<PAGE>   1
                                                                      Exhibit 13


                               ZEMEX CORPORATION
                               1997 ANNUAL REPORT


Page 1


                              FINANCIAL HIGHLIGHTS


<TABLE>
<CAPTION>
Years ended December 31       1997         1996         1995
                           -----------  -----------  ------------
<S>                        <C>          <C>           <C>
SUMMARY OF OPERATIONS
Net Sales                  $97,226,000  $86,420,000   $85,056,000
Earnings Before Interest,
 Tax, Depreciation
   & Amortization           15,877,000    7,305,000    12,111,000
Net Income                   5,793,000    2,612,000     8,418,000
Capital Expenditures        16,584,000   16,426,000    15,451,000
                           -----------  -----------  ------------
FINANCIAL POSITION
Working Capital            $18,975,000  $18,688,000   $19,709,000
Shareholders' Equity        76,535,000   70,997,000    70,900,000
                           -----------  -----------   -----------
PER COMMON SHARE
Net Income - Basic               $0.72        $0.33         $1.07
Net Income - Diluted              0.70         0.32          1.03
Earnings Before Interest,
 Tax, Depreciation
   & Amortization                 1.96         0.92          1.54
Shareholders' Equity              9.04         8.59          8.49
                            ----------  -----------   -----------
COMMON SHARES
Average Common Shares
 Outstanding                 8,097,642     7,937,379    7,843,992
Common Shares Issued and
 Outstanding at Year End     8,463,491     8,269,099    8,355,722
                            ----------  ------------  -----------
</TABLE>

Note: all dollar amounts shown herein are in U.S. dollars



                               TABLE OF CONTENTS
<TABLE>
                 <S>                                   <C>
                 To Our Shareholders                    2
                 Industrial Minerals                    6
                 Metal Powders                         10
                 Alumitech                             14
                 Management's Discussion and Analysis  19
                 Independent Auditors' Report          27
                 Management's Report                   28
                 Audit Committee Report                28
                 Financial Statements                  29
                 Notes to Financial Statements         33
                 Selected Financial Data               51
</TABLE>








<PAGE>   2


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                              TO OUR SHAREHOLDERS
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The year 1997 was a good year for Zemex; not only did the Corporation return to
accelerated levels of profitability but, equally important, we accomplished the
task of strategically positioning each of our operating divisions for the
future.

Additionally, we refined our focus to be a quality supplier of first line
products to the North American industrial base. During the year, we improved the
efficiencies of our production units and expect that further gains will be
evident in 1998 and beyond. We continue to make solid progress in the area of
research and development to ensure that our products and processes keep us at
the forefront of the markets we serve. We believe that the implementation of
process innovations and the introduction of new products should make significant
contributions to the future profitability of the Corporation.

INDUSTRIAL MINERALS

Overall, the industrial minerals group had a solid year. The continued
improvement of this group was due in large part to the strategic initiatives put
in place as part of the 1996 reorganization, namely combining the feldspar, talc
and mica operations into one division, and restructuring and augmenting the
management and marketing teams. We believe that this reorganization, when
combined with our new marketing approach that focuses on market segments rather
than product lines, will successfully take the minerals group into the new
millennium.

Our mica operations closed off 1997 with a very strong year, successfully
maintaining their margins in spite of price pressures in the marketplace. This
was accomplished by the implementation of a well laid out plan for efficiency
improvements, both in the mining area and in the processing facility. The
results of this plan have been exceptional.

At our Spruce Pine feldspar operation, the additional capacity, which was
installed over the past few years, has aided in meeting increased market demand.
At the same time, the efficiency of that operation has improved considerably,
although not yet to the degree anticipated.

Our Monticello, Georgia plant saw significant volume growth in potassium
feldspar due to a concerted sales effort initiated two years ago and a
<PAGE>   3



Page 3

revised approach to this market. The Georgia group also made great strides to
reduce production costs and, as a result, had a very successful year.
Additionally, sales of clay from our operation in Edgar, Florida also
increased; this increase, when combined with a reduction of costs, served to
improve the Florida plant's overall contribution margin.

Over the past three years, the industrial minerals group has directed
considerable time and resources to improving the performance of its talc
operations and is now starting to see the benefits. Our Benwood, West Virginia
operations improved substantially in 1997, particularly towards the end of the
year, due in large part to the acceptance of its recently introduced ultra-fine
talc products.

To further accelerate the growth of our talc business, in March 1998, our
industrial minerals group entered into a joint venture with Industria Mineraria
Fabi S.r.l. ("Fabi"), a leading talc supplier based in Milan, Italy. This joint
venture is the first in a series of steps towards globalization of our talc
business and will result in the worldwide introduction of new products
employing Fabi's technology.

Earlier in 1998, our industrial minerals group announced the acquisition of
Aspect Minerals, Inc., a muscovite mica producer with two facilities located
very close to our Spruce Pine, North Carolina feldspar plant. Some of the
by-product mica currently produced by our feldspar operations in Spruce Pine
will be further processed and upgraded using these newly acquired facilities.
Muscovite mica serves markets complementary to those currently served by our
phlogopite mica.

The industrial mineral group's revenue growth has come primarily from increased
volumes, as opposed to increased prices, reflecting diligent efforts to improve
the efficiency of the operations. By the close of the year, the industrial
mineral group had shown cost improvements in most of the grades produced.

We believe our minerals facilities are now poised to meet the expanded needs of
the marketplace and to benefit from the efficiencies that have resulted from
the capital infused over the past few years.

ALUMITECH

Alumitech's operating performance in 1997 showed significant improvement over
1996, due primarily to increased throughput, better aluminum recovery, and
higher aluminum pricing. The results from Alumitech are even more gratifying
given the periodic dislocation in day-to-day operations that occurred as a
result of the construction of its new non-metallic product ("NMP") processing
facility.

The 60% growth in the sales of ceramic fiber components is due in part to the
acquisition of the assets of Schaefer Brothers, Inc., a regional manufacturer
of ceramic fiber heat containment systems. This acquisition has enabled
Alumitech to further penetrate the ceramic fiber market, and will serve to
strengthen its understanding of the end use markets. Schaefer Brothers and
Engineered Thermal Systems, Inc. have been combined into ETS Schaefer
Corporation, a wholly-owned division of Alumitech.






<PAGE>   4



PAGE 4

In August 1997, Alumitech entered into a joint venture agreement with Thermal
Ceramics, Inc. with respect to the fiber manufacturing operation located in
Streetsboro, Ohio belonging to ETS Schaefer. The joint venture includes a
development agreement between Thermal Ceramics and Alumitech that will allow
Alumitech to gain more insight into the use of NMP in products directed to the
refractory ceramic fiber industry. The fiber manufacturing facility, originally
purchased in 1994 as part of our acquisition of Engineered Thermal Systems,
Inc., was acquired so that we could develop the ability to utilize the NMP
produced from our proprietary dross recycling process and optimize its use as
feedstock in refractory ceramic fiber products. This new joint venture offers
the best of all worlds in that it gives us further knowledge of the refractory
ceramic fiber industry and allows us to focus our endeavors on the production
of feedstock  for that industry.

Alumitech has made significant progress towards reaching its longer term
objective of building several large-scale facilities for the reprocessing of
dross materials into commercially utilizable products. In the past year,
Alumitech refined its process and initiated construction of an NMP conversion
facility at its Cleveland location. Upon completion of this new facility,
Alumitech will have the ability to convert up to 90% of its available NMP into
calcium aluminate, which can be used as feedstock for ceramic fiber and other
industrial products. Alumitech remains a bright star in the Corporation's
future despite the fact that it is behind schedule with respect to these plans.

Pilot tonnages of calcium aluminate were made during the year and shipped to a
number of customers for evaluation; the initial feedback was very positive.
Completion of the project has been delayed due to equipment design, testing,
and availability. Small commercial volumes of calcium aluminate should be
available in the first half of 1998 and it is anticipated that the new facility
will be ready for full-scale operation by mid-1998.

