---

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C.
20549

FORM 20-F/A(Amendment No. 2)

[ ] 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, 2008

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

British Columbia, Canada(Jurisdiction of
incorporation or organization)

Suite 1003  1177 West Hastings St., Vancouver, British
Columbia V6E 2K3(Address of principal executive offices)

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

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. 136,991,075

---

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

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

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

Indicate by check mark whether the registrant 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 financial statement item the
registrant has elected to follow:[ x ]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

ii

---

EXPLANATORY STATEMENT

PolyMet Mining Corp.s (the Company) Form 20-F for the year
ended January 31, 2008 (the Original Filing) was filed with the Securities and
Exchange Commission on April 30, 2008. Amendment No. 1 was filed on August 28,
2008, solely for the purposes of revising the Exhibit Index and filing certain
exhibits that were inadvertently omitted from the Original Filing and updating
the disclosure in Item 4A UNRESOLVED STAFF COMMENTS. Amendment No. 2 is solely
for the purpose of updating Item 15 to disclose the hiring of a Group Controller
and to increase the Companys disclosure in Item 7B and in note 9 to the
consolidated financial statements. This Amendment No. 2 does not reflect events
occurring after the filing of the Original Filing or modify or update those
disclosures affected by subsequent events. Consequently, all other information
is unchanged and reflects the disclosures made at the time of the filing of the
Original Filing. With this Amendment No. 2, the principal executive officer and
principal financial officer of the Company have reissued their certifications
required by Sections 302 and 906 of the Sarbanes-Oxley Act.

iii

---

TABLE OF CONTENTS

|Part I    |                                                                                       |   
|--------- | ------------------------------------------------------------------------------------- | --
|          |                                                                                       |   
|ITEM 1.   | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS                                 | 1 
|ITEM 2.   | OFFER STATISTICS AND EXPECTED
      TIMETABLE                                         | 1 
|ITEM 3.   | KEY INFORMATION                                                                       | 2 
|ITEM 4.   | INFORMATION ON THE COMPANY                                                            | 9 
|ITEM 4A.  | UNRESOLVED STAFF COMMENTS                                                             | 23
|ITEM 5.   | OPERATING AND FINANCIAL
      REVIEW AND PROSPECTS                                    | 24
|ITEM 6.   | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES                                            | 33
|ITEM 7.   | MAJOR SHAREHOLDERS AND RELATED
      PARTY TRANSACTIONS                               | 41
|ITEM 8.   | FINANCIAL INFORMATION                                                                 | 44
|ITEM 9.   | THE OFFER AND LISTING                                                                 | 44
|ITEM 10.  | ADDITIONAL INFORMATION                                                                | 46
|ITEM 11.  | QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET
      RISK                       | 52
|ITEM 12.  | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES                                | 52
|          |                                                                                       |   
|Part II   |                                                                                       |   
|          |                                                                                       |   
|ITEM 13.  | DEFAULT, DIVIDEND ARREARAGES AND DELINQUENCIES                                        | 52
|ITEM 14.  | MATERIAL MODIFICATIONS TO
      THE RIGHT OF SECURITY HOLDERS AND USE OF **PROCEEDS** | 52
|ITEM 15.  | CONTROLS AND PROCEDURES                                                               | 53
|ITEM 16A. | **AUDIT COMMITTEE FINANCIAL
      EXPERT**                                            | 54
|ITEM 16B. | **CODE OF ETHICS**                                                                    | 54
|ITEM 16C. | **PRINCIPAL ACCOUNTANT FEES AND SERVICES**                                            | 55
|          |                                                                                       |   
|Part III  |                                                                                       |   
|          |                                                                                       |   
|ITEM 17.  | FINANCIAL STATEMENTS                                                                  | 55
|ITEM 18.  | FINANCIAL STATEMENTS                                                                  | 56
|ITEM 19.  | EXHIBITS                                                                              | 56

Financial Statements:

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


iv

---

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

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

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

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND
ADVISORS

Not required.

ITEM 2. OFFER STATISTICS AND EXPECTED
TIMETABLE

Not required.

1

---

ITEM 3. KEY INFORMATION

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

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

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

|                              |   | Year        |   |   | Year        |   |   | Year       |   |   | Year       |   |   | Year       |  
|----------------------------- | - | ----------- | - | - | ----------- | - | - | ---------- | - | - | ---------- | - | - | ---------- | -
|                              |   | Ended       |   |   | Ended       |   |   | Ended      |   |   | Ended      |   |   | Ended      |  
|                              |   | 1/31/08     |   |   | 1/31/07     |   |   | 1/31/06    |   |   | 1/31/05    |   |   | 1/31/04    |  
|Revenue                       | $ |            |   | $ |            |   | $ |           |   | $ |           |   | $ |           |  
|Income (loss) from Operations | $ |            |   | $ |            |   | $ |           |   | $ |           |   | $ |           |  
|Net Loss                      | $ | (3,690      | ) | $ | (17,893     | ) | $ | (15,929    | ) | $ | (4,416     | ) | $ | (147       | )
|US GAAP Net Loss1             | $ | (4,124      | ) | $ | (18,126     | ) | $ | (15,976    | ) | $ | (4,416     | ) | $ | (147       | )
|Loss Per Share                | $ | (0.03       | ) | $ | (0.16       | ) | $ | (0.22      | ) | $ | (0.09      | ) | $ |           |  
|US GAAP Loss Per Share        | $ | (0.03       | ) | $ | (0.16       | ) | $ | (0.22      | ) | $ | (0.08      | ) | $ |           |  
|Diluted Net Loss Per Share    | $ | (0.03       | ) | $ | (0.16       | ) | $ | (0.22      | ) | $ | (0.09      | ) | $ |           |  
|Dividends Per Share           | $ |            |   | $ |            |   | $ |           |   | $ |           |   | $ |           |  
|Weighted Average Shares       |   | 133,697,572 |   |   | 114,754,213 |   |   | 73,484,490 |   |   | 51,946,290 |   |   | 32,452,000 |  
|Working Capital               | $ | 16,558      |   | $ | 5,240       |   | $ | 9,070      |   | $ | 1,274      |   | $ | 424        |  
|Total Assets                  | $ | 89,199      |   | $ | 48,731      |   | $ | 26,034     |   | $ | 2,350      |   | $ | 1,025      |  
|US GAAP Total Assets2         | $ | 88,485      |   | $ | 48,451      |   | $ | 25,987     |   | $ | 2,350      |   | $ | 1,025      |  
|Long-Term Debt                | $ | 10,834      |   | $ | 11,853      |   | $ | 1,420      |   | $ |           |   | $ |           |  
|Shareholders Equity          | $ | 69,151      |   | $ | 29,938      |   | $ | 19,387     |   | $ | 2,019      |   | $ | 926        |  
|US GAAP Shareholders Equity1 | $ | 68,437      |   | $ | 29,658      |   | $ | 19,340     |   | $ | 2,019      |   | $ | 926        |  
|Capital Stock                 | $ | 104,615     |   | $ | 72,923      |   | $ | 46,009     |   | $ | 19,027     |   | $ | 15,232     |  
|US GAAP Mineral Properties1   | $ | 64,052      |   | $ | 37,776      |   | $ | 14,178     |   | $ |           |   | $ |           |  

|1 | Under Canadian GAAP, the Company capitalizes accretion
      relating to asset retirement obligations. Under US GAAP, this amount is
      expensed.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------

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

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

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

2

---

RISKS RELATING TO OUR BUSINESS

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

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

- we may encounter delays or higher than expected costs in obtaining the
  necessary equipment or services to build and operate our projects, and
- adverse mining conditions may delay and hamper our ability to produce the
  expected quantities of minerals.

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

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

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

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

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

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

3

---

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

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

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

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

We are dependent on our key personnel

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

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

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

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

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

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

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

4

---

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

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

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

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

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

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

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

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

5

---

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

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

As a development stage company with no holdings in any
producing mines, we continue to incur losses and expect to incur losses in the
future. As of January 31, 2008, we had an accumulated deficit of $56,289,000. We
may not be able to achieve or sustain profitability in the future. If we do not
begin to generate revenues or find alternate sources of capital, we may either
have to suspend or cease operations.

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

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

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

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

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

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

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.

6

---

RISKS RELATED TO THE OWNERSHIP OF OUR STOCK

We may experience volatility in our stock price.

Our common shares are listed for trading on the Toronto Stock
Exchange and on the American Stock Exchange. 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 the shares, if at all. The
market price of our common shares may be affected significantly by factors such
as changes in our operating results, the availability of funds, fluctuations in
the price of metals, the interest of investors, traders and others in
development stage public companies such as us and general market conditions. In
recent years the securities markets have experienced a high level of price and
volume volatility, and the market price of securities of many companies,
particularly small capitalization development companies similar to us, have
experienced wide fluctuations, which have not necessarily been related to the
operating performances, underlying asset values, or the future prospects of such
companies. There can be no assurance that future fluctuations in the price of
our shares will not occur.

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

Our shares that are eligible for future sale may have an
adverse effect on the price of our stock. As of January 31, 2008 there were
136,991,075 of our common shares outstanding. The average trading volume for the
three months prior to January 31, 2008 was approximately 85,000 shares per day
on the Toronto Stock Exchange and 212,000 shares per day on the American Stock
Exchange. Sales of substantial amounts of our common shares, or a perception
that such sales could occur, and the existence of options or warrants to
purchase common shares at prices that may be below the then current market price
of our common shares, could adversely affect the market price of our common
shares and could impair our ability to raise capital through the sale of our
equity securities.

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

We have issued common shares and options, and warrants to
purchase our common shares to satisfy our obligations and fund our operations
(see Item 5.A). Since we currently do not have a source of revenue, we will
likely issue additional common shares, options, warrants, preferred stock 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, insiders, and key employees. If additional
sales of equity occur, your ownership interest and voting power in us will be
diluted and the market price of our common shares may decrease.

Under our 2007 Omnibus Share Compensation Plan (the Plan)
which was adopted on May 25, 2007, and approved by our shareholders on June 27,
2007, the aggregate number of Common Shares that may be issuable pursuant to the
Plan may not at any time exceed the greater of (i) 10% of our issued and
outstanding common shares and (ii)18,592,888 common shares, representing 13.62%
of our outstanding common shares at the time of the approval of the Plan, of
which 5,940,000 common shares are reserved for issuance as awards other than
options. As of January 31, 2008 the aggregate number of Common Shares issuable
pursuant to the Plan was 13,655,887 shares. Our bonus share incentive plan (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
4,940,000 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.

7

---

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

An updated Shareholders Rights Plan between us and shareholders
effective as of June 27, 2007 and certain employment and management agreements
contain provisions that could discourage an acquisition or change of control
without our board of directors approval. Under the Shareholders Rights Plan,
if a shareholder individually or in concert with other shareholders acquires 20%
or more of our common shares outstanding 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 share owned. We
have also entered into agreements with certain key employees and officers that
contain severance provisions in the event of a take-over bid. The Shareholders
Rights Plan and the preceding agreements may make it more difficult for a third
party to acquire control of us, even if such a change of control is more
beneficial to shareholders.

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

Because we believe that we will be classified as a passive
foreign investment company (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 Certain United
States Federal Income Tax Consequences.

Conflicts of Interest

Certain of our directors, officers or promoters are directors,
officers, significant shareholders or promoters of other U.S. and Canadian
publicly traded companies. As a result, potential conflicts of interest may
arise with respect to the exercise by such persons of their respective duties
for us. In the event that such a conflict of interest arises at a meeting of our
directors, a director who has such a conflict will abstain from voting for or
against the approval of such participation or such terms. In the appropriate
cases, we will establish a special committee of independent directors to review
a matter in which several directors, or management, may have a conflict. Other
than as indicated, we have no other procedures or mechanisms to deal with
conflicts of interest. We are not aware of any conflicts of interest at the
present time.

Absence of Dividends

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

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

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

8

---



ITEM 4. INFORMATION ON THE COMPANY

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

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

Our principal executive office is situated at Suite 1003  1177
West Hastings Street, Vancouver, B.C. V6E 2K3. Our phone number is (604)
669-4701. Our registered and records office is located at our legal counsels
offices situated at 2500  700 West Georgia Street, Vancouver, B.C. V7Y 1B3,
CANADA. Our operational headquarters are located at P.O. Box 475, 6500 County
Road 666, Hoyt Lakes, Minnesota 55750-0475, United States.

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

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

During the years ended January 31, 2008, 2007, and 2006 we
spent $21.161 million, $13.015 million and $12.130 million, respectively to
acquire property, perform pre-feasibility work and perform work following
completion of our Definitive Feasibility Study on our NorthMet Project located
in Minnesota, USA. In addition, during the years ended January 31, 2008, 2007,
and 2006 we issued shares valued at $nil, $6.160 million and $7.564 million,
respectively, in optioning and purchasing a nearby crushing and grinding plant
and associated infrastructure (the Erie Plant) and land.

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

9

---

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

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

In the years ended January 31, 2008, 2007 and 2006, we
conducted exploration, development and acquisition activities only and did not
conduct any operations that generated revenues. Thus, we rely principally on
equity financings to fund our projects and expenditures.

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

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

Environmental permitting.To
commence commercial production at NorthMet, various regulatory approvals are
needed. The Minnesota Department of Natural Resources (the MDNR), the United
States Forest Service (the USFS) and the United States Army Corps of Engineers
(the USACE) agreed to cooperate in preparing a single Environmental Impact
Statement (the EIS) under state guidelines issued by the MDNR. The MDNR has
taken longer than it originally expected to complete its review of the
environmental testing and analysis that supports the EIS. Most recently, in
February 2008 the MDNR informed us that, in order to make the draft EIS as
thorough and complete as possible, extra time is being taken by the MDNR to
validate and verify sampling, monitoring, and modeling data. The MDNR
anticipates the validation and drafting of the draft EIS will be completed
before the end of the second quarter of 2008.

Once the draft EIS is published,
non-government organizations, government agencies and the public will have an
opportunity to comment. The final EIS will incorporate analysis and appropriate
responses to comments, a process that can take several months before the
issuance of permits required before construction can commence.

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

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

Since September 2006 we have completed
additional drilling, expanded the reserves, and more recently we have been
updating the mine scheduling, approximately within the DFS pit design, and
updating estimated capital and operating costs. In addition, we have been
reviewing the possibility of selling concentrate during completion of
construction and commissioning of the hydrometallurgical plant that was
contemplated in the DFS. This approach has the advantage of staging capital
costs so that the hydrometallurgical plant can be funded at least 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.

10

---

Financing and corporate
development. Since 2003 we have raised approximately $80 million from equity
private placement financings. We have also expanded and strengthened our
management team. Since January 31, 2008 we have relocated our operational
headquarters to Hoyt Lakes, Minnesota.

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

We have two wholly owned subsidiaries: (1) Fleck Minerals Inc.,
incorporated in Ontario, Canada, and (2) Poly Met Mining, Inc., incorporated in
Minnesota, USA.

We have also continued to strengthen our management team at
both the corporate level and at our facilities in Minnesota. During the period
ended January 31, 2008, we appointed Joseph Scipioni as Chief Operating Officer
and Phillip Brodie-Hall as Executive Vice-President Project Development.
Subsequent to the fiscal year end we appointed Joseph Scipioni and Frank Sims to
the Board, and we appointed William Murray as Executive Chairman, and promoted
Joseph Scipioni to the position of President and Chief Executive Officer.

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

Property - NorthMet Project, Minnesota, USA

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

In the years ended January 31, 2008, 2007 and 2006, we
conducted exploration, development and acquisition activities only and did not
conduct any operations.

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

The NorthMet Project is located immediately south of the
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 1940s and 50s, with reserves of hematite
dwindling, the iron industry began to focus on taconite, a lower-grade iron ore.
Eight large crushing, grinding, milling facilities were built by various iron
and steel companies to process the taconite, including the Erie Plant that we
acquired in November 2005.

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

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.

11

---

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 has been used commercially in the copper, nickel, cobalt, and
precious metals industries since the 1980s.

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

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

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

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

By a Memorandum of Understanding dated December 5, 2003 and an
option agreement dated February 14, 2004, we obtained an option (the Cliffs
Option) to acquire certain property, plant, and equipment (Cliffs Assets)
from Cliffs Erie LLC, a wholly owned subsidiary of Cliffs, located near our
NorthMet Project. As consideration for the Cliffs Option, we paid $500,000 prior
to January 31, 2004 and issued to Cliffs 1,000,000 shares of our common stock on
March 30, 2004, valued at $229,320 to maintain our exclusive rights until June
30, 2006. On September 15, 2005 we reached an agreement with Cliffs on the terms
for the early exercise of our option to acquire 100% ownership of large portions
of the former LTV Steel Mining Company ore processing plant in northeastern
Minnesota (the Asset Purchase Agreement). Under this agreement we agreed to
pay Cliffs $1 million in cash, 6.2 million of our shares, and make quarterly
payments of $250,000 starting on March 31, 2006 for a total of $2.4 million plus
interest at 4% per annum on the outstanding balance. As of March 31, 2008 the
remaining balance was $150,000.

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

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

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

- 2 million of our common shares;
- $1 million in cash was paid at closing;

12

---

- $7 million in cash is payable in quarterly installments of $250,000
  commencing December 31, 2006 with the balance payable upon receipt of
  commercial financing. Interest on the outstanding amount be payable quarterly
  from December 31, 2006 at the Wall Street JournalPrime Rate. As of
  March 31, 2008 the remaining balance was $5.5 million; and
- $7 million in cash is payable in quarterly installments of $250,000
  commencing on December 31, 2009. Interest will begin to accrue on the
  outstanding amount beginning on December 31, 2009 after which it will be
  payable quarterly at the Wall Street JournalPrime Rate.

PolyMet also assumed certain liabilities associated with the
property.

As of January 31, 2008, we have expended $65.0 million
primarily on the acquisition of the Erie Plant and related infrastructure. Under
the Asset Purchase Agreement we have paid $3.0 million plus interest and owe
Cliffs $0.4 million. Under Cliffs II we have paid $2.25 million plus interest
and owe $12.75 million.

During the three years ended January 31, 2008 we expended an
additional $20.0 million on feasibility work at the deposit and plant. Since
inception, we have a cumulative deficit of $56.3 million, much of which has been
incurred directly and indirectly in connection with our NorthMet Project. These
expenditures supported drilling, sampling, assaying, environmental,
metallurgical testing, and the pre-feasibility studies.

The following diagram illustrates the location of the NorthMet
Project.

Figure No. 1 NorthMet Project Map



13

---

The PolyMet Project covers a total of 16,600 acres or 25.9
square miles comprising two areas: the NorthMet mine site totaling 4,200 acres
or 6.5 square miles of leased mineral rights and the Erie plant site totaling
12,400 acres of freehold land located approximately six miles west of the mine
site. The property is located in St. Louis County in the Mesabi Range District
about 60 miles north of Duluth, Minnesota. The Project is easily accessible via
state and county roads. The surfaced County Highway 666 links the plant to the
town of Hoyt Lakes, itself approximately 25 miles east of Virginia, Minnesota
which is located on State Highway 53. The mine site is accessible by an
all-season gravel road from the plant site and a private railroad crosses the
property immediately south of the deposit and runs to the plant site. The plant
site is serviced by commercial railroad which connects into the US national and
Trans-Canadian railroad systems, as well as a private railroad providing access
to port facilities located on Lake Superior. Three high-voltage power lines
supplied by Minnesota Power supply the plant site and there is ready access to
industrial electric power at the mine site.

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

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



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

Pursuant to an agreement dated January 4, 1989, subsequently
amended and assigned, we lease certain lands covering 4,162 acres or 6.5 square
miles located in St. Louis County, Minnesota, known as the NorthMet Project,
from RGGS Land & Minerals Ltd., L.P (RGGS). During the year ended January
31, 2005, US Steel assigned the lease to RGGS. The current term of the renewable
lease is 20 years and calls for future lease payments of $150,000 in January of
each year.

We can, at our option, terminate the lease at any time by
providing written notice to RGGS at least 90 days prior to the effective
termination date or can indefinitely extend the 20 year term by continuing to
making the annual lease payment of $150,000 on each successive anniversary
date.

The lease payments are considered advance royalty payments and
will be deducted from future production royalties payable to RGGS, which range
from 3% to 5% based on the net smelter return that we receive. Our recovery of
the advance royalty payments is subject to the lessor receiving an amount not
less than the amount of the annual lease payment due for that year.

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

The Erie Plant As set forth under the Asset Purchase
Agreement, we have assumed certain ongoing site-related environmental and
reclamation obligations of Cliffs in connection with the Erie Plant. Once we
obtain our permit to mine and Cliffs is released from its obligations by certain
state agencies, we will be directly obligated to comply with applicable
environmental and reclamation obligations. Prior to Cliffs acquisition of the
plant from LTV Steel and prior to our acquisition of the plant from Cliffs, both
Cliffs and we undertook environmental assessments and concluded that there were
no material liabilities other than the ultimate closure and reclamation of the
site. Until operating permits are granted to us, Cliffs remains the named party
of record for such obligations although, as part of the Asset Purchase
Agreement, we have indemnified Cliffs for such costs. As of January 31, 2008 we
estimate that liability to be approximately $23.5 million and, based on the
expected timing of such payments, our cost of capital, and anticipated inflation
rates, we made a provision of $3.4 million in our financial statements at that
date.

Under the terms of the agreement Cliffs has the right to
participate pro-rata on its ownership of 6.7% of our outstanding common shares
in future cash equity financings. We have a 20 business day right of first
refusal to either buy or place some or all of our shares owned by Cliffs should
Cliffs decide to sell.

14

---

The Erie Plant comprises a large crushing, grinding and milling
  facility that was built by a consortium of steel companies in the mid-1950s
  and processed low grade iron ore known as taconite that was transported to the facility by railroad from nearby mines. In
the mid-1980s, the consortium was consolidated into a single owner  LTV Steel.
Pickands-Mather and its successor Cliffs operated the plant on behalf of the
owners, processing approximately 100,000 tons per day of taconite ore. The plant
was shut down in 2001 when LTV Steel filed for bankruptcy protection. Since then
it has been maintained initially by Cliffs and, since November 15, 2005, by us.
The plant did not operate during the period ended January 31, 2008.

