded down to the nearest
      whole number, such number to not exceed 49% of the total board. PolyMet
      previously appointed a senior member of Glencore's technical team to
      PolyMet's Technical Steering Committee.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | The financing agreements comprise $25.0 million initial
      principal Series A-D debentures in calendar 2008 drawn in four tranches
      (Note 9), $25.0 million placement of PolyMet common shares in calendar
      2009 in two tranches, 30.0 million placement of PolyMet common shares in
      calendar 2010 in three tranches (the 2010 Agreement), $20.0 million
      placement of PolyMet common shares in calendar 2011 in one tranche (the
      2011 Agreement), and $20.960 million purchase of PolyMet common shares
      in the Rights Offering (the 2013 Agreement). As a result of the series
      of financing transactions and the purchase by Glencore of PolyMet common
      shares previously owned by Cliffs, Glencore's current ownership and
      ownership rights of PolyMet comprises:                                                                                                                                                                                                                                          

| |  | 78,724,821 shares representing 28.6% of PolyMet's issued
      shares;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |  | $25.0 million initial principal floating rate secured
      debentures due September 30, 2014 (Note 9). Including capitalized and
      accrued interest as at January 31, 2014, these debentures are exchangeable
      at $1.2920 per share into 24,741,611 common shares of PolyMet upon PolyMet
      giving Glencore notice that it has received permits necessary to start
      construction of NorthMet and availability of senior construction finance
      in a form reasonably acceptable to Glencore or are repayable on September
      30, 2014. Subsequent to January 31, 2014, the Company obtained an
      extension of the due date to the earlier of (i) PolyMet giving Glencore
      ten days notice that PolyMet has received permits necessary to start
      construction of NorthMet and availability of senior construction finance,
      in a form reasonably acceptable to Glencore (the "Early Maturity Event"),
      and (ii) September 30, 2015 (see Note 17). The exercise price of the
      exchange warrants and the number of warrants are subject to conventional
      anti-dilution provisions; and
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |  | Glencore holds warrants to purchase 6,458,001 million
      common shares at $1.3007 per share at any time until December 31, 2015,
      subject to mandatory exercise if the 20-day Value Weighted Average Price
      (VWAP) of PolyMet common shares is equal to or greater than 150% of the
      exercise price and PolyMet provides notice to Glencore that it has
      received permits necessary to start construction of NorthMet and
      availability of senior construction finance, in a form reasonably
      acceptable to Glencore. The exercise price of the purchase warrants and
      the number of warrants are subject to conventional anti-dilution
      provisions.                                                                                                                                                                                                                                                                                                                                                                                                                                              

If Glencore were to exercise all of its
rights and obligations under these agreements, it would own 109,924,433 common
shares of PolyMet, representing 35.8% on a partially diluted basis, that is, if
no other options or warrants were exercised or 33.5% on a fully diluted basis.

16

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial
      Statements                                                 
|As at January 31, 2014 and 2013 and for the years ended
      January 31, 2014, 2013, and 2012   
|Tabular amounts in thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

|8. | Glencore Financing- Continued                                                           
|-- | ----------------------------------------------------------------------------------------
|   |                                                                                         
|   | 2011 Agreement                                                                          
|   | On November 30, 2011, PolyMet and Glencore entered into a
      definitive agreement to:

| |  | Sell in a private placement to Glencore, 13,333,333
      common shares at $1.50 per share for gross proceeds of $20.0 million
      (before deducting offering expenses) and issue to Glencore warrants (the
      2011 Warrants) to purchase 2,600,000 common shares of PolyMet at $1.50 per
      share at any time until December 31, 2015, subject to mandatory exercise
      if the 20-day VWAP of PolyMet shares is equal to or greater than 150% the
      exercise price and PolyMet provides notice to Glencore that it has
      received permits necessary to start construction of NorthMet and
      availability of senior construction finance, in a form reasonably
      acceptable to Glencore. Effective July 5, 2013, the Company increased the
      number of common shares issuable to 2,998,358 and reduced the exercise
      price to $1.3007, to reflect the dilutive effect of the 91.6 million
      common shares that were issued in connection with the Rights Offering
      (Note 10). Approximately $7.0 million of the proceeds from the sale of
      these shares was used to repay outstanding notes (including interest) to
      Cliffs Natural Resources Inc. (Note 7);
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  | Extend the term of the $25.0 million initial principal
      debentures to the earlier of (i) PolyMet giving Glencore ten days notice
      that PolyMet has received permits necessary to start construction of
      NorthMet and availability of senior construction finance, in a form
      reasonably acceptable to Glencore (the "Early Maturity Event"), and (ii)
      September 30, 2014, on which date all principal and interest accrued to
      such date will be due and payable. Upon occurrence of the Early Maturity
      Event and at the Companys option, the initial principal and capitalized
      interest would have been exchangeable into common shares of PolyMet at
      $1.50 per share. Effective July 5, 2013, the Company reduced the exchange
      price to $1.2920, to reflect the dilutive effect of the 91.6 million
      common shares that were issued at $0.66 per share in connection with the
      Rights Offering (Note 10). Glencore has the right to exchange some or all
      of the debentures at any time using the same conversion terms; and                                                                                                             
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  | Amend the terms of the warrants issued to Glencore in the
      2010 Agreement to conform to the 2011 Warrants, giving Glencore the right
      to acquire 3,000,000 common shares of PolyMet at $1.50 per share at any
      time until December 31, 2015, subject to mandatory exercise if the 20-day
      VWAP of PolyMet shares is equal to or greater than 150% the exercise price
      and PolyMet provides notice to Glencore that it has received permits
      necessary to start construction of NorthMet and availability of senior
      construction finance, in a form reasonably acceptable to Glencore.
      Effective July 5, 2013, the Company increased the number of common shares
      issuable to 3,459,643 and reduced the exercise price to $1.3007, to
      reflect the dilutive effect of the 91.6 million common shares that were
      issued in connection with the Rights Offering (Note 10).                                                                                                                                                                                                                                                                                   

The transaction closed on December 6,
2011.