We expect that the start-up period for this facility may see lower than
scheduled production as the process is fine-tuned. However, given the accolades
our calcium aluminate product has received from customers during initial
testing, we believe that the new product should contribute good margins for the
Corporation and become the way of the future for dross processing.

METAL POWDERS

Our metal powders group has undergone a significant reorganization with the
retirement of its past president, G. Russell Lewis, and the appointment of his
successor, George E. Gillespie. Mr. Lewis was connected with the metal powders
operation for many years and is owed a great debt of gratitude for his past
leadership.

In 1997, our metal powders group began to reap the rewards of a new strategy,
which was initiated in 1996, to reposition the group as a producer of higher
value-added products. The success of this program was evidenced by the
successful development and introduction of manganese sulfide and molybdenum
alloy materials. These new products, and our continuing focus on developing
other specialty metal powder products, are expected to enhance the future
growth and profitability of our powdered metals group.






<PAGE>   5



PAGE 5

Our metal powders blending facility, which opened for business in 1996 in St.
Marys, Pennsylvania, has firmly established itself as a provider of value-added
goods and services. In addition to custom blending our own metal powders, this
facility also acts as a custom blender of ancillary products and offers
blending services for powder metallurgy users in the area.

Despite the progress made at the Niagara Falls, New York facility and the
blending plant in St. Marys, our powder metals group is still faced with the
ongoing challenge of its non-ferrous operations. The plants in Maryville and
Greenback, Tennessee continue to be plagued by the volatility of copper
pricing, |high costs, and lower than acceptable margins. Plans were initiated
in 1997 to improve the efficiency of the non-ferrous operations by
concentrating on the most profitable product lines and removing others based on
cost effectiveness; the implementation of this program has seen some
improvement in the non-ferrous group's margins.

OUTLOOK

In 1998, we will continue to focus on providing value and quality to our
customers and introducing new and innovative products while, at the same time,
maintaining price competitiveness. We will continue to invest in research and
development in order to ensure that our products keep us one step ahead of our
competition. In addition, we will continue to look for acquisitions and pursue
opportunities for growth where we can be a market leader or a niche producer.
It is through these means that we believe we can make significant contributions
to the future profitability of the Corporation and enhance shareholder value.

Over the past four years we have upgraded and expanded our facilities, procured
premium ore reserves, and put together a team of highly capable individuals.
With these facets in place, we believe that the Corporation is ready to meet
the challenges of the future.

As always, we are most grateful for the continued contribution of our board of
directors, the support of our shareholders, and most particularly the
outstanding endeavors of our employees.

Richard L. Lister
President and Chief Executive Officer

Peter O. Lawson-Johnston
Chairman






<PAGE>   6



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                              INDUSTRIAL MINERALS
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In 1996, the Corporation's feldspar, talc and mica operations were combined
under a centralized management team to form Zemex Industrial Minerals ("ZIM").
The reorganization also saw changes made to ZIM's marketing strategy, focusing
its approach on market segments rather than product lines, which enables it to
better serve the needs of its customers. As part of this reorganization,
several new individuals were hired to fill key management, operating, and sales
and marketing positions thus giving ZIM a stronger foundation from which to
build and focus on its future growth and profitability.

With its reorganization completed, ZIM's objectives for 1997 were twofold:  to
return to improved levels of profitability and to solidify its market position
as the major supplier of quality industrial mineral products to niche markets.
To achieve these goals, ZIM's sales and marketing team focused on increasing
sales and improving customer satisfaction, while ZIM's production and
engineering team implemented more rigorous quality and cost control programs at
the operating level. Adhering to the philosophy "not a penny more", all of
ZIM's employees were keenly aware that cost consciousness and operating
efficiencies were at the forefront of the industrial mineral group's agenda in
1997. As a result of these efforts, ZIM raised its already high product
performance and quality standards and significantly improved its volumes and
operating margins. The industrial minerals group is dedicated to seeking
further opportunities to improve margins in 1998 while continuing to enhance
the quality of its products and services.

As part of its original strategy to be a niche supplier of industrial mineral
products, a grinding facility was acquired in Benwood, West Virginia in 1995 to
augment the talc operations acquired in late 1994. In February 1998, Industria
Mineraria Fabi S.r.l. ("Fabi"), a major talc supplier to the plastics industry
in Europe and a highly regarded technological leader, became a partner in
Benwood by acquiring a 40% interest in a new entity, Zemex Fabi-Benwood, LLC.
As part of the transaction, ZIM contributed its Benwood facility and Fabi paid
ZIM $3.4 million. This joint venture relationship will also allow ZIM exclusive
access to Fabi's applications technology and the European polypropylene market
to which Fabi is a leading supplier.

The joint venture is the first step towards the globalization of ZIM's talc
business and the introduction of a family of standardized worldwide talc
products to serve the growing international plastics compounding market. As
part of the joint venture, ZIM will have access to Fabi's Mount Seabroek talc
deposit in Australia, an ore that exhibits very high purity and brightness. As
a result of the joint






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venture, ZIM's talc product line will expand with the introduction of the Zemex
Fabi-Benwood world products, enabling ZIM to provide additional high quality
talc products to the North American plastics industry. This is a key step to
the company's strategy of being a leading supplier of specialty talcs in North
America.

ZIM also produces low iron sand materials pursuant to a long-term exclusive
contract from its newly constructed facility at Spruce Pine, North Carolina.
This product, which is used in specialized glass applications and exotic
lighting, can be produced in wet and dry forms. Currently, ZIM has qualified
the wet material with its customer and is working towards qualifying the dry
product. This low iron sand is a high margin product for the industrial
minerals group and was expected to make a healthy contribution to 1997
earnings; unfortunately, due to the customer's slower than anticipated sales,
this was not the case. ZIM's estimates for 1998 remain conservative, however,
there is significant upside potential for this product.

ZIM's other major products, which include sodium and potassium feldspar, clay,
and phlogopite mica, also had successes in 1997 that are noteworthy. Sales of
both clay and potassium feldspar were up significantly in 1997; sales of
potassium feldspar, a product used in electrical porcelain, increased as a
result of a change in market strategy that was implemented two years ago. This,
coupled with improved mining and processing costs, contributed to a record year
for ZIM's potassium feldspar business. Improvements in mining and processing
costs were also made at ZIM's mica facility and have resulted in a dramatic
improvement in the efficiency of that operation. ZIM's recently upgraded sodium
feldspar facility located in Spruce Pine, North Carolina also had a good year.
The emphasis at this facility during the year was, and continues to be, on
improving operating efficiencies and product quality.

Although ZIM continues to grow through internal expansion, it is actively
pursuing acquisition opportunities synergistic to its businesses. In January
1998, ZIM announced that it had acquired the business of Aspect Minerals, Inc.,
a muscovite mica producer, for approximately $2.2 million, including the
assumption of debt. The two facilities acquired in the purchase are located in
the Spruce Pine, North Carolina area and are operated under the name Zemex Mica
Corporation. These recently acquired facilities are located within close
proximity of ZIM's feldspar plant in Spruce Pine where by-product muscovite
mica is produced. This acquisition should create the opportunity to cost
effectively add value to excess mica by-product and augment the company's
existing mica business. Muscovite mica is marketed to the paint and plastics
industries, the same markets ZIM currently serves with its mica, talc and
barytes products.

ZIM has come a long way since its reorganization in 1996, emerging as a
well-regarded international supplier of industrial mineral products. In 1998,
ZIM's objective is to continue refining its existing operations and to seek out
further opportunities that will complement its core competencies and contribute
to earnings.






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                                 METAL POWDERS
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Zemex Corporation's metal powders group, recognized as one of North America's
oldest metal powder producers, consists of two wholly-owned subsidiaries, Pyron
Corporation and Pyron Metal Powders, Inc. (together "Pyron"). With four
locations to serve its customer base, Pyron offers an extensive range of
products and services to supply the powder metallurgy industry: hydrogen
reduced sponge iron and atomized steel powders at its facility in Niagara
Falls, New York; water and air atomized copper and non-ferrous alloys at its
Maryville and Greenback, Tennessee operations; and customized powder blending
at its plant in St. Marys, Pennsylvania.