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

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

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

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

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. These new
facilities replace the equivalent facilities used historically to recover iron
from the taconite, which are not applicable to our anticipated metal
products.

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

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

On January 11, 2005, we submitted initial documentation to the
MDNR, the USFS, and the USACE. These documents and data provided the information
required for preparation of a Draft Scoping Environmental Assessment Worksheet
(the EAW).

On March 14, 2005, we reached an agreement with the MDNR, USFS
and USACE to cooperate in preparing a EIS under state guidelines issued by the
MDNR.

On October 25, 2005, the MDNR issued the Final Scoping EAW and
related Final Scoping Decision after a period of public review and comment.
These documents defined the scope of the EIS and were used to develop a request
for proposal (the RFP) for third-party preparation of an EIS that will involve
public participation. On April 3, 2006 the Minnesota DNR selected the
independent EIS contractor which is preparing the EIS.

The MDNR has taken longer than it originally expected to complete
  its review of the environmental testing and analysis that supports the EIS.
  Most recently, in February 2008 the MDNR informed us that, in order to make
  the draft EIS as thorough and complete as possible, extra time is being taken
  by the MDNR to validate and verify sampling, monitoring, and modeling data.
  The MDNR anticipates the validation and drafting of the draft EIS will be completed
  before the end of the second quarter of 2008.

15

---

We commenced the permitting process in early 2004. As of
January 31, 2008, we had spent approximately $14.581 million on environmental
and permitting activities and we anticipate spending an additional $4.0 million
to complete this work.

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

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

|Cautionary Note to United States Investors Concerning
    Estimates of Measured, Indicated and Inferred Resources                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|This section uses the terms measured resources,
      indicated resources, and inferred resources. We advise United States
      investors that while these terms are recognized and required by Canadian
      regulations (under National Instrument 43-101 - Standards of Disclosure
      for Mineral Projects (NI-43-101)), the SEC does not recognize them.
      United States investors are cautioned not to assume that any part or
      all of the mineral deposits in these categories will ever be
      converted to reserves.In addition, inferred resources have a great
      amount of uncertainty as to their existence and economic and legal
      feasibility. It cannot be assumed that all or any part of an Inferred
      Mineral Resource will ever be upgraded to a higher category. Under
      Canadian Rules, estimates of Inferred Mineral Resources may not form the
      basis of Feasibility or Pre-Feasibility Studies, or economic studies
      except for a Preliminary Assessment as defined under NI 43-101. United
      States investors are cautioned not to assume that part or all of an
      inferred resource exists, or is economically or legally
      mineable.
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|Important Notes and Assumptions Throughout.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|1.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|2.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|3.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|4.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|5.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|6.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

16

---



From 1998 to present, we have conducted four drilling programs
totaling 257 holes for approximately 151,000 feet of core and reverse
circulation drilling. The latest campaign comprising 61 holes totaling 24,500
feet was completed during the fiscal year ended January 31, 2008 and, combined
with earlier drilling by us and by US Steel, brings the total to 371 diamond and
reverse circulation holes aggregating to approximately 286,000 feet. In
addition, we have meticulously recompiled all prior work started by US Steel in
1969.

Mineral Resources and Reserves

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

The increase in mineral resources reflects two changes:

- Data from the winter drill program which confirmed the continuity of the
  main mineralized zone and the size of the Magenta Zone, which was extended
  down dip and to the west. These changes contributed 149 million short tons to
  the increase in measured and indicated mineral resources.
- Extension of the overall mineral envelope to approximately 1,620 feet below
  surface, compared with the prior cutoff at approximately 1,120 feet below
  surface. This change contributed 67 million short tons to the increase in
  measured and indicated mineral resources.

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

17

---

Updated Mineral Resources compared with DFS

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

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

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

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

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

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

18

---

Updated Reserves compared with DFS

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

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

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

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

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

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

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

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.

19

---

- Unit 3  the most easily recognized unit because of its mottled appearance
  due to olivine oikocrysts. It is fine grained troctolitic anorthosite to
  anorthositic troctolite. Average thickness is 250 ft. but locally can be up to
  500 ft.
- Unit 2  homogeneous troctolite with abundant ultramafic units and a
  generally persistent basal ultramafic. This unit shows the most variation in
  thickness and may be locally absent. Units 2 & 3 are modeled as a single
  package for resource estimation.
- Unit 1  the most heterogeneous unit, both texturally and compositionally.
  Grain size is generally coarser at the top of the unit and fines downward. The
  unit contains abundant inclusions of the footwall rock and is noritic towards
  the base. This is the main sulfide mineral bearing unit. Two internal
  ultramafic layers are generally present. Unit 1 is probably the result of
  multiple pulses of magma injection. Average thickness is about 450 ft.

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

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

The metals of interest at NorthMet are copper, nickel, cobalt,
platinum, palladium, gold and lesser amounts of rhodium and ruthenium. In
general, the metals are positively correlated with copper mineralization, cobalt
being the main exception. Unit 1 mineralization is found throughout the deposit.
A less extensive mineralizated 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
subsurface at the northern edge.

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

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

Since publication of the DFS, we have recognized the commercial
  potential to sell concentrates during the construction and commissioning of
  the new hydrometallurgical facilities. We believe that we may be able to reduce
  capital costs prior to the commencement of commercial operations and shorten
  the construction time.

20

---

We are in the process of updating capital and operating cost
estimates to reflect inflation of capital costs as well as scope changes
including the equipment needed to enable us to ship concentrate and additional
measures we plan to take to protect the environment that were not included in
the DFS.

Once we have completed these estimates and incorporate changes
to the detailed mine plan within the approximate overall pit envelop that has
formed the basis of all of our environmental analysis, and our Board has had an
opportunity to review, revise and adopt the revised plans, we will make a public
announcement of material revisions.

DFS Economic Summary

DFS Capital Cost Estimate($000)

Initial
    
    
    SustainingDirect CostsMine &
      Mine Site Infrastructure
    
    18,489
    
    
    24,354Railroad
    
    8,464
    
    
    33,344Beneficiation
      Plant
    
    62,992
    
    
    0Hydromet Plant
    
    191,996
    
    
    3,170Tailings &
      Residue Disposal
    
    3,134
    
    
    7,949Total Direct Costs
    
    285,075
    
    
    68,817Contingency
    
    27,070Total
    
    312,145Indirect
      CostsTotal Indirect, including contingencies
    
    67,495
    
    
    2,970Total Capital
    
    379,640
    
    
    71,787


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

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

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

Part of our plan has been to establish a long-term marketing
  or offtake agreement for our hydroxides, precipitates and as appropriate, concentrates.
  Recognition of the possibility of initial sales of concentrate has prompted
  us to revisit the possible customers with whom we could partner. We are now
  in the advance stages of negotiating agreements and anticipate that we will
  be able to announce marketing/offtake agreements that will include funding for
  our Company.

21

---

Key Data and Economic AnalysisThe economics reported
in the DFS reflect the initial mine plan which in turn is based on the permit
application for a processing rate of 32,000 tons per day for an initial period
of 20 years.

The table below sets out Base Case metal price assumptions and
process recovery and key operating data for the average of the first five years
of full-scale production. This data comprises metal content of the three
products described above, the contribution to net revenue after third-party
processing costs, estimates of cash costs for each metal using a co-product
basis whereby total costs are allocated to each metal according to that metals
contribution to the net revenue, cash costs on a by-product basis whereby
revenues from other metals are offset against total costs and those costs
divided by production  this analysis is included for copper and for nickel. The
final columns show the increase or decrease in the EBITDA with a change in the
price of each metal.

DFS Base Case Price and Operating Assumptions and Key
Production Numbers

Assumptions
    
    
    Average of First Five YearsMetal
    
    
    
    
    
    Contribution
    
    
    Cash costs
    
    
    SensitivityBase Case
    
    
    Recovery
    
    
    Production
    
    
    to net revenue
    
    
    co-product
    
    
    by product
    
    
    Δ Price
    
    
    Δ EBITDA$/lb or oz
    
    
    %
    
    
    mmlbs or oz
    
    
    %
    
    
    $/lb or $/oz
    
      
      $/lb or $/oz
    
      
      $/lb or $/oz
    
      
      $'000Copper lb
    
    2.25
    
    
    92.3%
    
    
    72.058
    
    
    51.8%
    
    
    0.81
    
    
    0.06
    
    
    0.10
    
    
    6,990Nickel lb
    
    7.80
    
    
    70.3%
    
    
    15.401
    
    
    30.7%
    
    
    2.84
    
    
    (1.46
    )
    
    0.10
    
    
    1,195Cobalt lb
    
    16.34
    
    
    40.7%
    
    
    0.727
    
    
    3.0%
    
    
    6.67
    
    
    n/a
    
    
    0.10
    
    
    56Palladium oz
    
    274
    
    
    75.2%
    
    
    75,995
    
    
    6.3%
    
    
    113
    
    
    n/a
    
    
    10
    
    
    737Platinum oz
    
    1,040
    
    
    72.7%
    
    
    20,531
    
    
    6.8%
    
    
    477
    
    
    n/a
    
    
    10
    
    
    199Gold oz
    
    540
    
    
    67.0%
    
    
    9,459
    
    
    1.6%
    
    
    239
    
    
    n/a
    
    
    10
    
    
    92Total precious oz
    
    
    
    
    
    
    
    105,984
    
    
    14.6%
    
    
    
    
    
    n/a
    
    
    10
    
    
    1,028


Note: Costs are for Low Case metal price assumptions.

The final table sets out key financial statistics  the
internal rate of return on the future capital investment and the present value
of the future cash flow (including capital costs) using a 5% and 7.5% discount
rate on both a pre-tax and an after-tax basis. The bottom section of the table
shows the average over the first five years of full-scale production for gross
revenue (before royalties and third-party processing fees), net revenues (after
those costs) and EBITDA.

The price assumptions include July 2006 average prices, our Base
  Case described previously, and a Low Case that is comparable to but slightly
  more conservative than the SEC-standard for reserve calculation, namely the
  three-year trailing average to the end of July 2006. Finally, the table shows
  a sensitivity analysis of a ± 10% change in the Base Case metal price assumptions.

22

---

DFS Economic Projections on a Range of Metal Price
Assumptions

|                            |        |  |  |                 |  |  | Price Assumptions    | 
|--------------------------- | ------ |  |  | --------------- |  |  | -------------------- | 
|                            |        |  |  | Average         |  |  |                      | 
|                            |        |  |  | July
      2006 |  |  | Main Cases           | 
|                            |        |  |  |                 |  |  |                      | 
|                            |        |  |  |                 |  |  | Base Case            | 
|                            |        |  |  |                 |  |  | 3-year trailing plus | 
|                            |        |  |  |                 |  |  | 2-year forward       | 
|                            |        |  |  |                 |  |  |                      | 
|Metal Prices                |        |  |  |                 |  |  |                      | 
|Copper                      | $ /lb  |  |  | 3.50            |  |  | 2.25                 | 
|Nickel                      | $ /lb  |  |  | 12.06           |  |  | 7.80                 | 
|Cobalt                      | $ /lb  |  |  | 14.52           |  |  | 16.34                | 
|Palladium                   | $ /oz  |  |  | 322             |  |  | 274                  | 
|Platinum                    | $ /oz  |  |  | 1,241           |  |  | 1,040                | 
|Gold                        | $ /oz  |  |  | 634             |  |  | 540                  | 
|Financial
      Summary     |        |  |  |                 |  |  |                      | 
|Pre-tax                     |        |  |  |                 |  |  |                      | 
|IRR                         | %      |  |  | n/a             |  |  | 34.2%                | 
|PV discounted at 5%         | $ '000 |  |  | n/a             |  |  | 1,210,792            | 
|PV discounted
      at 7.5% | $ '000 |  |  | n/a             |  |  | 910,978              | 
|Post-tax                    |        |  |  |                 |  |  |                      | 
|IRR                         | %      |  |  | n/a             |  |  | 26.7%                | 
|PV discounted at 5%         | $ '000 |  |  | n/a             |  |  | 873,022              | 
|PV discounted
      at 7.5% | $ '000 |  |  | n/a             |  |  | 595,358              | 
|First 5 years:              |        |  |  |                 |  |  |                      | 
|Average gross
      revenue | $ '000 |  |  | 504,438         |  |  | 341,417              | 
|Average net revenue         | $ '000 |  |  | 440,257         |  |  | 303,147              | 
|Average EBITDA              | $ '000 |  |  | 312,382         |  |  | 175,273              | 

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.

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

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

ITEM 4A. UNRESOLVED STAFF COMMENTS

None.

23

---

ITEM 5. OPERATING AND FINANCIAL REVIEW AND
PROSPECTS

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

This discussion and analysis should be read in conjunction with
our consolidated financial statements. Our functional currency is the United
States dollar and our financial statements are prepared in accordance with
Canadian Generally Accepted Accounting Principles (GAAP); however, the only
material difference between U.S. GAAP and Canadian GAAP with regard to our
financial statements relates to the capitalizing of accretion related to asset
retirement obligations under Canadian GAAP while US GAAP requires these amounts
to expensed (see Item 3: Key Information  A. Selected Financial Data for the
impact of this difference). All amounts in this discussion and in the
consolidated financial statements are expressed in United States dollars, unless
identified otherwise.

Summary of Events During the Fiscal Year Ended January 31,
2008

During the year ended January 31, 2008, and through the date of
the filing of this Annual Information Form / Annual Report on Form 20-F, the
Company continued to advance its NorthMet Project including the activities noted
below.

On February 1, 2007, we graduated from the TSX Venture Exchange
to the TSX and commenced trading on the TSX under the symbol POM.

On March 8, 2007, we announced that William D. Corneliuson had
agreed to join its Board of Directors.

On April 17, 2007, we announced that we had closed a private
placement financing of 15 million units, at US$2.75 per unit with each unit
comprising one common share and one-half of one common share purchase warrant.
Each, whole warrant is exercisable into a common share at a price of US$4.00 at
any time until October 13, 2008 subject to an early trigger if the 20-day volume
weighted average price of the common shares is US$6.00 or more. After paying
cash finders fees totaling US$1.43 million, the financing raised $39.82
million.

On May, 7, 2007, we announced that Warren Hudelson, formerly
Executive Vice-President of our U.S. subsidiary Poly Met Mining, Inc. had
retired. Separately, we reported that the Minnesota Public Utilities Commission
had approved an electric service agreement ("ESA") between PolyMet and Minnesota
Power, a division of ALLETE, Inc. (NYSE:ALE) under which Minnesota Power will
provide all of NorthMet's electric service needs through 2018.

On May 16, 2007 we reported that the MDNR had announced that
the draft EIS was anticipated to be available by early November 2007. We also
reported that in continuing to optimize our business plan we were considering
the initial sale of concentrates, an interim product in our flow sheet, which
could commence before completion of the entire project, thus shortening the
timeline to first revenues and reducing the pre-revenue capital expenditure.

On July 10, 2007 we announced that our drill program had
confirmed expansion of the shallow "Magenta" Zone and demonstrated continuity of
ore zones at our NorthMet property.

On August 9, 2007 we reported a 51% increase in measured and
indicated mineral resources.

On August 21, 2007 we reported that we had hired three new
employees, expanding our management team. The new hires comprised LaTisha
Gietzen, Vice-President of Public, Government, and Environmental Affairs; James
(Jim) E. Tieberg, Division Manager of Mining; and David (Dave) L. Draves, Site
Controller.

On September 4, 2007 we announced that we had signed a Project
  Labor Agreement (PLA) with 15 construction trade unions in Northeastern
  Minnesota governing an estimated 1 million man-hours of construction labor.
  The PLA secures a supply of construction labor for NorthMet and defines the
  ground rules for working conditions, schedules, overtime and safety. The agreement
  also encourages apprenticeships and includes "no strike" provisions.

24

---

On September 26, 2007 we reported a 51% increase in proven and
probable reserves at our NorthMet property.

On November 7, 2007 we reported that we expected that the MDNR
and the US Army Corps of Engineers (USACE) would complete their evaluation of
our operating plans in January 2008 leading to publication of the draft EIS
around the end of 1st quarter of 2008.

On February 5, 2008 we announced that we were relocating our
operational headquarters to Hoyt Lakes, Minnesota and appointed William Murray
as our Executive Chairman and Joe Scipioni as our President and Chief Executive
Officer.

On February 15, 2008 we reported that the MDNR had advised us
that it would not complete the draft EIS by the end of the first quarter 2008
because, in order to make the draft EIS as thorough and complete as possible,
the MDNR wanted to validate and verify sampling, monitoring, and modeling data.
The MDNR anticipated the validation and drafting of the draft EIS would be
completed before the end of the second quarter of 2008.

On February 19, 2008 we appointed Frank Sims and Joseph (Joe)
  Scipioni to our Board.

25

---

Summary of Operating Results

As of January 31, 2008, we operated in one segment, the
exploration and development of the base and precious metals at our NorthMet
Project in Minnesota, United States. Head office comprises general and
administrative costs, stock based compensation expense, financing expenses,
foreign exchange interest income, assets, purchase of property, plant and
equipment and amortization reported by the Canadian head office.

|                                            |   | NorthMet   |  |   | Head Office |  |   |              | 
|------------------------------------------- | - | ---------- |  | - | ----------- |  | - | ------------ | 
|                                            |   | Project in |  |   |             |  |   |              | 
|2008                                        |   | U.S.       |  |   |             |  |   | Consolidated | 
|Segment operating loss                      | $ | 403        |  | $ | 3,287       |  | $ | 3,690        | 
|Mineral property,
      plant and equipment | $ | 64,914     |  | $ | 105         |  | $ | 65,019       | 
|Other assets                                | $ | 3,926      |  | $ | 20,254      |  | $ | 24,180       | 
|Identifiable
      assets                   | $ | 68,840     |  | $ | 20,359      |  | $ | 89,199       | 
|2007                                        |   |            |  |   |             |  |   |              | 
|Segment operating
      loss                | $ | 9,069      |  | $ | 8,824       |  | $ | 17,893       | 
|Mineral property, plant and equipment       | $ | 38,056     |  | $ | 110         |  | $ | 38,166       | 
|Other assets                                | $ | 2,177      |  | $ | 8,388       |  | $ | 10,565       | 
|Identifiable assets                         | $ | 40,233     |  | $ | 8,498       |  | $ | 48,731       | 
|2006                                        |   |            |  |   |             |  |   |              | 
|Segment operating loss                      | $ | 11,406     |  | $ | 4,523       |  |   | 15,929       | 
|Mineral property,
      plant and equipment | $ | 14,225     |  | $ | 22          |  |   | 14,247       | 
|Other assets                                | $ | 156        |  | $ | 11,631      |  |   | 11,787       | 
|Identifiable
      assets                   | $ | 14,381     |  | $ | 11,653      |  |   | 26,034       | 

Year ended January 31, 2008 compared with the year ended
January 31, 2007

Overall. Our focus for the fiscal year ended January 31,
2008 was to provide the state input into the environmental impact statement and
permitting work at the NorthMet Project and to continue to develop the Project
including updating the mineral reserves and mineral resources estimates and
preparing for construction.

Loss for the year. During the year ended January 31,
2008 we incurred a loss of $3.690 million ($0.03 loss per share) compared to a
loss of $17.893 million ($0.16 loss per share) in fiscal 2007. The decrease in
the net loss for the period was primarily attributable to:

- Upon completion of the DFS in late September 2006, we commenced
  capitalizing those costs directly related to the NorthMet Project (prior to
  this those costs had been expensed in line with our accounting policy in this
  area);

26

---

- During fiscal 2008, stock-based compensation expense was $635,000 compared
  to $4.723 million in the prior year due to the fact that $2.422 million of
  stock option costs were capitalized to mineral property, plant and equipment
  in 2008 (prior year period - $nil) and the timing of accounting as most of the
  options issued in fiscal 2008 have vesting periods while almost all of those
  issued in fiscal 2007 vested on issuance;
- During fiscal 2007, we issued $1.289 million of bonus shares for the
  successful completion of Milestone 3 (completion of a DFS which indicates that
  commercial production from the NorthMet Project is viable), and
- Interest income in the year ended January 31, 2008 was $1.168 million
  compared to $428,000 in the prior year period due primarily to higher cash
  balances as a result of the completion of a private placement in April 2007.

The above was partially offset by the recording of an other
than temporary impairment loss of $1.050 million on an investment made by the
Company during the year ended January 31, 2008.

General and Administrative expense in the year ended January
31, 2008, excluding non-cash stock based compensation related to incentive stock
options, was $3.764 million compared with $4.251 million for the prior year. The
decrease was due to the impact of the bonus shares in the prior year being
greater than the increased corporate activities and higher office and corporate
wage expenses in the current period as a result of additional personnel and cash
bonuses.

During the year ended January 31, 2008 we expended $nil million
in exploration, pre-feasibility and lease payments compared to $8.844 million in
fiscal 2007. The decrease in fiscal 2008 was a result of the completion of the
DFS during the third quarter of fiscal 2007 and the subsequent capitalizing of
site costs.

Foreign exchange translation gains were $566,000 for the year
  ended January 31, 2008 (prior year  loss of $536,000) due to the increasing
  strength of the Canadian dollar compared to the U.S. dollar.

27

---

Year ended January 31, 2007 compared with the year ended
January 31, 2006

Overall.Our focus for the fiscal year ended January 31,
2007 was to complete the Definitive Feasibility Study, complete our drill
program and pilot plant testing and further advance the environmental and
permitting process at the NorthMet Project. We continued to expand our
operations in Minnesota by retaining more key consultants to assist in the
environmental impact statement and permitting work as well as plan for the
development of the project.

