Exhibit 5.1

Management's Discussion and Analysis





<PAGE>

Management's Discussion and Analysis

The following commentary provides additional analysis of Marsulex's operations
and financial position for the fiscal period ended December 31, 2005 and
includes material information available to February 27, 2006. It is
supplementary information and should be read in conjunction with the
consolidated financial statements and accompanying notes. Effective with this
MD&A and the consolidated financial statements and accompanying notes for the
year ended December 31, 2005 the business segment formerly named Refinery
Services was re-named Industrial Services to reflect the broader operations of
the segment following the Stablex acquisition.

OVERVIEW OF 2005

o    Revenue for 2005 was $166.5 million compared to $137.0 million in 2004, an
     increase of 21.5%.

o    Gross profit for 2005 was $61.0 million compared to $48.9 million in 2004,
     largely reflecting increased profits from Industrial Services (formerly
     Refinery Services). Gross profit for Western Markets and Power Generation
     were essentially comparable to 2004.

o    Earnings before income taxes in 2005 were $5.4 million, which included an
     unusual loss of $1.7 million largely due to the Holcim arbitration
     settlement. This compares with $1.7 million in 2004, which included the
     cost of the senior management change. The improved operating results were
     offset by the higher depreciation, amortization and interest costs relating
     to the acquisition of Stablex.

o    Net earnings for 2005 were $1.4 million compared to $4.9 million in 2004,
     the decrease reflecting income tax expense of $4.0 million in 2005 compared
     to an income tax recovery of $3.2 million in 2004.

o    The revenue stream from the Fort McMurray facility commenced in January
     2005. Since completion in 2003, the plant has been maintained in readiness
     for commissioning and start-up when the overall Syncrude Upgrader Expansion
     (UE-1) project is completed.

o    The acquisition of Stablex, a Quebec-based business specializing in
     inorganic hazardous waste treatment and disposal, was completed on August
     16, 2005 for a purchase price of $71.2 million before acquisition costs of
     approximately $2.5 million.

o    The increase in Industrial Services Group gross profit largely reflected
     the contribution from Fort McMurray of $7.9 million and the contribution of
     Stablex from the date of acquisition of $5.9 million. Increased revenue
     from improved volumes in spent acid regeneration was offset by higher
     energy costs and the negative impact of the stronger Canadian dollar in
     2005 compared to 2004. The higher energy costs can generally be recovered
     through contractual cost pass throughs in the future.

o    Work on construction of the expansion of the Company's Montreal facility
     continued throughout the year. The project, which will expand the existing
     facility by approximately 50%, is expected to be completed by mid-2006 and
     begin contributing to revenue and earnings in the second half of 2006.

o    The Power Generation Group added several more projects for traditional flue
     gas desulphurization systems in China. Marsulex opened an office in Beijing
     to provide additional support to licensees and customers.

                                     MDA-1
<PAGE>

RESULTS OF OPERATIONS

<TABLE>
Selected Financial Information
============================================================================================================================
<CAPTION>
(In millions of dollars, except per share amounts)                                         2005          2004         2003
----------------------------------------------------------------------------------------------------------------------------
<S>                                                                                       <C>           <C>          <C>
Revenue                                                                                   166.5         137.0        135.0
Gross profit                                                                               61.0          48.9         48.4
Selling, general, administrative, and other costs                                          21.1          23.3         19.7
Foreign exchange losses (gains) on monetary items                                           0.1          (0.1)        (2.1)
Foreign exchange gain on long-term debt                                                    (0.5)         --           --
Depreciation, including losses on disposals                                                21.6          17.0         15.7
Amortization of deferred charges and intangible assets                                      2.6           0.7          0.7
Unusual items, losses                                                                       1.7           0.7          1.4
Net interest expense (1)                                                                    9.0           5.6          5.3

Earnings before income taxes                                                                5.4           1.7          7.7
Net earnings                                                                                1.4           4.9          6.9
Basic earnings per share (2)                                                                0.04          0.15         0.22

Cash generated from operations before non-cash changes in working capital                  30.4          19.7         24.5
Changes in non-cash operating working capital                                              (2.7)          5.5          5.0
Cash provided by operations                                                                27.7          25.2         29.5

Cash and cash equivalents, including total cash held in trust                              23.0          44.8         34.0
Long-term debt, including current portion                                                 178.8         113.1        119.2

============================================================================================================================
</TABLE>
1.   Net interest expense is calculated as interest expense net of interest
     capitalized and interest income.
2.   The weighted average number of common shares outstanding was 32,409,898 for
     2005, 31,696,398 for 2004 and 31,572,737 for 2003.

<TABLE>
Selected Segmented Information
============================================================================================================================
<CAPTION>
Industrial Services
(In millions of dollars)                                                                   2005         2004          2003
----------------------------------------------------------------------------------------------------------------------------
<S>                                                                                        <C>           <C>            <C>
Revenue                                                                                    97.3          73.9         71.5
Gross profit                                                                               33.9          22.6         27.2
Total assets                                                                              303.5         178.0        182.3
Capital expenditures (1)                                                                   47.1          13.7         31.6

============================================================================================================================

============================================================================================================================
<CAPTION>
Western Markets
(In millions of dollars)                                                                   2005          2004         2003
----------------------------------------------------------------------------------------------------------------------------
<S>                                                                                        <C>           <C>          <C>
Revenue                                                                                    57.2          54.6         54.3
Gross profit                                                                               21.9          21.5         18.3
Total assets                                                                               34.8          35.9         37.3
Capital expenditures (1)                                                                    0.8           0.8          0.6

============================================================================================================================

============================================================================================================================
<CAPTION>
Power Generation
(In millions of dollars)                                                                   2005           2004         2003
----------------------------------------------------------------------------------------------------------------------------
<S>                                                                                        <C>            <C>          <C>
Revenue                                                                                    12.0           8.5          9.2
Gross profit                                                                                5.2           4.8          2.9
Total assets                                                                                8.9          11.4         11.9
Capital expenditures (1)                                                                    --             --          0.1

============================================================================================================================
</TABLE>

                                                         MDA-2
<PAGE>

<TABLE>
============================================================================================================================
<CAPTION>
Corporate Support
(In millions of dollars)                                                                   2005          2004        2003
----------------------------------------------------------------------------------------------------------------------------
<S>                                                                                         <C>           <C>          <C>
Revenue                                                                                      --            --           --
Gross profit                                                                                 --            --           --
Total assets                                                                               27.2          47.5         39.0
Capital expenditures (1)                                                                    0.3           0.1          0.3

============================================================================================================================


============================================================================================================================
<CAPTION>
Consolidated Total
(In millions of dollars)                                                                   2005          2004        2003
----------------------------------------------------------------------------------------------------------------------------
<S>                                                                                       <C>           <C>          <C>
Revenue                                                                                   166.5         137.0        135.0
Gross profit                                                                               61.0          48.9         48.4
Total assets                                                                              374.4         272.8        270.5
Capital expenditures (1)                                                                   48.2          14.6         32.6

============================================================================================================================
</TABLE>
1.   Capital expenditures from operations excluding acquisitions.

Revenue

The Company provides industrial services, including the processing, removal,
treatment and disposal of inorganic hazardous waste; the distribution and sale
of the by-products resulting from compliance services; and production and sale
of industrial and water treatment chemicals to customers in western Canada.

The Industrial Services Group provides the following types of industrial
services:

o    Regeneration of spent acid at the Toledo facility;
o    Acid gas processing at the Montreal facility;
o    Conversion of molten sulphur into prilled sulphur at the Company's west
     coast prilling operations in the U.S.;
o    By-product processing and marketing at the new Fort McMurray facility once
     Syncrude's overall UE-1 project is completed; and,
o    Treatment and disposal of inorganic hazardous waste at the Stablex
     facility.

The volumes processed by the Group may be affected by the seasonal variation of
its customers' activities, generally peaking during the summer. For example,
although the volumes processed for the Group's refinery customers may be
affected by the market demand and seasonal variations of the refineries'
products, generally peaking during the summer driving season, the revenues from
these customers are largely stable year over year and are somewhat insulated
through contractual minimum volume requirements. The Stablex operations are also
affected by seasonality as the industrial waste streams processed include site
remediation projects where activity generally peaks through the summer months
and slows, as the waste materials freeze, in the winter months.

Western Markets earns revenue by providing sulphur-enhanced chemicals to the
pulp and paper industry as well as water treatment chemicals used by
municipalities throughout Alberta and Saskatchewan for water and wastewater
treatment. The Group's product range includes sulphuric acid, liquid sulphur
dioxide, aluminum sulphate ("alum"), sodium bisulphite, aqua ammonia, carbon
disulphide, hydrogen sulphide and sulphur. The demand for the Group's products
may experience seasonal fluctuations. For example, the demand from the Group's
municipal customers for water treatment chemicals peaks during the spring "run
off" and summer seasons.

The activities associated with Power Generation include the design of pollution
control equipment, engineering and project management services, and the
licensing of technology.

In 2005, consolidated revenue was $166.5 million, up $29.5 million or 21.5%,
from $137.0 million in 2004. The increase was due largely to the fees earned
from Industrial Services' Fort McMurray facility and revenues contributed by
Stablex.

Consolidated revenue was $137.0 million for 2004, compared to $135.0 million in
2003, an increase of $2.0 million or 1.5%.

                                     MDA-3
<PAGE>

Industrial Services provides services, including environmental compliance
solutions, to oil refiners and other industrial customers, primarily in the U.S.
and Canada. Services include the regeneration of spent sulphuric acid produced
during the octane enhancement of gasoline; the extraction and recovery of
sulphur from hydrogen sulphide gas created during the refining process; the
recovery of sulphur dioxide to ensure air quality compliance; and the safe
handling, treatment, and disposal of industrial hazardous waste streams.

Revenue for the Group was $97.3 million in 2005 compared to $73.9 million in
2004, an increase of 31.7% and was largely the result of the fees earned from
the Fort McMurray facility ($9.1 million) that started in January of 2005 as
well as Stablex revenue included since the date of acquisition. The revenue from
the increased volumes at the Toledo facility was largely offset by the impact of
foreign exchange. The Company continues to maintain the Fort McMurray facility
in readiness for commissioning and start-up when Syncrude's overall Upgrader
Expansion project is completed.

Industrial Services' revenue in 2004 was $73.9 million, up $2.4 million or 3.4%
from 2003.

Western Markets produces and provides sulphur-enhanced chemicals to industrial
customers and supplies alum, a water treatment chemical used by municipalities
and other industrial companies, for water and wastewater treatment. The primary
market for these and other chemicals is western Canada.

Revenue for Western Markets in 2005 was $57.2 million, up $2.6 million from
revenue of $54.6 million in 2004 reflecting the unusually high demand for water
treatment chemicals as a result of the heavy rains experienced in Alberta and
Saskatchewan in 2005.

Western Markets' revenue in 2004 was $54.6 million, up $0.3 million from revenue
of $54.3 million in 2003.