In 1997, Pyron redirected its efforts towards capitalizing on its high quality
hydrogen reduced sponge iron products and developing and introducing new
value-added products using its ferrous and non-ferrous atomizing processes.
Pyron's focus on the development of new products and market segments began in
late 1996 when market conditions indicated that it would be more advantageous
for Pyron, given its unique production methods, to make this transition.
Pyron's process is well suited to producing customized products that enhance
customer value and efficiency. To effect this new strategy, Pyron's sales and
marketing team has been totally recast and directed to optimizing product mix
and customer value while at the same time keeping an eye on changing market
conditions and potential opportunities. The Pyron team completed the
implementation of the first phase of these new strategic initiatives in 1997;
however, further measures will continue to be taken in 1998 and beyond to
increase Pyron's return on investment and profitability.

Powder metals manufactured by Pyron are used by fabricators to produce complex
parts, such as brake shoes and gears. The process is commonly referred to as
powder metallurgy (P/M). P/M is globally recognized for its value-added role in
producing finished parts requiring little or no secondary processing and
creating significant reductions in cycle time, cost and work in process when
compared to parts made by more traditional processes such as casting and
forging. According to industry reports, P/M's acceptance continues to grow,
displacing other more established methods of production. The spill-over in
application and acceptance of powder metals into markets that extend far beyond
traditional P/M and friction applications holds particular promise for Pyron's
unique products and services.

Pyron's role as a supplier to its core markets, P/M and friction, continued to
expand in 1997 with the successful introduction of several new products,
product line extensions and services. One new product was Manganese Sulfide
Plus (MnS+(TM)), a patent pending machinability enhancer developed by Pyron in
1996 and now commercially produced at Pyron's facility in Greenback, Tennessee.
MnS+(TM) has gained






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widespread acceptance throughout the P/M industry as an additive to enhance
tool life and aid in machinability. Running at near capacity, Pyron's MnS+a
facility at Greenback, Tennessee has already undergone an expansion to meet
current demand and improve service levels; another expansion is planned in
1998. Pyron is the only producer of manganese sulfide in the United States.

Introduced in late 1997, Pyron Moly Alloys ("PMAs") are a family of molybdenum
containing iron powders. As engineered powders, PMAs are designed to replace
wrought material and extend P/M technology to applications where the design
characteristics of wear resistance, hardness, and heat treatability are
desirable. Typical applications where PMAs would be applied are in the
production of gears and similar complex geometric parts. Pyron's PMAs have been
sampled extensively by potential customers and production level orders have
already been shipped.

Initial evaluations of Pyron's most recently developed product,
Ferro-Phosphorous or "Ferrophos" ("Fe3P"), are quite encouraging. This
additive, when mixed with water atomized iron, enhances sintering and improves
magnetic properties. Plans for 1998 include marketing commercial quantities of
Fe3P to the P/M market.

Pyron's St. Marys blending and service center, located in the geographic heart
of the P/M industry, has firmly established itself as a provider of value-added
goods and services to the local market. Pyron has used its strategic presence
to provide an additional channel of distribution for its products, offering
local blending services to its customers. Contract blending complements Pyron's
core competencies and provides significant pull through opportunities.

Although Pyron's non-ferrous water atomized copper facility at Greenback,
Tennessee ran at high levels of capacity for the second half of 1997, its level
of profitability continues to be an ongoing challenge. Water atomization
results in a copper powder that is different in quality and, in many cases,
more commercially desirable than products made by air atomization. Demand for
the company's water atomized copper and related powders accelerated to the
point where the Maryville, Tennessee facility was brought back on line in late
1997. It is anticipated that the additional capacity will further improve
Pyron's cost position and profit contribution.

As Pyron continues its change of direction, the successful strategic
redeploying of assets and resources will be one of the fundamental drivers that
will fuel its future growth. To support this effort, Pyron will continue to
search for and serve markets that extend beyond its core powder metal and
friction products. Identifying innovative process and product opportunities
will also serve to round out efforts to add value. Operating efficiencies and
cost reductions will ensure Pyron remains competitive and its products remain
attractive in markets where competitive material challenges exist. These
efforts will be supported by a corporate culture that fosters an environment of
continuous product improvement for its customers.






<PAGE>   14



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                                   ALUMITECH
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Alumitech posted a number of major accomplishments in 1997. It set record
production levels for the fifth consecutive year and increased sales of its
heat containment systems and fiber products by over 60%. These factors,
combined with improved aluminum metal recovery and higher aluminum metal
prices, resulted in a strong performance in 1997 compared to 1996.

In addition, Alumitech reached a major milestone in 1997 by successfully
demonstrating commercialization of another new product, calcium aluminate,
manufactured from non-metallic product ("NMP"), a by-product of its proprietary
aluminum dross processing system. As part of its objective to commercialize
production of calcium aluminate and other NMP-based products, construction of a
new hydrometallurgical processing facility was started in 1997 at its Cleveland
facility, Aluminum Waste Technology, Inc., and is now in the final phases of
completion. Based on the success of Alumitech's new calcium aluminate in
initial customer trials, demand for the product is anticipated to be strong.

Initially, the primary target market for Alumitech's patented calcium aluminate
product is the steel industry, where a critical component to making steel is
the formation and control of slag in the steel making process. Calcium
aluminate is used to treat molten steel in the ladle during the final stages of
steel refinement, just prior to casting. The calcium aluminate produced by
Alumitech is engineered to facilitate creation of an optimal slag to enable the
steel maker to produce high quality steel in a minimal amount of time.
Additionally, Alumitech's calcium aluminate is designed to protect the ladle's
refractory lining from wear and tear during the refining operation.

In February 1997, Alumitech, through its wholly-owned subsidiary, Engineered
Thermal Systems, Inc., acquired the assets of Schaefer Brothers, Inc., a
regional manufacturer of ceramic fiber-based heat containment systems located
in Medina, Ohio. The Schaefer Brothers business was merged with Engineered
Thermal Systems to form ETS Schaefer Corporation. As a result of the
acquisition, Alumitech strengthened the fiber side of its business with
additional technology, personnel and a complementary customer base. With its
newly combined technology, ETS Schaefer now produces a wide range of products
for containing heat in high temperature applications, such as industrial
furnaces, ladle covers and various refractory preheaters. Using its patented
attachment systems, the inherently poor mechanical strength of a ceramic fiber
product can be transformed into a durable, long-lived lining that preserves the
fiber's superior insulating properties. ETS Schaefer's linings are unmatched in
effectiveness and performance. They are excellent insulators and are not
subject to spalling, fracturing, and other limitations often associated with
conventional refractories. In 1998, ETS Schaefer will







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[PHOTOGRAPH]






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concentrate on consolidating its operations into one location, and continue
developing new applications and markets for its various products to further
penetrate related fiber markets and industries.

Alumitech's fiber manufacturing operations were originally purchased in 1994 to
facilitate its research and development program on the usage of NMP as
feedstock for refractory ceramic fiber applications. As this research was
successfully concluded in 1996, Alumitech felt it was in its best long term
interest to augment its ceramic fiber manufacturing capability and technology
by forming a joint venture with Thermal Ceramics, Inc., a recognized producer
of ceramic fiber and other refractories. The ceramic fiber manufacturing
facilities were sold to this joint venture in August 1997. Under the terms of
the agreement, Thermal Ceramics is responsible for the fiber manufacturing
operations, while ETS Schaefer is the primary marketer of the fiber products
produced by the joint venture. ETS Schaefer will continue to offer a full line
of insulating fiber and related products, and design, manufacture and market
its patented lines of heat containment systems, Monster Module(TM) and
Perm+A+Lining(TM).

The Alumitech/Thermal Ceramics joint venture agreement includes provisions for
the development of new technology and uses for NMP recovered from recycling
aluminum dross and saltcake in both hard and soft refractory applications. The
joint development agreement gives Alumitech the opportunity to enhance the
economics of certain refractories, to continue making significant improvements
to broaden its products and services, and to substantially strengthen its
access to technical expertise in the production of feedstock for the
refractories industry.