17

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial
      Statements                                                 
|As at January 31, 2014 and 2013 and for the years ended
      January 31, 2014, 2013, and 2012   
|Tabular amounts in thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

|8. | Glencore Financing- Continued                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | 2013 Agreement                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | On April 10, 2013, the Company amended its previous
      financing arrangement and issued a new Tranche E debenture (2013
      Debenture) with the principal amount of $20.0 million to Glencore and
      Glencore agreed to a Standby Purchase Agreement (Standby) related to a
      proposed $60.480 million Rights Offering by the Company (Note 10). Under
      the Standby, Glencore agreed to purchase any common shares offered under
      the Rights Offering that were not subscribed for by holders of the rights,
      subject to certain conditions and limitations. The 2013 Debenture carried
      a fixed interest rate of 4.721% per annum payable in cash monthly and
      matured on the earlier of (i) closing of the Rights Offering by the
      Company or (ii) May 1, 2014. The Company provided security by way of a
      guarantee and by the assets of the Company and its wholly-owned
      subsidiary. The sale of the 2013 Debenture was consummated on April 11,
      2013. The Company accounted for the 2013 Debenture issued initially at
      fair value and subsequently at its amortized cost. Transaction costs for
      the financing were $0.103 million. The 2013 Debenture was repaid upon the
      closing of the Rights Offering on July 5, 2013. All debt borrowing costs
      were eligible for capitalization and 100% of these costs were capitalized
      during the year ended January 31, 2014.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | Glencore purchased PolyMet common shares for $20.960
      million in the Rights Offering (Note 10), which closed on July 5,
    2013.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

18

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial
      Statements                                                 
|As at January 31, 2014 and 2013 and for the years ended
      January 31, 2014, 2013, and 2012   
|Tabular amounts in thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

|9. | Convertible Debt                             
|-- | ---------------------------------------------
|   |                                              
|   | Details of Convertible Debt are as
  follows:

| |                                            |   | Year ended  |  |   | Year ended  | 
| | ------------------------------------------ | - | ----------- |  | - | ----------- | 
| |                                            |   | January 31, |  |   | January 31, | 
| |                                            |   | 2014        |  |   | 2013        | 
| | Convertible Debt  beginning
      of year | $ | 30,508      |  | $ | 29,018      | 
| | Accretion and capitalized
      interest   |   | 1,459       |  |   | 1,490       | 
| | Convertible Debt  end of
      year       |   | 31,967      |  |   | 30,508      | 
| | Less current portion                       |   | 31,967      |  |   | -           | 
| |                                            |   |             |  |   |             | 
| | Non-current portion                        | $ | -           |  | $ | 30,508      | 

On October 31, 2008, the Company issued
$25.0 million of Debentures to Glencore that bear interest at 12-month US dollar
LIBOR plus 4%, compounded quarterly. Interest is payable in cash or by
increasing the principal amount of the Debentures, at Glencores option. At
January 31, 2014, $6.967 million (January 31, 2013 - $5.508 million) of interest
had been added to the principal amount of the debt since inception. The Company
has provided security on the Debentures covering all of the assets of PolyMet
and PolyMet US, including a pledge of PolyMets 100% shareholding in PolyMet US.
The due date of the Debentures is the earlier of (i) PolyMet giving Glencore ten
days notice that PolyMet has received permits necessary to start construction
of NorthMet and availability of senior construction finance, in a form
reasonably acceptable to Glencore (the "Early Maturity Event"), and (ii)
September 30, 2014, on which date all principal and interest accrued to such
date will be due and payable. Subsequent to January 31, 2014, the Company
obtained an extension of the due date to the earlier of (i) PolyMet giving
Glencore ten days notice that PolyMet has received permits necessary to start
construction of NorthMet and availability of senior construction finance, in a
form reasonably acceptable to Glencore (the "Early Maturity Event"), and (ii)
September 30, 2015 (see Note 17). Upon occurrence of the Early Maturity Event
and at the Companys option, the initial principal and capitalized interest
would have been exchangeable into common shares of PolyMet at $1.50 per share.
Effective July 5, 2013, the Company reduced the exchange price to $1.2920, to
reflect the dilutive effect of the 91.6 million common shares that were issued
at $0.66 per share in connection with the Rights Offering (Note 10). Glencore
has the right to exchange some or all of the debentures at any time under the
same conversion terms. All convertible debt borrowing costs were eligible for
capitalization and 100% of these costs were capitalized during the year ended
January 31, 2014.