Power Generation provides environmental systems and services for air quality
compliance, primarily to electric utilities, and also to petrochemical and
general industrial customers worldwide.

Revenue for Power Generation was $12.0 million in 2005, up $3.5 million or 41.2%
from $8.5 million in 2004, primarily reflecting the timing of activities
relating to projects as well as fees earned during the year.

In 2004, revenue for Power Generation was $8.5 million compared to $9.2 million
for the same period in 2003, a decrease of $0.7 million. The decrease was
primarily the result of revenues earned from the new projects as well as the
licensing activity in 2004, compared to the revenues from the Shajiao project
that was completed in 2003.

Gross Profit

Gross profit in 2005 was $61.0 million, or 36.6% of revenue, compared to gross
profit in 2004 of $48.9 million or 35.7% of revenue. The increase largely
reflects the fees earned from the Fort McMurray facility and the contribution of
Stablex since the date of acquisition.

Industrial Services' gross profit in 2005 was $33.9 million compared to $22.6
million for 2004, a 50% increase and largely reflecting the $7.9 million and
$5.9 million contributions from Fort McMurray and Stablex, respectively. It also
reflects an increase in spent acid regenerated at the Toledo Facility resulting
from higher demand during the period as well as lower volumes processed in 2004.
These increases were offset by the approximate $1.5 million impact of the lag in
the recovery of the higher energy costs and the approximate $1.0 million
negative impact of foreign exchange.

Western Markets' gross profit in 2005 was $21.9 million compared to $21.5
million in 2004, an increase of $0.4 million, largely reflecting higher demand
for water treatment chemicals due to unusually high rainfall.

Gross profit for Power Generation in 2005 was $5.2 million compared to $4.8
million in 2004, a $0.4 million increase, largely the result of the fees earned
during the year and the contribution from the projects in China.

Consolidated gross profit in 2004 of $48.9 million, or 35.7% of revenue, was
comparable to the gross profit reported in 2003 of $48.4 million, or 35.9% of
revenue.

Industrial Services' gross profit in 2004 was $22.6 million compared to $27.2
million in 2003, a 16.9% decline and the result of the expected reduction in
prilled sulphur margins and the impact of foreign exchange. Increased production
of spent acid was expected to somewhat offset the return to historical
conditions for prilled sulphur. However, the failure of the alkylation units of
the Toledo facility's two largest customers in the first quarter of 2004 had an
adverse impact that could not be recovered in the balance of 2004.

Gross profit for the Western Markets Group of $21.5 million in 2004 was up $3.2
million when compared to $18.3 million in 2003, largely reflecting the
contribution from the Prince George acquisition that was completed in the latter
part of 2003. The increase also reflects the strong performance from a number of
the Group's products such as water treatment chemicals, which, after
unseasonably low demand in the first half of 2004, enjoyed increased demand in
the second half of 2004.

In 2004, gross profit for Power Generation was $4.8 million compared to $2.9
million in 2003, an increase of $1.9 million and largely the result of the
revenues earned from the new projects and increased licensing activity.

                                     MDA-4
<PAGE>

Selling, General, Administrative and Other Costs (SGA)

SGA costs were $21.1 million in 2005 compared to $23.3 in 2004. Excluding the
approximate $2.6 million of SGA relating to the Stablex acquisition in 2005, and
the $4.3 million cost of the senior management change in 2004, the SG&A costs in
2005 were $0.5 million lower than in 2004. This reflects the lower costs
associated with the long-term incentive plan while savings in 2005 related to
the 2004 change in senior management were largely offset by increased legal
costs during the year. In 2005, SGA costs were 34.6% of gross profit, down from
38.9% in 2004, excluding the cost of the senior management change.

In 2004, SGA costs were $23.3 million compared to $19.7 million in 2003, an
increase of $3.6 million or 18.3%. The increase in SGA costs was due primarily
to the $4.3 million cost associated with the change in senior management and the
impact of the increase in the cost of the long-term incentive program, offset by
cost cutting measures in the Power Generation Group. SGA as a percentage of
gross profit was 47.6% in 2004 and 38.9%, excluding the $4.3 million cost of the
change in senior management, which compares with 40.7% in 2003.

Foreign Exchange Gains and Losses

================================================================================
                                                  2005         2004        2003
--------------------------------------------------------------------------------

Year-to-date average U.S. exchange rates        1.2112       1.3024      1.4010
Closing U.S. exchange rates                     1.1659       1.2036      1.3033

================================================================================

The Company has U.S.-based operations and reports in Canadian dollars and
therefore is exposed to foreign exchange fluctuations in the following three
areas: (1) monetary assets and liabilities, working capital and the U.S.
denominated portion of the Senior Secured Term Loan, (2) revenues and expenses,
and (3) the self-sustaining operations including the Senior Subordinated Notes.

The gains or losses arising from the translation of monetary assets and
liabilities denominated in U.S. dollars have been translated into Canadian
dollars at the rate of exchange in effect at the balance sheet date. The
resulting holding gains or losses are recorded in the statement of operations.

The Company recorded a $0.1 million loss during 2005 with respect to U.S.
denominated working capital items compared to a gain of approximately $0.1
million for the same period in 2004. If the net monetary liability remains
unchanged, a one-cent increase in the Canadian dollar would result in an
approximate $0.2 million foreign exchange loss. In addition, the Company
recorded a $0.6 million gain on the translation of the U.S. $15 million portion
of the Senior Secured Term Loan arranged at the time of the Stablex acquisition
and used to offset the foreign exchange fluctuations associated with the U.S.
revenues generated by Stablex.

The Company's self-sustaining U.S. operations hold U.S. dollar assets and
liabilities, and the U.S. dollar-denominated Senior Subordinated Notes used in
the acquisition of the self-sustaining operations are considered to be a hedge
of this net investment. Gains or losses arising from the translation of the
financial statements of these self-sustaining U.S. operations including the
Senior Subordinated Notes are deferred in the foreign currency translation
adjustment account that is part of shareholders' equity on the balance sheet.

All of the Company's U.S. denominated revenues and expenses of its U.S.
operations have been translated into its Canadian dollar reporting currency at
the average rate in effect during the year. With the addition of Stablex, whose
U.S. denominated revenues represents less than half of its total revenues
against a largely Canadian dollar cost base, the impact of exchange fluctuations
on the Company's earnings continues to be mitigated as a large portion of its
U.S. revenues have related expenses denominated in U.S. dollars. The Company's
U.S. dollar interest expense on its Senior Subordinated Notes and U.S. $15
million portion of the Senior Secured Term Loan combined with the gain or loss
on the translation of the U.S. $15 million portion of the Senior Secured Term
Loan reduces the effect of foreign exchange fluctuations on the U.S. dollar cash
flow from operations. When combined with U.S. dollar depreciation and
amortization expense, it reduces the foreign exchange exposure to net earnings.
The table illustrates the foreign exchange impact of a one-cent increase in the
value of the Canadian dollar on the Company's U.S. denominated operating results
for the year ended December 31, 2005:

                                     MDA-5
<PAGE>

================================================================================

(In thousands of dollars)                                                 2005
--------------------------------------------------------------------------------

Gross Profit                                                              (278)
SGA costs                                                                   62
--------------------------------------------------------------------------------
Loss from operations before the undernoted                                (216)
Foreign exchange on Senior Secured Term Loan                               206
Depreciation and amortization of deferred charges and
  intangible assets                                                        156
Net interest expense                                                        86
--------------------------------------------------------------------------------
Earnings before income taxes (1)                                           232

================================================================================
1. This excludes the foreign exchange impact on translation of U.S. denominated
monetary assets and liabilities.

Depreciation

Depreciation expense in 2005 was $21.6 million compared to $16.9 million in
2004, an increase of $4.7 million or 27.8%. This increase is the result of
depreciation related to the Fort McMurray facility that started with the
commencement of revenue in January 2005 as well as depreciation, since August
16, 2005, related to the fair market value of the assets associated with the
Stablex acquisition.

In 2004, depreciation expense was $16.9 million compared to $15.7 million in
2003, an increase of $1.2 million or 7.6%. This increase was attributable to
depreciation relating to the Prince George property, plant and equipment
acquired in 2003 partially offset by lower depreciation expense for the U.S.
dollar denominated assets.

Amortization of deferred charges and intangible assets

The amortization expense for 2005 was $2.6 million compared to $0.7 million in
2004. The increase is the result of the amortization of the intangible items and
deferred charges associated with the acquisition of Stablex and the related
financing.

In 2004 amortization expense was $0.7 million, which is comparable to the 2003
expense.

Interest Expense, net of interest income

================================================================================

(In thousands of dollars)                      2005          2004          2003
--------------------------------------------------------------------------------

Interest expense                             11,598        10,569         9,755
Interest capitalized                         (1,693)       (4,252)       (3,738)
Interest income                                (936)         (756)         (730)
--------------------------------------------------------------------------------
Net interest expense                          8,969         5,561         5,287

================================================================================

Net interest expense was $9.0 million in 2005 compared to $5.6 million in 2004,
an increase of $3.4 million. The increases were a result of interest paid
relating to the new Senior Secured Term Loan, partially offset by the foreign
exchange translation of the U.S. denominated interest expense. The decrease in
capitalized interest relates to ceasing the capitalization of interest on the
construction of the Fort McMurray facility when the facility began earning
revenues in January 2005. This is offset by capitalized interest relating to the
expansion of the Montreal facility that commenced in 2004.

In 2004, net interest expense was $5.6 million compared to net interest expense
of $5.3 million for 2003, an increase of $0.3 million. The increase is primarily
the result of a full year of interest expense on the long-term loan related to
the construction of the Fort McMurray facility, partially offset by lower
interest costs due to the foreign exchange on the U.S. denominated interest
expense.

The increase in interest income in 2005 is due to higher interest rates received
on cash balances. Interest income in 2004 of $0.7 million was comparable to
interest income in 2003.

Based on the level of debt at December 31, 2005 and using the interest rates at
December 31, 2005, including the U.S. denominated interest at the 2005 year-end
exchange rate of 1.1659, interest expense for 2006 is expected to be
approximately $14.0 million.

Income Taxes

In 2005, income tax expense was $4.0 million compared to an income tax recovery
of $3.2 million in 2004. Included in 2005 is the future income tax expense of
approximately $1.8 million related to changes in Quebec tax rates that were
substantively enacted in November 2005, while 2004 included a future income tax
recovery of approximately $3.7 million. The overall effective rate for 2005 was
73.8%. This compares to a statutory rate of 36.1%. After removing the effect of
the $1.9 million in non-cash unusual losses, the benefit of which has not been
recognized, the future tax effect of the increase in Quebec tax rates and the

                                     MDA-6
<PAGE>

impact of previously unrecognized losses and other minimum taxes, the overall
effective rate for 2005 is approximately 34% and is expected to remain the same
for 2006.