Loss for the year. We recorded a loss in the year ended
January 31, 2007 of $17.893 million ($0.16 loss per share) compared to a loss of
$15.929 million ($0.22 loss per share) in fiscal 2006. The increase in the net
loss for the year was primarily attributable to: the increased level of work;
and an increase in general and administrative costs including non-cash stock
compensation expense of $4.723 million (2006 - $3.523 million) and non-cash
consulting fees expense of $1.289 million (2006 - $Nil). This was partially
offset by lower pre-feasibility costs as the DFS was completed effective October
1, 2006 and site costs from that date were capitalized.

During the period ended January 31, 2007 we expended $8.844
million in exploration, pre-feasibility and lease payments compared to $11.120
million in fiscal 2006. The decrease in fiscal 2007 was a result of the
completion of the DFS during the third quarter and the subsequent capitalizing
of site costs.

General and Administrative expense for the year ended January
31, 2007 excluding non-cash stock based compensation expenses was $4.251 million
compared with $1.655 million for the year ended January 31, 2006. We reported an
increase in expenditures for:

- Consulting fees were $1,458,000 (2006 - $366,000) as a result of increased
  activity at both the corporate and project level and the issuance of bonus
  shares for successful completion of Milestone 3 (completion of a DFS which
  indicates that commercial production from the NorthMet Project is viable);
- Professional fees totaled $790,000 (2006 - $151,000) owing to increased
  legal, audit and other advisory fees as a result of increased corporate
  activity, and
- Transfer agent and filing fees were $272,000 (2006 - $65,000) as a result
  of listing on the Toronto Stock Exchange and the American Stock Exchange
  during the period.

Net interest income during the year ended January 31, 2007 was
$428,000 compared with $148,000 in the year ended January 31, 2006. This
increase was the result of higher cash balances on deposit and higher interest
rates. Foreign exchange translation losses were $536,000 for the year ended 31
January 2007 (2006  gain of $221,000). This increase was the result of changes
in exposure and fluctuations in foreign exchange rates.

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

Financing Activities

During the year ended January 31, 2008 we issued 15 million
units at US$2.75 per unit, with each unit comprising one common share and
one-half of one common share purchase warrant (for accounting purposes, the
value of the units was bifurcated between the common shares and the warrants).
Each whole warrant is exercisable into a common share at a price of US$4.00 at
any time until October 13, 2008, subject to an early trigger if the 20-day
volume weighted average price of the common shares is US$6.00 or more. In
connection with the private placement, the Company paid finders fees totaling
US$1.43 million in cash, 150,000 shares and 520,000 broker warrants having the
same terms as the warrants described above. During the period the Company also
issued 462,199 shares upon exercise of options for proceeds of $303,000.

During the year ended January 31, 2007 the Company issued:

- 14,662,703 common shares upon the exercise of warrants for proceeds of
  $14.310 million;

28

---

- 2,193,000 common shares upon the exercise of options for proceeds of
  $765,000, and
- 2,350,000 common shares under the Companys Bonus Share Plan for deemed
  proceeds of $1,289,000.

During the year ended January 31, 2006, the Company completed:

- a non-brokered private placement for 3,544,657 units at a price of CDN$1.40
  per unit. Each unit consisted of one common share and one half of one share
  purchase warrant. One full warrant entitles the holders, on exercise, to
  purchase one additional common share at a price of CDN$2.00 per warrant share
  at any time until the close of business on the day which is 18 months from the
  date of closing, provided that if the closing price of our shares as traded on
  the Toronto Stock Exchange (the Exchange) is over CDN$2.50 per share for 20
  consecutive trading days, the Warrants will terminate 30 days thereafter;
- a non brokered private placement for 6,672,219 units at a price of CDN$0.90
  per unit. Each unit consisted of one common share and one half of one common
  share purchase warrant. One full warrant entitles the holders, on exercise, to
  purchase one additional common share of at a price of CDN$1.25 per share at
  any time until the close of business on the day which is 30 months from the
  date of closing, provided that if the closing price of our shares as traded on
  the Exchange is over CDN$2.50 per share for 20 consecutive trading days, the
  warrants will terminate 30 days thereafter;
- a brokered private placement for 9,277,777 units at a price of CDN$0.90 per
  unit. Each unit consisted of one common share and one half of one common share
  purchase warrant. One full warrant entitles the holders, on exercise, to
  purchase one additional common share at a price of CDN$1.25 per warrant share
  at any time until the close of business on the day which is 30 months from the
  date of closing, provided that if the closing price of our shares as traded on
  the Exchange is over CDN$2.50 per share for 20 consecutive trading days, the
  warrants will terminate 30 days thereafter, and
- a non brokered private placement for 9,000,000 units at a price of CDN$0.55
  per unit. Each unit consisted of one common share and one half of one common
  share purchase warrant. One full warrant entitles the holders, on exercise, to
  purchase one additional common share at a price of $0.70 per warrant share at
  any time until the close of business on the day which is 24 months from the
  date of closing, provided that if the closing price of the our shares as
  traded on the Exchange at or exceed $1.00 per share for 30 consecutive trading
  days, the Warrants will terminate 30 days thereafter.

In addition to the financings during the year ended January 31,
2006, we also issued:

- 5,700,628 common shares pursuant to the exercise of 5,700,628, share
  purchase warrants for total proceeds of $3,296,143, and
- 1,795,852 common shares pursuant to the exercise of stock options for total
  proceeds of $196,988.

Year Ended January 31, 2008

Cash used in operating activities in the year ended January 31,
2008 was $2.690 million compared to cash used in the prior year of $12.228
million. The variance in cash related to operating activities is due to the
decrease in cash related operating expenditures described above, partially
offset by an increase in prepaids in the current year period.

Cash provided by financing activities for the year ended January
  31, 2008 was $37.533 million compared with $13.625 million in the prior year.
  The current year activity was primarily due to the private placement which closed
  in April and $2.000 million of scheduled repayment of debt (prior year period
  - $1.250 million) and deferred financing costs of $293,000 relating to BNPP
(prior year period - $200,000). In the year ended January 31, 2007 option and
warrant exercises provided cash of $15.075 million (current year -$303,000).

29

---

Cash used in investing activities for the year ended January
31, 2008 was $23.656 million compared with $4.171 million in the preceding year,
with the increase being the result of capitalization of site related costs for
the full year, compared to only four months in the prior year, and the purchase
of $2.495 million of common shares of a publicly traded Canadian mining company
whose primary business is the operation of a recently re-commissioned base metal
mine.

Total cash for the year ended January 31, 2008 increased by
$11.187 million for a balance of $20.084 million compared to the year ended
January 31, 2007 where cash decreased by $2.774 million to a balance of $8.897
million.

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

As at January 31, 2008 we had working capital of $16.558
million compared with $5.240 million at January 31, 2007 consisting primarily of
cash of $20.084 million (January 31, 2007 - $8.897 million), prepaids of
$793,000 (January 31, 2007 - $210,000) investments of $1.445 million (January
31, 2007 - $nil) accounts payable and accrued liabilities of $4.266 million
(January 31, 2007 - $1.518 million) and the current portion of the notes to
Cliffs of $1.401 million (January 31, 2007 - $2.000 million). We expect to pay
the remaining balance of $10.834 million (January 31, 2007 - $11.853 million)
long term notes to Cliffs from working capital, additional financing and funds
from operations once commercial production has commenced. 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.

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

There can be no assurance that we will be able to continue to
raise funds, in which case it may be unable to continue to advance the NorthMet
Project. Should we be unable to realize on its assets and discharge its
liabilities in the normal course of business, the realizable value of its assets
may be materially less than the amounts recorded on the balance sheets. See Risk
Factors.

Debt

Pursuant to Asset Purchase Agreements, our wholly owned subsidiary
  Poly Met Mining, Inc. signed three notes payable to Cliffs in the amounts of
  $2,400,000, $7,000,000 and $7,000,000, respectively. The first note is interest
  bearing at the annual simple rate of four percent (4%) and is being paid in
  quarterly instalments equal to $250,000 for total repayment of $2,400,000. The
  second note is interest bearing at the Wall Street JournalPrime Rate
  and is being paid in quarterly instalments equal to $250,000 commencing December
  31, 2006, with the balance repayable upon receipt of commercial financing, for
  total repayment of $7,000,000. The third note is interest bearing at the Wall
  Street JournalPrime Rate and shall be paid in quarterly instalments equal
  to $250,000 commencing on December 31, 2009 for total repayment of $7,000,000.
  No interest will be payable on the third note until December 31, 2009, accordingly
  it has been fair valued, for balance sheet purposes, by discounting it at 8.25%
  . As at January 31, 2008 the outstanding long term debt was as follows:

30

---

|                     |   | January 31, 2008 |   |   | January
      31, 2007 |  
|-------------------- | - | ---------------- | - | - | ---------------------- | -
|                     |   |                  |   |   |                        |  
|Notes Payable        | $ | 12,204           |   | $ | 13,768                 |  
|Accrued interest     |   | 31               |   |   | 85                     |  
|Total debt           |   | 12,235           |   |   | 13,853                 |  
|Less current portion |   | (1,401           | ) |   | (2,000                 | )
|                     |   |                  |   |   |                        |  
|Long term debt       | $ | 10,834           |   | $ | 11,853                 |  

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

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

Not applicable.

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

Not applicable.

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

Not applicable.

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

The following table lists as of January 31, 2008 information
with respect to the Companys known contractual obligations:

Payments due by periodTotal
    
    
    Less than
    
    
    1  3 years
    
    
    3  5 years
    
    
    More than 5Contractual
      Obligations
    
    
    
    
    1
      year
    
    
    
    
    
    
    
    
    yearsAccounts payable and
    $
    4,266,000
    
    $
    4,266,000
    
    $
    -
    
    $
    -
    
    $
    -accrued liabilitiesLong-term accounts
    
    108,000
    
    
    -
    
    
    108,000payableLong-term debt obligations
    
    15,882,000
    
    
    1,943,000
    
    
    7,837,000
    
    
    2,914,000
    
    
    3,188,000Asset retirement
      obligation
    
    23,582,000
    
    
    279,000
    
    
    1,813,000
    
    
    521,000
    
    
    20,969,000Total
    $
    43,838,000
    
    $
    6,488,000
    
    $
    9,758,000
    
    $
    3,435,000
    
    $
    24,157,000


Long-term debt obligations (including the current portion) are
  set out in this table on an undiscounted basis and include anticipated interest.
  Asset retirement obligation represents the undiscounted obligation at January
  31, 2008.

31

---

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

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

Mineral Property, Plant and Equipment

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

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

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

Stock-Based Compensation and Share Purchase Warrants

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

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

Asset Retirement Obligations

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

32

---

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

Financial Instruments

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

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 Certificate of Incorporation.

Vacancies on the Board of Directors are filled by election from
nominees chosen by the remaining Directors and the persons filling those
vacancies will hold office until the next annual general meeting of
shareholders, at which time they may be re-elected or replaced. (For more
details on the process for nominating directors, see our Nominations Committee
Charter, attached hereto as Exhibit 11.2. )

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

Name
    Age
    PositionWilliam Murray
    59
    Executive ChairmanJoseph Scipioni
    54
    Director, President, and Chief Executive
      OfficerDouglas J. Newby
    49
    Chief Financial OfficerNiall Moore
    46
    Corporate Secretary and Group ControllerWilliam Corneliuson
    65
    DirectorDavid Dreisinger
    50
    DirectorW. Ian L. Forrest
    69
    DirectorGeorge Molyviatis
    45
    DirectorFrank Sims
    57
    DirectorJames Swearingen
    65
    Director


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

33

---

Joseph Scipionihas served as our President and Chief
Executive Officer since February 5, 2008 and as a member of our board of
directors since February 19, 2008. Mr. Scipioni served as our Chief Operating
Officer since March 2007 and as General Manager of our Minnesota operations
since July 2006. Prior to June 2006, Mr. Scipioni's career spanned more than 30
years with United States Steel Corporation where he worked in a number of
progressively senior positions in operations. His last position was Plant
Manager at the Keewatin Taconite plant in Minnesota. In addition, Mr. Scipioni
has served in leadership positions with the Iron Mining Association of
Minnesota, Central Iron Range Initiative, United Way of Northeastern Minnesota
and Hibbing Chamber of Commerce. Mr. Scipioni currently resides in Minnesota,
United States.

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

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

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



34

---

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

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

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

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

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

W. Ian L. Forrest was a director of AB Airlines plc from June
  30 to July 30, 1999 and, on August 2, 1999 AG Airlines plc was placed in administrative
  receivership.

35

---

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

During the fiscal year ended January 31, 2008, we had three
Named Executive Officers (NEOs) (for the purposes of applicable securities
legislation), namely:

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

The following table sets forth, for the periods indicated, the
compensation of the NEOs.

|                            |      |            | Annual Compensation | Long Term Compensation |           
|--------------------------- | ---- | ---------- | ------------------- | ---------------------- | ----------
|                            |      |            |                     |                        | Awards    
|                            |      |            |                     |                        | Securities
|                            |      |            |                     |                        | Under     
|                            |      |            |                     |                        | Options/  
|                            |      |            |                     | Other Annual           | SARs      
|Named Executive Officer and | Year | Salary     | Bonus               | Compensation           | Granted   
|Principal Position          | (1)  | (US$)      | (US$)(1)            | (US$)(3)               | (#)       
|                            |      |            |                     |                        |           
|                            |      |            |                     |                        |           
|William Murray              | 2008 | 252,948(5) | nil                 | 147,913                | nil       
|President                   | 2007 | 232,610(5) | 274,388             | nil                    | 450,000   
|                            | 2006 | 179,280(5) | nil                 | nil                    | 300,000   
|                            |      |            |                     |                        |           
|Douglas Newby               | 2008 | 187,167    | nil                 | 150,000                | nil       
|Chief Financial Officer     | 2007 | 162,750    | 109,755             | nil                    | 500,000   
|                            | 2006 | 18,750     | nil                 | nil                    | 350,000(6)
|                            |      |            |                     |                        |           
|Joseph Scipioni             | 2008 | 175,667    | nil                 | 50,000                 | 250,000   
|Chief Operating Officer     | 2007 | 84,000     | nil                 | nil                    | 500,000   
|                            | 2006 | nil        | nil                 | nil                    | nil       

(1) February 1 to January 31.

(2) Includes the dollar value (net of consideration paid by the
Named Executive Officer) calculated by multiplying the closing market price of
our freely trading shares on the date of grant by the number of stock or stock
units awarded.

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

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

(5) Comprising of management fees payable to Group 4 in the
amount of CDN $17,000 per month and management fees paid to William Murray in
the amount of CDN $5,000 per month. Effective 1 July 2007, Mr. Murrays
employment agreement was adjusted to include, as salary, amounts formerly paid
to Group 4 as management fees and the contract with Group 4 was terminated.

(6) 250,000 of these options are held in the name of Proteus
  Capital Corp. a non-reporting company owned by Douglas Newby.

36

---

Option/SAR Grants During the Most Recently Completed
Financial Year

NEO Name
    Securities Under
      Options/ **SARs** **Granted**
      **(#)**
    % of Total Options/SARs
      Granted to **Employees in**
      **Financial Year**
    Exercise or Base Price
      (CDN$/Security)
    Market Value of Securities
      Underlying **Options/SARs** **on the
      Date** **of Grant**
      **(CDN$/Security)**
    Expiration DateW. Murray
    Nil
    Nil
    Nil
    Nil
    NilD. Newby
    Nil
    Nil
    Nil
    Nil
    NilJ. Scipioni
    250,000
    9.31%
    2.92 USD
    $334,000
    March 12,
  2012


Aggregate Option/SAR Exercises During the Most Recently
Completed Financial Year and

Financial Year-End Option/SAR Values

NEO Name
    Securities
      Acquired on Exercise
    Aggregate Value
      Realized (CDN $)(2)
    Unexercised Options/SARs
      at Jan. 31, 2008 (#) Exercisable/
      Unexercisable
    Value of Unexercised in-
      the- money(1)Options/SARs
      at Jan. 31, 2008 (CDN $) Exercisable/
      UnexercisableW. Murray
    Nil
    Nil
    850,000/0
    $644,000/0D. Newby
    Nil
    Nil
    850,000/0
    $561,800/$0J. Scipioni
    Nil
    Nil
    750,000/0
      $0/$0


(1) Amounts presented under the caption Value of Unexercised
in-the-money Options at January 31, 2008 are based on C$2.80 per share, which
was the last reported sale price of our common shares on the TSX as of January
31, 2008, minus the exercise price, multiplied by the number of shares subject
to the stock option, without taking into account any taxes that might be payable
in connection with the transaction.

(2) Aggregate Value Realized" means the market value at
exercise less the exercise price at the date of exercise.

Pension Plan

We do not have a pension plan.

Compensation of Directors

During the Financial Period, no compensation was paid or is
payable by us to the directors of the Company, other than the NEOs (the Other
Directors), or our subsidiaries, if any, for their services:

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

(b) as consultants or experts, except to David Dreisinger and
James Swearingen.

The Company has no pension plan or other arrangement for
non-cash compensation to the Other Directors, except as follows:

Name of
      Director
    Consulting FeesJames Swearingen
    55,000
      (1)David Dreisinger
    63,000
      (1)


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

37

---



During the most recently completed financial year (February 1,
  2007 to January 31, 2008) (the "Financial Period").the Company granted the following
  incentive stock options to its Other Directors and insiders:

Name of Optionee
    Date of Grant
    No. of Shares
    Exercise Price Per
      Share
    Expiry DateWilliam Murray
    Nil
    Nil
    Nil
    NilW. Ian L. Forrest
    Nil
    Nil
    Nil
    NilDavid Dreisinger
    Nil
    Nil
    Nil
    NilJames Swearingen
    Nil
    Nil
    Nil
    NilGeorge Molyviatis
    Nil
    Nil
    Nil
    NilWilliam
      Corneliuson
    March
      8, 2007
    400,000
    USD
      $2.88
    March
      8, 2012Frank Sims
    Nil
    Nil
    Nil
    NilDouglas Newby
    Nil
    Nil
    Nil
    NilJoseph Scipioni
    March
      12, 2007
    250,000
    USD$2.92
    March
      12, 2012Niall Moore
    Nil
    Nil
    Nil
    Nil


Reference is made to the section captioned "Election of
Directors" for further details with respect to the present positions of the
aforesaid persons and number of common shares held in the Company. The following
are particulars of incentive stock options exercised by the Other Directors and
insiders of the Company during the Financial Period:

No. of Shares
    Exercise Price Per
      Share
    Date of Exercise
    Closing Price per Share on
      Exercise Date
    Aggregate Net Value(1)150,000
    CDN
      $0.65
    January 11, 2008
    CDN
      $3.08
    CDN
      $364,500


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

Summary of Bonus Plan

On November 5, 2003, we adopted a bonus share incentive plan
(the Bonus Plan) for our directors and key employees. The Bonus Plan was
initially approved at our Annual General and Special Meeting held on May 28,
2004. Thereafter the Bonus Plan was submitted in a revised form in response to
comments received from the TSX Venture Exchange and approved thereafter by our
shareholders at their Extraordinary General Meeting held on November 4,
2004.

The issuance of bonus shares is seen to be a true incentive to
key members of the management team as opposed to the granting of more
conventional stock options. If the milestones are not accomplished, the bonus
shares are not granted.

We have determined to limit the aggregate number of shares that
  may be issued under the Bonus Plan and our incentive stock option plan to not
  more than 20% of our issued shares from time to time. Accordingly, we received
  approval for the issuance of up to a total of 2,890,000 shares of our common
  stock with respect to Milestones 1 and 2 as per the following:

Milestone 1: Execution of an option agreement with Cleveland
  Cliffs for the use or purchase of what is referred to as the Cliffs-Erie Facility.
  This consists of real property located near Hoyt Lakes, Minnesota (the Erie
  Site), on which are located various ore processing facilities formerly
  operating by LTV Steel Mining Company as part of that companys taconite
  mining and processing operations (the Property). The Property will
  be used to process mineral products from our NorthMet property, in nearby Babbitt,
  Minnesota. This Milestone was negotiated in September 2003 and a final agreement
  was signed in February 2004. Accordingly, the number of shares issuable was
  1,590,000 shares of which 1,500,000 were issued to the following directors on
  March 15, 2005:

Name of Director
    No. of Common SharesWilliam Murray
    600,000P. Terry OKane
    300,000George Molyviatis
    300,000W. Ian L. Forrest
    300,000


38

---



Milestone 2:Negotiation and completion of an off-take
agreement with one or more senior metals producers for the purchase of the
nickel hydroxide concentrate produced from the NorthMet Property, and/or an
equity investment in us by such a producer or producers.

Upon achievement of the Milestone, 1,300,000 shares will be
issued, of which 950,000 have been designated to the following directors:

Name of Director
    No. of Common SharesWilliam Murray
    300,000James Swearingen
    150,000George Molyviatis
    150,000W. Ian L. Forrest
    150,000David Dreisinger
    150,000Joseph Scipioni
    50,000


and an additional 350,000 shares will be issued to certain key
employees as more fully set forth below:

Name of Employee
    No. of Common SharesDouglas Newby
    100,000Gaston Reymenants
    125,000Jim Scott
    125,000TOTAL
    350,000


Douglas Newby has served as our Chief Financial Officer since
November 2005.

Gaston Reymenants has been retained as a specialist in metal
sales to assist with off-take negotiations and project financing.

At January 31, 2008 Joseph Scipioni was our Chief Operating
Officer. Since February 5, 2008 he has served as our President and Chief
Executive Officer and, since February 19, 2008, as a member of our board of
directors.

Jim Scott is responsible for the permitting process and is
involved in the project environmental statement.

As at the date of this Annual
  Report the Bonus Shares under Milestone 2 have been allotted but have not been
  earned or issued.