19

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial
      Statements                                                 
|As at January 31, 2014 and 2013 and for the years ended
      January 31, 2014, 2013, and 2012   
|Tabular amounts in thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

|10. | Share Capital
|--- | -------------
|    |              
|    | a)           
|    |              
|    |              
|    |              
|    |              
|    |              
|    |              
|    |              
|    |              
|    |              
|    |              
|    |              
|    |              
|    |              
|    |              

20

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial
      Statements                                                 
|As at January 31, 2014 and 2013 and for the years ended
      January 31, 2014, 2013, and 2012   
|Tabular amounts in thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

|10. | Share Capital- Continued
|--- | ------------------------
|    |                         
|    | b)                      
|    |                         
|    |                         
|    |                         
|    |                         

21

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial
      Statements                                                 
|As at January 31, 2014 and 2013 and for the years ended
      January 31, 2014, 2013, and 2012   
|Tabular amounts in thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

|10. | Share Capital- Continued
|--- | ------------------------
|    |                         
|    | c)                      
|    |                         
|    |                         

| |                                   |  | Year ended       |   |  | Year ended       |  
| | --------------------------------- |  | ---------------- | - |  | ---------------- | -
| |                                   |  | January 31, 2014 |   |  | January 31, 2013 |  
| |                                   |  |                  |   |  | Weighted         |  
| |                                   |  |                  |   |  | Average          |  
| |                                   |  |                  |   |  | Exercise         |  
| |                                   |  | Options          |   |  | Price (US$)      |  
| | Outstanding  beginning of period |  | 14,920,000       |   |  | 1.94             |  
| | Granted                           |  | 4,639,000        |   |  | 0.97             |  
| | Exercised                         |  | -                |   |  | -                |  
| | Expired                           |  | (750,000         | ) |  | 2.60             |  
| | Forfeited                         |  | (150,000         | ) |  | 2.75             |  
| | Cancelled                         |  | -                |   |  | -                |  
| | Anti-dilution price adjustment    |  | -                |   |  | (0.26            | )
| | Outstanding  end
      of period |  | 18,659,000       |   |  | 1.41             |  

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

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

| |                                            | Year
      ended | Year
      ended 
| | ------------------------------------------ | ---------------- | -----------------
| |                                            | January 31, 2014 | January 31, 2013 
| | Risk-free interest rate                    | 0.23% to 0.44%   | 0.27% to 0.50%   
| | Expected dividend yield                    | Nil              | Nil              
| | Expected forfeiture rate                   | Nil              | Nil              
| | Expected volatility                        | 76.04% to 90.43% | 96.90% to 125.92%
| | Expected life in years                     | 1.62 to 2.00     | 2.25 to 3.00     
| | Weighted average fair value of each option | $0.28            | $0.43            

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

22

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial
      Statements                                                 
|As at January 31, 2014 and 2013 and for the years ended
      January 31, 2014, 2013, and 2012   
|Tabular amounts in thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

|10. | Share Capital- Continued
|--- | ------------------------
|    |                         
|    | c)                      
|    |                         
|    |                         

| |                                                                               |  |                |  |  |                |  |  | Number
      of | 
| | ----------------------------------------------------------------------------- |  | -------------- |  |  | -------------- |  |  | --------------- | 
| |                                                                               |  | Exercise Price |  |  | Exercise Price |  |  | options         | 
| | Expiry Date                                                                   |  | (US$)
      ** |  |  | (CDN$) **      |  |  | outstanding     | 
| | September 19, 2015                                                            |  | 1.0551         |  |  | 1.1793 *       |  |  | 1,190,000       | 
| | October 24, 2015                                                              |  | 0.9309         |  |  | 1.0405 *       |  |  | 200,000         | 
| | December 5, 2015                                                              |  | 0.8922         |  |  | 0.9972 *       |  |  | 125,000         | 
| | March 20, 2016                                                                |  | 2.1412         |  |  | 2.3932 *       |  |  | 1,950,000       | 
| | April 1, 2016                                                                 |  | 1.0232         |  |  |                |  |  | 250,000         | 
| | June 19, 2016                                                                 |  | 2.3041         |  |  | 2.5753 *       |  |  | 325,000         | 
| | September 1, 2016                                                             |  | 2.9635         |  |  | 3.3123 *       |  |  | 300,000         | 
| | September 25, 2016                                                            |  | 1.0000         |  |  |                |  |  | 750,000         | 
| | January 5, 2017                                                               |  | 2.5601         |  |  | 2.8614 *       |  |  | 525,000         | 
| | February 13, 2017                                                             |  | 2.5926         |  |  |                |  |  | 500,000         | 
| | March 12, 2017                                                                |  | 2.5319         |  |  |                |  |  | 250,000         | 
| | March 23, 2017                                                                |  | 2.5059         |  |  |                |  |  | 50,000          | 
| | September 4, 2017                                                             |  | 2.6013         |  |  |                |  |  | 360,000         | 
| | December 12, 2017                                                             |  | 2.6447         |  |  |                |  |  | 205,000         | 
| | January 11, 2018                                                              |  | 2.6273         |  |  |                |  |  | 70,000          | 
| | January 31, 2018                                                              |  | 2.4886         |  |  |                |  |  | 100,000         | 
| | February 15, 2018                                                             |  | 2.3585         |  |  |                |  |  | 500,000         | 
| | June 2, 2018                                                                  |  | 3.3990         |  |  |                |  |  | 100,000         | 
| | July 30, 2018                                                                 |  | 2.7921         |  |  |                |  |  | 175,000         | 
| | January 30, 2019                                                              |  | 0.7110         |  |  |                |  |  | 585,000         | 
| | February 17, 2019                                                             |  | 0.7110         |  |  |                |  |  | 910,000         | 
| | October 15, 2019                                                              |  | 2.3152         |  |  |                |  |  | 115,000         | 
| | January 8, 2020                                                               |  | 3.0695         |  |  |                |  |  | 60,000          | 
| | January 25, 2021                                                              |  | 1.8816         |  |  |                |  |  | 300,000         | 
| | March 10, 2021                                                                |  | 1.7689         |  |  |                |  |  | 750,000         | 
| | March 8, 2022                                                                 |  | 1.0318         |  |  |                |  |  | 1,150,000       | 
| | April 2, 2022                                                                 |  | 1.0058         |  |  |                |  |  | 100,000         | 
| | June 21, 2022                                                                 |  | 0.7613         |  |  |                |  |  | 2,500,000       | 
| | July 9, 2022                                                                  |  | 0.7240         |  |  |                |  |  | 125,000         | 
| | July 11, 2022                                                                 |  | 0.8237         |  |  |                |  |  | 150,000         | 
| | July 25, 2022                                                                 |  | 0.8671         |  |  |                |  |  | 50,000          | 
| | January 7, 2023                                                               |  | 0.7977         |  |  |                |  |  | 300,000         | 
| | April 3, 2023                                                                 |  | 0.9972         |  |  |                |  |  | 100,000         | 
| | October 2, 2023                                                               |  | 0.8200         |  |  |                |  |  | 100,000         | 
| | December 16, 2023                                                             |  | 0.9520         |  |  |                |  |  | 2,100,000       | 
| | January 9, 2024                                                               |  | 0.9300         |  |  |                |  |  | 200,000         | 
| | January 17, 2024                                                              |  | 0.9800         |  |  |                |  |  | 1,139,000       | 
| | Weighted average exercise price and total number of options
      outstanding |  | 1.4076         |  |  |                |  |  | 18,659,000      | 