In 2004, total income tax recovery was $3.2 million compared to income tax
expense of $0.8 million in 2003. An approximate $3.7 million income tax recovery
was recognized in the fourth quarter of 2004 as the Company is more likely than
not to realize a portion of its tax loss carryforwards with its projected
earnings. When the impact of the future tax recovery is ignored, the overall
effective tax rate is approximately 30% and when compared to the statutory rate
of 36.1%, the effective rate reflects the utilization of previously unrecognized
loss carryforwards and also Large Corporations and minimum taxes paid during
2004.

Cash taxes were approximately $0.6 million in 2005 compared to $0.8 million in
2004 and compared to $0.6 million in 2003. In 2006, cash taxes are expected to
be approximately $3.0 million, reflecting the expected increase in earnings.

Net Earnings

Net earnings in 2005 were $1.4 million compared to net earnings of $4.9 million
in 2004 and reflect the impact of the income taxes. Earnings before income taxes
in 2005 were $5.4 million, which included an expense of $1.7 million in unusual
items, mainly comprised of the $1.9 million non-cash unusual loss on the Holcim
arbitration settlement. This compares with $1.7 million in 2004, which included
the $4.3 million cost of the management change as well as the unusual loss of
$0.7 million. Adjusting for the unusual items and the cost of the 2004
management change, earnings before income taxes were $7.1 million in 2005
compared with $6.7 million in 2004. The improved operating results from the
businesses and the non-cash foreign exchange gain of $0.6 million on the
translation of the U.S. $15 million Senior Secured Term Loan was offset by the
higher depreciation, amortization and interest costs relating to the acquisition
of Stablex.

Net earnings in 2004 were $4.9 million compared to net earnings of $6.9 million
in 2003. The decline reflects the decline in earnings from the Company's
operations and the increase in depreciation offset partially by the income tax
recovery.

                                     MDA-7
<PAGE>

QUARTERLY OPERATING PERFORMANCE

<TABLE>
Selected Quarterly Financial Information
==================================================================================================================================
<CAPTION>
                                1st Quarter              2nd Quarter                3rd Quarter                4th Quarter
----------------------------------------------------------------------------------------------------------------------------------
(in millions of
 dollars, except per
 share amounts)             2005    2004     2003    2005     2004    2003     2005     2004      2003     2005    2004     2003
----------------------------------------------------------------------------------------------------------------------------------
<S>                         <C>     <C>      <C>     <C>      <C>     <C>      <C>      <C>       <C>      <C>     <C>      <C>
Revenue                     34.8    32.4     32.0    40.8     35.2    37.2     43.4     35.1      33.9     47.5    34.3     31.9
Gross Profit                13.3    10.4     11.0    14.7     12.2    12.9     15.7     13.1      12.8     17.3    13.2     11.7
Selling, general,
  administrative, and
  other costs                4.2     4.6      5.7     4.7      4.5     4.4      5.8      4.6       4.5      6.4     9.6      5.0
Foreign exchange losses
  (gains) on monetary
  items                       --    (0.1)    (1.4)     --      0.3      --      0.2     (0.2)      0.4     (0.1)   (0.1)    (0.1)
Unusual items, (gains)
  losses                      --      --       --      --       --      --      2.0      0.1        --     (0.3)    0.5      1.4
Depreciation, including
  losses on disposals        5.1     4.2      4.2     5.3      4.2     3.8      5.5      4.1       3.5      5.7     4.5      4.2
Amortization of
  deferred and
  intangible assets          0.2     0.2      0.2     0.2      0.2     0.2      1.0      0.2       0.2      1.2     0.2      0.2
Foreign exchange gain
  on Senior Secured
  Term Loan                   --      --       --      --       --      --     (0.6)      --        --      0.1      --       --
Interest expense             2.5     2.7      2.2     2.5      2.7     2.2      3.0      2.7       2.7      3.6     2.5      2.7
Earnings (loss) before
  income taxes               1.6     0.1      0.9     2.6      1.5     4.3     (0.4)     2.9       2.7      1.6    (2.8)    (0.2)
Net earnings (loss)          1.1      --      0.8     1.7      1.2     4.1     (0.9)     1.8       2.6     (0.5)    1.9     (0.6)
Basic earnings (loss)
  per share                 0.03      --     0.02    0.05     0.04    0.13    (0.03)    0.06      0.08    (0.01)   0.06    (0.02)

Cash generated from
  operations before
  non-cash working
  capital                    6.7     4.3      5.0     7.4      5.6     8.0      7.5      6.3       6.1      8.8     3.4      5.4
Changes in non-cash
  operating working
  capital                   (5.0)    0.1      9.4     2.1     (4.0)   (7.3)     5.6      1.7       3.9     (5.4)    7.8     (1.0)
Cash provided by
  operations                 1.7     4.4     14.4     9.5      1.6     0.7     13.1      8.0      10.0      3.4    11.1      4.4

Total Assets               272.0   273.5    238.6   285.3    274.9   268.9    375.5    273.5     273.5    374.4   272.8    270.5

==================================================================================================================================
</TABLE>

Review of Fourth Quarter Operating Results

Revenue for the three months ended December 31, 2005 was $47.5 million compared
to $34.3 million for the same period in 2004, an increase of $13.2 million or
38.5%, largely reflecting the fees earned from the Fort McMurray facility of
$2.3 million that started in January 2005 as well as the Stablex revenue of $8.9
million.

For the three months ended December 31, 2005, gross profit was $17.3 million
compared to gross profit of $13.2 million for the same period in 2004, largely
reflecting the contribution from the Fort McMurray facility of $1.8 million and
the $5.9 million contribution from Stablex.

Earnings before income taxes for the three months ended December 31, 2005 were
$1.6 million compared to a loss of $2.8 million for the same period in 2004,
which included the $4.3 million cost of the management change. Therefore,
earnings before income taxes were comparable to the prior year quarter as the
improved gross profit in 2005 was offset by increased depreciation, amortization
and net interest costs, primarily related to the Stablex acquisition and related
financing. Amortization expense in the fourth quarter largely reflects changes
in estimated useful lives of assets relating to the Stablex acquisition and is
expected to be approximately $1.9 million in future quarters.

The Company had a net loss of $0.5 million for the three months ended December
31, 2005 compared to net earnings of $1.9 million for the same period in 2004.
The income tax expense in the fourth quarter of 2005 was $2.1 million, which
included $1.8 million in future tax expense relating mainly to higher Quebec
income tax rates that were substantively enacted in November 2005 while the
prior year quarter benefited from the recognition of a future tax recovery of
approximately $3.7 million.

Cash generated by operations for the three months ended December 31, 2005 was
$3.4 million compared to $11.1 million for the same period in 2004, largely
reflecting the impact of changes in non-cash operating working capital. Cash
generated from operations before changes in non-cash working capital for the
three months ended December 31, 2005 was $8.8 million compared to $3.4 million

                                     MDA-8
<PAGE>

for 2004, due mainly to the improved operating results offset partially by
higher interest costs. The increase in non-cash operating working capital of
$5.4 million in 2005 is largely related to timing of settlement of working
capital items. The decrease in non-cash operating working capital of $7.8
million in the corresponding period in the prior year was due to the increase in
accrued liabilities, related largely to the cost of the change in senior
management and as well as the long-term incentive plan.

Review of Quarterly Trends

The Company's revenues are generally stable period to period. For the Industrial
Services Group, volumes processed by its facilities are subject to the market
demand for and seasonal variations of customers' activities, which generally
peak during the summer months. For example, although the volumes processed for
the Group's refinery customers may be affected by the market demand and seasonal
variations of the refineries' products, generally peaking during the summer
driving season, the revenues from these customers are largely stable year over
year and are somewhat insulated through contractual minimum volume requirements.
The Stablex operations are also affected by seasonality as the industrial waste
streams processed include site remediation projects where activity generally
peaks through the summer months and slows, as the waste materials freeze, in the
winter months. Western Markets Group volumes and revenues are generally stable
year over year although some products may experience seasonal fluctuations. For
example, the water treatment needs of its municipal customers generally peak
during the spring "run off" and summer seasons. The timing of revenues earned
from Power Generation's projects and licensing activities results in variances
in the Group's quarterly results.

For the four quarters ended December 31, 2005, revenues averaged $41.6 million
per quarter while for the four quarters ended December 31, 2004, revenues
averaged $34.3 million per quarter. For the four quarters ended December 31,
2005, gross profit averaged $15.2 million per quarter while for the four
quarters ended December 31, 2004, gross profit averaged $12.2 million per
quarter. Revenues and gross profit for the four quarters ended December 31, 2005
are higher than the historical averages and are largely the result of the fees
earned in 2005 from the Fort McMurray facility as well as revenues and gross
profit contributed by Stablex since the acquisition.

The SGA for the third and fourth quarters of 2005 includes SGA relating to
Stablex since acquisition while the fourth quarter of 2004 included $4.3 million
for the cost of the change in senior management. When these quarters are
adjusted for these costs, SGA averaged $4.7 million over the last eight quarters
with fluctuations between quarters reflecting the timing of certain costs and
the increase in the last two quarters of 2005 related to the Stablex
acquisition.

The depreciation expense for 2005 reflects depreciation from the Fort McMurray
facility that started with the commencement of revenue in January of 2005. The
increase in depreciation expense in the third and fourth quarters of 2005
reflects depreciation associated with the fair market values of the assets
acquired as part of the Stablex acquisition.

The increase in amortization of deferred and intangible assets in the last two
quarters of 2005 reflects the amortization associated with the deferred costs
and intangible assets relating to the Stablex acquisition.

Cash generated by operations is impacted by the quarterly changes in non-cash
working capital which typically reflect the impact of the seasonal fluctuations
in revenues and the interest accrual associated with the Senior Subordinated
Notes which is paid on June 30 and December 31 of each year. Given the size of
the Company and the significant planned expansion capital expenditures, it is
not unusual for the Company to experience temporary fluctuations from quarter to
quarter in working capital. The change in non-cash operating working capital in
the third and fourth quarters of 2005 was largely related to the timing of the
settlement of working capital items and similarly for the first and second
quarters of 2003. The change in the fourth quarter of 2004 and the first quarter
of 2005 was related largely to the increase in accruals relating to the costs of
the change in senior management and subsequent settlement in the following
quarter.