We received approval of Milestones 3 and 4 of the Bonus Plan
  at our Annual and Special Meeting held on June 24, 2005 which provides for the
  issuance of up to a total of 5,990,000 shares as outlined below:

Milestone 3:Completion of a bankable feasibility study
  which indicates that production from the NorthMet Property is commercially feasible.
  The milestone was achieved on September 25, 2006 and therefore, during the year
  ended January 31, 2007, the Company issued 2,350,000 shares to directors and
  key employees as follows:

Name of Director
    No. of Common SharesWilliam Murray
    500,000George Molyviatis
    250,000James Swearingen
    250,000W. Ian L. Forrest
    250,000David Dreisinger
    250,000TOTAL
    1,500,000


39

---

Name of Employee
    No. of Common SharesDouglas Newby
    200,000Gaston Reymenants
    200,000Warren Hudelson
    125,000Jim Scott
    125,000Don Hunter
    200,000TOTAL
    850,000


As at January 31, 2007, Warren Hudelson was a director of our
U.S. subsidiary, Poly Met Mining, Inc. and was involved in the permitting
process. Subsequent to that date, he retired from his full-time capacity and
continues as a consultant to us.

Don Hunter was the project manager for the NorthMet Project and
  was responsible for the overall completion of the bankable feasibility study.
  Mr. Hunter is now Area Manager  Geology & Mining.

Milestone 4:Commencement of Commercial Production of
  the NorthMet Property.

Upon the achievement of Milestone 4, 2,640,000 shares will be
issued to our directors as follows:

Name of Director
    No. of Common SharesWilliam Murray
    800,000George Molyviatis
    400,000James Swearingen
    400,000W. Ian L. Forrest
    400,000Joe Scipioni
    240,000David Dreisinger
    400,000TOTAL
    2,640,000


and an additional 1,000,000 shares will be issued to certain
Key Employees as follows:

Name of Employee
    No. of Common SharesGaston Reymenants
    400,000Jim Scott
    200,000Don Hunter
    400,000TOTAL
    1,000,000


As of the date of this Annual Report the Bonus Shares under
Milestone 4 have been allotted but have not been approved by the disinterested
shareholders and regulators, nor have they been earned or issued.

We have a formalized omnibus share compensation plan (the
Omnibus Plan) for the granting of incentive stock options to our employees,
officers, and directors. The purpose of granting such options is to assist in
compensating, attracting, retaining and motivating our directors and to closely
align the personal interests of such persons to that of the shareholders.

D.              
Employees

As of January 31, 2008 we had 14 full-time employees, with four
located in our Vancouver office and the other ten located in our Hoyt Lakes
office.None of our employees are covered by a collective bargaining
agreement.

During the fiscal year ended January 31, 2008, we employed an
  average of 22 consultants working out of our Vancouver and Minnesota offices.

40

---

E.              
Share Ownership

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

We have two arrangements by which we encourage our employees to
acquire ownership interests in us: (1) the Omnibus Plan, and (2) the Bonus Share
Plan. For a description, see footnote 1, under Item 6B

ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY
TRANSACTIONS

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

The following table sets forth, as of April 30, 2008, certain
information regarding the ownership of our voting securities by each stockholder
known to our management to be (i) the beneficial owner of more than 5% of our
outstanding common stock, (ii) our directors, (iii) our current executive
officers identified under Item 6(A), and (iv) all executive officers and
directors as a group. We believe that, except as otherwise indicated, the
beneficial owners of the common stock listed below, based on information
furnished by such owners, have sole investment and voting power with respect to
such shares.

Percent ofName and Address of
    Amount and Nature of
    Outstanding SharesBeneficial
      Owner(1)
    Beneficial Ownership
    of Common StockWilliam Murray (2)
    2,647,276
    1.9%Douglas J. Newby (3)
    1,050,000Joseph Scipioni (4)
    850,000
    *Niall Moore (5)
    450,000
    *David Dreisinger (6)
    1,126,300
    *W. Ian L. Forrest (7)
    2,153,000
    1.5%George Molyviatis (8)
    8,584,920
    6.2%James Swearingen (9)
    400,000
    *William D. Corneliuson (10)
    760,000
    *Frank Sims (11)
    400,000
    *All executive officers and directors as
    18,421,496
    13.4%a group (10 persons) (12)5% or more shareholders:Cleveland-Cliffs, Inc. (13)
    9,200,547
    6.7%1100 Superior AvenueCleveland, OH 44114-2589


|*  | Less than 1%.                                                                                                                                                           
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                         
|1. | The address of each person, unless otherwise noted, is
      c/o PolyMet Mining Corp., Suite 1003- 1177 West Hastings Street,
      Vancouver, British Columbia V6E 2K3.

41

---

|2. | Includes 100,000 common shares issuable upon exercise of
      currently exercisable options, at an exercise price of CDN$0.66 per share
      set to expire on July 5, 2009, 300,000 shares of common stock issuable
      upon exercise of currently exercisable options, at an exercise price of
      CDN$1.36 per share set to expire on September 19, 2010, and 450,000 common
      shares issuable upon exercise of currently exercisable options, at an
      exercise price of CDN$2.76 per share set to expire on March 20, 2011. Mr.
      Murray directly owns 810,000 common shares and has voting and dispositive
      control over 987,176 common shares owned in the name of Group 4 Ventures
      of which he is the sole stockholder.                                                                                                                                                                                                                                    
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|3. | Includes 200,000 common shares held in the name of
      Proteus Capital Corp. of which he is the President and controlling
      shareholder, 100,000 common shares issuable upon exercise of currently
      exercisable options, at an exercise price of CDN$1.15 per share set to
      expire on December 5, 2010, 500,000 common shares issuable upon exercise
      of currently exercisable options, at an exercise price of CDN$2.76 per
      share set to expire on March 20, 2011 held in Mr. Newbys name; and 40,000
      common shares issuable upon exercise of currently exercisable options, at
      an exercise price of CDN$0.94 per share set to expire on June 15, 2010,
      and 210,000 common shares issuable upon exercise of currently exercisable
      options, at an exercise price of CDN$1.36 per share set to expire on
      September 19, 2010 held in the name of Proteus Capital Corp. of which he
      is the President and controlling shareholder.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|4. | Includes 200,000 common shares issuable upon exercise of
      currently exercisable options, at an exercise price of CDN$2.97 per share
      set to expire on June 19, 2011, 300,000 common shares issuable upon
      exercise of currently non-exercisable options, at an exercise price of
      CDN$3.30 per share set to expire on January 5, 2012, 250,000 common shares
      issuable upon exercise of currently non-exercisable options, at an
      exercise price of USD$2.92 per share set to expire on March 12, 2012 and
      100,000 common shares issuable upon exercise of currently non-exercisable
      options, at an exercise price of USD$2.72 per share set to expire on
      February 15, 2014 held in Mr. Scipionis name.                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|5. | Includes 275,000 common shares issuable upon exercise of
      currently exercisable options, at an exercise price of CDN$3.82 per share
      set to expire on September 1, 2011 and 175,000 common shares issuable upon
      exercise of currently non-exercisable options, at an exercise price of
      CDN$3.30 per share set to expire on January 5, 2012 held in Mr. Moores
      name.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|6. | Includes 300,000 common shares issuable upon exercise of
      currently exercisable options, at an exercise price of CDN$0.66 per share
      set to expire on July 5, 2009, 150,000 common shares issuable upon
      exercise of currently exercisable options, at an exercise price of
      CDN$1.36 per share set to expire on September 19, 2010, and 250,000 common
      shares issuable upon exercise of currently exercisable options, at an
      exercise price of CDN$2.76 per share set to expire on March 20, 2011. Dr.
      Dreisinger directly owns 426,300 common shares.                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|7. | Includes 350,000 common shares issuable upon exercise of
      currently exercisable options, at an exercise price of CDN$0.66 per share
      set to expire on July 5, 2009, 150,000 common shares issuable upon
      exercise of currently exercisable options, at an exercise price of
      CDN$1.36 per share set to expire on September 19, 2010, and 250,000 common
      shares issuable upon exercise of currently exercisable options, at an
      exercise price of CDN$2.76 per share set to expire on March 20, 2011. Mr.
      Forrest has voting and dispositive control with respect to 1,028,000
      common shares owned in the name of Micor Trading SA of which he is a
      director, common 375,000 shares owned in the name of Panares Resources
      Inc. of which he is a director, and Catherine L. Forrest, Mr. Forrests
      wife, directly owns 932,380 common shares.                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|8. | Includes 150,000 common shares issuable upon exercise of
      currently exercisable options, at an exercise price of CDN$1.36 per share
      set to expire on September 19, 2010, and 250,000 common shares issuable
      upon exercise of currently exercisable options, at an exercise price of
      CDN$2.76 per share set to expire on March 20, 2011. Mr. Molyviatis
      directly owns 8,184,920 common shares.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|9. | Includes 150,000 common shares issuable upon exercise of
      currently exercisable options, at an exercise price of CDN$1.36 per share
      set to expire on September 19, 2010, and 250,000 common shares issuable
      upon exercise of currently exercisable options, at an exercise price
    of CDN$2.76 per share set to expire on March 20, 2011. Mr.
  Swearingens wife, directly owns 900 common shares.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

42

---

|    |                                                                                                                                                                                                                                         
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10. | Includes 400,000 common shares issuable upon exercise of
      currently exercisable options, at an exercise price of US$2.88 per share
      set to expire on March 8, 2012. Mr. Corneliuson directly owns 360,000
      common shares.
|    |                                                                                                                                                                                                                                         
|11. | Includes 400,000 common shares issuable upon exercise of
      currently un-exercisable options, at an exercise price of US$2.72 per
      share set to expire on February 15, 2014.                                                    
|    |                                                                                                                                                                                                                                         
|12. | Includes 6,050,000 common shares issuable upon exercise
      of currently exercisable options.                                                                                                                                         
|    |                                                                                                                                                                                                                                         
|13. | This shareholder held 1,000,000 shares as of January 31,
      2005, 7,200,547 as of January 31, 2006 and 9,200,547 as of January 31,
      2007 and January 31, 2008.                                                                  

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

As of April 30, 2008, there were 344 holders of record of our
common shares of which 263 were U.S. residents owning 30.92% of our outstanding
common shares.

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

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

| |                                                     |   | 2008 |  |   | 2007 |  |   | 2006 | 
| | --------------------------------------------------- | - | ---- |  | - | ---- |  | - | ---- | 
| |                                                     |   |      |  |   |      |  |   |      | 
| | Consulting fees paid to David Dreisinger, a         | $ | 63   |  | $ | 62   |  | $ | 37   | 
| | Director of the Company                             |   |      |  |   |      |  |   |      | 
| | Consulting fees paid to James Swearingen, a         |   | 55   |  |   | 60   |  |   | 41   | 
| | Director of the Company                             |   |      |  |   |      |  |   |      | 
| | Management fees paid to Group 4 Ventures,
      an  |   | 81   |  |   | 180  |  |   | 129  | 
| | affiliate controlled by the Executive Chairman of   |   |      |  |   |      |  |   |      | 
| | the Company                                         |   |      |  |   |      |  |   |      | 
| | Rent and office charges paid to Baja Mining Corp.,  |   | 25   |  |   | 62   |  |   | 25   | 
| | a company of which the Executive Chairman
      was |   |      |  |   |      |  |   |      | 
| | a director                                          |   |      |  |   |      |  |   |      | 
| |                                                     | $ | 224  |  | $ | 364  |  | $ | 232  | 

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

During the year ended 31 January 2008, the Company paid $63,000
(2007 - $62,000 and 2006 - $37,000) to Dr. Dreisinger for consulting fees
primarily in connection with activities related to the processing / technical
side of the NorthMet project and related expenses (the latter were supported by
invoices and receipts). The consulting fees were based on a monthly fee of
Canadian $5,500 plus general sales tax. Throughout the term of his engagement,
Dr. Dreisinger has conducted in-person and telephonic meetings with Mr. William
Murray, the Companys Executive Chairman and formally its President and Chief
Executive Officer, and other members of management at which he provided both
verbal and written updates on the status of test work and made recommendations
for future activities. These meetings occurred approximately every two to three
weeks for the past five years.

During the year ended 31 January 2008, the Company paid $55,000
  (2007 - $59,600 and 2006 - $41,000) to Mr. Swearingen for consulting fees primarily
  in connection with activities related to our agreements with Cliffs Erie L.L.C.
  and land tenure and related expenses (the latter were supported by invoices
  and receipts). The consulting fees were based on a monthly fee of $5,000. Mr.
  Swearingen spent a significant amount of time in our Hoyt Lakes office reporting
  to both Mr. Murray and Mr. Warren Hudelson, our senior officer at that site, on a regular basis until Mr.
  Joe Scipioni joined the Company. He then reported to Mr. Scipioni, who at the
  time, was PolyMets General Manager and Chief Operating Officer.

43

---

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

During the year ended 31 January 2008, the Company paid $81,000
(2007 - $180,000 and 2006 -$129,000) to Group 4 Ventures (Group 4) for the
provision of consulting services of Mr. Murray, at a fixed monthly rate in
accordance with a written contract. These amounts were in addition to the salary
paid to him during the year ended 31 January 2008 of $172,000 (2007 - $53,000
and 2006 - $50,000). Effective 1 July 2007, Mr. Murrays employment agreement
was adjusted to include, as salary, the amounts formerly paid to Group 4
Ventures as consulting fees and the contract with Group 4 was terminated.

During the year ended 31 January 2008, the Company paid $25,000
(2007 - $62,000 and 2006 - $25,000) to Baja Mining Corp. (Baja) primarily for
rent and office costs, including health insurance plan costs. The agreement
between Baja and the Company was oral in nature. Mr. Murray ceased being a
Director of Baja in June 2008. Effective 1 February, 2007, the Company occupied
its own premises and ceased paying rent to Baja. Effective 1 September, 2008,
the Company ceased paying the remaining costs to Baja.

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

ITEM 8. FINANCIAL INFORMATION

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

See Item 17.

Legal Proceedings

None.

Dividend Policy

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

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

There have been so significant changes subsequent to January
31, 2008.

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:

44

---

Fiscal Year
      Ended
    Toronto Stock Exchange1/
      TSX-Venture Exchange
    American Stock Exchange2/
      Over- the-Counter Bulletin BoardHigh
    Low
      High  LowJanuary 31, 2008
    CDN$4.61
    CDN$2.65
    US$4.18
    US$2.7201January 31, 2007
    CDN$5.34
    CDN$2.58
    US$4.21
    US$2.25January 31, 2006
    CDN$2.74
    CDN$0.51
    US$2.42
    US$0.42January 31, 2005
    CDN$1.20
    CDN$0.27
    US$0.90
    US$0.20January 31, 2004
    CDN$0.30
    CDN$0.05
    US$0.30
    US$0.04


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

Fiscal Quarter
      Ended
    Toronto Stock Exchange1/
      TSX-Venture Exchange
    American Stock Exchange2/
      Over- the-Counter Bulletin BoardHigh
      Low
    High
      LowJanuary 31, 2008
    CDN$3.59
    CDN$2.65
    US$3.89
    US$2.7201October 31, 2007
    CDN$2.93
    CDN$4.01
    US$4.02
    US$2.73July 31, 2007
    CDN$4.15
    CDN$2.60
    US$3.74
    US$2.25April 30, 2007
    CDN$4.61
    CDN$3.25
    US$4.15
    US$2.74January 31, 20071
    CDN$4.00
    CDN$3.10
    US$3.53
    US$2.67October 31, 2006
    CDN$4.15
    CDN$2.60
    US$3.74
    US$2.25July 31, 2006
    CDN$5.34
    CDN$2.58
    US$4.85
    US$2.30April 30, 2006
    CDN$4.00
    CDN$2.29
    US$3.56
    US$2.00January 31, 2006
    CDN$2.74
    CDN$1.33
    US$2.42
    US$1.12


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

Month
      Ended
    Toronto Stock Exchange1/
      TSX-Venture Exchange
    American Stock
      ExchangeHigh
      Low
      High
      LowMarch 31, 2008
    CDN$3.45
    CDN$3.01
    US$3.75
    US$2.89February 28, 2008
    CDN$3.48
    CDN$2.69
    US$3.53
    US$2.66January 31, 2008
    CDN$3.52
    CDN$2.65
    US$3.57
    US$2.73December 31, 2007
    CDN$3.24
    CDN$2.73
    US$2.7201
    US$3.2428November 30, 2007
    CDN$3.06
    CDN$3.59
    US$3.89
    US$3.07October 31, 2007
    CDN$4.01
    CDN$3.48
    US$4.02
    US$3.57


|1. | On January 31, 2007 we ceased trading on the
      TSX Venture Exchange and on February 1, 2007, we commenced trading on the
      Toronto Stock Exchange.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                           
|2. | On June 26, 2006, we began trading on the
      American Stock Exchange.                                                                                  
|   |                                                                                                                                                           
|C. | Markets                                                                                                                                                   

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

45

---

ITEM 10. ADDITIONAL INFORMATION

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

Incorporation

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

Powers and Functions of the Directors

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

|(a) | a director who holds office or possesses any property,
      right, or interest that could result, directly or indirectly, in the
      creation of a duty of interest that materially conflicts with his duty or
      interest as a director must disclose the nature and extent of the conflict
      and abstain from voting on the approval of the proposed contract or
      transaction, unless all the directors have a disclosable interest, in
      which case the director may vote on such resolution, and moreover, may be
      liable to account to us for any profit that accrued under such an interest
      contract or transaction;
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|(b) | a director is not deemed to be interested in a proposed
      contract or transaction merely because it relates to the remuneration of a
      director in that capacity. The directors may, in the absence of an
      independent quorum, vote compensation to themselves;                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|(c) | there are no specific limitations on the exercise by the
      directors of our borrowing powers;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|(d) | there are no provisions for the retirement or
      non-retirement of directors under an age limit, and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|(e) | there is no requirement for a director to hold any shares
      in us.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

Rights and Restrictions Attached to the Shares

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

Alteration of Share Rights

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

Annual General Meetings

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

46

---

Foreign Ownership Limitations

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

Change of Control

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

Share Ownership Reporting Obligations

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

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

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

Asset Purchase Agreements

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

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

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

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

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

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

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

47

---

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

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

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

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

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

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

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



48

---

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

Certain United States Federal Income Tax Consequences.
The following is a discussion of certain possible United States Federal income
tax consequences, under the law, generally applicable to a U.S. Holder (as
defined below) of our common shares. This discussion does not address all
potentially relevant Federal income tax matters and it does not address
consequences peculiar to persons subject to special provisions of Federal income
tax law, such as tax-exempt organizations, qualified retirement plans, financial
institutions, insurance companies, real estate investment trusts, regulated
investment companies, broker-dealers, and shareholders who acquired their stock
through the exercise of employee stock options or otherwise as compensation. In
addition, this discussion does not cover any state, local or foreign tax
consequences.

The following discussion is based upon the sections of the
Internal Revenue Code of 1986, as amended (the Code), Treasury Regulations,
published Internal Revenue Service (IRS) rulings, published administrative
positions of the IRS and court decisions that are currently applicable, any or
all of which could be materially and adversely changed, possibly on a
retroactive basis, at any time. In addition, the discussion does not consider
the potential effects, both adverse and beneficial, of possible legislation
which, if enacted, could be applied, possibly on a retroactive basis, at any
time. The following discussion is for general information only and is not
intended to be, nor should it be construed to be, legal or tax advice to any
holder or prospective holder of our common shares and no opinion or
representation with respect to the United States Federal income tax consequences
to any such holder or prospective holder is made. Accordingly, holders and
prospective holders of our common shares should consult their own tax advisors
about the federal, state, local, and foreign tax consequences of purchasing,
owning and disposing of our common shares.

U.S. Holders. As used herein, the term U.S. Holder
means a beneficial owner of our common shares that is, for U.S. federal income
tax purposes, (i) a citizen or resident of the United States, (ii) a corporation
(or other entity taxable as a corporation for United States federal income tax
purposes) created or organized in or under the laws of the United States or of
any political subdivision thereof, (iii) an estate the income of which is
includible in gross income subject to United States federal income tax
regardless of its source, or (iv) a trust (a) the administration of which is
subject to the primary supervision of a court in the United States and for which
one or more U.S. persons have the authority to control all substantial decisions
or (b) that has a valid election in effect under applicable Treasury regulations
to be treated as a U.S. person. If a partnership is a beneficial owner of our
common shares, the tax treatment of a partner in the partnership will generally
depend upon the status of the partner and the activities of the partnership. If
you are a partner in a partnership that owns our common shares, you should
consult your own tax advisor.

Distributions on Our Common Shares. Except as set forth
  below with regard to excess distributions, U.S. Holders receiving
  dividend distributions (including constructive dividends) with respect to our
  common shares are required to include in gross income for United States Federal
  income tax purposes the gross amount of such distributions when received, to
  the extent that we have current or accumulated earnings and profits, without
  reduction for any Canadian income tax withheld from such distributions. Such
  Canadian tax withheld may be credited, subject to certain limitations, against
  the U.S. Holders United States Federal Income tax liability or, alternatively,
  may be deducted in computing the U.S. Holders United States Federal taxable
  income by those who itemize deductions. (See more detailed discussion at Foreign
  Tax Credit below). To the extent that distributions exceed our current
  or accumulated earnings and profits, they will be treated first as a return
  of capital up to the U.S. Holders adjusted basis in the common shares
  and thereafter as gain from the sale or exchange of the common shares. Preferential
  tax rates for long-term capital gains are currently applicable to a U.S. Holder
  that is an individual, estate or trust. Dividends paid on our common
shares will not generally be eligible for the dividends received deduction
provided to corporations receiving dividends from certain United States
corporations.

49

---

Classification As a Passive Foreign Investment Company.
A non-U.S. corporation is classified as a passive foreign investment company (a
PFIC) for a taxable year if either: (i) at least 75% or more of its gross
income is passive income or (ii) at least 50% of the value of its assets (based
on an average of the quarterly values of the assets during the taxable year) is
attributable to passive assets (which includes cash and any assets that produce,
or are held for the production of, passive income). For at least as long as we
do not generate income from our operations, we believe that we will be
classified as a PFIC for United States federal income tax purposes. As a result,
a U.S. Holder of our common shares 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 our common shares,
unless it makes either a mark-to-market or qualified electing fund election
as discussed below. Distributions a U.S. Holder receives 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 or the U.S.
Holders holding period for the common shares will be treated as an excess
distribution. In addition, a step-up in the tax basis of stock in a PFIC may not
be available upon the death of an individual U.S. Holder.