* For information purposes, those
share options granted with an exercise price in Canadian dollars (CDN) have
been translated to the Companys reporting currency using the exchange rate as
at January 31, 2014 of 1.00 US$ = 1.1177 CDN$.

23

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial
      Statements                                                 
|As at January 31, 2014 and 2013 and for the years ended
      January 31, 2014, 2013, and 2012   
|Tabular amounts in thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

|10. | Share Capital- Continued
|--- | ------------------------
|    |                         
|    | c)                      
|    |                         
|    |                         
|    |                         
|    |                         
|    |                         
|    | d)                      
|    |                         
|    |                         

| |                                         |  | Year ended       |   |  | Year ended       | 
| | --------------------------------------- |  | ---------------- | - |  | ---------------- | 
| |                                         |  | January 31, 2014 |   |  | January 31, 2013 | 
| | Outstanding - beginning of
      period |  | 785,882          |   |  | 327,500          | 
| | Granted                                 |  | 909,574          |   |  | 458,382          | 
| | Vested                                  |  | (91,353          | ) |  | -                | 
| | Anti-dilution quantity adjustment       |  | 11,407           |   |  | -                | 
| | Outstanding - end of period             |  | 1,615,510        |   |  | 785,882          | 

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

During the year ended January 31,
2014, the Company granted 909,574 restricted share units to employees which vest
upon start of construction or December 31, 2015, whichever comes earlier. The
restricted share units had a fair value of $0.881 million which is being
amortized over the vesting periods.

During the year ended January 31,
2013, the Company granted 450,882 restricted shares issued in trust to a third
party and 7,500 restricted share units to employees. 275,676 of the restricted
shares and restricted share units vest upon issuance of permits or December 31,
2014, whichever comes earlier. 91,353 of the restricted shares vested upon
publication of the NorthMet supplemental draft Environmental Impact Statement
which occurred in December 2013. 91,353 of the restricted shares vest upon
receipt of permits to start construction of NorthMet. The restricted shares and
restricted share units had a fair value of $0.414 million which is being
amortized over the vesting periods.

24

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial
      Statements                                                 
|As at January 31, 2014 and 2013 and for the years ended
      January 31, 2014, 2013, and 2012   
|Tabular amounts in thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

|10. | Share Capital- Continued
|--- | ------------------------
|    |                         
|    | e)                      
|    |                         
|    |                         

| |                                   |  | Year ended       |  |  | Year ended       | 
| | --------------------------------- |  | ---------------- |  |  | ---------------- | 
| |                                   |  | January 31, 2014 |  |  | January 31, 2013 | 
| |                                   |  |                  |  |  | Authorized       | 
| |                                   |  | Allocated        |  |  | & Unissued       | 
| | Outstanding  beginning of period |  | 3,140,000        |  |  | 3,640,000        | 
| | Allocated                         |  | 400,000          |  |  | -                | 
| | Outstanding  end of period       |  | 3,540,000        |  |  | 3,640,000        | 

| |    | Our bonus share incentive plan was established for the
      Companys directors and key employees and was approved by the
      disinterested shareholders at the Companys shareholders meeting held on
      May 28, 2004. The Company has allocated 3,640,000 bonus shares for the
      achievement of Milestone 4 representing commencement of commercial
      production at NorthMet at a time when the Company has not less than 50%
      ownership interest. At the Companys Annual General Meeting of
      shareholders held on June 17, 2008, the disinterested shareholders
      approved the bonus shares for Milestone 4. Regulatory approval is required
      prior to issuance of these shares.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |    | The fair value of these unissued bonus shares is being
      amortized until the estimated date of issuance. During the year ended
      January 31, 2014, the Company recorded $0.689 million amortization related
      to Milestone 4 bonus shares (January 31, 2013  $0.387 million), which was
      capitalized to Mineral Property, Plant and Equipment.                                                                                                                                                                                                                                                                                                                                                      
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | f) | Share Purchase Warrants                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |    | Details of share purchase warrants are as
  follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