                                     MDA-9
<PAGE>

SUPPLEMENTAL FINANCIAL INFORMATION

EBITDA is a supplemental, non-generally accepted accounting principle financial
measure. EBITDA is defined as earnings before interest, taxes, depreciation, and
amortization or "EBITDA." It is used by management internally to measure the
performance of the business as a whole as well as to measure the performance of
the individual segments and also forms the primary basis upon which employees of
the Company receive incentive compensation. EBITDA is also used by the Company
as a basis to measure compliance with certain debt covenants. EBITDA is
presented as supplemental information because management, through its
discussions with key stakeholders of the Company including shareholders,
analysts and other financial institutions, believes it is a widely used
financial indicator of the Company's operating profitability and performance
before the effects of capital investment and financing decisions. Since EBITDA
is not a recognized measure under Canadian generally accepted accounting
principles (GAAP), it should not be considered in isolation of, or as a
substitute for net earnings, consolidated cash flow from operations or any other
measure of performance required by GAAP or as an indicator of the Company's
operating performance. The Company's method of calculating EBITDA may differ
from other companies and accordingly, the Company's EBITDA may not be comparable
to measures used by other companies. In addition, this measure does not
necessarily represent funds available for discretionary use, and is not
necessarily a measure of the Company's ability to fund its cash requirements.
The Company's non-GAAP performance measure, EBITDA, has certain material
limitations as follows:

o    It does not include interest expense. Because the Company has borrowed
     money to finance some of its operations, interest is a necessary part of
     the Company's costs and ability to generate revenue. Therefore, any measure
     that excludes interest has material limitations;

o    It does not include depreciation and amortization expense. Because the
     Company must utilize capital assets in order to generate revenues,
     depreciation and amortization expense is a necessary and ongoing part of
     the Company's costs. Therefore, any measure that excludes depreciation and
     amortization expense has material limitations; and,

o    It does not include taxes. Because the payment of taxes is a necessary and
     ongoing part of the Company's operations, any measure that excludes taxes
     has material limitations.

Management compensates for these limitations by considering the economic effect
of the excluded expense items independently as well as in connection with its
analysis of net earnings. Because we use EBITDA to evaluate our financial
performance, we reconcile it to net earnings which is the most comparable
financial measure calculated and presented in accordance to GAAP. The following
is a reconciliation of EBITDA to net earnings:

<TABLE>
Supplemental selected information:
================================================================================================================================
<CAPTION>
(In thousands of dollars)                                 Industrial        Western         Power     Corporate
2005                                                        Services        Markets    Generation       Support         Total
--------------------------------------------------------------------------------------------------------------------------------
<S>                                                           <C>            <C>             <C>        <C>            <C>
Earnings (loss) before the undernoted (EBITDA)                29,344         20,047          (565)      (10,226)       38,600
Depreciation, including loss on disposal                      18,474          2,367           515           207        21,563
Amortization of deferred charges and intangible assets         2,167             --            --           474         2,641
Interest expense                                                  --             --            --        11,598        11,598
Interest capitalized                                              --             --            --        (1,693)       (1,693)
Interest income                                                   --             --            --          (936)         (936)
--------------------------------------------------------------------------------------------------------------------------------
Earnings before income taxes                                   8,703         17,680        (1,080)      (19,876)        5,427
Income taxes                                                      --             --            --         4,006         4,006
--------------------------------------------------------------------------------------------------------------------------------
Net earnings                                                   8,703         17,680        (1,080)      (23,882)        1,421

================================================================================================================================
</TABLE>

                                                               MDA-10
<PAGE>

<TABLE>
================================================================================================================================
<CAPTION>
(In thousands of dollars)                                 Industrial        Western         Power     Corporate
2004                                                        Services        Markets   Generation        Support         Total
--------------------------------------------------------------------------------------------------------------------------------
<S>                                                           <C>            <C>              <C>       <C>            <C>
Earnings (loss) before the undernoted (EBITDA)                20,425         20,125           368       (15,989)       24,929
Depreciation, including loss on disposal                      13,517          2,294           892           261        16,964
Amortization of deferred charges and intangible assets           657             --            --            51           708
Interest expense                                                  --             --            --        10,569        10,569
Interest capitalized                                              --             --            --        (4,252)       (4,252)
Interest income                                                   --             --            --          (756)         (756)
--------------------------------------------------------------------------------------------------------------------------------
Earnings before income taxes                                   6,251         17,831          (524)      (21,862)        1,696
Income taxes (recovery)                                           --             --            --        (3,204)       (3,204)
--------------------------------------------------------------------------------------------------------------------------------
Net earnings                                                   6,251         17,831          (524)      (18,658)        4,900

================================================================================================================================


================================================================================================================================
<CAPTION>
(In thousands of dollars)
2003                                                      Industrial        Western         Power     Corporate
                                                            Services        Markets   Generation        Support         Total
--------------------------------------------------------------------------------------------------------------------------------
<S>                                                           <C>            <C>           <C>           <C>           <C>
Earnings (loss) before the undernoted (EBITDA)                24,392         16,936        (2,782)       (9,138)       29,408
Depreciation                                                  12,976          1,558         1,001           192        15,727
Amortization of deferred charges and intangible assets           667             --            --            59           726
Interest expense                                                  --             --            --         9,755         9,755
Interest capitalized                                              --             --            --        (3,738)       (3,738)
Interest income                                                   --             --            --          (730)         (730)
--------------------------------------------------------------------------------------------------------------------------------
Earnings before income taxes                                  10,749         15,378        (3,783)      (14,676)        7,668
Income taxes                                                      --             --            --           810           810
--------------------------------------------------------------------------------------------------------------------------------
Net earnings                                                  10,749         15,378        (3,783)      (15,486)        6,858

================================================================================================================================
</TABLE>

EBITDA in 2005 was $38.6 million compared to $24.9 million for 2004. EBITDA in
2005 included the unusual loss of $1.7 million, while 2004 EBITDA included an
unusual loss of $0.7 million and the $4.3 million cost of the change in senior
management. As a percentage of revenue, EBITDA was 23.2% for 2005 compared to
18.2% in 2004, or 21.8% excluding the impact of the unusual loss and the senior
management change. The improved results are due to the 2005 contribution from
Industrial Services Group's Fort McMurray facility and Stablex, and another
strong performance from the Western Markets Group. Power Generation had a
positive performance before the impact of unusual losses of $1.7 million,
largely related to the settlement of the arbitration.

In 2004, EBITDA was $24.9 million compared to $29.4 million for 2003. EBITDA
included unusual losses of $0.7 million and $1.4 million in 2004 and 2003
respectively, and 2004 included the $4.3 million cost of the change in senior
management. As a percentage of revenue, EBITDA was 18.2% in 2004 or 21.8%
excluding the impact of the unusual loss and the senior management change
compared to 21.8% in 2003. The contribution from the Prince George acquisition
in Western Markets and the improvement in Power Generation were offset by the
return to historical prilled sulphur margins, the impact of foreign exchange on
the translation of U.S. earnings of Industrial Services, and foreign exchange on
the translation of U.S. denominated net working capital included in Corporate
Support.

Corporate Support costs were $10.2 million in 2005, $16.0 million in 2004 and
$9.1 million in 2003. In 2004, Corporate Support costs included $4.3 million in
costs associated with the change in senior management. Before the impact of the
foreign exchange gains and losses, unusual items and the 2004 change in senior
management, Corporate costs were $10.7 million in 2005, $11.3 million in 2004
and $10.5 million in 2003.

                                     MDA-11
<PAGE>

<TABLE>
==============================================================================================================
<CAPTION>
(In thousands of dollars)                                                   2005            2004         2003
--------------------------------------------------------------------------------------------------------------
<S>                                                                       <C>             <C>          <C>
Corporate costs                                                           10,663          15,548       10,458
Unusual items                                                                 --             502          737
Foreign exchange losses (gains) on working capital items                     118             (61)      (2,057)
Foreign exchange gain on Senior Secured Term Loan                           (555)             --           --
--------------------------------------------------------------------------------------------------------------
Corporate Support costs                                                   10,226          15,989        9,138

==============================================================================================================
</TABLE>

LIQUIDITY AND CAPITAL RESOURCES

Total assets were $374.4 million at December 31, 2005 compared to $272.8 million
at December 31, 2004 with the increase primarily the result of the Stablex
acquisition.

Accounts receivable increased by $6.0 million to $27.9 million from the December
31, 2004 balance of $21.9 million reflecting the receivables associated with the
Stablex acquisition.

The net book value of property, plant, and equipment at December 31, 2005
increased to $206.3 million from the December 31, 2004 balance of $152.4 million
with approximately $24.3 million of the increase relating to the fair market
value of the assets relating to the Stablex acquisition. The remaining increase
is the result of capital additions during 2005 being offset by depreciation
expense and the impact of foreign exchange on the U.S. dollar denominated
assets, the effect of which is recorded in the foreign currency translation
adjustment account that is part of shareholders' equity on the balance sheet.

Deferred charges increased by $4.2 million to $5.2 million from the December 31,
2004 balance of $1.0 million. The acquisition of Stablex contributed $4.4
million to the increase with $2.6 million related to the deferred financing
costs associated with the new senior secured credit facility offset by
amortization expense.

Intangible assets increased to $29.5 million from the December 31, 2004 balance
of $2.6 million. As part of the acquisition of Stablex, the Company recognized
intangible assets relating to the technology, customer relationships, operating
certificates and permits, trade names and other intangible assets. This increase
was offset by the amortization of intangibles over the estimated useful lives of
3 to 13 years.

Goodwill increased to $75.4 million from the December 31, 2004 balance of $45.5
million with approximately $31.2 million of the increase relating to the Stablex
acquisition. The remaining goodwill was unchanged except for the impact of the
stronger Canadian dollar on U.S. denominated goodwill.

Total current liabilities increased by approximately $10.5 million to $43.1
million from the December 31, 2004 balance of $32.6 million. The Stablex
acquisition accounted for approximately $4.8 million of the increase with the
remaining increase the result of higher income taxes payable, deferred revenues,
as well as higher accrued capital expenditures relating to the Montreal
expansion.

Total debt at the end of the third quarter of 2005 was $178.8 million, up $65.7
million from the December 31, 2004 balance of $113.1 million. Although the
Company increased its long-term debt by $70.0 million at the time of the Stablex
acquisition, the stronger Canadian dollar had a favourable impact on the U.S.
denominated Senior Subordinated Notes of approximately $2.3 million and $0.6
million on the U.S. portion of the new Senior Secured Term Loan. Also, the
payments of principal on the First Treasury Long-term Loan commenced in January
2005 and amounted to $1.5 million as of December 31, 2005.

The increase in deferred revenues is attributable to the project activities in
the Power Generation Group.

The increase in employee future benefits is the result of the Stablex
acquisition.

Other liabilities increased by $1.3 million to $9.8 million from the December
31, 2004 balance of $8.5 million, largely relating to the Stablex acquisition.

The increase in the future tax liability is largely the result of the fair
market value increase relating to the Stablex acquisition not being deductible
for tax purposes and the impact of the change in tax rates in Quebec.

                                     MDA-12
<PAGE>

Financial Condition

<TABLE>
==============================================================================================================
<CAPTION>
                                                                                      2005               2004
--------------------------------------------------------------------------------------------------------------
<S>                                                                              <C>                <C>
Cash including cash held in trust (in millions of dollars)                       $    23.0          $    44.8
Debt (in millions of dollars)                                                    $   178.8          $   113.1
Net debt (1)  (in millions of dollars)                                           $   155.8          $    68.3

Debt to equity                                                                        1.7x               1.1x
Net debt to gross profit (2)                                                          2.6x               1.4x
Net debt to equity                                                                    1.5x               0.7x
Interest coverage (Gross Profit (2) to interest expense (2))                          5.3x               4.6x

==============================================================================================================
</TABLE>
1.   Net debt is defined as total debt less cash and cash equivalents, including
     cash held in trust.
2.   Calculated for the year then ended.