Under these special tax rules: (i) the excess distribution or
gain will be allocated ratably over the U.S. Holders holding period for the
common shares, (ii) the amount allocated to the current taxable year, and any
taxable year prior to the first taxable year in which we were a PFIC, will be
treated as ordinary income, and (iii) the amount allocated to each other 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 such year.

The tax liability for amounts allocated to 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 sale
of common shares cannot be treated as capital, even if the U.S Holder holds the
common shares as capital assets.

Alternatively, a U.S. Holder of marketable stock (as defined
below) in a PFIC may make a mark-to-market election for stock of a PFIC to elect
out of the tax treatment discussed in the two preceding paragraphs. If a U.S.
Holder makes a mark-to-market election for 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. A U.S. Holder is allowed a deduction for
the excess, if any, of the adjusted basis of 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 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 gains on
the actual sale or other disposition of common shares, are treated as ordinary
income. Ordinary loss treatment also applies to the deductible portion of any
mark-to-market loss on common shares, as well as to any loss realized on the
actual sale or disposition of 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 common shares will be adjusted to
reflect any such income or loss amounts.

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 American Stock Exchange, or other market, as defined in applicable U.S.
Treasury regulations. Our common shares are listed on the American Stock
Exchange and, consequently, the mark-to-market election should be available to a
U.S. Holder, provided that our common shares are traded in sufficient
quantities.

In general, if a non-U.S. corporation is a PFIC, a holder of
  shares in that corporation may avoid taxation under the rules described above
  by making a qualified electing fund (QEF) election to
  include in income its share of the corporations income on a current basis,
  or a deemed sale election once the corporation no longer qualifies
  as a PFIC. However, a U.S. Holder may make a qualified electing fund election with respect to common shares only if we furnish
certain tax information to the U.S. Holder annually, and we do not currently
intend to prepare or provide such information.

50

---

Foreign Tax Credit. A U.S. Holder that pays (or has
withheld from distributions) Canadian income tax with respect to the ownership
of our common shares may be entitled, at the option of the U.S. Holder, to
either a deduction or a tax credit for such foreign tax paid or withheld.
Generally, it will be more advantageous to claim a credit because a credit
reduces United States Federal income taxes on a dollar-for-dollar basis, while a
deduction merely reduces the taxpayers income subject to tax. This election is
made on year-by-year basis and applies to all foreign income taxes (or taxes in
lieu of income tax) paid by (or withheld from) the U.S. Holder during the year.
There are significant and complex limitations which apply to the credit, among
which is the general limitation that the credit cannot exceed the proportionate
share of the U.S. Holders United States income tax liability that the U.S.
Holders foreign source income bears to his/her or its worldwide taxable income.
In the determination of the application of this limitation, the various items of
income and deduction must be classified into foreign and domestic sources.
Complex rules govern this classification process. The availability of the
foreign tax credit and the application of the limitations on the credit are fact
specific and holders and prospective holders of our common shares should consult
their own tax advisors regarding their individual circumstances.

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

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

| | PolyMet Mining Corp.             
| | ---------------------------------
| | #1003 - 1177 West Hastings Street
| | Vancouver, British Columbia      
| | V6E 2K3 Canada                   

We are subject to the informational requirements of the
Securities Exchange Act of 1934, as amended. In accordance with these
requirements, we file reports and other information with the SEC. These
materials, including this annual report on Form 20-F and its exhibits, may be
inspected and copied at the SECs Public Reference Room at 100 F Street, N.E.,
Washington, D.C. 20549 and at the SECs regional office at 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of the materials may be
obtained from the Public Reference Room of the Commission at 100 F. Street,
N.E., Washington, D.C. 20549 at prescribed rates. The public may obtain
information on the operation of the Commissions Public Reference Room by
calling the Commission in the United States at 1-800-SEC-0330.

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

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

Additional financial information is provided in our financial
statements and MD&A, copies of which can be obtained by contacting our
Corporate Secretary in writing at 1003  1177 West Hastings Street, Vancouver,
British Columbia V6E 2K3 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.



51

---

ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT
MARKET RISK

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

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

ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY
SECURITIES

Not Applicable.

ITEM 13. DEFAULT, DIVIDEND ARREARAGES AND
DELINQUENCIES

None.

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

Shareholder Rights Plan

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

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

The Shareholder Rights Plan is filed as Exhibit 14.1.

52

---

ITEM 15. CONTROLS AND PROCEDURES

A. Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this Annual Report, an
  evaluation was performed under the supervision and with the participation of
  our management, including the chief executive officer and chief financial officer,
  of the effectiveness of the design and operation of our disclosure controls
  and procedures (as defined in Rule 13a-15 of the Exchange Act, as amended).
  Based on that evaluation, our management, including the chief executive officer
  and chief financial officer, concluded that at 31 January 2008 the Companys
  disclosure controls and procedures were effective in providing reasonable
  assurance that material information required to be disclosed by us in the
  reports that we file or submit under the Exchange Act, as amended, is recorded,
  processed, summarized and reported within the time periods specified in the
  SECs rules and forms. In reaching this conclusion, the Company recognizes two
  factors that must be and are present:

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

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

Our management is responsible for establishing and maintaining
adequate internal control over financial reporting. Internal control over
financial reporting is defined in Rules 13a-15(f) and 15d-15(f) under the
Securities Exchange Act of 1934, as amended, as a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles and includes those policies and
procedures that (1) pertain to the maintenance of records that in reasonable
detail accurately and fairly reflect the transactions and dispositions of the
assets of the company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the company's assets that could have a
material effect on the financial statements.

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

Our management assessed the effectiveness of our internal
control over financial reporting as of January 31, 2008. In making this
assessment, management used the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) in "Internal Control
 Integrated Framework."

Based on its assessment, management believes that, as of
January 31, 2008, our internal control over financial reporting is effective.

|C. Attestation Report of the Registered Public
      Accounting Firm
|--------------------------------------------------------------------

The attestation report of PricewaterhouseCoopers with respect
to the Companys internal control over financial reporting is filed with Item 17
of this Annual Report.

|D. Changes in Internal Controls
|-------------------------------

There have been no changes in the Companys internal control
  over financial reporting during the year ended January 31, 2008 that have materially
  affected, or are reasonably likely to material affect, its internal control
  over financial reporting.

53

---

During the year ended January 31, 2007, the Company hired a
Group Controller who was formerly an audit partner at a large international
chartered accountant firm. He has extensive experience working with SEC Foreign
Private Issuers.

ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT

As of January 31, 2008, the audit committee consisted of three
directors. The Board of Directors has determined that all three audit committee
members are deemed financial experts and all of whom are independent as defined
under the American Stock Exchange Listing Standards.

W. Ian L. ForrestMr. Forrest, Chairman of the Audit
Committee, is a Chartered Accountant practicing in Geneva and specializes in
finance, banking and tax consulting. He is a director of two Canadian public
companies, Caledonian Mining Corporation and Mengold Resources Inc.

William CorneliusonMr. Corneliuson has more than
thirty years experience as an institutional portfolio manager and businessman.
He has served as President and Chief Investment Officer of B.C. Holdings since
April 1993 prior to which in 1976 he co-founded and served as President of
Strong/Corneliuson Capital Management.

George MolyviatisMr. Molyviatis has approximately
sixteen years experience as an investment banker and businessman. He started his
career with BNP Paribas in Geneva in 1986 and held increasingly senior
positions, ultimately becoming Senior Vice-President. In 1994 he joined Credit
Suisse as Senior Vice-President and left in 1996 start-up Pegasus Securities,
S.A., a Greek investment bank that he ran until 1999, when it was sold. Since
then Mr. Molyviatis has been a private investor in several natural resource
companies.

The Audit Committee Charter is filed as Exhibit 16.1.

ITEM 16B. CODE OF ETHICS

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

The Code is filed as Exhibit 11.1.

54

---

ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES

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

Financial Year Ending
      Audit Fees
      Audit Related Fees
      Tax Fees1
      All Other FeesJanuary 31, 2008
    CDN
      $148,333
    CDN
      $23,400
    CDN
      $14,500
    CDN
      $NilJanuary 31, 2007
    CDN
      $20,600
    CDN$2,200
    CDN
      $Nil
    CDN
      $Nil


| | 1 | Audit-related fees consist of fees to perform an
      auditors review of the Companys quarterly interim financial
      statements.
| | - | --------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                       
| | 2 | Tax fees consist of fees to prepare the Companys annual
      tax filings.                                                           

Pre-Approval Policies and Procedures

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

PART III

ITEM 17. FINANCIAL STATEMENTS

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

Index to Financial Statements

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


55

---

POLYMET MINING CORP.(a development stage company)

CONSOLIDATED FINANCIAL STATEMENTS

31 January 2008, 2007 and 2006

U.S. Funds

F-i

---



Management Report

Managements Responsibility for Consolidated Financial
  Statements

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

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

Managements Report on Internal Control over Financial
  Reporting

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

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

Management has assessed the effectiveness of the Companys
  internal control over financial reporting as at 31 January 2008. In making its
  assessment, management has used the Committee of Sponsoring Organizations of
  the Treadway Commission (COSO) framework in Integral Control-Integrated
  Framework to evaluate the Companys internal control over financial
  reporting. Based on our evaluation, management has concluded that the Companys
  internal control over financial reporting was effective as at that date.

The effectiveness of the Companys internal control over
  financial reporting as at 31 January 2008 has been audited by PricewaterhouseCoopers
  LLP, our independent auditors, as stated in their report which appears herein.

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

F-1

---



| | Suite 400
      - 889 West Pender Street
      Vancouver, BC Canada V6C 3B2Tel 604 694-6070
        Fax 604 585-8377
        info@staleyokada.com
        www.staleyokada.com
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Report of Independent Auditor

---

To the Shareholders of Polymet Mining Corp.:

We have audited the consolidated statements of shareholders'
  equity, loss and cash flows of Polymet Mining Corp. (the Company)
  for the year ended 31 January 2006. These financial statements are the responsibility
  of the Company's management. Our responsibility is to express an opinion on
  these financial statements based on our audit.

We conducted our audit in accordance with the Canadian generally
  accepted auditing standards and 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 the financial statements
  are free of material misstatement. An audit also includes examining, on a test
  basis, evidence supporting the amounts and disclosures in the financial statements,
  assessing the accounting principles used and significant estimates made by management,
  as well as evaluating the overall financial statement presentation. We believe
  that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred
  to above present fairly, in all material respects, the results of the Companys
  operations and its cash flows for the year ended 31 January 2006, after the
  restatement (as described in the May 2007 20-F filing of the Company), in accordance
  with Canadian generally accepted accounting principles.

|                                                   | Staley, Okada & Partners
|-------------------------------------------------- | --------------------------
|                                                   |                           
|                                                   |                           
|Vancouver, BC                                      | STALEY, OKADA & PARTNERS  
|4 April 2006, except as to the restatement         | CHARTERED ACCOUNTANTS     
|described in the May 2007 20-F filing, which is as |                           
|of 28 April 2008                                   |                           

---

F-2




---

Independent Auditors Report

To the Shareholders of Polymet Mining Corp.

We have completed an integrated audit of PolyMet Mining Corp.s
  2008 consolidated financial statements and of its internal control over financial
  reporting as at January 31, 2008 and an audit of its 2007 consolidated financial
  statements. Our opinions, based on our audits, are presented below.

Consolidated financial statements

We have audited the accompanying consolidated balance sheets
  of PolyMet Mining Corp. (the Company) as at January 31, 2008 and
  2007, and the related consolidated statements of operations, comprehensive loss,
  changes in shareholders equity and cash flows for each of the years then
  ended. These financial statements are the responsibility of the Companys
  management. Our responsibility is to express an opinion on these financial statements
  based on our audits.

We conducted our audit of the Companys financial statements
  as at January 31, 2008 and for the year then ended in accordance with Canadian
  generally accepted auditing standards and the standards of the Public Company
  Accounting Oversight Board (United States). We conducted our audit of the Companys
  financial statements as at January 31, 2007 and for the year then ended in accordance
  with Canadian generally accepted auditing standards. Those standards require
  that we plan and perform an audit to obtain reasonable assurance about whether
  the financial statements are free of material misstatement.

An audit of financial statements includes examining, on a test
  basis, evidence supporting the amounts and disclosures in the financial statements.
  A financial statement audit also includes assessing the accounting principles
  used and significant estimates made by management, and evaluating the overall
  financial statement presentation. We believe that our audits provide a reasonable
  basis for our opinion.

In our opinion, the consolidated financial statements referred
  to above present fairly, in all material respects, the financial position of
  the Company as at January 31, 2008 and 2007 and the results of its operations
  and its cash flows for each of the years then ended in accordance with Canadian
  generally accepted accounting principles.

The consolidated financial statements as at January 31, 2006
  and for the year then ended were audited by other auditors who expressed an
  opinion without reservation on those financial statements in their report dated
  4 April 2006.

Internal control over financial reporting

We have also audited PolyMet Mining Corp.s internal control
  over financial reporting as at January 31, 2008,based on criteria established
  in Internal Control - Integrated Framework issued by the Committee of
  Sponsoring Organizations of the Treadway Commission (COSO). The Companys
  management is responsible for maintaining effective internal control over financial
  reporting and for its assessment of the effectiveness of internal control over
  financial reporting, included in the accompanying Managements Report on
  Internal Control over Financial Reporting. Our responsibility is to express
  an opinion on the effectiveness of the Companys internal control over
  financial reporting based on our audit.

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

F-3

---

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

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

In our opinion, the Company maintained, in all material respects,
  effective internal control over financial reporting as at January 31, 2008 based
  on criteria established in Internal Control  Integrated Framework issued
  by the COSO.

*/s/ PricewaterhouseCoopers LLP*

Chartered AccountantsVancouver, BC, Canada 
  April 25, 2008

F-4

---

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

|ASSETS                                                        |   | 2008    |   |   | 2007    |  
|------------------------------------------------------------- | - | ------- | - | - | ------- | -
|Current                                                       |   |         |   |   |         |  
|Cash and equivalents                                          | $ | 20,084  |   | $ | 8,897   |  
|Accounts receivable and
      advances                        |   | 168     |   |   | 61      |  
|Investment (Note 12)                                          |   | 1,445   |   |   | -       |  
|Prepaid expenses                                              |   | 793     |   |   | 210     |  
|                                                              |   | 22,490  |   |   | 9,168   |  
|Deferred Financing Costs(Note 13d)                            |   | 1,690   |   |   | 1,397   |  
|Mineral Property, Plant and Equipment(Notes 3 and
      4)    |   | 65,019  |   |   | 38,166  |  
|                                                              | $ | 89,199  |   | $ | 48,731  |  
|                                                              |   |         |   |   |         |  
|LIABILITIES                                                   |   |         |   |   |         |  
|Current                                                       |   |         |   |   |         |  
|Accounts payable and accrued
      liabilities                | $ | 4,266   |   | $ | 1,518   |  
|Current portion of long term debt (Note
      5)              |   | 1,401   |   |   | 2,000   |  
|Current portion of asset
      retirement obligation (Note 6) |   | 265     |   |   | 410     |  
|                                                              |   | 5,932   |   |   | 3,928   |  
|                                                              |   |         |   |   |         |  
|Long term                                                     |   |         |   |   |         |  
|Long term debt (Note
      5)                                 |   | 10,834  |   |   | 11,853  |  
|Long term accounts payable                                    |   | 108     |   |   | -       |  
|Asset retirement obligation
      (Note 6)                    |   | 3,174   |   |   | 3,012   |  
|                                                              |   | 20,048  |   |   | 18,793  |  
|                                                              |   |         |   |   |         |  
|SHAREHOLDERS
      EQUITY                                    |   |         |   |   |         |  
|Share Capital- (Note 7)                                       |   | 104,615 |   |   | 72,923  |  
|Contributed Surplus (Note 7d)                                |   | 20,825  |   |   | 9,614   |  
|Deficit                                                       |   | (56,289 | ) |   | (52,599 | )
|                                                              |   | 69,151  |   |   | 29,938  |  
|                                                              | $ | 89,199  |   | $ | 48,731  |  

Contingent Liabilities and Commitments(Notes 4 and
  13)

ON BEHALF OF THE BOARD:

|William Murray   | , Director
|------------------ | ----------
|                   |           
|David Dreisinger | , Director

- See Accompanying Notes 

F-5

---

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

|                                         |   | 2008        |   |   | 2007        |   |   | 2006       |  
|---------------------------------------- | - | ----------- | - | - | ----------- | - | - | ---------- | -
|Pre-feasibility Costs                    |   |             |   |   |             |   |   |            |  
|See Schedule 1(Note 1)                   |   | -           |   |   | 8,844       |   |   | 11,120     |  
|                                         |   |             |   |   |             |   |   |            |  
|                                         |   |             |   |   |             |   |   |            |  
|General and Administrative               |   |             |   |   |             |   |   |            |  
|Amortization                             |   | 56          |   |   | 7           |   |   | 4          |  
|Consulting fees                          |   | 73          |   |   | 1,458       |   |   | 366        |  
|Investor relations and financing         |   | 270         |   |   | 218         |   |   | 90         |  
|Office and corporate wages               |   | 1,681       |   |   | 899         |   |   | 578        |  
|Professional fees                        |   | 652         |   |   | 790         |   |   | 151        |  
|Shareholders information                |   | 373         |   |   | 125         |   |   | 53         |  
|Stock-based compensation (Note 7c))      |   | 635         |   |   | 4,723       |   |   | 3,523      |  
|Transfer agent and filing fees           |   | 127         |   |   | 272         |   |   | 65         |  
|Travel                                   |   | 532         |   |   | 482         |   |   | 348        |  
|                                         |   | 4,399       |   |   | 8,974       |   |   | 5,178      |  
|                                         |   |             |   |   |             |   |   |            |  
|Other Expenses (Income)                  |   |             |   |   |             |   |   |            |  
|Interest income, net                     |   | (1,168      | ) |   | (428        | ) |   | (148       | )
|Loss (gain) on foreign exchange          |   | (566        | ) |   | 536         |   |   | (221       | )
|Investment loss (Note 12)                |   | 1,050       |   |   | -           |   |   | -          |  
|Rental income                            |   | (25         | ) |   | (33         | ) |   | -          |  
|                                         |   | (709        | ) |   | 75          |   |   | (369       | )
|                                         |   |             |   |   |             |   |   |            |  
|Loss for the Year and Comprehensive Loss |   | 3,690       |   |   | 17,893      |   |   | 15,929     |  
|                                         |   |             |   |   |             |   |   |            |  
|Deficit Beginning of the Year            |   | 52,599      |   |   | 34,706      |   |   | 18,777     |  
|                                         |   |             |   |   |             |   |   |            |  
|Deficit End of
      Year                |   | 56,289      |   |   | 52,599      |   |   | 34,706     |  
|                                         |   |             |   |   |             |   |   |            |  
|Basic and Diluted
      Loss per Share   | $ | (0.03       | ) | $ | (0.16       | ) | $ | (0.22      | )
|                                         |   |             |   |   |             |   |   |            |  
|                                         |   |             |   |   |             |   |   |            |  
|                                         |   |             |   |   |             |   |   |            |  
|                                         |   |             |   |   |             |   |   |            |  
|Weighted Average Number of Shares        |   | 133,697,572 |   |   | 114,754,213 |   |   | 73,484,490 |  