The completion of the new NMP production facility has taken longer than
anticipated; however, when  the full-scale commercialization of the NMP process
comes on line in mid-1998, it has the potential to make a significant
contribution to Alumitech. Once the NMP processing plant is in full operation,
Alumitech's next step will be to expand its business through strategic
alliances and the construction of new plants. Alumitech is currently evaluating
a number of strategies and tactics to develop such opportunities and will
pursue a path that will reap the greatest benefits for the Corporation.





<PAGE>   18




PAGE 18

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                                FINANCIAL REVIEW
       -----------------------------------------------------------------

                               TABLE OF CONTENTS


<TABLE>
<S>                                                                <C>
Management's Discussion and Analysis                                19
Independent Auditors' Report                                        27
Management's Report                                                 28
Audit Committee Report                                              28
Consolidated Statements of Income                                   29
Consolidated Balance Sheets                                         30
Consolidated Statements of Shareholders' Equity                     31
Consolidated Statements of Cash Flows                               32
Notes to the Consolidated Financial Statements                      33
         1.Summary of Significant Accounting Policies               33
         2.Acquisitions and Dispositions                            35
         3.Inventories                                              37
         4.Property, Plant and Equipment                            37
         5.Other Assets                                             38
         6.Income Taxes                                             38
         7.Pension Plans and Other Postretirement Benefits          40
         8.Long Term Debt                                           41
         9.Common Shares, Stock Options and Warrants                43
         10.Reorganization Charges and Unusual Items                45
         11.Operating Leases and Other Commitments                  46
         12.Quarterly Financial Data (Unaudited)                    47
         13.Financial Instruments                                   47
         14.Changes in Non-Cash Working Capital Items               48
         15.Related Party Transactions                              48
         16.Segment Information                                     48
         17.Contingencies                                           50
         18.Subsequent Events                                       50
         19.Comparative Figures                                     50
Selected Financial Data                                             51
</TABLE>








<PAGE>   19



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                      MANAGEMENT'S DISCUSSION AND ANALYSIS
        -----------------------------------------------------------------

The following is a discussion and analysis of the results of operations and
financial condition of the Corporation for the years ended December 31, 1997,
1996 and 1995, and certain factors that may affect the Corporation's
prospective financial condition and results of operations. The following should
be read in conjunction with the Consolidated Financial Statements and related
notes thereto.

OVERVIEW

The Corporation is a diversified producer of specialty materials and products
for use in a variety of industrial applications. The Corporation operates in
two principal business segments: (i) industrial minerals, which includes The
Feldspar Corporation, Suzorite Mica Products Inc. and Suzorite Mineral
Products, Inc.; and (ii) metal products, which includes Pyron Corporation,
Pyron Metal Powders, Inc. and Alumitech, Inc.

The financial performance of the Corporation was significantly better in 1997
than in 1996. Net sales were up 12.5% but, more importantly, the gross margin
improved from 23% in 1996 to 27% in 1997. This was partially as a result of the
focus on operational efficiency and cost control.

In August 1997, the Corporation entered into an agreement with respect to
Alumitech, Inc.'s fiber manufacturing operation located in Streetsboro, Ohio.
Under the agreement, the fiber line was sold to a new corporation in which
Alumitech, Inc. retained an interest. The one-time gain, when netted against
certain other non-recurring items, resulted in other income of $1.6 million.

During the first quarter of 1996, the Corporation recognized reorganization
costs of $1.8 million in connection with the reorganization of its industrial
minerals division, a write-down to market of inventory held in Brazil and the
recognition of a provision for anticipated costs associated with storing and
selling the material. The Brazilian enterprise was unsuccessful primarily due
to rapidly deteriorating market prices which made market penetration extremely
difficult.

The Corporation's strategy going forward is to enhance its position as a
leading supplier of specialty materials through investments in its core
businesses, the introduction of new products, strategic acquisitions, and
investments in new technologies.

RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996

Net Sales
<TABLE>
<CAPTION>
                              1997          1996        Change     Change
                           -----------  -----------  -----------   ------
      <S>                  <C>          <C>          <C>           <C>
      Industrial Minerals  $43,396,000  $40,469,000  $ 2,927,000     7.2%
      Metal Products        53,830,000   45,951,000    7,879,000    17.1%
                           -----------  -----------  -----------    -----
                           $97,226,000  $86,420,000  $10,806,000    12.5%
                           ===========  ===========  ===========    =====
</TABLE>






<PAGE>   20




The Corporation's net sales for 1997 were $97.2 million, an increase of $10.8
million, or 12.5%, from 1996. Sales in the industrial minerals segment and the
metal products group increased $2.9 million and $7.9 million, respectively.

The industrial minerals segment recorded a 7.2% increase in sales from $40.5
million in 1996 to $43.4 million in 1997. The increase was primarily due to a
$1.7 million increase from the feldspar group generated by a favorable product
mix, and a $1.4 million increase in talc sales. Talc sales are expected to
increase in 1998 as market share continues to increase. Feldspar sales to the
sanitaryware industry should increase; however, uncertainty exists in the tile
industry due to the devaluation of the Malaysian currency.

Net sales of the metal products group increased 17.1%, or $7.9 million, from
$46.0 million in 1996 to $53.8 million in 1997. Of the increase, approximately
$1.3 million was due to an increase in the price of aluminum, $2.6 million was
due to increased sales of ceramic fiber products, and $1.7 million was due to
increased sales of ferrous metal powders. In 1998, modest sales growth in both
metal powders and aluminum dross processing is anticipated.

COST OF GOODS SOLD

Cost of goods sold were $70.8 million in 1997 compared to $66.4 million in
1996. The corresponding gross margins were 27.2% for 1997 and 23.2% for 1996.
The main increase came from the industrial minerals group where the gross
margin increased from 27.1% to 34.2% as a result of production efficiencies and
a favorable product mix.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative ("SG&A") expenses increased 15.9% from
$10.5 million in 1996 to $12.2 million in 1997. As a percent of net sales, SG&A
expense was 12.5% in 1997 as compared to 12.1% in 1996. The increase was due to
increased staffing in the industrial minerals group, expenses associated with
investigating potential acquisitions, and bonuses paid pursuant to the
Corporation's management incentive program.

DEPRECIATION, DEPLETION AND AMORTIZATION

Depreciation, depletion and amortization increased by $1.2 million, or 25.1%,
from $4.7 million in 1996 to $5.9 million in 1997. This increase was driven by
the capital expenditures made by the Corporation over the past several years.
Prospectively, depreciation will continue to increase as current capital
programs are placed into service.

OPERATING INCOME BEFORE REORGANIZATION CHARGES

Operating income before reorganization charges was $8.4 million in 1997
compared to $4.8 million in 1996. A $1.8 million dollar reorganization charge
was recognized in the first quarter of 1996 in connection with the
reorganization of the Corporation's industrial minerals division, a write-down
to market of its Brazilian inventory, and a provision for storage costs and
selling expenses in connection thereto.






<PAGE>   21



PAGE 20

OPERATING INCOME

Operating income increased from $3.1 million for fiscal 1996 to $8.4 million in
fiscal 1997, representing a 173.1% increase.

INTEREST EXPENSE, NET

Interest expense for the year ended December 31, 1997 was $1.9 million, an
increase of $1.0 million over 1996. During 1996, the interest expense relating
to the expansion of the Spruce Pine facility was capitalized. During 1997, the
project was completed and, accordingly, the related interest was expensed.
Total indebtedness decreased from $26.6 million in 1996 to $25.5 million in
1997.

OTHER, NET

In 1997, the Corporation recognized other net income of $1.6 million. The
largest component of this revenue was generated by a one-time gain on the sale
of Alumitech, Inc.'s fiber line.