Cash and cash equivalents excluding restricted cash at the end of 2005 were
$12.7 million compared to $30.9 million at the end of 2004, with excess cash
invested in short-term, interest-bearing deposits. The decline reflected cash
and cash flow from operations used to support the $45.6 million investment to
the end of 2005 in the Montreal expansion.

Cash held in trust largely relates to restricted funds held as part of the Fort
McMurray financing and was $10.3 million at the end of 2005 compared to $13.9
million at the end of 2004, the decrease reflecting the capital spend on the
Fort McMurray project.

On August 16, 2005, Marsulex completed a $100.0 million senior secured credit
facility with a syndicate of banks and incurred $2.6 million in related
financing expenditures. The facility provides for an $80.0 million Senior
Secured Term Loan and a $20.0 million Revolving Credit Facility carrying
variable rates of interest and secured by the assets of Marsulex Inc. and its
subsidiaries. All of the loans under this arrangement mature on June 15, 2008.
At the time of the acquisition of Stablex, $70.0 million of the Senior Secured
Term Loan was drawn to fund the purchase. The remaining $10.0 million of the
term loan was undrawn at the end of the year and is available for general
corporate purposes until August 16, 2006, after which undrawn amounts will be
cancelled. The Revolving Credit Facility has been established for general
corporate purposes and was undrawn at the end of the year. The term loan can be
drawn as LIBOR and Bankers' Acceptance loans with margins ranging from 150 to
275 basis points and prime rate loans with margins ranging from 50 to 175 basis
points. A portion of the Senior Secured Term Loan is denominated in U.S. dollars
and has been translated into Canadian dollars at rates in effect at the balance
sheet date. A foreign exchange gain on the U.S. dollar portion of the Senior
Secured Term Loan of $0.6 million was recorded during 2005.

During the second quarter of 2003, the Company obtained long-term financing for
the construction of the Fort McMurray facility and $40.0 million was advanced to
a loan account which is held in trust. Cash draws are made on this account as
construction of the facility progresses. As of December 31, 2005, $30.5 million
in cash was drawn from the account to fund the capital expenditures made by the
Company on the project, leaving a balance of $9.5 million held in trust and
recorded separately in current assets as cash held in trust. Of this balance,
$1.0 million will be used to fund the remaining capital commitments, which
includes the costs of commissioning and start-up of the facility. Under the
terms of the agreement, $7.5 million of the funds are required to remain in
trust until the facility is successfully commissioned and started up, at which
time it will become available for general use. The financing is secured by the
assets of a wholly-owned subsidiary of the Company and by a general guarantee
from the Company until the successful start-up of the facility as defined under
the terms of the loan agreement, at which time the general guarantee will be
released and the loan will be secured by the subsidiary's assets. If, after the
successful start-up of the facility, the subsidiary fails to perform its
operating obligations, the Company will become responsible for the operation of
the facility. The loan bears interest at a fixed rate of 7.3% per annum and in
January 2005, the Company began making scheduled monthly repayments due over 15
years.

The Company generates positive cash flows from operations which are used to meet
its debt obligations. The positive cash flows together with the recently
arranged credit agreement will be used to fund its current capital expenditures
commitments and its growth strategy. The growth strategy includes acquisition or
expansion of processing operations, development of new technologies, and
development or expansion of the Company's presence in new markets and, to the
extent required, the Company would seek new outside financing to fund this
growth strategy.

The financial leverage ratios may increase slightly in the short term and will
reduce over the next year with the full year contribution from Stablex and the
commencement of earnings from the Montreal expansion.

On June 2, 2005, Moody's Investors Service affirmed the credit rating of the
Company of Ba3 Senior implied rating and B2 subordinated debt ratings with a
stable ratings outlook. Subsequently on November 3, 2005 Standard & Poor's
affirmed all the ratings on the Company, including the long-term corporate
credit rating of BB- and the rating on the Senior Subordinated Notes of B, and
revised its outlook on the Company to stable from negative, noting the improved
liquidity as well as an expectation of higher earnings over the next couple of
years. This reflects the Company's solid base of established long-term contracts
and improved cash flows coupled with the Company's leveraged position.

                                     MDA-13
<PAGE>

The Company has met all of its debt related covenants.

Working Capital

The Company's working capital, excluding cash and cash equivalents and cash held
in trust and the current portion of long-term debt, was negative $6.5 million at
December 31, 2005 compared to negative $4.7 million at December 31, 2004 and is
primarily the result of the increase in payables and accrued liabilities
relating to the timing of capital expenditures. The Company's cash on hand and
positive cash flows in conjunction with the undrawn portions of the Senior
Secured Term Loan and Revolving Credit Facility provide the Company with
sufficient working capital to meet its financial commitments. Given the size of
the Company and the significant planned capital expenditures, it is not unusual
for the Company to experience temporary fluctuations in working capital.

The current ratio, excluding cash and cash equivalents, cash held in trust and
the current portion of long-term debt was 0.84:1 in 2005 compared to 0.84:1 in
2004.

Share Capital Outstanding

================================================================================
                                   As at
                            February 27,
                                    2006                2005              2004
--------------------------------------------------------------------------------

Number of common shares       32,599,898          32,409,898        31,696,398
Number of options              1,148,265           1,338,265         2,051,765
Closing share price                $8.00               $7.90             $7.00

================================================================================

During 2005, the Company issued 713,500 common shares for cash proceeds of $2.1
million upon the exercise of stock options. Subsequent to December 31, 2005, the
Company issued 190,000 common shares for cash proceeds of $0.9 million upon the
exercise of stock options.

The Company's Long-term Incentive Plan provides Performance Share Units to
certain employees and key persons and replaces the discontinued stock option
plan. Under the plan, the Board of Directors grants the total number of units
and establishes the performance criteria and the grant period which is typically
three years. The compensation expense associated with the awards earned over the
grant period as well as the subsequent changes in the market value of the
underlying common shares is recorded as part of SGA.

================================================================================

(In thousands of dollars)                       2005         2004         2003
--------------------------------------------------------------------------------

Long-term Incentive Plan                        1,922       2,454        1,065

================================================================================

In 2005, the cost of the Long-term Incentive Plan of $1.9 million decreased $0.6
million from 2004 as a result of the lower salary base offset by the increase in
the market value of the Company's shares.

The costs of the Long-term Incentive Plan increased by $1.4 million in 2004 over
2003 and this was due to 2003 being the second year of the plan with two-thirds
of the normal annual cost and the impact of the higher market value of the
Company's shares.

                                     MDA-14
<PAGE>

The Company's share price closed at:

<TABLE>
===============================================================================================================================
<CAPTION>
                                                                                   As at
                                                                            February 27,                       December 31,
                                                                                    2006         2005        2004         2003
-------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                <C>          <C>         <C>          <C>
Closing share price                                                                $8.00        $7.90       $7.00        $5.15

===============================================================================================================================
</TABLE>

Contractual Commitments

<TABLE>
===============================================================================================================================
<CAPTION>
                                                                                                                   Fair Value
(In thousands of dollars)            2006       2007      2008       2009        2010   Thereafter      Total    Dec 31, 2005
-------------------------------------------------------------------------------------------------------------------------------
<S>                                <C>        <C>        <C>        <C>         <C>         <C>        <C>             <C>
9.625% Senior Subordinated
  Notes (1)                            --         --    70,848         --          --           --     70,848          71,025
7.3% Long-Term Loan (2)             1,641      1,765     1,898      2,040       2,195       28,935     38,474          39,086
Senior Secured Term Loan (3)           --     13,340    56,105         --          --           --     69,445          69,445
Interest on loans (4)              14,045     13,920     7,956      2,354       2,200       10,623     51,098          51,098
Operating leases and other
  Commitments                       3,625      3,122     2,434      1,222         401          344     11,148          11,148

===============================================================================================================================
</TABLE>
    1.   The Senior Subordinated Notes are denominated in U.S. dollars and
         converted at the December 31, 2005 closing rate of 1.16591. The Notes
         mature on June 28, 2008 and are redeemable at the option of the Company
         at specified redemption premiums. Interest is paid on June 30 and
         December 31 of each year until maturity.
    2.   On June 5, 2003, a wholly owned subsidiary of the Company entered into
         a Long-term Loan agreement to finance the construction of the Fort
         McMurray facility which is secured by the subsidiary's assets. The
         Company provides a general guarantee until the successful start-up of
         the facility as defined in the loan agreement at which time the general
         guarantee will be released and the loan will be secured by the
         subsidiary's assets. If, after the successful start-up of the facility,
         the subsidiary fails to perform its operating obligations, the Company
         will become responsible for the operation of the facility and as a
         result the servicing of the debt. The loan bears interest at a fixed
         rate of 7.3% per annum with monthly repayments of principal, which
         commenced in January 2005, due over 15 years.
    3.   On August 16, 2005, Marsulex completed a $100 million senior secured
         credit facility with a syndicate of banks. The facility provides for an
         $80 million Senior Secured Term Loan and a $20 million Revolving Credit
         Facility carrying variable rates of interest and secured by the assets
         of Marsulex Inc. and its subsidiaries. All of the loans under this
         arrangement mature on June 15, 2008. At December 31, 2005 the loans
         carried the following rates of interest:
             U.S. LIBOR loan (U.S. $15 million) - (4.37%) plus 250 basis points
             Cdn. Bankers' Acceptance loan - (3.4%) plus 250 basis points Cdn.
             Prime rate loan - (5.00%) plus 150 basis points
    4.   Interest on U.S. denominated loans is calculated using the December 31,
         2005 closing rate of 1.1659.

During 2005, the Company completed its fixed price commitment totalling $32.5
million, including approved change orders, to purchase equipment and services
relating to the construction of its Fort McMurray facility that began earning
revenues at the beginning of 2005.

Purchase commitments relating to the Company's expansion of the Montreal
facility at the end of December 31, 2005 were $51.8 million (2004 - $13.0
million). To the end of December 31, 2005, $45.6 million (2004 - $3.9 million)
has been recorded as part of facilities under construction in property, plant
and equipment.

Other commitments at December 31, 2005 include:

================================================================================
(In thousands of dollars)                                                  2005
--------------------------------------------------------------------------------

Net post-retirement benefits liability                                    2,186
Asset retirement obligations                                              1,524
Other liabilities                                                         8,271
Future tax liability                                                     29,537

================================================================================

                                     MDA-15
<PAGE>

Off Balance Sheet Arrangements

All of the Company's subsidiaries have been consolidated and are reflected in
the Company's financial statements. The Company does not have any off balance
sheet arrangements.

Related Party Transactions

The Company has entered into a management services contract with its major
shareholder for the supply of management and financial services. Under the
agreement, the Company incurred fees of $0.4 million in each of 2005, 2004 and
2003.