- See Accompanying Notes -

F-6

---

|PolyMet Mining Corp.                                            
|----------------------------------------------------------------
|(a development stage company)                                   
|Consolidated Statements of Changes in Shareholders
      Equity

|All figures in Thousands of U.S. Dollars, except
      for Shares |  | Common Shares (Note 7) |  |  |             |  |   |         |   |   |                     |   |   |                     |   |   |         |  
|----------------------------------------------------------------- |  | ---------------------- |  |  | ----------- |  | - | ------- | - | - | ------------------- | - | - | ------------------- | - | - | ------- | -
|                                                                  |  | Authorized             |  |  |             |  |   |         |   |   | Share Subscriptions |   |   |                     |   |   |         |  
|                                                                  |  | Shares                 |  |  | Shares      |  |   | Amount  |   |   | Received            |   |   | Contributed Surplus |   |   | Deficit |  
|Balance - 31 January 2005 - Shares
      issued                   |  | Unlimited              |  |  | 55,313,653  |  |   | 18,128  |   |   | 763                 |   |   | 1,006               |   |   | (18,777 | )
|Shares allotted for exercise of
      warrants                    |  | -                      |  |  | 224,925     |  |   | 26      |   |   | -                   |   |   | -                   |   |   | -       |  
|Shares allotted
      for bonus                                   |  | -                      |  |  | 1,590,000   |  |   | 873     |   |   | -                   |   |   | -                   |   |   | -       |  
|Balance  31 January 2005 - Shares issued and
      allotted      |  |                        |  |  |             |  |   |         |   |   |                     |   |   |                     |   |   |         |  
|(issued in fiscal 2006)                                           |  | Unlimited              |  |  | 57,128,578  |  |   | 19,027  |   |   | 763                 |   |   | 1,006               |   |   | (18,777 | )
|Loss for the year                                                 |  | -                      |  |  | -           |  |   | -       |   |   | -                   |   |   | -                   |   |   | (15,929 | )
|Shares issued
      for cash:                                     |  |                        |  |  |             |  |   |         |   |   |                     |   |   |                     |   |   |         |  
|Private placements                                                |  | -                      |  |  | 28,494,653  |  |   | 17,302  |   |   | (763                | ) |   | 3,653               |   |   | -       |  
|Share issuance costs                                              |  | -                      |  |  | -           |  |   | (1,475  | ) |   | -                   |   |   | -                   |   |   | -       |  
|Exercise of
      warrants                                        |  | -                      |  |  | 5,700,628   |  |   | 3,296   |   |   | -                   |   |   | -                   |   |   | -       |  
|Exercise of options                                               |  | -                      |  |  | 1,795,852   |  |   | 197     |   |   | -                   |   |   | -                   |   |   | -       |  
|Shares issued for finders fee                                    |  | -                      |  |  | 852,915     |  |   | 617     |   |   | -                   |   |   | -                   |   |   | -       |  
|Non-cash share
      issuance costs                               |  | -                      |  |  | -           |  |   | (617    | ) |   | -                   |   |   | -                   |   |   | -       |  
|Shares issued for property                                        |  | -                      |  |  | 6,200,547   |  |   | 7,564   |   |   | -                   |   |   | -                   |   |   | -       |  
|Stock-based
      compensation                                    |  | -                      |  |  | -           |  |   | -       |   |   | -                   |   |   | 3,523               |   |   | -       |  
|Fair value of stock options
      exercised                       |  | -                      |  |  | -           |  |   | 98      |   |   | -                   |   |   | (98                 | ) |   | -       |  
|Balance  31 January 2006                                         |  | Unlimited              |  |  | 100,173,173 |  |   | 46,009  |   |   | -                   |   |   | 8,084               |   |   | (34,706 | )
|Loss for the year                                                 |  | -                      |  |  | -           |  |   | -       |   |   | -                   |   |   | -                   |   |   | (17,893 | )
|Issuance of
      shares for bonus (Note 13)                      |  | -                      |  |  | 2,350,000   |  |   | 1,289   |   |   | -                   |   |   | -                   |   |   | -       |  
|Shares issued for cash:                                           |  |                        |  |  |             |  |   |         |   |   |                     |   |   |                     |   |   |         |  
|Exercise of warrants                                              |  | -                      |  |  | 14,662,703  |  |   | 17,963  |   |   | -                   |   |   | (3,653              | ) |   | -       |  
|Exercise of
      options                                         |  | -                      |  |  | 2,193,000   |  |   | 765     |   |   | -                   |   |   | -                   |   |   | -       |  
|Shares issued
      for property    (Note 4)                      |  | -                      |  |  | 2,000,000   |  |   | 6,160   |   |   | -                   |   |   | -                   |   |   | -       |  
|Stock-based compensation                                          |  | -                      |  |  | -           |  |   | -       |   |   | -                   |   |   | 4,723               |   |   | -       |  
|Warrants issued
      for deferred financing costs                |  | -                      |  |  | -           |  |   | -       |   |   | -                   |   |   | 1,197               |   |   | -       |  
|Fair value of stock options exercised                             |  | -                      |  |  | -           |  |   | 737     |   |   | -                   |   |   | (737                | ) |   | -       |  
|Balance  31 January 2007                                         |  | Unlimited              |  |  | 121,378,876 |  | $ | 72,923  |   | $ | -                   |   | $ | 9,614               |   | $ | (52,599 | )
|Loss for the year                                                 |  | -                      |  |  | -           |  |   | -       |   |   | -                   |   |   | -                   |   |   | (3,690  | )
|Shares and
      warrants issued:                                 |  |                        |  |  |             |  |   |         |   |   |                     |   |   |                     |   |   |         |  
|Exercise of
      options                                         |  | -                      |  |  | 462,200     |  |   | 303     |   |   | -                   |   |   | -                   |   |   | -       |  
|Fair value of stock options exercised                             |  | -                      |  |  | -           |  |   | 212     |   |   | -                   |   |   | (212                | ) |   | -       |  
|**Private placement, finders fees and
      issuance** costs     |  | -                      |  |  | 15,149,999  |  |   | 31,177  |   |   | -                   |   |   | 8,346               |   |   | -       |  
|Stock-based
      compensation                                    |  | -                      |  |  | -           |  |   | -       |   |   | -                   |   |   | 3,077               |   |   | -       |  
|Balance
       31 January 2008                                   |  | Unlimited              |  |  | 136,991,075 |  | $ | 104,615 |   | $ | -                   |   | $ | 20,825              |   | $ | (56,289 | )

- See Accompanying Notes -

F-7

---

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

|                                                                 |   | 2008    |       |   | 2007    |   |   | 2006    |  
|---------------------------------------------------------------- | - | ------- | ----- | - | ------- | - | - | ------- | -
|Operating Activities                                             |   |         |       |   |         |   |   |         |  
|Loss for the year                                                | $ | (3,690  | **)** | $ | (17,893 | ) | $ | (15,929 | )
|Items not involving cash                                         |   |         |       |   |         |   |   |         |  
|Consulting fees and Office
      and Corporate wages (Note 13a)) |   | -       |       |   | 1,289   |   |   | -       |  
|Amortization                                                     |   | 56      |       |   | 7       |   |   | 4       |  
|Stock-based compensation                                         |   | 635     |       |   | 4,723   |   |   | 3,523   |  
|Investment
      loss (Note 12)                                  |   | 1,050   |       |   | -       |   |   | -       |  
|Changes in non-cash working capital items                        |   |         |       |   |         |   |   |         |  
|Accounts
      receivable and advances                           |   | (107    | **)** |   | (20     | ) |   | 4       |  
|Prepaid expenses                                                 |   | (583    | **)** |   | (135    | ) |   | 166     |  
|Accounts
      payable and accrued liabilities                   |   | (51     | **)** |   | (199    | ) |   | 1,386   |  
|Net cash used in operating activities                            |   | (2,690  | **)** |   | (12,228 | ) |   | (10,846 | )
|                                                                 |   |         |       |   |         |   |   |         |  
|Financing Activities                                             |   |         |       |   |         |   |   |         |  
|Share capital - for cash                                         |   | 39,826  |       |   | 15,075  |   |   | 22,209  |  
|Long-term debt repayment                                         |   | (2,000  | **)** |   | (1,250  | ) |   | -       |  
|Deferred financing costs                                         |   | (293    | **)** |   | (200    | ) |   | -       |  
|Net cash provided by financing activities                        |   | 37,533  |       |   | 13,625  |   |   | 22,209  |  
|                                                                 |   |         |       |   |         |   |   |         |  
|Investing Activities                                             |   |         |       |   |         |   |   |         |  
|Purchase of investment                                           |   | (2,495  | **)** |   | -       |   |   | -       |  
|Term deposit                                                     |   | -       |       |   | -       |   |   | 807     |  
|Mineral property, plant and equipment                            |   | (21,161 | **)** |   | (4,171  | ) |   | (1,010  | )
|Net cash used in investing activities                            |   | (23,656 | **)** |   | (4,171  | ) |   | (203    | )
|                                                                 |   |         |       |   |         |   |   |         |  
|Net Increase (Decrease) in Cash and Cash Equivalents Position    |   | 11,187  |       |   | (2,774  | ) |   | 11,160  |  
|Cash and Cash Equivalents Position
      - Beginning of Year     |   | 8,897   |       |   | 11,671  |   |   | 511     |  
|Cash and Cash Equivalents
      Position - End of Year           | $ | 20,084  |       | $ | 8,897   |   | $ | 11,671  |  

- See Accompanying Notes -

F-8

---

|PolyMet Mining Corp.                            | Schedule 1
|----------------------------------------------- | ----------
|(a development stage company)                   |           
|Consolidated Schedules of Pre-Feasibility Costs |           
|For the Years Ended 31 January                  |           
|All figures in Thousands of U.S. Dollars        |           

|                                 |   | 2008 |  |   | 2007  |  |   | 2006   | 
|-------------------------------- | - | ---- |  | - | ----- |  | - | ------ | 
|                                 |   |      |  |   |       |  |   |        | 
|Direct                           |   |      |  |   |       |  |   |        | 
|Camp and general                 | $ | -    |  | $ | 187   |  | $ | 101    | 
|Consulting fees                  |   | -    |  |   | 819   |  |   | 690    | 
|Drilling                         |   | -    |  |   | 94    |  |   | 3,075  | 
|Engineering                      |   | -    |  |   | 642   |  |   | 578    | 
|Environmental                    |   | -    |  |   | 3,303 |  |   | 2,421  | 
|Geological and geophysical       |   | -    |  |   | 55    |  |   | 75     | 
|Land lease, taxes and licenses   |   | -    |  |   | 127   |  |   | 187    | 
|Metallurgical                    |   | -    |  |   | 303   |  |   | 1,894  | 
|Mine planning                    |   | -    |  |   | 2,236 |  |   | 1,312  | 
|Permitting                       |   | -    |  |   | 2     |  |   | 137    | 
|Plant maintenance and repair     |   | -    |  |   | 681   |  |   | 44     | 
|Sampling                         |   | -    |  |   | 395   |  |   | 606    | 
|                                 |   |      |  |   |       |  |   |        | 
|Total Costs for the Year(Note 1) | $ | -    |  | $ | 8,844 |  | $ | 11,120 | 

- See Accompanying Notes -

F-9

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial Statements                                                       
|For the years ended 31 January 2008, 2007 and 2006                                               
|Tabular amounts in Thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

|1. | Nature of Business and Significant Accounting
      Policies
|-- | ------------------------------------------------------------

PolyMet Mining Corp. (the Company)
  was incorporated in British Columbia, Canada on 4 March 1981 under the name
  Fleck Resources Ltd. The Company changed its name from Fleck Resources to PolyMet
  Mining Corp. on 10 June 1998. The Company is engaged in the exploration and
  development, when warranted, of natural resource properties. The Companys
  primary mineral property is the NorthMet Project, a polymetallic project in
  northeastern Minnesota, USA. The realization of the Companys investment
  in the NorthMet Project and other assets is dependant upon various factors,
  including the existence of economically recoverable mineral reserves, the ability
  to obtain the necessary financing to complete the exploration and development
  of the NorthMet Project, future profitable operations, or alternatively upon
  disposal of the investment on an advantageous basis.

On 25 September 2006, the Company received
  the results of a Definitive Feasibility Study (DFS) prepared by
  Bateman Engineering (Pty) Ltd. (Bateman) that confirms the economic
  and technical viability of the NorthMet Project and, as such, the Project has
  moved from the exploration stage to the development stage.

The consolidated financial statements
  of PolyMet Mining Corp. have been prepared in accordance with accounting principles
  generally accepted in Canada that require management to make assumptions and
  estimates that affect the reported amounts of assets and liabilities and disclosures
  of contingent assets and liabilities as at the date of the financial statements.

Significant estimates used in the preparation
  of these consolidated financial statements include, amongst other things, expected
  economic lives of plant and equipment, anticipated costs of asset retirement
  obligations including the reclamation of mine site, valuation of options and
  share purchase warrants, and the assessment of impairment in value of long lived
  assets. Actual results could differ from these estimates. Significant differences
  from United States generally accepted accounting principles are disclosed in
  Note 14.

Basis of consolidation

The consolidated financial statements
  include the accounts of the Company and its wholly-owned subsidiaries, Poly
  Met Mining, Inc. and Fleck Minerals Inc. Inter-company balances and transactions
  have been eliminated on consolidation.

Cash and Cash Equivalents

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

F-10

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial Statements                                                       
|For the years ended 31 January 2008, 2007 and 2006                                               
|Tabular amounts in Thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

|1. | Nature of Business and Significant Accounting
      Policies- Continued
|-- | -----------------------------------------------------------------------

Mineral Property, Plant and Equipment

Mineral property

Mineral property costs, aside from mineral
  property acquisition costs, incurred prior to determination of the DFS are expensed
  as incurred and expenditures incurred subsequent to the DFS and mineral property
  acquisition costs are deferred or capitalized until the property is placed into
  production, sold, allowed to lapse or abandoned. Acquisition costs include cash,
  debt and fair market value of common shares.

Upon commencement of commercial production,
  mineral properties and acquisition costs relating to mines are amortized over
  the estimated life of the proven and probable mineral reserves to which they
  relate, calculated on a unit of production basis.

As a result of the DFS on the NorthMet
  Project, the Project entered the development stage effective 1 October 2006.
  The Company has deferred mineral property development expenditures related to
  the NorthMet Project from that date.

Ownership in mineral interests involves
  certain inherent risks due to the difficulties of determining the validity of
  certain claims as well as the potential for problems arising from the frequently
  ambiguous conveyance history characteristic of many mineral interests. The Company
  has investigated ownership of its mineral interests and, to the best of its
  knowledge, ownership of its interests are in good standing.

Plant and equipment

Plant and equipment are recorded at cost
  and depreciated over the estimated life of the related assets calculated on
  a unit of production or straight-line basis, as appropriate.

Depreciation of plant and equipment is
  provided on a straight-line basis over the estimated economic life of the assets
  as follows:

Leasehold improvements  Straight-line
  over the term of the lease 
  Furniture and equipment  Straight-line over 10 years 
  Computers  Straight-line over 5 years

Mineral property, plant and equipment
  related to the NorthMet Project will begin to be amortized at the time the project
  commences operations.

Loss Per Share

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

F-11

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial Statements                                                       
|For the years ended 31 January 2008, 2007 and 2006                                               
|Tabular amounts in Thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

|1. | Nature of Business and Significant Accounting
      Policies- Continued
|-- | -----------------------------------------------------------------------

Foreign Currency Translation

The United States (U.S.)
  dollar is the functional currency of the Companys business. Accordingly,
  amounts in these consolidated financial statements are expressed in U.S. dollars
  unless otherwise stated. The Companys non-U.S. operations are considered
  to be integrated with the U.S. operations and have been translated into U.S.
  dollars using the temporal method. Under this method, monetary assets and liabilities
  are translated at the rate of exchange in effect at the balance sheet dates
  and non-monetary assets and liabilities are translated at the exchange rate
  in effect at the times of the transactions. Revenue and expense items are translated
  at rates approximating the exchange rate in effect at the time of the transactions,
  except for amortization which is translated at historical rates. Translation
  gains and losses are reflected in the year.

Stock-Based Compensation and Share
  Purchase Warrants

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

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

Asset Retirement Obligations

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

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

F-12

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial Statements                                                       
|For the years ended 31 January 2008, 2007 and 2006                                               
|Tabular amounts in Thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

|1. | Nature of Business and Significant Accounting
        Policies- Continued                                                                                                                                                                                                                                                                                                                                                                                                                                         
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | Impairment of Long-Lived Assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | The Company performs impairment tests on its
        mineral property, plant and equipment when events or changes in circumstances
        indicate that the carrying values of assets may not be recoverable. These
        tests require the comparison of the undiscounted future cash flows derived
        from these assets with the carrying value of the assets. If a shortfall
        exists, the assets are written down to fair value, determined primarily
        using discounted cash flow models.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | Recent Accounting Pronouncements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | The Company has adopted the following CICA
        standards effective for the Company commencing 1 February 2007:                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | a)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | b)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | c)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

F-13

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial Statements                                                       
|For the years ended 31 January 2008, 2007 and 2006                                               
|Tabular amounts in Thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

|1. | Nature of Business and Significant Accounting
        Policies- Continued
|-- | -------------------------------------------------------------------------
|   |                                                                          
|   |                                                                          

The CICA has issued three new standards,
  which may affect the financial disclosures and results of operations of the
  Company for interim and annual periods beginning 1 February 2008. The Company
  will adopt the requirements commencing in the interim period ended 30 April
  2008 or after and is considering the impact this will have on the Companys
  financial statements.

| | a) | Section 1535  Capital Disclosures. This
        section establishes standards for disclosing information about a companys
        capital and how it is managed. Under this standard the Company will be
        required to disclose the following, based on the information provided
        internally to the Companys key management personnel:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    | a.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |    | b.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |    | c.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |    | d.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | b) | Section 1530  Inventories. This section
        prescribes the accounting treatment for inventories and provides guidance
        on the determination of costs and its subsequent recognition as an expense,
        including any write-down to net realizable value. It also provides guidance
        on the cost formulas that are used to assign costs to inventories.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | c) | Sections 3862 & 3863  Financial
        Instruments  Disclosures and Presentation. These new standards replace
        Section 3861, Financial Instruments  Disclosure and Presentation,
        revising and enhancing disclosure requirements and carrying forward unchanged
        the presentation requirements. Section 3862 requires entities to provide
        disclosure of quantitative and qualitative information in their financial
        statements that enable users to evaluate (a) the significance of financial
        instruments for the entitys financial position and performance;
        and (b) the nature and extent of risks arising from financial instruments
        to which the entity is exposed during the period and at the balance sheet
        date, and managements objectives, policies and procedures for managing
        such risks. Entities will be required to disclose the measurement basis
        or bases used, and the criteria used to determine classification for different
        types of instruments.

The Section requires specific disclosures
  to be made, including the criteria for:

| | (i)   | Designating financial assets and liabilities as held
        for trading;                                                
| | ----- | -------------------------------------------------------------------------------------------------------------------------
| | (ii)  | Designating financial assets as available for sale,
        and                                                          
| | (iii) | Designating when impairment is recorded against the
        related financial asset or when an allowance account is used.

F-14

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial Statements                                                       
|For the years ended 31 January 2008, 2007 and 2006                                               
|Tabular amounts in Thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

|1. | Nature of Business and Significant Accounting
      Policies- Continued
|-- | -----------------------------------------------------------------------

| | d) | Section 3064  Goodwill and Intangible. The objectives
        of CICA 3064 are to reinforce the principle-based approach to the recognition
        of assets only in accordance with the definition of an asset and the criteria
        for asset recognition; and clarify the application of the concept of matching
        revenues and expenses such that the current practice of recognizing assets
        that do not meet the definition and recognition criteria is eliminated.
        The standard will also provide guidance for the recognition of internally
        developed intangible assets (including research and development activities),
        ensuring consistent treatment of all intangible assets, whether separately
        acquired or internally developed.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

International Financial Reporting
  Standards ("IFRS")

In 2006, the Canadian Accounting Standards
  Board (AcSB) published a new strategic plan that will significantly
  affect financial reporting requirements for Canadian companies. The AcSB strategic
  plan outlines the convergence of Canadian GAAP with IFRS over an expected five
  year transitional period. In February 2008 the AcSB announced that 2011 is the
  changeover date for publicly-listed companies to use IFRS, replacing Canadas
  own GAAP. The date is for interim and annual financial statements relating to
  fiscal years beginning on or after 1 January 2011. The transition date of 1
  January 2011 will require the restatement for comparative purposes of amounts
  reported by the Company for the year ended 31 January 2012. The financial reporting
  impact of the transition to IFRS cannot be reasonably estimated at this time.

Comparative Figures

Certain of the comparative figures have
  been reclassified to conform with the current years presentation.

|   |                      
|-- | ---------------------
|2. | Financial Instruments
|   |                      
|   | a)                   
|   |                      
|   |                      
|   |                      
|   | b)                   
|   |                      
|   |                      

F-15

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial Statements                                                       
|For the years ended 31 January 2008, 2007 and 2006                                               
|Tabular amounts in Thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

|3. | Resource Property Agreements
|-- | ----------------------------

NorthMet, Minnesota, U.S.A. - Lease

By an agreement dated 4 January 1989
  and a subsequent amendment and assignment, the Company leases certain lands
  in St. Louis County, Minnesota from RGGS Land & Minerals Ltd., L.P. During
  the year ended 31 January 2005, United States Steel Corporation assigned the
  lease to RGGS Land & Minerals Ltd., L.P. The current term of the renewable
  lease is 20 years and calls for total lease payments of $1,475,000. All lease
  payments have been paid or accrued to 31 January 2008. The agreement requires
  future annual lease payments of $150,000 to 2009.

The Company can, at its option, terminate
  the lease at any time by giving written notice to the lessor not less than 90
  days prior to the effective termination date or can indefinitely extend the
  20-year term by continuing to make $150,000 annual lease payments on each successive
  anniversary date.

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

F-16

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial Statements                                                       
|For the years ended 31 January 2008, 2007 and 2006                                               
|Tabular amounts in Thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

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

| | Details are as follows: |   |        |  |   |              |  |   |          | 
| | ----------------------- | - | ------ |  | - | ------------ |  | - | -------- | 
| |                         |   |        |  |   |              |  |   |          | 
| |                         |   |        |  |   | Accumulated  |  |   | Net Book | 
| | 31 January 2008         |   | Cost   |  |   | Amortization |  |   | Value    | 
| | NorthMet Project        | $ | 64,766 |  | $ | -            |  | $ | 64,766   | 
| | Leasehold improvements  | $ | 48     |  | $ | 12           |  | $ | 36       | 
| | Computers               | $ | 135    |  | $ | 23           |  | $ | 112      | 
| | Furniture and equipment | $ | 136    |  | $ | 31           |  | $ | 105      | 
| |                         | $ | 65,085 |  | $ | 66           |  | $ | 65,019   | 

| |                         |   |        |  |   | Accumulated  |  |   | Net Book | 
| | ----------------------- | - | ------ |  | - | ------------ |  | - | -------- | 
| | 31 January 2007         |   | Cost   |  |   | Amortization |  |   | Value    | 
| | NorthMet Project        | $ | 38,056 |  | $ | -            |  | $ | 38,056   | 
| | Leasehold improvements  | $ | 41     |  | $ | -            |  | $ | 41       | 
| | Computers               | $ | 17     |  | $ | 5            |  | $ | 12       | 
| | Furniture and equipment | $ | 63     |  | $ | 6            |  | $ | 57       | 
| |                         | $ | 38,177 |  | $ | 11           |  | $ | 38,166   | 

Erie Plant, Minnesota, U.S.A.

By a Memorandum of Understanding dated
  5 December 2003 and an option agreement dated 14 February 2004, the Company
  obtained an option (Cliffs Option) to acquire certain property,
  plant and equipment (Cliffs Assets) from Cleveland Cliffs of Cleveland,
  Ohio (Cliffs) located near the Companys NorthMet Project.

As consideration for the exclusive Cliffs
  Option, the Company paid $500,000 prior to 31 January 2004 as required and issued
  to Cliffs 1,000,000 common shares on 30 March 2004, valued at $229,320 to maintain
  the rights until 30 June 2006.