PROVISION FOR (RECOVERY OF) INCOME TAXES

The provision for income taxes for the fiscal year 1997 was $2.3 million as
compared to a tax recovery of $0.9 million in 1996. The 1996 tax recovery
reflected the recognition of the benefit of net operating losses available to
the Corporation. In 1998 and beyond, the Corporation will use a tax rate of
approximately 30% to calculate its income taxes, reflecting the permanent
difference arising from the application of percent depletion to income derived
from extractive industries.

NET INCOME AND EARNINGS PER SHARE

As a result of the factors discussed above, net income for the year ended
December 31, 1997 was $5.8 million, an increase of $3.2 million from 1996.

<TABLE>
<CAPTION>
                                            1997            1996
                                         ----------       ----------
<S>                                      <C>              <C>
Net Income                               $5,793,000       $2,612,000
Earnings Per Share - Basic               $     0.72       $     0.33
Earnings Per Share - Diluted             $     0.70       $     0.32
                                         ----------       ----------
</TABLE>







<PAGE>   22



PAGE 22

RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995

Net Sales


<TABLE>
<CAPTION>
                         1996          1995        Change      Change
                      -----------  -----------  ------------   ------
 <S>                  <C>          <C>          <C>            <C>
 Industrial Minerals  $40,469,000  $37,089,000  $ 3,380,000     9.1%
 Metal Products        45,951,000   47,967,000   (2,016,000)   (4.2%)
                      -----------  -----------  -----------    -----
                      $86,420,000  $85,056,000  $ 1,364,000     1.6%
                      -----------  -----------  -----------    -----
</TABLE>

The Corporation's net sales for 1996 were $86.4 million, an increase of $1.4
million, or 1.6%, from 1995. The major components of the increase were: the
full year consolidation of Alumitech, Inc. and increased industrial minerals
sales of $3.4 million, offset by decreased metal powder sales of $2.7 million.

The industrial minerals segment recorded a 9.1% increase in sales from $37.1
million in 1995 to $40.5 million in 1996. The increase was due to a $1.7
million increase from the feldspar group, a $1.2 million increase in the talc
group's sales and a $0.5 million increase in sales of phlogopite mica. The
increase in talc sales was largely due to the inclusion of a full year's sales
from the Benwood facility, which was acquired in May 1995.

Net sales of the metal products group decreased 4.2%, or $2.0 million, from
$48.0 million in 1995 to $46.0 million in 1996. Of this decrease, $2.1 million
was primarily due to lower copper prices and slightly lower volume of copper
sales affecting sales at Pyron Metal Products, Inc. as a well as a $1.3 million
decline in atomized steel sales. These decreases were offset in part by
increased sales of $0.7 million from Alumitech, Inc. Sponge iron sales
increased by 2.3% while atomized steel sales decreased 21.2%.

COST OF GOODS SOLD

Cost of goods sold were $66.4 million in 1996 compared to $64.4 million in
1995. The corresponding gross margin was 23.2% for 1996 and 24.3% for 1995. The
decline in gross margin was primarily due to lower aluminum prices. The decline
in aluminum prices realized in 1996 compared to 1995 resulted in margin erosion
of 1.8%, offsetting a slight improvement achieved by the other groups. In
addition, cost of goods sold was negatively affected by the write-down of parts
and supplies that had been rendered obsolete as the result of the expansion of
the sodium feldspar plant at Spruce Pine, North Carolina.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

SG&A expenses increased 21.0% from $8.7 million in 1995 to $10.5 million in
1996. As a percent of sales, SG&A expense was 12.1% in 1996 as compared to
10.2% in 1995. The increase was the result of the full year consolidation of
Alumitech, Inc. and the addition of sales and marketing staff for the
industrial minerals segment.






<PAGE>   23



PAGE 23

DEPRECIATION, DEPLETION AND AMORTIZATION

Depreciation, depletion and amortization increased by $1.0 million, or 27.2%,
from $3.7 million in 1995 to $4.7 million in 1996. This increase results from
the 19.4% net increase in property, plant and equipment during 1996 as a result
of capital expenditures.

OPERATING INCOME BEFORE REORGANIZATION CHARGES

Operating income before reorganization charges was $4.8 million in 1996
compared to $8.3 million in 1995. A $1.8 million reorganization charge was
recognized in the first quarter of 1996 in connection with the reorganization
of the Corporation's industrial minerals division, a write-down to market of
its Brazilian inventory, and the recognition of a provision for storage costs
and selling expenses in connection thereto.

OPERATING INCOME

Operating income decreased to $3.1 million for fiscal 1996 from $8.3 million in
fiscal 1995, representing a 63.2% decline. This decline was due to reasons
discussed previously.

INTEREST EXPENSE, NET

Net interest expense for the year ended December 31, 1996 was $0.9 million, an
increase of $0.4 million over 1995. This was attributable to an increase in
total indebtedness from $13.1 million in 1995 to $26.6 million in 1996.

OTHER, NET

In 1996, the Corporation recognized other net expense of $0.5 million. The
largest component of this expense was a $0.7 million provision relating to a
property which the Corporation had sold and on which the purchaser had
defaulted. The offset was a number of small income items which reduced the
total expense.

RECOVERY OF INCOME TAXES

In 1996, the Corporation realized an income tax recovery of $0.9 million as
compared to a recovery of $0.5 million in 1995. The recoveries reflect the
recognition of the benefit of net operating losses available to the
Corporation.

NET INCOME AND EARNINGS PER SHARE

As a result of the factors discussed above, net income for the year ended
December 31, 1996 was $2.6 million, a decrease of $5.8 million from 1995.

<TABLE>
<CAPTION>
                                                1996          1995
                                            ----------     ----------
 <S>                                        <C>            <C>
 Net Income                                 $2,612,000     $8,418,000
 Earnings Per Share - Basic                 $     0.33     $     1.07
 Earnings Per Share - Diluted               $     0.32     $     1.03
                                            ----------     ----------
</TABLE>







<PAGE>   24



PAGE 24

LIQUIDITY AND CAPITAL RESOURCES

The Corporation has historically funded its extraction and processing
activities through cash flow from operations, bank debt and sales of capital
stock and warrants. During the most recent three-year period ended December 31,
1997, the Corporation funded all capital expenditures, acquisitions and debt
reduction from a combination of additional debt, and cash flow from operations.
In addition, during 1995, outstanding warrants were exercised which resulted in
net proceeds of $4.8 million. These funds were utilized to repay long term
debt, fund acquisitions and purchase treasury stock.
cash flow from operations

The Corporation had $19.0 million of working capital at December 31, 1997,
compared to $18.7 million at December 31, 1996. During 1997, the Corporation
generated cash flow from operations of $13.5 million as compared to $6.0
million for 1996. The increase of $7.5 million is primarily due to higher
operating income in the 1997 period and a one-time gain realized on the sale of
Alumitech, Inc's. dormant fiber line. In 1997, non-cash working capital items
generated $3.7 million of the cash otherwise generated from operations as
compared to $0.5 million used in the corresponding period of 1996 as a result
of a decrease in inventories and prepaid expenses and an increase in accounts
payable, accrued liabilities and accrued income taxes.

FINANCING AGREEMENTS

In March 1997, the Corporation amended its credit facility to increase the
total availability to $50,224,000. The credit facility is further subdivided
into four facilities: (i) a $30,000,000 revolving credit facility; (ii) a
$10,000,000 multiple advance term loan facility; (iii) a $5,224,000 standby
letter of credit; and (iv) a $5,000,000 operating line. These facilities are
secured by specific assets and a floating charge over the Corporation's assets.
The facilities bear interest at rates varying from bank prime to bank prime
plus 0.25% and from LIBOR plus 1.25% to LIBOR plus 2.25%, depending upon
certain financial tests. As at December 31, 1997, there was $3,000,000
outstanding under the operating line, $8,056,000 outstanding under the multiple
advance term loan facility, $10,000,000 outstanding under the revolving credit
facility, and the standby letter of credit was issued to secure the
Corporation's Industrial Development Revenue Bond. The operating line matures
June 30, 1998 and is reviewed annually for purposes of renewal. The multiple
advance term loan facility requires quarterly payments of $278,000 with the
balance outstanding, if any, due January 1, 2000.