In addition, certain of the Company's Directors hold senior positions with firms
that provide services to the Company. During 2005, $4.9 million in fees were
incurred for services provided by those firms compared to $3.9 million in 2004
and $3.4 million in 2003.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Cash Flow from Operations

<TABLE>
=======================================================================================================================
<CAPTION>
  (In thousands of dollars)                                                        2005           2004          2003
-----------------------------------------------------------------------------------------------------------------------
<S>                                                                              <C>            <C>           <C>
  Cash provided by operations before changes in working capital                  30,433         19,650        24,539
  Decrease (increase) in non-cash working capital                                (2,708)         5,529         4,962
-----------------------------------------------------------------------------------------------------------------------
  Cash provided by operations                                                    27,725         25,179        29,501

=======================================================================================================================
</TABLE>

In 2005, the Company generated $27.7 million in cash provided by operations
compared to $25.2 million in 2004. The increase was the result of the increased
operating earnings.

In 2004, the Company generated $25.2 million in cash provided by operations
compared to $29.5 million in 2003, a $4.3 million decrease. The decrease was due
to the lower earnings before tax and minority interest. The decrease in non-cash
working capital in 2004 was $5.5 million compared to $5.0 million in 2003. The
2004 decrease in non-cash working capital was primarily the result of the
accruals relating to the cost of the change in senior management and the
increase in the long-term incentive program.

Cash and cash equivalents at the end of December 31, 2005 were $12.7 million,
down $18.2 million from $30.9 million at December 31, 2004. Cash on hand and
cash generated from operations, along with the cash received from the issuance
of capital stock and the arbitration settlement, were utilized to fund the
investment in the Montreal facility expansion, the repayment of the Fort
McMurray project financing, and a portion of the costs related to the Stablex
transaction and financing. The acquisition of Stablex was funded largely through
the Senior Secured Term Loan.

Under the agreements with Petro-Canada and Shell Canada Products, the fees
relating to the approximately $60 million expansion of the Company's Montreal
processing facility began in January 2006. The expansion is expected to be
substantially completed by mid-year 2006 with revenue recognition and the
related earnings expected to commence in the third quarter. The remaining
capital spend largely occurring in the first half of the year may cause the
Company's cash balances to temporarily decline. However, the cash flow from
operations, and the fees received along with the undrawn portions of the Senior
Secured Term Loan and Revolving Credit Facility, provide the Company with
sufficient flexibility to support its financial commitments.

Capital Expenditures

<TABLE>
=======================================================================================================================
<CAPTION>
(In thousands of dollars)                                                           2005          2004          2003
-----------------------------------------------------------------------------------------------------------------------
<S>                                                                               <C>            <C>          <C>
Expansion projects                                                                45,889         7,896        25,967
Maintenance capital                                                                6,970         6,731         6,616
-----------------------------------------------------------------------------------------------------------------------
Total capital expenditures                                                        52,859        14,627        32,583

=======================================================================================================================
</TABLE>
Capital expenditures in 2005 include $4.7 million accrued for capital costs not
yet paid.

In 2005, capital expenditures were $52.9 million compared to $14.6 million in
2004. The increases were largely due to spending related to the expansion of the
Montreal Facility. The Company also incurred $0.8 million in expenditures
relating to the excavation of placement cells which are included as part of
deferred charges and are not included in the above capital expenditures.

                                     MDA-16
<PAGE>

During 2004, capital expenditures were $14.6 million compared to $32.6 million
in 2003. The $18.0 million decrease was primarily due to the completion of the
Fort McMurray facility offset by the start of the Montreal expansion.

The Company completed the construction of its Fort McMurray facility on schedule
in September 2003 and is now maintaining the plant in readiness for
commissioning and start-up when Syncrude's UE-1 project is completed. Syncrude
reimbursed the Company for its carrying costs during the period between the
completion of construction and the commencement of fees. Under the Company's
agreement with Syncrude, the Company began receiving fees in January 2005. At
December 31, 2005, the Company had spent $55.6 million compared to the total
budget of $56.6 million.

The Company entered into agreements with Petro-Canada and Shell Canada Products
for the expansion of its Montreal facility that would increase the facility's
capacity by approximately 50%. Construction of the project is scheduled for
completion in mid-2006. To the end of December 31, 2005, $45.6 million of the
approximate $60 million expansion had been recorded as part of facilities under
construction in property, plant and equipment.

Acquisitions

On August 16, 2005, the Company acquired all of the outstanding shares of the
holding company owning Stablex, a Quebec-based business specializing in
inorganic hazardous waste treatment and disposal. The purchase price was $71.2
million before acquisition costs of approximately $2.5 million, financed through
amounts drawn on the new credit facilities entered into by the Company. The
results of operations have been consolidated from the date of acquisition. The
acquisition has been accounted for using the purchase method of accounting. The
purchase price allocation, including acquisition costs, is as follows:

================================================================================
Cash                                                                $    1,878
Current assets                                                           6,482
Future tax assets                                                          876
Property, plant and equipment                                           24,318
Placement cells                                                          1,289
Intangibles                                                             29,028
Goodwill                                                                31,170
Current liabilities                                                     (6,854)
Other long-term liabilities                                             (2,054)
Future tax liabilities                                                 (12,443)
--------------------------------------------------------------------------------
Total Purchase Price                                                $   73,690

================================================================================
The purchase price equation includes $1.2 million for expenditures accrued but
not yet paid as of December 31, 2005.

LITIGATION

On August 15, 2005 the Company brought a legal proceeding against Chemtrade
Logistics Income Fund and Chemtrade Logistics Inc. (collectively, "Chemtrade").
In the Company's statement of claim, it alleges that Chemtrade's recent
acquisition of Peak Sulfur, Inc. and Peak Chemical, LLC breaches a
non-competition agreement between the Company and Chemtrade entered into at the
time of Chemtrade's initial public offering in July 2001. The statement of claim
also alleges that Chemtrade is in breach of a service agreement with respect to
pooling its insurance requirement with those of the Company in order to obtain
favourable insurance coverage and premiums. The Company's action also sought
certain declarations that a number of agreements entered into between the
parties were no longer of any force or effect as a result of Chemtrade's
breaches of the non-competition agreement. The Company is seeking damages for
the alleged breaches of contract in the amount of $72.8 million, as well as
other relief.

On September 27, 2005 the Company received a statement of defense and
counterclaim from Chemtrade. The statement of defense from Chemtrade denies that
it has breached the non-competition agreement or the service agreement. The
counterclaim by Chemtrade seeks declarations that the Company has breached a
number of agreements, including a non-competition agreement entered into by the
Company in favour of Chemtrade, damages of up to $20.0 million for the alleged
breach by the Company of those agreements and injunctions against further
breaches of such agreements or damages of up to $67.8 million in lieu of
injunctions, along with punitive or exemplary damages, interest and costs. The
counterclaim alternatively seeks the return of alleged consideration of $30.6
million paid to the Company if a court finds that the agreements entered into
between the parties are no longer of any force or effect and the Company is
relieved of its obligations under those agreements. Management of the Company
regards Chemtrade's claim to be without merit.

RISKS & UNCERTAINTIES

Following is a description of the risk factors that affect the Company's
business, and ultimately, its profitability. Management's responsibility is to
mitigate risk to the extent possible, in order to maximize shareholder value.

                                     MDA-17
<PAGE>

Reliance on Customers

The business of the Company is dependent on the production of a number of
by-products and waste streams by its industrial customers. As environmental
regulations become more demanding, the need for by-product and waste streams
management, regeneration, disposal, storage, removal, and conversion has
increased. Thus, the trend in North America is for continuing growth in demand
for the Company's services, although there can be no assurance that
environmental regulations will not become less stringent in the future or that
customers of the Company will continue to produce by-products and waste streams
which drive their demand for the Company's services.

Services provided, and products handled from the Company's major customer
accounted for 10.0% of the Company's total 2005 revenue (2004 - 9.6%; 2003 -
10.3%), the loss of which could have a significant impact on the Company.

Competition

The Company operates in competitive markets, and some of its competitors have
economic resources greater than those of the Company and are well established as
suppliers to the markets that the Company serves.

Accordingly, such competitors may be better able to withstand volatility within
industries and throughout the economy as a whole while retaining significantly
greater operating and financial flexibility than the Company. The Company
believes it benefits from its strategically located facilities, its long-term
relationships and contracts with its customers and from its technical skills,
innovation, and value-added technologies. However, there can be no assurances
that the Company will be able to compete effectively with its competitors and
competitive pressures may harm the Company's business. Several of the Company's
niche services and products are sold into select markets. There can be no
assurance, however, that these markets will not attract additional competitors
that could have greater financial, technological, manufacturing and marketing
resources than the Company.

New Products and Services

The Company has made investments in the development and commercialization of new
products, technologies and services. Broad market acceptance and long-term
commercial viability of services incorporating new products, technologies and
services may take some years to establish, if at all, and are subject to
business and competitive risks. If the Company is unable to develop and market
new products in a timely fashion, or at all, the Company may not be able to
compete successfully.

Proprietary Technology

The Company relies on a combination of patents, confidentiality procedures and
contractual provisions to protect its proprietary rights. Despite the Company's
efforts to protect its proprietary rights, unauthorized parties may obtain and
use information that the Company regards as proprietary. Policing unauthorized
use of such proprietary technology, if required, may be difficult,
time-consuming and costly. In addition, the laws of certain countries in which
the Company does business may not protect its proprietary rights to the same
extent as the laws of the United States or Canada. There can be no assurance
that the Company will be successful in protecting its proprietary rights.

Further, the industry in which the Company competes has many participants who
own, or claim to own, intellectual property. From time to time, a third party
may claim that the Company infringes such third party's intellectual property
rights or may challenge the Company's rights to its own intellectual property.
Any claim, whether or not with merit, could be time-consuming to evaluate,
result in costly litigation or require the Company to enter into licensing
agreements that may require the payment of a license fee and/or royalties to the
owner of the intellectual property. Such licensing agreements, if required, may
not be available on royalty or other licensing terms acceptable to the Company,
if available at all.

Acquisitions

A substantial part of the Company's growth has come through acquisitions. For
example, in August 2005, the Company acquired Stablex, a Quebec-based business
specializing in inorganic hazardous waste treatment and disposal. The success of
acquisitions will depend in part on the Company's ability to overcome
significant challenges, including timely, efficient and successful execution of
post-acquisition strategies. If the Company fails to meet the challenges
involved in integrating the operations of its acquisitions, it may not realize
anticipated benefits or synergies of the acquisitions, which could adversely
affect operating results.

Future acquisitions may involve debt incurrence, operating losses, dilutive
issuances of equity securities and significant cash expenditures, any of which
could have a material adverse effect on the Company's business.