| |                                      |  | Year ended       |  |  | Year ended       |  
| | ------------------------------------ |  | ---------------- |  |  | ---------------- | -
| |                                      |  | January 31, 2014 |  |  | January 31, 2013 |  
| |                                      |  |                  |  |  | Weighted         |  
| |                                      |  |                  |  |  | Average          |  
| |                                      |  |                  |  |  | Exercise         |  
| |                                      |  | Warrants         |  |  | Price (US$)      |  
| | Outstanding  beginning of period    |  | 7,083,333        |  |  | 1.56             |  
| | Issued (Note 5)                      |  | -                |  |  | -                |  
| | Anti-dilution price
      adjustment |  | -                |  |  | (0.21            | )
| | Anti-dilution quantity adjustment    |  | 1,085,269        |  |  | -                |  
| | Outstanding  end of period          |  | 8,168,602        |  |  | 1.35             |  

On March 9, 2012, the Company issued
warrants to AG Waterfowl LLP giving them the right to purchase 1,083,333 common
shares of the Company at $1.50 per share at any time until December 31, 2015.
See additional discussion in Note 5.

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

25

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial
      Statements                                                 
|As at January 31, 2014 and 2013 and for the years ended
      January 31, 2014, 2013, and 2012   
|Tabular amounts in thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

|11. | Finance Costs                                        
|--- | -----------------------------------------------------
|    |                                                      
|    | Details of Finance Income and Costs are as
  follows:

| |                                                                    |   | Year ended January 31, |  
| | ------------------------------------------------------------------ | - | ---------------------- | -
| |                                                                    |   | 2014                   |  
| | Interest and financing costs, net                                  | $ | (56                    | )
| | Accretion of environmental rehabilitation provision (Note
      6) |   | 1,521                  |  
| |                                                                    |   |                        |  
| | Finance costs                                                      | $ | 1,465                  |  

|12. | Supplemental Disclosure With Respect to Statements of
      Cash Flows                   
|--- | -----------------------------------------------------------------------------------------
|    |                                                                                          
|    | The Company entered into the following non-cash investing
      and financing activities:

| |                                                                                                              |   | Year ended January 31, |  
| | ------------------------------------------------------------------------------------------------------------ | - | ---------------------- | -
| |                                                                                                              |   | 2014                   |  
| | Accounts payable and accrued liabilities change                                                              | $ | 727                    |  
| | Environmental rehabilitation provision change (Note 6)                                                       |   | (3,865                 | )
| | Accretion and capitalized interest on debt                                                                   |   | 1,785                  |  
| | Share-based compensation (Note 10)                                                                           |   | 614                    |  
| | Milestone 4 Bonus Shares amortization (Note 10)                                                              |   | 689                    |  
| | Shares and warrants issued for Wetland Credit
           Intangible (Note 5) & Long Term Debt
      (Note 7) |   | -                      |  
| | Shares issued for
      land options                                                                         | $ | 125                    |  

26

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial
      Statements                                                 
|As at January 31, 2014 and 2013 and for the years ended
      January 31, 2014, 2013, and 2012   
|Tabular amounts in thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

|13. | Related Party Transactions                                                                                                                                                      
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                 
|    | The Company conducted transactions with senior
      management, directors and persons or companies related to these
      individuals, and paid or accrued amounts, as
follows:

| |                                        |   | Year ended January 31, | 
| | -------------------------------------- | - | ---------------------- | 
| |                                        |   | 2014                   | 
| | Salaries and other short-term benefits | $ | 1,718                  | 
| | Other long-term benefits               |   | 60                     | 
| | Termination benefits                   |   | -                      | 
| | Share-based payment (1)                |   | 2,366                  | 
| | Commission on sale of used drill       |   | -                      | 
| |                                        |   |                        | 
| | Total                                  | $ | 4,144                  | 

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

|    | There are agreements with key employees that contain
      severance provisions for termination without cause or in the event of a
      take-over bid. Other than the President and Chief Executive Officer, none
      of PolyMets other directors has a service contract with the Company
      providing for benefits upon termination of his employment.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                               
|    | During the year ended January 31, 2012, PolyMet sold a
      used drill for $3.680 million. A company controlled by one of PolyMets
      directors received a commission of $0.200 million related to this
    sale.                                                                                                                                        
|    |                                                                                                                                                                                                                                                                                                                                                               
|    | As a result of Glencores ownership of 28.6% of the
      Company it is also a related party. Transactions with Glencore are
      described in Notes 8, 9, and 10.                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                               
|14. | Income Taxes                                                                                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                               
|    | a)                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                               

| |                                                     |   | Year ended January 31 |  
| | --------------------------------------------------- | - | --------------------- | -
| |                                                     |   | 2014                  |  
| | Loss before taxes                                   | $ | (8,132                | )
| | Canadian statutory tax rate                         |   | 26.0%                 |  
| | Expected tax expense / (recovery)                   |   | (2,114                | )
| | Difference in foreign tax rates                     |   | (454                  | )
| | Non-deductible items                                |   | 424                   |  
| | Change in unrecognized deferred tax and other items |   | 2,144                 |  
| | Income Tax Expense / (Recovery)                     | $ | -                     |  