CAPITAL EXPENDITURES

The Corporation's primary capital activities in the past involved the
acquisition and development of industrial mineral properties and facilities,
and capital investments to expand its facilities, increase operating
efficiencies, and meet environmental, health and safety standards at its
existing operations. During 1997, capital expenditures were $16.6 million
compared to $16.4 million and $15.5 million for





<PAGE>   25


PAGE 25

the years ended December 31, 1996 and 1995, respectively. The capital
expenditures were funded by cash flow from operations and bank indebtedness.

The Corporation is currently implementing and/or planning several major capital
programs. These include retrofitting of the aluminum dross plant in Cleveland.
In aggregate, 1998 capital expenditures are anticipated to be approximately
$14.1 million. The Corporation plans on funding these expenditures from a
combination of cash flow from operations and credit facilities.

Although the Corporation's capital budgets provide for certain reclamation and
environmental compliance activities, management does not believe that the cost
of the Corporation's environmental compliance will have a material adverse
effect on the Corporation's results of operations or financial condition in
1998.

SUBSEQUENT EVENTS

In January 1998, the Corporation acquired a muscovite mica producer for
approximately $2,200,000, which includes the assumption of debt. The
acquisition was financed by drawing down on the Corporation's credit facility.
In addition, in February 1998, the Corporation effected the sale of 40% of its
talc facility located in Benwood, West Virginia to Industria Mineraria Fabi
S.r.l. for $3,400,000.

SEASONALITY AND INFLATION

Although the Corporation's results from extraction and processing operations
are cyclical due to fluctuations in industrial minerals and metal products
demands, sales of the Corporation's products are generally not seasonal.
Inflation in recent years has not adversely affected the Corporation's results
of operations and is not expected to adversely affect the Corporation in the
future unless it grows substantially and the markets for industrial minerals
and metal products suffer from a negative impact on the economy in general.






<PAGE>   26



PAGE 26

YEAR 2000

The Corporation operates in basic industries that do not rely heavily on
computerized systems. The major systems operated by the Corporation are those
for financial reporting all of which are year 2000 compliant. It is the opinion
of management that any year 2000 issues that may arise will not be significant
and will not have a material adverse impact on the financial performance of the
Corporation.

The Corporation has initiated a review of key suppliers to determine their
exposure to problems arising from Year 2000. The review is being conducted by
management personnel and additional resources are not required.

MARKET RISK

Market risk represents the risk of loss that may impact the consolidated
financial statements of the Corporation due to adverse changes in financial
market prices and rates. The Corporation's market risk is primarily the result
of fluctuations in interest rates and aluminum prices. Management monitors the
movements in interest rates and performs sensitivity analysis on aluminum
prices and, on that basis, decides on the appropriate measures to take. Prices
and interest rates are such that no measures need be taken at this time.

The Corporation does not hold or issue financial instruments for trading
purposes. A discussion of the Corporation's financial intstruments is included
in the financial instruments note to the Consolidated Financial Statements.

CAPITAL STOCK

Zemex Corporation's common shares are traded on the New York Stock Exchange
under the symbol ZMX. The price range in which the shares have traded for the
past two years is shown below:

COMMON SHARE PRICES

<TABLE>
<CAPTION>
                   1997     Q1      Q2     Q3       Q4    Year
                   ----   -----   -----  -----   ------- ------
                   <S>    <C>     <C>    <C>     <C>     <C>
                   High   $7.75   $8.00  $9.50   $10.94  $10.94
                   Low     6.75    6.75   7.88     7.94    6.75
                   Close   6.75    7.75   9.50     8.75    8.75
                          -----   -----  -----   ------  ------
</TABLE>

<TABLE>
<CAPTION>
                   1996     Q1      Q2      Q3     Q4     Year
                   ----   ------   -----  -----   -----  ------
                   <S>    <C>      <C>    <C>     <C>    <C>
                   High   $10.00   $9.63  $8.13   $8.88  $10.00
                   Low      8.88    7.50   6.88    7.00    6.88
                   Close    9.13    7.63   7.75    7.00    7.00
                          ------   -----  -----   -----  ------
</TABLE>


In the fourth quarter of each of 1997, 1996 and 1995, the Corporation declared
a 2% stock dividend.

As of December 31, 1997, there were approximately 1,782 holders of record of
the Corporation's common shares. This number includes shares held only in
nominee name and, thus, does not reflect the number of holders of a beneficial
interest in the shares.






<PAGE>   27



PAGE 27

INDEPENDENT AUDITORS' REPORT


To the Shareholders and
Board of Directors of Zemex Corporation

We have audited the accompanying consolidated balance sheets of Zemex
Corporation and its Subsidiaries as of December 31, 1997 and 1996 and the
related consolidated statements of income, shareholders' equity, and cash flows
for each of the three years in the period ended December 31, 1997. These
financial statements are the responsibility of the Corporation's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.

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

In our opinion, such consolidated financial statements present fairly, in all
material respects, the consolidated financial position of Zemex Corporation and
its Subsidiaries as of December 31, 1997 and 1996 and the consolidated results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1997, in conformity with generally accepted
accounting principles in the United States.



Deloitte & Touche
Chartered Accountants
Toronto, Ontario

February 6, 1998
except for Note 18(ii) as to which the date is February 24, 1998






<PAGE>   28



PAGE 28

MANAGEMENT'S REPORT

The management of Zemex Corporation and its subsidiaries has the responsibility
for preparing the consolidated financial statements presented in this Annual
Report and for their accuracy and integrity. The statements have been prepared
in conformity with generally accepted accounting principles in the United
States, and include informed judgments and estimates as required. Other
financial information in this Annual Report is consistent with the financial
statements.

Zemex Corporation's system of internal controls is designed to provide
reasonable assurance, at a justifiable cost, as to the reliability of financial
records and reporting and the protection of assets. This system includes
organizational arrangements with clearly defined lines of responsibility.

Deloitte & Touche, independent auditors, have audited the consolidated
financial statements of Zemex Corporation and their opinion is included on the
preceding page.

Zemex Corporation has formal standards of corporate conduct and policies
regarding high standards of ethics and financial integrity. These policies have
been disseminated to appropriate employees and internal control procedures
provide reasonable assurance that violations of these policies, if any, are
detected.


              Allen J. Palmiere            Richard L. Lister
              Vice President and           President and
              Chief Financial Officer      Chief Executive Officer



AUDIT COMMITTEE REPORT

The Audit Committee of the Board of Directors is composed of three independent
directors, Patrick H. O'Neill, Chairman, John M. Donovan, and Thomas B. Evans,
Jr. The Committee held one meeting during 1997.

The Audit Committee oversees the financial reporting process of the Corporation
on behalf of the Board of Directors. In fulfilling its responsibility, the
Committee recommended to the Board of Directors, subject to shareholder
approval, the selection of the Corporation's independent auditors. The Audit
Committee met with management and representatives of the auditors, Deloitte &
Touche, to review accounting, auditing and financial reporting matters. The
Committee met with Deloitte & Touche representatives without management
present.