Recent and any future acquisitions involve a number of risks, including:

o    The Company's ability to integrate the acquired business;
o    Diversion of management attention;
o    Impairment of goodwill adversely affecting net earnings;
o    The Company's ability to retain the management or other key employees of
     the acquired business;
o    The Company's ability to establish uniform standards, controls, procedures
     and policies;
o    The Company's ability to retain customers of the acquired companies;

                                     MDA-18
<PAGE>

o    Exposure to legal claims for activities of the acquired business prior to
     the acquisition;
o    Damage to the Company's reputation as a result of performance or customer
     satisfaction problems relating to an acquired business; and,
o    The performance of any acquired business could be lower than anticipated.

New Financing

The Company continues to actively pursue growth initiatives and may enter into
commitments in advance of securing financing. This may require the Company to
seek additional financing to supplement its current cash balances and internally
generated cash flows in order to finance these commitments. Therefore, the
Company is at risk as to the availability of new credit and the associated
interest rates.

Foreign Exchange

As the Company has U.S.-based operations and reports in Canadian dollars, it is
exposed to foreign exchange fluctuations. Approximately 42.3% of the Company's
2005 revenue (2004 - 44.5%; 2003 - 42.9%) was in U.S. dollars. Ignoring the
foreign exchange impact on U.S. denominated working capital items, at present, a
one-cent increase in the value of the Canadian dollar would negatively impact
gross profit by approximately $0.3 million. The Company's debt and related
interest expense is in U.S. dollars and offsets the U.S. dollar cash flow from
operations.

The U.S. dollar interest expense, when combined with U.S. dollar depreciation
and amortization expenses, limits the exposure of net earnings to foreign
exchange fluctuations. A one-cent increase in the value of the Canadian dollar
positively impacts net earnings before tax by approximately $0.2 million.

The Company has self-sustaining operations holding U.S. dollar assets and debt
and under present accounting rules in Canada, any fluctuation in the Canadian
dollar value against the U.S. dollar is recorded in the foreign currency
translation adjustment account that is part of the shareholders' equity on the
balance sheet.

Commodity Prices

Industrial chemicals sold by the Company are subject to market price
fluctuations. In addition, regional supply and demand imbalances can lead to
isolated price erosion.

The Company's end-use contracts generally have a "meet or release" provision. As
a result, competitive pressure can cause the Company to lower selling prices in
order to retain the volume.

The Company attempts to reduce its exposure to market price fluctuations through
contracts where commodity price exposure is either shared with or borne entirely
by the customer.

Although the Company plans to continue entering into new contracts and
renegotiating existing contracts that include minimum volume requirements or
guaranteed fees in order to increase the stability of its cash flows, there can
be no assurance that the Company will be successful in renegotiating existing
contracts or entering into new contracts with these terms. In 2005, these types
of arrangements represented 59.7% of the Company's gross profit (2004 - 62.5%).

Interest Rates

The interest rate on the Company's Senior Subordinated Notes and the Long-term
Loan are fixed under contractual agreements and bear interest of 9.625% and 7.3%
per annum, respectively.

<TABLE>
===========================================================================================================================
<CAPTION>
(In thousands of dollars)                 2006        2007         2008        2009         2010   Thereafter      Total
---------------------------------------------------------------------------------------------------------------------------
<C>                                                              <C>                                              <C>
9.625% Senior Subordinated Notes            --          --       70,848          --          --            --     70,848
7.3% Long-Term Loan                      1,641       1,765        1,898       2,040       2,195        28,935     38,474

Weighted average for Senior
  Subordinated Notes and Long-Term
  Loan                                     8.8%        8.8%         8.1%        7.3%        7.3%          7.3%

===========================================================================================================================
</TABLE>

The Senior Secured Term Loan, maturing in 2008 is subject to near-term interest
rate fluctuations as interest is variable. The loan can be drawn as LIBOR,
Bankers' Acceptance and prime loans with margins ranging from 150 to 275 basis
points and prime rate loans with margins ranging from 50 to 175 basis points. A
1% decrease in LIBOR, Bankers' Acceptances and prime rate would reduce the
Company's interest payments by US$150,000, $515,000 and $5,000, respectively.

                                     MDA-19
<PAGE>

Labour

The Company had 334 employees, including 260 in Canada and 74 in the U.S. at
December 31, 2005 (2004 - 186 employees; 2003 - 180 employees). The increase
over 2004 primarily relates to the Stablex acquisition in August 2005.

The Company has 47 unionized employees at four sites, represented by three
unions through three collective agreements. The Collective Bargaining Agreement
with the Communications, Energy and Paperworkers Union at the Company's Fort
Saskatchewan Sulphides plant, which expired March 31, 2005, was successfully
renegotiated, and no work stoppages occurred in 2005 as a result of unresolved
labour issues. The Company also negotiated its first collective agreement with
the Communications, Energy and Paperworkers Union at its Fort Saskatchewan
Customer Service Centre effective April 4, 2005.

The Company satisfactorily resolved two formal grievances with its unions and
one grievance remained outstanding at the end of 2005.

The Collective Bargaining Agreement with the International Union of Operating
Engineers in the Company's Prince George plant is set to expire on June 30,
2006.

Further, while the Company has not suffered any loss of production due to work
stoppages by its employees in recent years, there can be no assurances that work
stoppages or other labour disturbances which may have a material impact on the
Company will not occur in the future. Finally, a large number of the Company's
suppliers and customers have unionized employees and there can be no assurances
that work stoppages or other labour disturbances at the Company's suppliers or
customers will not have a material adverse effect on the Company's business.

Environment

The Company has a comprehensive policy on the environment directed towards
minimizing the environmental impact of all its activities. Application of, and
adherence to, the policy is regularly reviewed through environmental
assessments, including independent reviews of its assets and operations. In
2005, the Company conducted internal assessments at select facilities to verify
the presence and effectiveness of its management systems. The Company also
undergoes periodic external assessment of its management systems and practices
in accordance with the Reverification Protocol of the Canadian Chemical
Producers' Association's Responsible Care(R) initiative. Conducted approximately
every three years after the initial verification of Responsible Care-In-Place,
Reverification involves assessment by an independent team made up of
knowledgeable industry experts, a representative of the community at large and
representatives of the communities in which the Company operates.

The Company's Montreal facility was one of four Quebec organizations honoured to
receive the 2004 EcoGESte Award for controlling and reducing greenhouse gas
emissions. Presented by Environnement Quebec in the Small and Mid-sized Business
category, the facility was recognized for its reduction in greenhouse gas
emissions and energy efficiency improvements.

The Environmental, Health & Safety Committee of the Board of Directors meets
regularly to, among other things; review the Company's performance against the
Company's environmental, health, safety and training policies and practices. The
Committee also works with management to prioritize capital expenditures related
to environmental risk management and regulatory compliance.

Notices and Findings of Violation have been issued against the Company by
federal regulators with respect to the Company's Toledo facility in Oregon,
Ohio. The Company is, however, in compliance with the permits issued by the
governing body (the State) and although there is a potential for penalties to be
assessed against the Company, the Company believes that it is in substantial
compliance with environmental laws, regulations and guidelines.

A Notice and Finding of Violation has been issued by federal regulators with
respect to the facility in Cairo, Ohio which was sold to Chemtrade Logistics
Inc. ("Chemtrade"). As part of the sale, the Company has indemnified Chemtrade
against liabilities relating to the Notice and Finding of Violation issued. As
part of the indemnification the Company is obligated to reimburse Chemtrade for
the necessary installation of control equipment and for any penalties which may
be levied against the facility in respect of the Notice and Finding of
Violation. The Company believes that the Cairo facility is in material
compliance with regulations issued by the State of Ohio as those regulations
relate to allegations of federal regulators, and that the State has issued
lawful permits consistent with those regulations governing the operation of the
Cairo facility.

In the opinion of management, environmental compliance costs and penalties for
both the Cairo and Toledo facilities, if imposed by federal regulators, will not
have a material adverse effect on the financial position of the Company,
provided the Company is successful in prosecuting indemnity claims from the
entity from which it purchased the facilities, and that sufficient monies are
available to fund those indemnity obligations.

The Company may be subject to further environmental liabilities of which
management is not currently aware which may have a material impact on the
business or financial condition of the Company.

                                     MDA-20
<PAGE>

Health and Safety

A safe workplace has always been a primary objective of the Company, whereby the
goal is to encounter zero incidents of occupational injury or illness among
employees and the contractors engaged at the Company's facilities.

The Company was disappointed with its safety performance in 2005, when
benchmarked against Total Recordable Injuries. However, such setbacks are viewed
to be temporary and not unusual as a company acquires new facilities, which may
not be accustomed to the Recordable standard to which Marsulex measures.
Management is confident it can return to the performance levels previously
enjoyed as it continues its pursuit of excellence in safety.

As a member of the Canadian Chemical Producers' Association since the Company's
inception, Marsulex annually re-affirms its commitment to the ethic of
Responsible Care(R). Through its Codes of Practice and the Company's EH&S
Management Systems, the Company continues to improve its overall performance in
the responsible management of its activities and forms valuable relationships
with its communities and stakeholders. The Marsulex Toledo, Ohio facility was
recognized by the Ohio Chemistry Technology Council (OCTC) and received the OCTC
2005 Excellence in Environmental, Health, Safety and Security Performance Award
for its continued improvement in these areas.

CRITICAL ACCOUNTING POLICIES

The Company's accounting policies, which are disclosed in the Significant
Accounting Policies note (Note 1 of the audited financial statements), are in
accordance with Canadian generally accepted accounting principles and are
applied on a consistent basis. High-quality financial statements require
rigorous application of accounting policies. Management uses judgement in
selecting policies for which alternative methods exist and in the application of
those accounting policies. The policies discussed below are considered by
management to be critical to an understanding of the Company's financial
statements because their application places the most significant demands on
management's judgement, and financial reporting results rely on estimation about
the effect of matters that are inherently uncertain. The estimates used by
management are based upon historical experience and on various other assumptions
that management believes to be reasonable under the circumstances. The results
of the Company's ongoing evaluation of these estimates form the basis for making
judgements about the carrying value of assets and liabilities and the reported
amounts for revenue and expenses. Specific risks for these critical accounting
policies are described in the following paragraphs. For all of these policies,
management cautions that future events rarely develop exactly as forecasted, and
the best estimates routinely require adjustment and these adjustments may have a
material impact on the Company's financial condition.

Depreciation and amortization

Expenditures associated with property, plant and equipment are capitalized and
depreciated using the straight-line method over the estimated economic useful
lives of the related assets or where applicable, the lower of the economic
useful lives of the related assets and the duration of the related customer
contracts. The estimated economic useful lives are based on experience and
current technology which may be extended through capital and maintenance
programs. Therefore the estimated economic useful lives are periodically
reviewed and the depreciation rates adjusted where appropriate prospectively.

Intangible assets include the estimated value at the date of acquisition of
long-term contractual customer relationships, technology, customer relations,
certificates and permits, a trade name and the cost of other intangible assets.
These assets are amortized over a period of the estimated economic useful lives
of the related assets, which is based on experience and management's best
estimates using information currently available. The estimated economic useful
lives are periodically reviewed and the amortization rates adjusted where
appropriate prospectively.