27

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial
      Statements                                                 
|As at January 31, 2014 and 2013 and for the years ended
      January 31, 2014, 2013, and 2012   
|Tabular amounts in thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

|14. | Income Taxes- Continued
|--- | -----------------------
|    |                        
|    | b)                     
|    |                        
|    |                        

| |                                                                      |   | Year ended January 31 |  
| | -------------------------------------------------------------------- | - | --------------------- | -
| |                                                                      |   | 2014                  |  
| | Non-capital loss carry
      forward assets                          | $ | 21,883                |  
| | Convertible debt                                                     |   | (560                  | )
| | Mineral properties,
      development costs, and capital liabilities |   | (21,314               | )
| | Other liabilities                                                    |   | (9                    | )
| | Net deferred income tax liabilities                                  | $ | -                     |  

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

| |                                             |   | Year ended January 31 | 
| | ------------------------------------------- | - | --------------------- | 
| |                                             |   | 2014                  | 
| | Non-capital loss carry
      forward assets | $ | 19,346                | 
| | Intercompany receivable                     |   | 2,591                 | 
| | Other assets                                |   | 101                   | 
| | Unrecognized deferred income tax assets     | $ | 22,038                | 

As of January 31, 2014, the Company has
Canadian non-capital loss carry forwards of approximately $16.6 million (January
31, 2013 - $13.3 million) and US non-capital loss carry forwards of
approximately $89.4 million (January 31, 2013 - $72.2 million). The non-capital
loss carry forwards are available to reduce future income for tax purposes and
expire between 2019 and 2034.

28

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial
      Statements                                                 
|As at January 31, 2014 and 2013 and for the years ended
      January 31, 2014, 2013, and 2012   
|Tabular amounts in thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

|15. | Commitments and Contingencies                                                
|--- | -----------------------------------------------------------------------------
|    |                                                                              
|    | In addition to items described elsewhere in these
      financial statements:
|    |                                                                              
|    | a)                                                                           
|    |                                                                              
|    | b)                                                                           
|    |                                                                              
|    | c)                                                                           
|    |                                                                              
|    | d)                                                                           

Less
      than
    
    
    1 
      3
    
    
    4 
      5
    
    
    More
      thanContractual
      Obligations
    
    Total
    
    
    1
      year
    
    
    years
    
    
    years
    
    
    5
      yearsAccounts payable and accrued liabilities
    $
    3,806
    
    $
    3,806
    
    $
    -
    
    $
    -
    
    $
    -Long-term debt (Note 7)
    
    5,110
    
    
    -
    
    
    5,110
    
    
    -
    
    
    -Convertible debt (Note 9)
    
    33,019
    
    
    33,019
    
    
    -
    
    
    -
    
    
    -Environmental rehabilitation provision (Note 6)
    
    60,448
    
    
    1,504
    
    
    28,070
    
    
    917
    
    
    29,957Firm Commitments
    
    3,300
    
    
    2,506
    
    
    594
    
    
    168
    
    
    32Total
    $
    105,683
    
    $
    40,835
    
    $
    33,774
    
    $
    1,085
    
    $
    29,989


Convertible debt extended subsequent to
year end. See Note 17 for additional discussion.

29

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial
      Statements                                                 
|As at January 31, 2014 and 2013 and for the years ended
      January 31, 2014, 2013, and 2012   
|Tabular amounts in thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

|16. | Financial Instruments and Risk
Management                                                                                                                                                                                                                           
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                     
|    | The Company classifies its financial assets as fair value
      through profit or loss (FVTPL), available- for-sale, held to maturity,
      or loans and receivables. Financial liabilities are classified as either
      FVTPL, or other financial liabilities.
|    |                                                                                                                                                                                                                                                                     
|    | The carrying values of each classification of financial
      instrument at January 31, 2014 are:                                                                                                                                                                   

Other
    
    
    TotalAvailable
    
    
    Loans and
    
    
    Held to
    
    
    financial
    
    
    carryingFVTPL
    
    
    for sale
    
    
    receivables
    
    
    Maturity
    
    
    liabilities
    
    
    valueFinancial assetsCash and cash
      equivalents
    
    -
    
    
    -
    
    
    32,790
    
    
    -
    
    
    -
    
    
    32,790Amounts receivable
    
    -
    
    
    -
    
    
    1,420
    
    
    -
    
    
    -
    
    
    1,420Financial liabilitiesAccounts payable
      and         accrued liabilities
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    3,806
    
    
    3,806Convertible debt
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    31,967
    
    
    31,967Long term debt
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    4,276
    
    
    4,276


The carrying values of each
classification of financial instrument at January 31, 2013 are:

Other
    
    
    TotalAvailable
    
    
    Loans and
    
    
    Held to
    
    
    financial
    
    
    carryingFVTPL
    
    
    for sale
    
    
    receivables
    
    
    Maturity
    
    
    liabilities
    
    
    valueFinancial assetsCash and cash equivalents
    
    -
    
    
    -
    
    
    8,088
    
    
    -
    
    
    -
    
    
    8,088Amounts
      receivable
    
    -
    
    
    -
    
    
    830
    
    
    -
    
    
    -
    
    
    830Investment
    
    -
    
    
    17
    
    
    -
    
    
    -
    
    
    -
    
    
    17Financial liabilitiesAccounts payable
      and         accrued liabilities
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    5,269
    
    
    5,269Convertible debt
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    30,508
    
    
    30,508Long term debt
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    3,950
    