Patrick H. O'Neill
Chairman, Audit Committee






<PAGE>   29



PAGE 29

CONSOLIDATED STATEMENTS OF INCOME


<TABLE>
<CAPTION>
                                              Years ended December 31
                                        -------------------------------------
                                           1997          1996         1995
                                        -----------  -----------  -----------
<S>                                     <C>          <C>          <C>
NET SALES                               $97,226,000  $86,420,000  $85,056,000

COSTS AND EXPENSES
Cost of goods sold                        70,826,000   66,416,000  64,356,000
Selling, general & administrative         12,158,000   10,492,000   8,669,000
Depreciation, depletion
  & amortization                           5,871,000    4,694,000   3,689,000
                                        ------------  ----------- -----------
                                          88,855,000   81,602,000  76,714,000
Operating Income Before
  Reorganization Charges                   8,371,000    4,818,000   8,342,000

Reorganization Charges (Note 10)                  --    1,752,000          --
                                        ------------  -----------  ----------
Operating Income                           8,371,000    3,066,000   8,342,000
                                        ------------  -----------  ----------
OTHER INCOME (EXPENSES)
Interest expense, net (Note 8)           (1,944,000)    (948,000)    (523,000)
Other, net (Notes 2 and 10)               1,635,000     (455,000)      80,000
                                        ------------  -----------  ----------
                                           (309,000)  (1,403,000)    (443,000)
                                        ------------  -----------  ----------
Income Before Income Taxes                8,062,000    1,663,000    7,899,000

Provision for (recovery of)
  income taxes (Note 6)                   2,269,000     (949,000)    (519,000)
                                        ------------  -----------  ----------
Net Income                              $ 5,793,000  $ 2,612,000  $ 8,418,000
                                        ------------  -----------  ----------
Net Income Per Share - Basic            $      0.72  $      0.33  $      1.07
Net Income Per Share - Diluted                 0.70         0.32         1.03
                                        ------------  -----------  ----------
Average Common Shares Outstanding         8,097,642    7,937,379    7,843,992
                                        ------------  -----------  ----------
</TABLE>

See Notes to the Consolidated Financial Statements






<PAGE>   30



PAGE 30

       -----------------------------------------------------------------
                          CONSOLIDATED BALANCE SHEETS
       -----------------------------------------------------------------
<TABLE>
<CAPTION>
                                                           December 31
                                                   ----------------------------
                                                       1997            1996
                                                   ------------   -------------
 <S>                                               <C>             <C>
ASSETS
Current Assets
Cash and cash equivalents                          $  2,189,000    $  2,279,000
Accounts receivable (less allowance
 for doubtful accounts of $328,000
  at December 31, 1997 and $452,000
  at December 31, 1996)(Notes 2 and 15)              16,287,000      15,003,000
Inventories (Note 3)                                 17,595,000      18,171,000
Prepaid expenses                                        786,000       1,388,000
Deferred income taxes (Note 6)                        1,328,000       1,013,000
                                                   ------------    ------------
                                                     38,185,000      37,854,000
Property, Plant and Equipment
  (Notes 4 and 8)                                    70,812,000      62,084,000
Other Assets (Note 5)                                 9,777,000       9,438,000
                                                   ------------    ------------
                                                   $118,774,000    $109,376,000
                                                   ------------    ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Bank indebtedness (Note 8)                         $  3,000,000    $  6,590,000
Accounts payable                                      9,805,000       7,091,000
Accrued liabilities                                   3,151,000       2,983,000
Accrued income taxes                                  1,235,000         301,000
Current portion of long term debt (Note 8)            2,019,000       2,201,000
                                                   ------------    ------------
                                                     19,210,000      19,166,000
Long Term Debt (Note 8)                              20,527,000      17,797,000
Other Non-Current Liabilities                         1,014,000         599,000
Deferred Income Taxes (Note 6)                        1,488,000         817,000
                                                   ------------    ------------
                                                     42,239,000      38,379,000
Shareholders' Equity
Common stock (Note 9)                                 9,204,000       8,950,000
Paid-in capital                                      53,298,000      51,304,000
Retained earnings                                    24,235,000      20,040,000
Note receivable from shareholder (Note 9)            (1,749,000)     (1,749,000)
Cumulative translation adjustment                    (1,588,000)     (1,175,000)
Treasury stock at cost (Note 9)                      (6,865,000)     (6,373,000)
                                                   ------------    ------------
                                                     76,535,000      70,997,000
                                                   ------------    ------------
                                                   $118,774,000    $109,376,000
                                                   ------------    ------------
</TABLE>

See Notes to the Consolidated Financial Statements






<PAGE>   31



PAGE 31


-----------------------------------------------------------------
Consolidated Statements of Shareholders' Equity (in thousands)
-----------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                   Note
                                                                 Receivable   Cumulative
                                    Common    Paid-In  Retained     From      Translation  Treasury
                                    Stock     Capital  Earnings  Shareholder  Adjustment    Stock    Total
                                    -------  --------  --------  -----------  -----------  -------- -------

<S>                                 <C>       <C>      <C>       <C>          <C>          <C>       <C>
Balance at December 31, 1994        $7,221    $38,703   $11,668   $(1,749)    $(1,326)     (465)     $54,052
Stock issued under employee
  stock purchase plan (a)               49       422         --        --          --        --          471
Stock dividend (a)                     167     1,233     (1,403)       --          --        --          (3)
Stock options and warrants
  exercised (a)                        626    4,423          --         --         --         --       5,049
Stock issued  in connection
  with Alumitech purchase (b)          632    5,133          --         --         --        834       6,599
Warrants repurchased (a)                --     (222)         --         --         --         --        (222)
Stock purchased for treasury (a)        --       --          --         --         --     (3,572)     (3,572)
Net income for the year                 --       --       8,418         --         --         --       8,418
Translation  adjustment                 --       --          --         --          108       --         108
Balance at December  31, 1995        8,695   49,692      18,683     (1,749)      (1,218)  (3,203)     70,900
Stock issued under employee
  stock purchase plan (a)               73      535          --         --           --       --         608
Stock dividend (a)                     161    1,089      (1,255)        --           --       --          (5)
Stock options exercised (a)             21       84          --         --           --       --         105
Stock purchased for treasury (a)        --       --          --         --           --   (3,170)     (3,170)
Stock options repurchased               --      (96)         --         --           --       --         (96)
Net income for the year                 --       --       2,612         --           --       --       2,612
Translation adjustment                  --       --          --         --           43       --          43
Balance at December 31, 1996         8,950   51,304      20,040     (1,749)      (1,175)  (6,373)     70,997
Stock issued under employee
  stock purchase plan  (a)              75      528          --         --           --       --     603,000
Stock dividend (a)                     165    1,428      (1,598)        --           --       --          (5)
Stock options exercised (a)             14      205          --         --           --       --         219
Stock purchased for treasury (a)        --       --          --         --           --     (492)       (492)
Stock options repurchased               --     (167)         --         --           --       --        (167)
Net income for the year                 --       --       5,793         --           --       --       5,793
Translation adjustment                  --       --          --         --         (413)      --        (413)
Balance at December 31, 1997        $9,204  $53,298     $24,235    $(1,749)     $(1,588) $(6,865)    $76,535
</TABLE>


See Notes to the Consolidated Financial Statements
(a) See Note 9 (b) See Note 2














<PAGE>   32







PAGE 32
       -----------------------------------------------------------------
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
       -----------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                        Years ended December 31
                                                               ----------------------------------------
                                                                  1997            1996          1995
                                                               ----------      -----------   ----------
<S>                                                            <C>             <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income                                                   $  5,793,000    $  2,612,000   $  8,418,000
Adjustments to reconcile net income
  from operations to net cash flows
  from operating activities
Depreciation, depletion & amortization                          5,871,000       4,694,000      3,689,000
Amortization of deferred financing costs1                         147,000         101,000         65,000
Loss on assets held for resale                                         --              --         61,000
Decrease in deferred income taxes                                 356,000      (1,761,000)      (122,000)
Share of net income of investee                                        --              --        (87,000)
(Gain) loss on sale of property,
plant and equipment(                                            1,831,000)        255,000         22,000
(Increase) decrease in other assets                              (957,000)        670,000       (227,000)
Increase (decrease) in non-current liabilities                    415,000          (6,000)        56,000
Changes in non-cash working capital items(a)                    3,709,000        (533,000)    (4,660,000)
                                                             ------------     -----------    -----------
   Net cash provided by operating activities                   13,503,000       6,032,000      7,215,000
                                                             ------------     -----------    -----------
CASH FLOWS FROM INVESTING ACTIVITIES
 Additions to property, plant & equipment                     (16,584,000)    (16,426,000)   (15,451,000)
Assets acquired in connection  with acquisitions (b)                   --              --     (3,658,000)
Proceeds from sale of assets                                    3,939,000          86,000             --
                                                             ------------     -----------    -----------
    Net cash used in investing activities                     (12,645,000)    (16,340,000)   (19,109,000)
                                                             ------------     -----------    -----------
CASH FLOWS FROM FINANCING ACTIVITIES
   (Payments) proceeds net, on bank indebtedness               (3,590,000)      3,370,000      3,040,000
 Proceeds from long term debt                                   5,717,000      12,882,000      6,219,000
 Repayment of long term debt                                   (3,169,000)     (2,747,000)    (5,343,000)
 Deferred financing costs                                              --               -       (467,000)
 Cash paid in lieu of fractional shares                            (5,000)         (5,000)        (3,000)
 Issuance of common stock (c)                                     679,000         713,000      5,520,000
 Purchase of common stock, options
   and warrants for treasury (c)                                 (516,000)     (3,266,000)    (3,794,000)
                                                             ------------     -----------    -----------
     Net cash (used in) provided
      by financing activities                                    (884,000)     10,947,000      5,172,000
                                                             ------------     -----------    -----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH                           (64,000)        (13,000)        32,000
NET (DECREASE) INCREASE IN CASH                                   (90,000)        626,000     (6,690,000)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                  2,279,000       1,653,000      8,343,000
   CASH AND CASH EQUIVALENTS AT END OF YEAR                  $  2,189,000    $  2,279,000   $  1,653,000
                                                             ------------     -----------    -----------
 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
 Income taxes paid                                           $    821,000    $    393,000   $    303,000
 Interest paid                                                  2,412,000         937,000        656,000
SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES
Stock issued in connection with acquisition (b)              $         --    $         --   $  6,599,000
Notes received in connection with
 sale of assets held for resale(b)(d)                           2,274,000              --        423,000
                                                             ------------     -----------    -----------
</TABLE>