Impairment of Long-lived assets, including Goodwill

The Company reviews and evaluates its long-lived assets for impairment when
events or changes in circumstances indicate the related carrying amount may not
be recoverable. An asset impairment is considered to exist if the total
estimated future cash flows on an undiscounted basis are less than the carrying
amount of the asset. An impairment loss is measured and recorded based on
discounted estimated future cash flows. Significant management judgement is
involved in estimating these factors, which include inherent risks and
uncertainties. Management's assessment was based on projected future cash flows
using EBITDA and capital expenditures that are consistent with management's
internal planning. Management periodically evaluates and updates the estimates
based on the conditions that influence these factors. The variability of these
factors depends on a number of conditions, including uncertainty about future
events, and thus accounting estimates may change from period to period. If other
assumptions and estimates had been used in the current period, the balances for
non-current assets could have been materially impacted. Furthermore, if
management uses different assumptions or if different conditions occur in future
periods, future operating results could be materially impacted.

The Company assesses goodwill at the reporting unit level and has determined no
impairment has occurred in the value of goodwill during 2005. The assessment is
based on determining the fair value of the Company's reporting units based on
using valuation methods which are based on the reporting unit's projected EBITDA
and earnings multiples. Management reviews these assumptions annually taking
into account the business conditions at that time and changes to the Company's
business strategy. There is no certainty that the assumptions used by management
will develop exactly as forecasted or that the expected earnings multiples will
be achieved.

                                     MDA-21
<PAGE>

Employee Future Benefits

The cost of pensions and other retirement benefits earned by employees is
actuarially determined using the projected benefit method prorated on service
and management's discount rate as well as the best estimate of expected plan
investment performance, salary escalation, retirement ages of employees and
expected health care costs. For 2005, the Company used the following factors:

================================================================================

Discount rate                                                              6.0%
Expected plan investment performance                                       7.0%
Salary escalation                                                          4.0%
Expected health care cost increase                          13% declining to 8%

================================================================================

Material changes in pension and other post retirement benefit costs may occur in
the future due to changes in these assumptions, differences between actual
experience and the assumptions used and changes in the benefit plans.

Liabilities are determined as a present value of future anticipated cash flows
using a discount rate based on market rates of high quality debt instruments at
the measurement date and inflation assumption consistent with the discount rate.
Differences between the estimated future results and actual future results are
amortized (to the extent that the cumulative experience gain or loss is in
excess of the permitted 10% corridor under Canadian GAAP) over the expected
average remaining service life of the active members (EARSL). This 10% corridor,
as defined by Canadian GAAP, represents 10% of the greater of the
post-retirement benefits obligations and the fair value of plan assets. The
return on assets assumption and the discount rate, salary and inflation
assumptions used to value the liabilities are reviewed annually and are
determined at the measurement date based on a consistent framework from
measurement date to measurement date. It is reasonable to assume that there will
be a variation between the assumptions (which are set within the framework of a
long-term commitment) and actual experience in any one year. Over the long-term,
cumulative pension expense is expected to produce a reasonable reflection of the
costs associated with the pension program.

A 0.5% change in the return on assets assumption would result in an approximate
$0.1 million change in the annual pension expense. Changes to the return on
assets assumption would have no significant effect on funding requirements, as
our required contributions are primarily determined based on the applicable
Canadian regulatory solvency funding requirements.

Under this valuation methodology, liabilities for solvency valuation are based
on market bond yields and the excess of liabilities over assets must be
amortized over a five-year period. A 0.5% increase or decrease in the discount
rate assumption would result in an approximate $0.1 million change in annual
pension expense.

Asset Retirement Obligations

The Company recognizes the fair value of a future asset retirement as a
liability in the period in which it incurs a legal obligation associated with
the retirement of tangible long-lived assets that results from the acquisition,
construction, development, and/or normal use of the assets. It includes the
Company's properties that are on leased land, which revert back to the lessor
and where the Company has a legal obligation under the landlease agreement to
remove improvements and structures from the property. The Company concurrently
recognizes a corresponding increase in the carrying amount of the related
long-lived asset that is depreciated over the life of the asset. The fair value
of the asset retirement obligation is estimated using the expected cash flow
approach that reflects a range of possible outcomes discounted at a
credit-adjusted risk-free interest rate. The asset retirement obligation is
adjusted at the end of each period to reflect the passage of time and changes in
the estimated future cash flows underlying the obligation.

The Company's operations are also subject to numerous laws, regulations and
guidelines relating to air emissions, water discharges, solid and hazardous
wastes, transportation and handling of hazardous substances and employee health
and safety in Canada and the United States. Accruals have been made in specific
instances where management has determined it is probable that liabilities for
remediation costs will be incurred and where such liabilities can be reasonably
estimated. The assumptions used by management are based on discussion with
regulatory authorities, laws and regulations, third party consultants and
management's judgement and there can be no assurance the actual remediation
costs will not differ from such estimates.

The accounting estimates related to environmental and closure costs are critical
accounting estimates because (i) the Company will not incur most of these costs
for a number of years, requiring management to make estimates over a relatively
long period; (ii) reclamation and closure laws and regulations could change in
the future or circumstances affecting the Company's operations could change,
either of which could result in significant changes to the Company's current
plans and future costs; and (iii) calculating the fair value of the Company's
asset retirement obligations requires management to assign probabilities to
projected cash flows, to make long-term assumptions about inflation rates, to
determine its long-term credit-adjusted, risk-free interest rates and to
determine market risk premiums that are appropriate for the Company's operations
over long periods of time.

Tax Asset Valuation

The provision of income taxes is calculated based on the expected tax treatment
of transactions recorded in the Company's 2005 financial statements. The
objectives of accounting for income taxes are to recognize the amount of taxes
payable or refundable for the current year and the future tax assets and
liabilities for the future tax consequences of events that have been recognized
in the 2004 financial statements or tax returns. In determining both the current
and future components of income taxes, management interprets tax legislation in

                                     MDA-22
<PAGE>

a variety of jurisdictions as well as makes assumptions about the expected
timing of the reversal of future tax assets and liabilities.

The Company has developed a forward oriented multi-jurisdictional tax model to
assess future taxes and to determine its tax planning strategies. Management
uses judgement in determining the assumptions about the Company's future
profitability, tax rates, and capital position that are used in the model. As
part of assessing its future taxes, management also assesses the likelihood that
the future tax assets will be realized and to the extent it is more likely than
not that the tax asset will be realized, a valuation allowance against these
assets is not recognized. There can be no assurance that the assumptions used by
management will develop as predicted and not have a material impact on the
Company's assessment of its future taxes and the valuation allowance. If
management's interpretations differ from those of tax authorities or if the
timing of reversals is not as anticipated, the provision or relief for income
taxes could increase or decrease in future periods.

CHANGES IN ACCOUNTING POLICIES FOR 2005

Non-Monetary Transactions

In June 2005, the CICA issued Handbook Section 3831, Non-monetary Transactions,
replacing Handbook Section 3830. This new section establishes standards for the
measurement and disclosure of non-monetary transactions. Generally, it requires
an asset or liability exchanged or transferred in a non-monetary transaction to
be measured at fair value. However, an asset exchanged or transferred in a
non-monetary transaction is measured at its carrying amount when:

o    The transaction lacks commercial substance (replacing the "culmination of
     the earnings process" of the previous section);
o    The transaction is an exchange of a product or property held for sale in
     the ordinary course of business for a product or property to be sold in the
     same line of business to facilitate sales to customers other than the
     parties to the exchange;
o    Neither the fair value of the asset received nor the fair value of the
     asset given up is reliably measurable; or,
o    The transaction is a non-monetary non-reciprocal transfer to owners that
     represents a spin-off or other form of restructuring or liquidation.

The new requirements are effective for non-monetary transactions initiated in
periods beginning on or after January 1, 2006. Earlier adoption is permitted for
non-monetary transactions initiated in periods beginning on or after July 1,
2005. The Company does not believe the adoption of the new Section 3831 will
have a material impact on the financial statements.

Accounting for Consideration Given by a Vendor to a Customer (Including a
Reseller of the Vendor's Products)

In September 2005, the CICA issued EIC-156, Accounting for Consideration Given
by a Vendor to a Customer (Including a Reseller of the Vendor's Products),
addressing how a vendor should account for consideration given to a customer or
reseller of a vendor's product. It requires that any cash consideration
(including sales incentive) given by a vendor should be considered as a
reduction of selling prices of a vendor's products or services and, therefore
characterized as a reduction of revenue, unless certain conditions are met, in
which case it would be characterized as a cost incurred. If the consideration
consists of a "free" product or service, or anything other than cash or equity
instruments, the consideration should be characterized as an expense, as opposed
to a reduction of revenue and should be classified as cost of sales. The
requirements under this abstract should be applied retroactively, with
restatement, to all interim and annual financial statements for fiscal years
beginning on or after January 1, 2006. The Company does not believe the adoption
of the new standard will have a material impact on the financial statements.

Accounting for Conditional Asset Retirement Obligations

Draft Abstract D54, Accounting for Conditional Asset Retirement Obligations, was
issued in December 2005 and provides guidance on when a conditional asset
retirement obligation should be recognized in accordance with CICA Handbook
section 3110, Asset Retirement Obligations. Specifically, it addresses when a
conditional asset retirement obligation should be recognized; what constitutes
sufficient information to reasonably estimate the fair value of conditional
asset obligation; and when the conditional obligation should be recognized if
sufficient information to reasonably estimate the asset retirement obligation is
not available when the liability is incurred. The proposed Abstract should be
applied on a retroactive basis to interim and fiscal periods ending after March
31, 2006. The Company does not believe the adoption of this draft abstract will
have a material impact on the financial statements.

                                     MDA-23
<PAGE>

OUTLOOK

Marsulex expects to achieve further growth in 2006, primarily from the
contribution of Stablex for a full year, and from the Montreal expansion, which
is expected to begin contributing to earnings in the second half of 2006.








Forward-looking Statements

The foregoing may contain forward-looking statements. These statements are based
on current views and expectations that are subject to risks, uncertainties, and
assumptions that are difficult to predict, including risks, uncertainties and
assumptions relating to the timing and market acceptance of future products,
competition in the Company's markets, Company's reliance on customers,
fluctuations in currency exchange rates, commodity prices or interest rates, the
Company's ability to maintain good relations with its employees, changes in laws
or regulations regarding the environment or other environmental liabilities, the
Company's ability to integrate acquisitions and the Company's ability to protect
its intellectual property. Actual results might differ materially from results
suggested in any forward-looking statements whether as a result of new
information, future developments or otherwise. Additional information
identifying risks, uncertainties and assumptions is contained in Company's
filings with the securities regulatory authorities, which are available at
www.sedar.com. All forward-looking statements are expressly qualified in their
entirety by this Cautionary Statement.


                                     MDA-24