    
    3,950


Fair Value Measurements

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

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

30

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial
      Statements                                                 
|As at January 31, 2014 and 2013 and for the years ended
      January 31, 2014, 2013, and 2012   
|Tabular amounts in thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

|16. | Financial Instruments and Risk Management-
      Continued                                                                                                                                                                                                                                                                                                                                                                                                                                         
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | The fair values of cash and cash equivalents, amounts
      receivable, and accounts payable and accrued liabilities approximate their
      carrying amounts due to their short-term nature. The fair value of the
      Company's long term and convertible debt approximates the carrying amount
      at amortized cost using the effective interest method.                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | Risks Arising from Financial Instruments and Risk
      Management                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | The Companys activities expose it to a variety of
      financial risks: market risk (including currency and interest rate),
      credit risk, and liquidity risk. Reflecting the current stage of
      development of the Companys NorthMet Project, the overall risk management
      program focuses on facilitating the Companys ability to continue as a
      going concern and seeks to minimize potential adverse effects on the
      Companys ability to execute its business plan.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | Risk management is the responsibility of executive
      management. Material risks are identified and monitored and are discussed
      with the Audit Committee and the Board of Directors.                                                                                                                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | Currency Risk                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | The Company incurs expenditures in Canada and in the
      United States. The functional and reporting currency of the Company and
      its subsidiary is the United States dollar. Foreign exchange risk arises
      because the amount of Canadian dollar cash and cash equivalents, amounts
      receivable, or accounts payable and accrued liabilities will vary in
      United States dollar terms due to changes in exchange rates.                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | As the majority of the Companys expenditures are in
      United States dollars, the Company has kept a significant portion of its
      cash and cash equivalents in United States dollars. The Company has not
      hedged its exposure to currency fluctuations.                                                                                                                                                                                                                              
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | The Company was exposed to currency risk through the
      following assets and liabilities denominated in Canadian
  dollars:                                                                                                                                                                                                                                                                                                                                                                     

| |                                          |   | January 31, |   |   | January 31, |  
| | ---------------------------------------- | - | ----------- | - | - | ----------- | -
| |                                          |   | 2014        |   |   | 2013        |  
| | Cash and cash equivalents                | $ | 77          |   | $ | 71          |  
| | Investment                               |   | -           |   |   | 17          |  
| | Amounts receivables                      |   | 12          |   |   | 57          |  
| | Accounts payable and accrued liabilities |   | (8          | ) |   | (268        | )
| |                                          | $ | 81          |   | $ | (123        | )

Based on the above net exposures, as at
January 31, 2014, a 10% change in the Canadian / United States exchange rate
would have impacted the Companys loss by approximately $8,100.

Interest Rate Risk

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

31

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial
      Statements                                                 
|As at January 31, 2014 and 2013 and for the years ended
      January 31, 2014, 2013, and 2012   
|Tabular amounts in thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

|16. | Financial Instruments and Risk Management-
      Continued                                       
|--- | -------------------------------------------------------------------------------------------------
|    |                                                                                                  
|    | The Company was exposed to interest rate risk through the
      following assets and liabilities:

| |                           |   | January 31, |  |   | January 31, | 
| | ------------------------- | - | ----------- |  | - | ----------- | 
| |                           |   | 2014        |  |   | 2013        | 
| | Cash and cash equivalents | $ | 32,790      |  | $ | 8,088       | 
| | Convertible debt          |   | 31,967      |  |   | 30,508      | 

Credit Risk

Credit risk arises on cash and cash
equivalents held with banks and financial institutions, as well as credit
exposure on outstanding amounts receivable. The maximum exposure to credit risk
is equal to the carrying value of the financial assets of $34.210 million.

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

Liquidity Risk

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

Capital Management

The Companys capital management
objective is to safeguard the Companys ability to continue as a going concern
in order to pursue the development of its mineral property. In the management of
capital, the Company includes the components of shareholders equity,
convertible debt and 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. The Company has no externally imposed capital requirements.

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

Although the Company plans to have the
resources to carry out its plans and operations through January 31, 2015, it
does not currently have sufficient capital to meet its estimated project capital
expenditure requirements and is currently in discussions to arrange sufficient
capital to meet these requirements. During the upcoming fiscal year, the
Companys objective is to identify the source or sources from which it will
obtain the capital required to complete the Project. See additional discussion
in Note 1.

32

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|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial
      Statements                                                 
|As at January 31, 2014 and 2013 and for the years ended
      January 31, 2014, 2013, and 2012   
|Tabular amounts in thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

|17. | Subsequent Event                                                                                                                                                                                                                                                                                                                      
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                       
|    | On April 25, 2014 PolyMet and Glencore extended the term of the Series A-D Debentures and the expiration date of the associated Exchange Warrants to the earlier of the Early Maturity Event (as defined in Note 9) or September 30, 2015.  All other terms of both the debentures and the warrants described in Note 8 are unchanged.