On 14 September 2005 the Company reached
  an agreement in principle with Cliffs on the terms for the early exercise of
  the Cliffs option and the scope of the plant and equipment to be acquired. On
  15 November 2005, the Company exercised this expanded option and acquired 100%
  ownership of large portions of the former LTV Steel Mining Company ore processing
  plant in northeastern Minnesota under the Asset Purchase Agreement.

The consideration for the Asset Purchase
  Agreement was $1 million in cash, $2.4 million in notes payable and the issuance
  of 6,200,547 common shares (at fair market value of $7,564,444) in the capital
  stock of the Company. The remaining balance of $400,000 will be paid in quarterly
  instalments of US$250,000 plus interest (Note 5).

F-17

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial Statements                                                       
|For the years ended 31 January 2008, 2007 and 2006                                               
|Tabular amounts in Thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

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

On 20 December 2006, the Company closed
  a transaction (the Asset Purchase Agreement II) in which it acquired,
  from Cliffs, property and associated rights sufficient to provide it with a
  railroad connection linking the mine development site and the Erie Plant. The
  transaction also included a 120-railcar fleet, locomotive fuelling and maintenance
  facilities, water rights and pipelines, large administrative offices on site
  and an additional 6,000 acres to the east and west of and contiguous to its
  existing tailing facilities.

The purchase price totalling 2 million
  shares and $15 million in cash and debt was in four tranches:

- 2 million shares of PolyMet, paid at closing;
- $1 million in cash, paid at closing;
- $7 million in cash, payable in quarterly instalments
      of $250,000 commencing 31 December 2006 with the balance payable upon receipt
      of production financing. Interest will be payable quarterly from 31 December
      2006 at the Wall Street JournalPrime Rate; and
- $7 million in cash, payable in quarterly instalments
      of $250,000 commencing on 31 December 2009. No interest will be payable
      until 31 December 2009 after which it will be payable quarterly at the Wall
      Street JournalPrime Rate, accordingly this portion of the debt has
      been fair valued, for balance sheet purposes, by discounting it at 8.25%.

The Company has assumed certain ongoing
  site-related environmental and reclamation obligations as a result of the above
  purchases. These environmental and reclamation obligations are presently contracted
  under the terms of the purchase agreements with Cliffs. Once the Company obtains
  its permit to mine and Cliffs is released from its obligations by the State
  agencies, the environmental and reclamation obligations will be direct with
  the governing bodies. The present value of the asset retirement obligation in
  the amount of $3,439,000 (Note 6) has been recorded as an increase in the carrying
  amount of the NorthMet Project assets and will be amortized over the life of
  the asset.

Under the terms of the agreement Cliffs
  has the right to participate on a pro-rata basis in future cash equity financings.
  The Company has a 20 business day first right to acquire or place any shares
  of PolyMet that Cliffs may chose to sell from time-to-time.

Interest and loan accretion to 31 January
  2008 in the amount of $1,227,000 (2007 - $189,000) has been capitalized as part
  of the cost of the NorthMet Project assets.

As the above assets are not in use no
  amortization of these assets has been recorded to 31 January 2008.

F-18

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial Statements                                                       
|For the years ended 31 January 2008, 2007 and 2006                                               
|Tabular amounts in Thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

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

Pursuant to the Asset Purchase Agreements
  (Note 4) the Companys wholly owned subsidiary Poly Met Mining, Inc. signed
  three notes payable to Cliffs in the amounts of $2,400,000, $7,000,000 and $7,000,000,
  respectively. The first note is interest bearing at the annual simple rate of
  four percent (4%) and shall be paid in quarterly instalments equal to $250,000,
  commencing in March 2006 for total repayment of $2,400,000. The second note
  is interest bearing at the Wall Street JournalPrime Rate and is being
  paid in quarterly instalments equal to $250,000 commencing 31 December 2006,
  with the balance repayable upon receipt of commercial financing, for total repayment
  of $7,000,000. The third note is interest bearing at the Wall Street JournalPrime Rate and shall be paid in quarterly instalments equal to $250,000
  commencing on 31 December 2009 for total repayment of $7,000,000. No interest
  will be payable on the third note until 31 December 2009, accordingly it has
  been fair valued, for balance sheet purposes, by discounting it at 8.25% . As
  at 31 January 2008 the outstanding long term debt was as follows:

| |                      |   | 31 January
      2008 |   |   | 31 January
      2007 |  
| | -------------------- | - | --------------------- | - | - | --------------------- | -
| |                      |   |                       |   |   |                       |  
| | Notes Payable        | $ | 12,204                |   | $ | 13,768                |  
| | Accrued interest     |   | 31                    |   |   | 85                    |  
| | Total debt           |   | 12,235                |   |   | 13,853                |  
| | Less current portion |   | (1,401                | ) |   | (2,000                | )
| |                      |   |                       |   |   |                       |  
| | Long term debt       | $ | 10,834                |   | $ | 11,853                |  

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

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

Federal, state and local laws and regulations
  concerning environmental protection affect the Companys operations. Under
  current regulations, the Company is contracted to indemnify Cliffs requirement
  to meet performance standards to minimize environmental impact from operations
  and to perform site restoration and other closure activities. The Companys
  provisions for future site closure and reclamation costs are based on known
  requirements. It is not currently possible to estimate the impact on operating
  results, if any, of future legislative or regulatory developments. The Companys
  estimate of the present value of the obligation to reclaim the NorthMet Project
  is based upon existing reclamation standards at 31 January 2008 and Canadian
  GAAP. Once the Company obtains its permit to mine the environmental and reclamation
  obligations will be direct with the governing bodies.

The Companys estimate of the fair
  value of the asset retirement obligation at 31 January 2008 was $3,439,000 (2007
  - $3,422,000). These were based upon a 31 January 2008 undiscounted future cost
  of $21.4 million for the first Cliffs transaction and $2.1 million for Cliffs
  II, an annual inflation rate of 2.00%, and a credit-adjusted interest rate of
  12.00% and a mine life of 20 years, commencing in late-2009 and a reclamation
  period of 5 years. During the year ended 31 January 2008, the Company decreased
  the inflation rate from 3% to 2% to reflect the Companys expectations
  of inflation rates. Accretion of the liability to 31 January 2008 of $714,000
  (2007 - $280,000) until the commencement of commercial production will be capitalized
  to the NorthMet Project assets.

F-19

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial Statements                                                       
|For the years ended 31 January 2008, 2007 and 2006                                               
|Tabular amounts in Thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

|7. | Share Capital
|-- | -------------
|   |              
|   | a)           
|   |              
|   |              
|   |              
|   |              
|   |              
|   |              
|   |              
|   |              
|   |              
|   |              
|   |              
|   |              
|   |              
|   |              
|   |              
|   |              
|   |              
|   |              
|   |              
|   |              
|   |              
|   |              

F-20

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial Statements                                                       
|For the years ended 31 January 2008, 2007 and 2006                                               
|Tabular amounts in Thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

|**7.** | Share Capital- Continued
|------ | ------------------------
|       |                         
|       | b)                      

31
      
      
      Weighted
      
      
      31 January
      
      
      Weighted
      
      
      31 January
      
      
      WeightedJanuary
      
      
      Average
      
      
      2007
      
      
      Average
      
      
      2006
      
      
      Average2008
      
      
      Exercise
      
      
      Options
      
      
      Exercise
      
      
      Options
      
      
      ExerciseOptions
      
      
      Price
      
      
      
      
      
      Price
      
      
      
      
      
      Price(CDN$)
      
      
      
      
      
      (CDN$)
      
      
      
      
      
      (CDN$)Outstanding -Beginning of year
      
      9,090,000
      
      
      1.95
      
      
      6,783,700
      
      
      0.80
      
      
      4,999,552
      
      
      0.32Granted
      
      2,685,000
      
      
      2.98
      
      
      4,500,000
      
      
      2.93
      
      
      3,580,000
      
      
      1.13Cancelled
      
      -
      
      
      -
      
      
      (700
      )
      
      (0.10
      )
      
      -
      
      
      -Exercised
      
      (462,200
      )
      
      0.69
      
      
      (2,193,000
      )
      
      (0.39
      )
      
      (1,795,852
      )
      
      0.13Outstanding -End of year
      
      11,312,800
      
      
      2.24
      
      
      9,090,000
      
      
      1.95
      
      
      6,783,700
      
      
      0.80


As at 31 January 2008, the following
  director, officer, consultant and employee stock options were outstanding:

| |                       |  |                |  |  |                |  |  |             | 
| | --------------------- |  | -------------- |  |  | -------------- |  |  | ----------- | 
| |                       |  |                |  |  |                |  |  | Number of   | 
| |                       |  | Exercise Price |  |  | Exercise Price |  |  | options     | 
| | Expiry Date           |  | (US$)          |  |  | (CDN$)         |  |  | outstanding | 
| | 9 March 2009          |  | 0.40           |  |  | 0.40           |  |  | 225,000     | 
| | 28 April 2009         |  | 0.75           |  |  | 0.75           |  |  | 150,000     | 
| | 5 July 2009           |  | 0.66           |  |  | 0.66           |  |  | 850,000     | 
| | 18 October 2009       |  | 0.79           |  |  | 0.79           |  |  | 50,000      | 
| | 30 March 2010         |  | 0.65           |  |  | 0.65           |  |  | 267,800     | 
| | 1 May 2010            |  | 0.85           |  |  | 0.85           |  |  | 350,000     | 
| | 15 June 2010          |  | 0.94           |  |  | 0.94           |  |  | 40,000      | 
| | 19 September 2010     |  | 1.36           |  |  | 1.36           |  |  | 1,690,000   | 
| | 24 October 2010       |  | 1.20           |  |  | 1.20           |  |  | 280,000     | 
| | 5 December 2010       |  | 1.15           |  |  | 1.15           |  |  | 225,000     | 
| | 20 March 2011         |  | 2.77           |  |  | 2.76           |  |  | 3,200,000   | 
| | 19 June 2011          |  | 2.98           |  |  | 2.97           |  |  | 325,000     | 
| | 1 September 2011      |  | 3.83           |  |  | 3.82           |  |  | 325,000     | 
| | 22 September 2011     |  | 3.52           |  |  | 3.51           |  |  | 75,000      | 
| | 5 January 2012        |  | 3.31           |  |  | 3.30           |  |  | 575,000     | 
| | 13 February 2012      |  | 2.99           |  |  | 2.98           |  |  | 1,250,000   | 
| | 8 March 2012          |  | 2.88           |  |  | 2.87           |  |  | 400,000     | 
| | 12 March 2012         |  | 2.92           |  |  | 2.91           |  |  | 250,000     | 
| | 23 March 2012         |  | 2.89           |  |  | 2.88           |  |  | 50,000      | 
| | 4 September 2012      |  | 3.00           |  |  | 2.99           |  |  | 360,000     | 
| | 12 December 2012      |  | 3.05           |  |  | 3.04           |  |  | 205,000     | 
| | 11 January 2013       |  | 3.03           |  |  | 3.02           |  |  | 70,000      | 
| | 31
      January 2013 |  | 2.87           |  |  | 2.86           |  |  | 100,000     | 
| |                       |  | 2.25           |  |  | 2.24           |  |  | 11,312,800  | 

F-21

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial Statements                                                       
|For the years ended 31 January 2008, 2007 and 2006                                               
|Tabular amounts in Thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

|7. | Share Capital- Continued
|-- | ------------------------
|   |                         
|   | b)                      
|   |                         
|   |                         
|   |                         
|   | c)                      
|   |                         
|   |                         

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

| |     | The weighted fair value of options granted was US$1.29
        (Cdn$1.36)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |     | Option pricing models require the input of highly subjective
        assumptions including the estimate of the share price volatility. Changes
        in the subjective input assumptions can materially affect the fair value
        estimate, and therefore, the existing models do not necessarily provide
        a reliable single measure of the fair value of the Companys stock
        options.                                                                                                                                                                                                    
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | ii) | During the year ended 31 January 2007, the Company granted
        4,500,000 options to directors, officers, consultants and employees with
        exercise prices ranging from CDN$2.76 - CDN$3.82 (US$2.33  US$3.23)
        per option. The fair value of stock-based compensation in the amount of
        $4,723,000 has been recorded in the accounts of the Company as an expense
        with the offsetting entry to contributed surplus. This value is estimated
        at the date of grant using the Black-Scholes Option Pricing Model with
        the following weighted average assumptions:

| |                                     |                 
| | ----------------------------------- | ----------------
| | Risk-free interest rate             | 3.89% to 4.09%  
| | Expected dividend yield             | Nil             
| | Expected stock price volatility     | 59.91% to 83.01%
| | Expected option life
      in years | 2.33            

F-22

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial Statements                                                       
|For the years ended 31 January 2008, 2007 and 2006                                               
|Tabular amounts in Thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

|7. | Share Capital- Continued
|-- | ------------------------
|   |                         
|   | c)                      
|   |                         
|   |                         

| |                                     |      
| | ----------------------------------- | -----
| | Risk-free interest rate             | 3.66%
| | Expected dividend yield             | Nil  
| | Expected stock price volatility     | 131% 
| | Expected option life
      in years | 5.00 

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

| |                                                        |   | 31 January |   |   | 31 January |  
| | ------------------------------------------------------ | - | ---------- | - | - | ---------- | -
| |                                                        |   | 2008       |   |   | 2007       |  
| | Balance  Beginning of year                            | $ | 9,614      |   | $ | 8,084      |  
| | Current year fair value of stock-based compensation    |   | 3,077      |   |   | 4,723      |  
| | Fair value of warrants issued as finders
      fees   |   | 695        |   |   | -          |  
| | Fair value of warrants issued in unit financing        |   | 7,651      |   |   | -          |  
| | Fair value of warrants exercised during the
      year |   | -          |   |   | (3,653     | )
| | Fair value of warrants issued for financing services   |   | -          |   |   | 1,197      |  
| | Fair value of stock options exercised during the year  |   | (212       | ) |   | (737       | )
| | Balance  End
      of year                            | $ | 20,825     |   | $ | 9,614      |  

F-23

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial Statements                                                       
|For the years ended 31 January 2008, 2007 and 2006                                               
|Tabular amounts in Thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

|7. | Share Capital- Continued
|-- | ------------------------
|   |                         
|   | e)                      
|   |                         
|   |                         

| |                                  |  |           |  |  |          |  |  |             |   |  |          |  
| | -------------------------------- |  | --------- |  |  | -------- |  |  | ----------- | - |  | -------- | -
| |                                  |  | 2008      |  |  | 2007     | 
| |                                  |  |           |  |  | Weighted |  |  |             |   |  | Weighted |  
| |                                  |  |           |  |  | Average  |  |  |             |   |  | Average  |  
| |                                  |  |           |  |  | Exercise |  |  |             |   |  | Exercise |  
| |                                  |  | Warrants  |  |  | Price    |  |  | Warrants    |   |  | Price    |  
| |                                  |  |           |  |  | (US$)    |  |  |             |   |  | (CDN$)   |  
| | Warrants outstanding - beginning |  |           |  |  |          |  |  |             |   |  |          |  
| | of year                          |  | 1,100,000 |  |  | 4.00     |  |  | 14,662,703  |   |  | 1.07     |  
| | Issued                           |  | 8,020,000 |  |  | 4.00     |  |  | 1,100,000   |   |  | 4.53     |  
| | Exercised                        |  | -         |  |  | -        |  |  | (14,662,703 | ) |  | (1.07    | )
| |                                  |  |           |  |  |          |  |  |             |   |  |          |  
| | Warrants outstanding  end of    |  |           |  |  |          |  |  |             |   |  |          |  
| | year                             |  | 9,120,000 |  |  | 4.00     |  |  | 1,100,000   |   |  | 4.53     |  

On 17 April 2007, the Company issued
  7,500,000 warrants in connection with a non-brokered private placement financing
  of 15 million units at US$2.75 per unit, with each unit comprising one common
  share and one-half of one warrant. Each whole warrant is exercisable into a
  common share at a price of US$4.00 at any time until 13 October 2008, subject
  to an early trigger if the 20-day volume weighted average price of the common
  shares is US$6.00 or more. In connection with the private placement, the Company
  has paid finders fees including an additional 520,000 broker warrants
  having the same terms as the warrants described above.

On 31 October 2006, the Company issued
  600,000 warrants to BNP Paribas Loan Services as partial consideration under
  the agreement described in Note 13d). These warrants have an exercise price
  of US$4.00 per share and expire on 30 October 2010. The fair value of these
  warrants was $1,197,000. Further, upon delivering a bona fide offer of project
  financing, warrants to purchase an additional 500,000 shares of the Company
  at a price of US$4.00 per share at any time prior to 30 October 2010 will vest.

All of the warrants are exercisable
  as at 31 January 2008, except for 500,000 which vest upon delivery of a bona
  fide offer of project financing.

F-24

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial Statements                                                       
|For the years ended 31 January 2008, 2007 and 2006                                               
|Tabular amounts in Thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

|7. | Share Capital- Continued
|-- | ------------------------
|   |                         
|   | e)                      
|   |                         
|   |                         
|   |                         
|   |                         
|   |                         
|   |                         
|   |                         
|   |                         
|   |                         
|   |                         

F-25

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial Statements                                                       
|For the years ended 31 January 2008, 2007 and 2006                                               
|Tabular amounts in Thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

| | f) | Shareholder Rights Plan                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |    | Effective 25 May 2007, the Company adopted an updated
        Shareholder Rights Plan (Rights Plan), which was approved
        by the Companys shareholders on 27 June 2007. All common shares
        issued by the Company during the term of the Rights Plan will have one
        right represented for each common share held by the shareholder of the
        Company. The term of the Rights Plan is 10 years, unless the rights are
        earlier redeemed or exchanged. The Rights issued under the Rights Plan
        become exercisable only if a party acquires 20% or more of the Company's
        common shares without complying with the Rights Plan or without the approval
        of the Board of Directors of the Company.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |    | Each Right entitles the registered holder thereof to
        purchase from the Company on the occurrence of certain events, one common
        share of the Company at the price of Cdn$50 per share, subject to adjustment
        (the Exercise Price). However, upon certain events occurring
        (as defined in the Rights Plan), each Right would then entitle the registered
        holder to receive, upon payment of the Exercise Price, that number of
        common shares that have a market value at the date of that occurrence
        equal to twice the Exercise Price. The Rights are not exercisable until
        the Separation Time, as defined in the Rights Plan.                                                        

|   |                                                                       
|-- | ----------------------------------------------------------------------
|8. | Supplemental Disclosure With Respect To Statements
      of Cash Flows

During the years ended 31 January 2008,
  2007 and 2006, the Company entered into the following non-cash investing and
  financing activities:

| |                                                            |   | 2008  |  |   | 2007   |  |   | 2006  | 
| | ---------------------------------------------------------- | - | ----- |  | - | ------ |  | - | ----- | 
| | Issued nil (2007  2,000,000; 2006 
      6,200,547)      |   |       |  |   |        |  |   |       | 
| | shares to Cliffs pursuant to the Companys                 |   |       |  |   |        |  |   |       | 
| | exercise of the Cliffs Option to purchase the
      Cliffs |   |       |  |   |        |  |   |       | 
| | Assets                                                     | $ | -     |  | $ | 6,160  |  | $ | 7,564 | 
| | Issued promissory notes payable to Cliffs                  |   |       |  |   |        |  |   |       | 
| | pursuant to the Companys exercise of the Cliffs           |   |       |  |   |        |  |   |       | 
| | Option to purchase the Cliffs Assets                       | $ | -     |  | $ | 12,518 |  | $ | 2,400 | 
| | Recorded an Asset Retirement Obligation and a              |   |       |  |   |        |  |   |       | 
| | corresponding increase in Cliffs Assets pursuant           |   |       |  |   |        |  |   |       | 
| | to the Companys exercise of the Cliffs Option to          |   |       |  |   |        |  |   |       | 
| | purchase the Cliffs Assets                                 | $ | -     |  | $ | 911    |  | $ | 2,511 | 
| | Transfer from contributed surplus to capital stock         |   |       |  |   |        |  |   |       | 
| | on exercise of stock options                               | $ | 212   |  | $ | 737    |  | $ | 98    | 
| | Transfer from share subscriptions to share capital         |   |       |  |   |        |  |   |       | 
| | on issuance of the related shares                          | $ | -     |  | $ | -      |  | $ | 763   | 
| | Capitalized accretion on the promissory note               |   |       |  |   |        |  |   |       | 
| | payable to Cliffs                                          | $ | 398   |  | $ | 165    |  | $ | 21    | 
| | Issued 150,000 (2007  nil; 2006  852,915)                |   |       |  |   |        |  |   |       | 
| | shares and 520,000 broker warrants for finders            |   |       |  |   |        |  |   |       | 
| | fees on private placements                                 | $ | 1,108 |  | $ | -      |  | $ | 617   | 
| | Changes in accounts payable and accrued                    |   |       |  |   |        |  |   |       | 
| | liabilities related
      to Investing Activities          | $ | 2,907 |  | $ | -      |  | $ | -     | 

F-26

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial Statements                                                       
|For the years ended 31 January 2008, 2007 and 2006                                               
|Tabular amounts in Thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

|9. | Related Party Transactions                                                                                                                                           
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                      
|   | The Company has conducted transactions with officers,
        directors and persons or companies related to directors and paid or accrued
        amounts as follows:

| |                                                   |   | 2008 |  |   | 2007 |  |   | 2006 | 
| | ------------------------------------------------- | - | ---- |  | - | ---- |  | - | ---- | 
| |                                                   |   |      |  |   |      |  |   |      | 
| | Consulting fees paid to David Dreisinger, a       | $ | 63   |  | $ | 62   |  | $ | 37   | 
| | Director of the Company                           |   |      |  |   |      |  |   |      | 
| | Consulting fees paid to James Swearingen, a       |   | 55   |  |   | 60   |  |   | 41   | 
| | Director of the Company                           |   |      |  |   |      |  |   |      | 
| | Management fees paid to Group 4 Ventures, an      |   | 81   |  |   | 180  |  |   | 129  | 
| | affiliate controlled by the Executive Chairman of |   |      |  |   |      |  |   |      | 
| | the Company                                       |   |      |  |   |      |  |   |      | 
| | Rent and office charges paid to Baja Mining       |   | 25   |  |   | 62   |  |   | 25   | 
| | Corp., a company of which the Executive           |   |      |  |   |      |  |   |      | 
| | Chairman was a director                           |   |      |  |   |      |  |   |      | 
| |                                                   | $ | 224  |  | $ | 364  |  | $ | 232  | 

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

During the year ended 31 January 2008,
  the Company paid $63,000 (2007 - $62,000 and 2006 -$37,000) to Dr. Dreisinger
  for consulting fees primarily in connection with activities related to the processing
  / technical side of the NorthMet project and related expenses (the latter were
  supported by invoices and receipts). The consulting fees were based on a monthly
  fee of Canadian $5,500 plus general sales tax. Throughout the term of his engagement,
  Dr. Dreisinger has conducted in-person and telephonic meetings with Mr. William
  Murray, the Companys Executive Chairman and formally its President and
  Chief Executive Officer, and other members of management at which he provided
  both verbal and written updates on the status of test work and made recommendations
  for future activities. These meetings occurred approximately every two to three
  weeks for the past five years.

During the year ended 31 January 2008,
  the Company paid $55,000 (2007 - $59,600 and 2006 -$41,000) to Mr. Swearingen
  for consulting fees primarily in connection with activities related to our agreements
  with Cliffs Erie L.L.C. and land tenure and related expenses (the latter were
  supported by invoices and receipts). The consulting fees were based on a monthly
  fee of $5,000. Mr. Swearingen spent a significant amount of time in our Hoyt
  Lakes office reporting to both Mr. Murray and Mr. Warren Hudelson, our senior
  officer at that site, on a regular basis until Mr. Joe Scipioni joined the Company.
  He then reported to Mr. Scipioni, who at the time, was PolyMets General
  Manager and Chief Operating Officer.

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

F-27

---



|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial Statements                                                       
|For the years ended 31 January 2008, 2007 and 2006                                               
|Tabular amounts in Thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 





|9. | Related Party Transactions- Continued
|-- | -------------------------------------



good as could be obtained from third
  parties. The agreement with Mr. Swearingen was terminated effective January
  1, 2008.

During the year ended 31 January 2008,
  the Company paid $81,000 (2007 - $180,000 and 2006 -$129,000) to Group 4 Ventures
  (Group 4) for the provision of consulting services of Mr. Murray,
  at a fixed monthly rate in accordance with a written contract. These amounts
  were in addition to the salary paid to him during the year ended 31 January
  2008 of $172,000 (2007 - $53,000 and 2006 -$50,000). Effective 1 July 2007,
  Mr. Murrays employment agreement was adjusted to include, as salary, the
  amounts formerly paid to Group 4 Ventures as consulting fees and the contract
  with Group 4 was terminated.

During the year ended 31 January 2008,
  the Company paid $25,000 (2007 - $62,000 and 2006 -$25,000) to Baja Mining Corp.
  (Baja) primarily for rent and office costs, including health insurance
  plan costs. The agreement between Baja and the Company was oral in nature. Mr.
  Murray ceased being a Director of Baja in June 2008. Effective 1 February, 2007,
  the Company occupied its own premises and ceased paying rent to Baja. Effective
  1 September, 2008, the Company ceased paying the remaining costs to Baja.

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

F-28

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial Statements                                                       
|For the years ended 31 January 2008, 2007 and 2006                                               
|Tabular amounts in Thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

|**10.** | Income Taxes
|------- | ------------

The Companys provision for income
  taxes differs from the amounts computed by applying the combined Canadian federal
  and provincial income tax rates to the net loss as a result of the following:

| |                                                          |   | 2008   |   |   | 2007   |  
| | -------------------------------------------------------- | - | ------ | - | - | ------ | -
| | Provision for recovery of taxes at statutory
      rates | $ | (2,960 | ) | $ | (6,105 | )
| | Tax benefit not recognized on current year losses        |   | 1,770  |   |   | 2,156  |  
| | Differences in foreign tax rates                         |   | 19     |   |   | (426   | )
| | Non-deductible items and other                           |   | 1,171  |   |   | 4,375  |  
| |                                                          |   |        |   |   |        |  
| |                                                          | $ | -      |   | $ | -      |  

Future income taxes reflect the net effects
  of temporary differences between the carrying amounts of assets and liabilities
  for financial reporting purposes and the amounts used for income tax purposes.
  The significant components of the Company's future tax assets as at 31 January
  2008 are as follows:

| |                                 |   | 2008    |   |   | 2007    |  
| | ------------------------------- | - | ------- | - | - | ------- | -
| | Non-capital loss carry forwards | $ | 7,923   |   | $ | 5,916   |  
| | Unutilized exploration expenses |   | 6,617   |   |   | 8,422   |  
| | Capital assets                  |   | (10     | ) |   | (8      | )
| | Total future income tax assets  |   | 14,530  |   |   | 14,330  |  
| | Less: valuation allowance       |   | (14,530 | ) |   | (14,330 | )
| |                                 |   |         |   |   |         |  
| | Net future income tax assets    | $ | -       |   | $ | -       |  

The Company has income tax loss carry
  forwards of approximately $10.0 million in Canada, which may be used to reduce
  future income taxes otherwise payable and which expire in the years 2009 to
  2028.

The Company has income tax loss carry
  forwards of approximately $13.8 million in the United States, which may be used
  to reduce future income taxes otherwise payable and which expire in the years
  2009 to 2028. Virtually all of the unutilized exploration expenses are in the
  United States.

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

F-29

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial Statements                                                       
|For the years ended 31 January 2008, 2007 and 2006                                               
|Tabular amounts in Thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

|**11.** | Segmented Information
|------- | ---------------------

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

| |                        |   |        |  |   |        |  |   |              | 
| | ---------------------- | - | ------ |  | - | ------ |  | - | ------------ | 
| | 2008                   |   | Canada |  |   | U.S.   |  |   | Consolidated | 
| | Segment operating loss | $ | 3,287  |  | $ | 403    |  | $ | 3,690        | 
| | Identifiable assets    | $ | 20,359 |  | $ | 68,840 |  | $ | 89,199       | 
| |                        |   |        |  |   |        |  |   |              | 
| | 2007                   |   |        |  |   |        |  |   |              | 
| | Segment operating loss | $ | 8,824  |  | $ | 9,069  |  | $ | 17,893       | 
| | Identifiable assets    | $ | 8,498  |  | $ | 40,233 |  | $ | 48,731       | 
| |                        |   |        |  |   |        |  |   |              | 
| | 2006                   |   |        |  |   |        |  |   |              | 
| | Segment operating loss | $ | 4,523  |  | $ | 11,406 |  | $ | 15,929       | 
| | Identifiable assets    | $ | 11,653 |  | $ | 14,381 |  | $ | 26,034       | 

|**12.** | Investment
|------- | ----------

During the quarter ended 31 July 2007,
  the Company acquired, for cash, common shares of a publicly traded Canadian
  mining company whose primary business is the operation of a recently recommissioned
  base metal mine. This investment represents less than 5% of the public mining
  companys outstanding common shares and was designated as available-for-sale
  and, as such, had been marked-to-market with the change in the fair value of
  the investment from acquisition to quarterly financial statements being recorded
  in Other Comprehensive Loss.

As at 31 January 2008, the Company has
  determined that the investment has had an other than temporary decline in value.
  This determination was based on, among other factors, a significant drop in
  market price for the investment companys main product and a continued
  decline in the share price of the investment company. The initial acquisition
  cost of the investment was US$2,495,000 (C$2,618,000) and the fair value of
  the investment at 31 January 2008 was US$1,445,000 (C$1,440,000). As a result,
  the Company has recorded an investment loss of $1,050,000 in its income statement
  and reversed the amounts that had previously been recorded in Other Comprehensive
  Loss. The fair market value of the investment at 24 April 2008 was US$1,223,000
  (C$1,240,000).

F-30

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial Statements                                                       
|For the years ended 31 January 2008, 2007 and 2006                                               
|Tabular amounts in Thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

|13. | Contingent Liabilities and Commitments
|--- | --------------------------------------
|    |                                       
|    | a)                                    
|    |                                       
|    |                                       

Bonus SharesMilestone 1
      1,590,000
      (i) issuedMilestone 2
      1,300,000
      (ii)Milestone 3
      2,350,000
      (iii) issuedMilestone 4
      3,640,000
      (iv)


| | (i)   | Milestone 1 Completion of an agreement with Cliffs-Erie
        LLC for the option to purchase of Cliffs-Erie facility to be used as a
        part of mining and processing operations for the NorthMet Project. This
        milestone was achieved on 16 February 2004 and therefore, during the year
        ended 31 January 2005, the Company expensed a CDN$1,192,500 (US$873,000)
        bonus as consulting fees and allotted 1,590,000 shares. These shares were
        issued in March 2005.                                                                                       
| | ----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | (ii)  | Milestone 2  Negotiation and completion of an
        off-take agreement with a senior metals producer for the purchase of nickel-hydroxide
        produced from the NorthMet Project, and / or an equity investment in the
        Company by such a producer or producers.                                                                                                                                                                                                                                                                                                                   
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | (iii) | Milestone 3 Completion of a bankable feasibility
        study which indicates that commercial production from the NorthMet
        Project is viable. This milestone was achieved on 25 September 2006 and
        therefore, during the year ended 31 January 2007, the Company expensed
        a C$1,762,500 ($1,289,000) bonus as consulting fees and allotted 2,350,000
        shares. These shares were issued in October 2006.                                                                                                                                                       
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | (iv)  | Milestone 4  Commencement of commercial production
        at the NorthMet Project at a time when the Company has not less than 50%
        ownership interest.                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | (v)   | At the Annual General Meeting of shareholders of the
        Company, held on 21 June 2006, the shareholders approved the issuance
        of shares under Milestone 3. Shareholders also approved accelerated vesting
        of bonus shares whereby, in the event the Company is the subject of a
        take-over bid, all shares that remain subject to issuance under Milestones
        2 and 4 shall be vested and issued provided that no individual will benefit
        from both accelerated vesting and terminated severance allowances as described
        in paragraph b) below.

F-31

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial Statements                                                       
|For the years ended 31 January 2008, 2007 and 2006                                               
|Tabular amounts in Thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

|**13.** | Contingent Liabilities and Commitments-
      Continued
|------- | -------------------------------------------------------

| | b) | As a part of certain employment and management contracts,
        the Company had agreed to severance allowances for key employees and management
        in the event of a take-over bid. These allowances were based upon the
        Companys implied market capitalization at the time of the take-over
        bid, calculated by multiplying the number of shares outstanding on a fully
        diluted basis by the take-over bid price per share. These severance allowances
        have been terminated pursuant to oral or written amendments to these contracts
        and will be replaced by termination agreements representing up to three
        times the average annual compensation in the three years prior to change
        of control.                                                                                                                                     
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | c) | Pursuant to the Companys Asset Purchase Agreement
        with Cliffs (Note 4), for as long as Cliffs owns 1% or more of the Companys
        issued shares, Cliffs will have the right to participate on a pro-rata
        basis in future cash equity financings. This agreement also includes a
        first right of refusal in favour of the Company should Cliffs wish to
        dispose of its interest.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | d) | On 31 October 2006 the Company entered into an agreement
        with BNP Paribas Loan Services (BNPP) whereby BNPP will advise
        and assist PolyMet in all aspects of preparation for construction finance.
        As part of this agreement, BNPP was issued warrants to purchase 600,000
        shares of the Companys common stock at a price of US$4.00 per share
        at any time prior to 30 October 2010. The fair value of these warrants
        was $1,197,000. Further, upon delivering a bona fide offer of project
        financing, warrants to purchase an additional 500,000 shares of the Company
        at a price of US$4.00 per share at any time prior to 30 October 2010 will
        vest. As part of the agreement, PolyMet will also pay BNPP a monthly fee
        for its advice and assistance and pay the costs for BNPPs independent
        engineers.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | e) | On 31 January 2008, the Company had outstanding commitments
        related to equipment, consultants and the environmental review process
        of $500,000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

F-32

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial Statements                                                       
|For the years ended 31 January 2008, 2007 and 2006                                               
|Tabular amounts in Thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

|**14.** | Differences Between Canadian and United States
      Generally Accepted Accounting Principles
|------- | ---------------------------------------------------------------------------------------------

These consolidated financial statements
  are prepared in accordance with Canadian generally accepted accounting principles
  (GAAP). The U.S. Securities and Exchange Commission requires that
  financial statements of foreign registrants contain a reconciliation presenting
  the statements on the basis of accounting principles generally accepted in the
  U.S. Any differences in accounting principles as they pertain to the accompanying
  consolidated financial statements are not material except as follows:

| | a) | Under Canadian GAAP, the Company capitalizes accretion
        relating to its asset retirement obligations to mineral property, plant
        and equipment. Under US GAAP, this amount is expensed.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The effects of the differences in accounting
  principles on accretion of asset retirement obligation on net loss and comprehensive
  loss are as follows:

| |                                                              |   | 2008        |   |   | 2007        |   |   | 2006       |  
| | ------------------------------------------------------------ | - | ----------- | - | - | ----------- | - | - | ---------- | -
| | Net Loss and Comprehensive Loss:                             |   |             |   |   |             |   |   |            |  
| | Net loss - Canadian GAAP basis                               | $ | 3,690       |   | $ | 17,893      |   | $ | 15,929     |  
| | Adjustment of accretion to asset retirement
      obligation |   | 434         |   |   | 233         |   |   | 47         |  
| | Net loss and comprehensive loss - U.S. GAAP basis            | $ | 4,124       |   | $ | 18,126      |   | $ | 15,976     |  
| |                                                              |   |             |   |   |             |   |   |            |  
| | Weighted average number of shares computed under U.S. GAAP   |   | 133,697,572 |   |   | 114,754,213 |   |   | 73,484,490 |  
| | Loss per share following U.S. GAAP                           | $ | (0.03       | ) | $ | (0.16       | ) | $ | (0.22      | )
| | Shareholders Equity  Canadian GAAP basis                   | $ | 69,151      |   | $ | 29,938      |   | $ | 19,387     |  
| | Shareholders Equity  US.GAAP basis                         | $ | 68,437      |   | $ | 29,658      |   | $ | 19,340     |  

F-33

---

|PolyMet Mining Corp.                                                                             
|-------------------------------------------------------------------------------------------------
|(a development stage company)                                                                    
|Notes to Consolidated Financial Statements                                                       
|For the years ended 31 January 2008, 2007 and 2006                                               
|Tabular amounts in Thousands of U.S. Dollars except for
      price per share, shares and options
|                                                                                                 

|14. | Differences Between Canadian and United States
      Generally Accepted Accounting Principles-
|--- | ----------------------------------------------------------------------------------------------
|    | Continued                                                                                     

| | b) | Recent U.S. Accounting Pronouncements, which relate
        to the Companys current operations are summarized as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |    | In June 2006, the FASB issued Interpretation No. 48,
        Accounting for Uncertainty in Income Taxes  an interpretation
        of FASB Statement No. 109 (FIN 48). This interpretation
        clarifies the recognition threshold and measurement of a tax position
        taken or expected to be taken on a tax return, and requires expanded disclosure
        with respect to the uncertainty in income taxes. FIN 48 also provides
        guidance on derecognition, classification, interest and penalties, accounting
        in interim periods, disclosures, and transition. FIN 48 is effective for
        fiscal years beginning after 15 December 2006. The adoption of FIN 48
        did not have a material effect on the Companys financial condition
        or results of operations.                                                                                                                                                                                                                                                                                                                                                                     
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |    | In September 2006, the FASB issued SFAS No. 157, "Fair
        Value Measurement" ("SFAS 157"). The Statement provides guidance for
        using fair value to measure assets and liabilities. The Statement also
        expands disclosures about the extent to which companies measure assets
        and liabilities at fair value, the information used to measure fair value,
        and the effect of fair value measurement on earnings. This Statement applies
        under other accounting pronouncements that require or permit fair value
        measurements. This Statement does not expand the use of fair value measurements
        in any new circumstances. Under this Statement, fair value refers to the
        price that would be received to sell an asset or paid to transfer a liability
        in an orderly transaction between market participants in the market in
        which the entity transacts. SFAS 157 is effective for the Company for
        fair value measurements and disclosures made by the Company in its fiscal
        year beginning on 1 February 2008. The Company is currently reviewing
        the impact of this statement.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |    | In February 2007, the Financial Accounting Standards
        Board (the FASB) issued SFAS No. 159, The Fair Value
        Option for Financial Assets and Financial Liabilities (SFAS
        159). SFAS 159 allows the company to choose to measure many financial
        assets and financial liabilities at fair value. Unrealized gains and losses
        on items for which the fair value option has been elected are reported
        in earnings. SFAS 159 is effective for fiscal years beginning after 15
        November 2007. The Company is currently evaluating the requirements of
        SFAS 159 and the potential impact on the Companys financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |    | In a continuous disclosure review, the SEC determined
        that for US GAAP purposes it is generally not possible to treat as equity,
        warrants whose exercise price is denominated in a currency different from
        the functional currency of the entity. The SEC's view is that for US GAAP
        purposes such warrants are derivative instruments and should be recorded
        as liabilities and carried at fair value, with changes in fair value recorded
        in earnings. A recent meeting of the FASB considered the SECs view
        and the FASB have recommended that Companies be allowed to implement this
        accounting in a future year, as an accounting change. The Company intends
        to adopt this accounting in the period the FASB recommends and to treat
        the adjustments as an accounting change.                                                                                                                                                                                                                                                                                                                       

F-34

---

ITEM 18. FINANCIAL STATEMENTS

Not Applicable.

ITEM 19. EXHIBITS

|Exhibit |                                                                                                                                                      | Footnote
|------- | ---------------------------------------------------------------------------------------------------------------------------------------------------- | --------
|No.     | Description                                                                                                                                          | Ref.    
|1.1     | Certificate
        of Incorporation.                                                                                                                | (2)     
|1.2     | Certificate of Change of Name.                                                                                                                       | (2)     
|1.3     | Articles of
        Incorporation of PolyMet Mining Corp.                                                                                            | (2)     
|4.1     | Incentive Stock Option Plan.                                                                                                                         | (2)     
|4.2     | Shareholder
        Rights Plan Agreement.                                                                                                           | (2)     
|4.3     | Contract for Deed between us
        and Cleveland Cliffs, Ohio, dated November 15, 2005.                                                            | (2)     
|4.4     | Contract for
        Deed between us and Cleveland Cliffs, Ohio, dated December 20, 2006                                                             | (1)     
|6.1     | 2007 PolyMet Omnibus Share Compensation
        Plan                                                                                                 | (7)     
|8.1     | List of Subsidiaries.                                                                                                                                | (2)     
|11.1    | Code of Ethics.                                                                                                                                      | (3)     
|11.2    | Statement of
        Corporate Governance Practices, including Audit Mandate and Charter.                                                            | (4)     
|12.1    | Certification
        of Principal Executive Officer pursuant to 17 C.F.R. 240.13a-14(a).                                                            | *       
|12.2    | Certification
        of Principal Financial Officer pursuant to 17 C.F.R. 240.13a-14(a).                                                            | *       
|13.1    | Certification
        of Principal Executive Officer and Principal Financial Officer pursuant
        to 17 C.F.R. 240.13a-14(b) and 18 U.S.C. 1350. | *       
|14.1    | Amended and
        Restated Shareholder Rights Plan                                                                                                 | (7)     
|15.1    | Technical Report on NorthMet
        Project by P. Downey and Associates, dated July 2004                                                            | (5)     
|15.2    | Subscription
        Agreement dated as of July 19, 2004, between us and certain investor(s).                                                        | (2)     
|15.3    | Subscription Agreement dated
        as of February 11, 2005, between us and certain investor(s).                                                    | (2)     
|15.4    | Subscription
        Agreement closing on August 29, 2005, between us and certain investor(s).                                                       | (2)     
|15.5    | Subscription Agreement dated
        as of September 21, 2005, between us and certain investor(s).                                                   | (2)     
|15.6    | Form of Canadian
        Subscription Agreement between us and certain investor (s).                                                                 | (1)     
|15.7    | Form of U.S. Subscription Agreement
        between us and certain investor(s).                                                                      | (1)     
|15.8    | Lease Agreement
        between us and U.S. Steel Corporation, dated January 4, 1989.                                                                | (2)     

56

---

|15.9  | Notice of Assignment of the
      Lease Agreement from U.S. Steel Corporation to RGGS Land and Minerals,
      Ltd. L.P. | (2)
|----- | ------------------------------------------------------------------------------------------------------------------------ | ---
|15.10 | Nominating and Corporate Governance Committee
      Charter                                                              | (7)
|15.11 | Technical Report on NorthMet
      Project by P.J. Hunter C. Eng. CP dated October 2006                                  | (6)
|16.1  | Audit Committee Charter                                                                                                  | (7)
|17.1  | Executive employment agreement
      with Mr. William Murray dated July 1, 2007 and amended January 25, 2008             | (7)
|17.2  | Executive employment agreement with Mr. Douglas
      Newby dated July 1, 2007                                           | (7)
|17.3  | Executive employment agreement
      with Mr. Joseph Scipioni dated July 1, 2007                                         | (7)
|17.4  | Employment agreement with Mr. Niall Moore dated
      May 6, 2007 and amended January 25, 2008                           | (7)

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

57

---

SIGNATURES

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

|Dated: April 17, 2009          |                          
|------------------------------ | -------------------------
|                               | POLYMET MINING CORP.     
|                               |                          
|                               | /s/
      Joseph Scipioni
|                               | Name: Joseph Scipioni    
|Title: Chief Executive Officer |                          

58

---