33

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ITEM 19. EXHIBITS

|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  | Shareholder
      Rights Plan Agreement                                                                                         | (2) 
|     |                                                                                                                                 |     
|4.2  | Contract for Deed
      between us and Cleveland Cliffs, Ohio, dated November 15, 2005.                                         | (2) 
|     |                                                                                                                                 |     
|4.3  | Contract for Deed
      between us and Cleveland Cliffs, Ohio, dated December 20, 2006                                          | (1) 
|     |                                                                                                                                 |     
|4.4  | Amended and
      Restated Shareholder Rights Plan                                                                              | (7) 
|     |                                                                                                                                 |     
|4.5  | 2007 PolyMet
      Omnibus Share Compensation Plan                                                                              | (7) 
|     |                                                                                                                                 |     
|4.6  | Purchase
      Agreement between PolyMet Mining Corp., Poly Met Mining, Inc, and Glencore
      AG, dated October 31, 2008      | (8) 
|     |                                                                                                                                 |     
|4.7  | Form of Floating
      Rate Secured Debenture dated October 31, 2008                                                            | (8) 
|     |                                                                                                                                 |     
|4.8  | Guarantee between
      PolyMet Mining Corp. and Glencore AG, dated October 31, 2008                                            | (8) 
|     |                                                                                                                                 |     
|4.9  | Security
      Agreement between PolyMet Mining Corp. and Glencore AG, dated October 31,
      2008                             | (8) 
|     |                                                                                                                                 |     
|4.10 | Security
      Agreement between Poly Met Mining, Inc. and Glencore AG, dated October 31,
      2008                            | (8) 
|     |                                                                                                                                 |     
|4.11 | Pledge Agreement
      between Poly Met Mining, Inc. and Glencore AG, dated October 31, 2008                                    | (8) 
|     |                                                                                                                                 |     
|4.12 | Amendment to
      Purchase Agreement between PolyMet Mining Corp., Poly Met Mining, Inc, and
      Glencore AG                 | (9) 
|     |                                                                                                                                 |     
|4.13 | Amendment and
      Waiver between PolyMet Mining Corp., Poly Met Mining, Inc, and Glencore AG
      dated November 12, 2010    | (10)
|     |                                                                                                                                 |     
|4.14 | Form of Warrant
      dated November 12, 2010                                                                                   | (10)
|     |                                                                                                                                 |     
|4.15 | Subscription
      Agreement with Glencore AG dated November 12, 2010                                                           | (10)
|     |                                                                                                                                 |     
|4.16 | Registration
      Rights Agreement dated November 12, 2010                                                                     | (10)
|     |                                                                                                                                 |     
|4.17 | Subscription
      Agreement between PolyMet Mining Corp., Poly Met Mining, Inc., and
      Glencore AG dated November 30, 2011 | (11)
|     |                                                                                                                                 |     
|4.18 | Form of Warrant
      dated November 30, 2011                                                                                   | (11)
|     |                                                                                                                                 |     
|4.19 | Amendment and
      Waiver dated November 30, 2011                                                                              | (11)
|     |                                                                                                                                 |     
|4.20 | Amended and
      Restated Exchange Warrant dated December 6, 2011                                                              | (11)
|     |                                                                                                                                 |     
|4.21 | Registration
      Rights Agreement and Amendment to Existing Registration Rights Agreement
      dated November 30, 2011       | (11)
|     |                                                                                                                                 |     
|4.22 | Amendment to
      Purchase Agreement between PolyMet Mining Corp., Poly Met Mining, Inc, and
      Glencore AG                 | (14)
|     |                                                                                                                                 |     
|4.23 | Confirmation of
      Secured Obligations Agreement between PolyMet Mining Corp., Poly Met
      Mining, Inc, and Glencore AG   | (14)
|     |                                                                                                                                 |     
|4.24 | Form of Fixed
      Rate Secured Debenture                                                                                      | (14)
|     |                                                                                                                                 |     
|4.25 | Standby Purchase
      Agreement between PolyMet Mining Corp. and Glencore AG                                                   | (13)

66

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|4.26 | Amendment to Purchase Agreement and Exchange Warrants between PolyMet Mining Corp. and Glencore AG                                               | (17)
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------ | ----
|     |                                                                                                                                                  |     
|8.1  | List of
      Subsidiaries                                                                                                                       | (16)
|     |                                                                                                                                                  |     
|11.1 | Code of Ethics                                                                                                                                   | (3) 
|     |                                                                                                                                                  |     
|11.2 | Statement of
      Corporate Governance Practices                                                                                                | (4) 
|     |                                                                                                                                                  |     
|12.1 | Certification of
      Principal Executive Officer pursuant to 17 C.F.R. 240.13a-14(a)                                                           | *   
|     |                                                                                                                                                  |     
|12.2 | Certification of
      Principal Financial Officer pursuant to 17 C.F.R. 240.13a-14(a)                                                           | *   
|     |                                                                                                                                                  |     
|13.1 | Certification of
      Principal Executive Officer and Principal Financial Officer pursuant to 17
      C.F.R. 240.13a-14(b) and 18 U.S.C. 1350. | *   
|     |                                                                                                                                                  |     
|15.1 | Consent of Independent Auditors                                                                                                                  | *   
|     |                                                                                                                                                  |     
|15.2 | Lease Agreement
      between us and U.S. Steel Corporation, dated January 4, 1989.                                                              | (2) 
|     |                                                                                                                                                  |     
|15.3 | Notice of
      Assignment of the Lease Agreement from U.S. Steel Corporation to RGGS Land
      and Minerals, Ltd. L.P                          | (2) 
|     |                                                                                                                                                  |     
|15.4 | Executive
      employment agreement with Mr. Douglas Newby dated July 1, 2007                                                                   | (7) 
|     |                                                                                                                                                  |     
|15.5 | Executive
      employment agreement with Mr. Jonathan Cherry dated July 16, 2012                                                                | (15)
|     |                                                                                                                                                  |     
|15.6 | Technical Report
      on NorthMet Project dated October 2012                                                                                    | (12)
|     |                                                                                                                                                  |     
|16.1 | Disclosure of
      Mine Safety and Health Administration Safety Data                                                                            | *   

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

67

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SIGNATURES

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

Dated: April 25, 2014

| | POLYMET MINING CORP.                     
| | -----------------------------------------
| |                                          
| | /s/
      Jonathan Cherry                
| | Name:    Jonathan Cherry                 
| | Title:      Chief
      Executive Officer

68

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