See Notes to the Consolidated Financial Statements
(a) See Note 14  (b) See Note 2  (c) See Note 9  (d) See Note 10






<PAGE>   33



PAGE 33

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. The Corporation's significant
accounting policies are as follows:

a. PRINCIPLES OF CONSOLIDATION

     The consolidated financial statements include the accounts of Zemex
Corporation and its wholly-owned subsidiaries (the "Corporation"). All material
intercompany transactions have been eliminated. As discussed in Note 2,
Alumitech, Inc. ("Alumitech") was acquired in two separate transactions and,
accordingly, was accounted for on an equity basis until it became a
wholly-owned subsidiary in February 1995.

b. INVENTORIES

     Inventories are stated at the lower of cost or market and are computed
using the average cost method. It is not practical to segregate finished
products from ore and concentrates. Supplies are stated at cost using the
first-in, first-out or average cost method.

c. PROPERTY, PLANT AND EQUIPMENT

     Property, plant and equipment are recorded at cost. Repairs and
maintenance are charged to expense as incurred. Expenditures for major renewals
and improvements are capitalized. When assets are sold or otherwise retired,
the cost and accumulated depreciation or depletion are removed from the
accounts and any gain or loss is included in results of operations. Provisions
for depreciation are based upon estimated useful lives, using principally the
straight-line method. Depletion of mining properties and depreciation of other
mining assets are computed using the unit-of-production method, except in the
case of the Corporation's mica operation where the estimated reserves exceed
the expected production during the term of the mining lease. The mica mining
lease rights and deferred costs, including all preproduction and set-up costs,
are amortized using the straight-line method over the term of the mining lease.

d. POSTRETIREMENT BENEFITS

     Pension Plans

     Generally, the funding policy of the Corporation is to contribute annually
at a rate that is intended to provide for the cost of benefits earned during
the year and which will amortize prior service costs over periods of 10 to 30
years, subject to Internal Revenue Service limits for deductible contributions.






<PAGE>   34



PAGE 34

     Healthcare and Other Postretirement Benefits Other Than Pensions

     The Corporation accounts for healthcare and other postretirement benefits
other than pensions in accordance with Statement of Financial Accounting
Standards ("SFAS") No. 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions". This Statement requires the accrual of all postretirement
benefits other than pensions during the years in which employees render the
necessary services to be entitled to receive such benefits. The 1997, 1996 and
1995 amounts include the current year expense and the transition liability
which is being amortized over twenty years as allowed by SFAS No. 106 (Note 7).

e. FOREIGN CURRENCY TRANSLATION

     The functional currency for the Corporation's foreign operations is the
local currency. Foreign currency assets and liabilities are translated using
the exchange rates in effect at the balance sheet date. The effect of exchange
rate fluctuations on translating foreign currency assets and liabilities into
U.S. dollars is accumulated as part of the cumulative translation adjustment
component of shareholders' equity. Results of operations and cash flows are
translated using the average exchange rates during the year. Gains and losses
from foreign currency transactions are included in net income for the year.

f. REVENUE RECOGNITION

     Revenue is recognized when goods are shipped to customers. Consignment
sales are recognized when a customer draws the goods from inventory.

g. RESEARCH AND DEVELOPMENT EXPENSE

     Research and development expenses were $961,000, $622,000 and $320,000 for
the years ended December 31, 1997, 1996 and 1995, respectively.

h. PROVISION FOR FUTURE RECLAMATION COSTS

     Costs for future reclamation have been provided for based upon estimated
future reclamation costs allocated over the expected productive lives of the
Corporation's quarries and mines.

i. INCOME TAXES

     The Corporation accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes". This Statement requires income taxes to be
recognized during the year in which transactions enter into the determination
of financial statement income, with deferred taxes being provided for temporary
differences between amounts of assets and liabilities for financial reporting
purposes and such amounts as measured by tax laws.






<PAGE>   35



PAGE 35

j. EARNINGS PER SHARE

     The Corporation calculates earnings per share in accordance with SFAS No.
128, "Earnings Per Share", and has given affect to this standard on a
retroactive basis. Under this standard, earnings per share is calculated based
upon the weighted average number of common shares outstanding. For the purpose
of calculating earnings per share, stock dividends are considered to be issued
at the beginning of the period.

k. DEFERRED FINANCING COSTS

     Costs associated with the issuance of long term debt are deferred, and are
being amortized over the term of the debt on a straight-line basis. The
unamortized balance is included in other assets.

l. OTHER ASSETS

     Other assets includes assets held for sale which are stated at the lower
of cost or estimated net realizable value. In determining the estimated net
realizable value, the Corporation deducts from the estimated selling price the
projected costs to bring the assets into a saleable condition, to dispose of
the assets and to hold the property to an expected date of sale. Other assets
also includes patents which are stated at cost and are being amortized over
their remaining life of 13 years on a straight-line basis. Intangible assets
are evaluated periodically and, if conditions warrant, an impairment valuation
is provided.

m. CASH EQUIVALENTS

     For purposes of the consolidated statements of cash flows, highly liquid
investments with original maturities of three months or less, when purchased,
are considered as cash equivalents.

n. STOCK-BASED COMPENSATION COSTS

     Stock-based compensation costs for pro forma presentation purposes (Note
9) are based on the fair value of each option at the grant date. The option
value is calculated using the Black-Scholes option-pricing model.

2. ACQUISITIONS AND DISPOSITIONS

ACQUISITIONS

Acquisition of Alumitech, Inc.

In June 1994, the Corporation acquired its initial 39.5% investment in
Alumitech by investing $2,000,000 to acquire treasury stock. In 1995, the
Corporation increased its interest to 100% by issuing 722,352 shares of common
stock with an ascribed value of $6,599,000. The shares were issued as to
266,106 to Dundee Bancorp International Inc. ("Dundee Bancorp"), the






<PAGE>   36



PAGE 36

Corporation's largest shareholder, and as to 266,106 to Clarion Capital
Corporation, a company controlled by a director of the Corporation. The balance
of the 722,352 shares went to various other parties. Alumitech, an aluminum
dross processor, has developed proprietary technology that enables it to have
the ability to convert 100% of its dross feed into marketable products.

The acquisition of Alumitech has been accounted for using the purchase method
of accounting and, accordingly, the purchase price has been allocated to the
assets purchased and liabilities assumed based upon the fair values at the date
of acquisition. The net purchase price was allocated as follows:


<TABLE>
<CAPTION>
<S>                                                            <C>
Working Capital                                                $    73,000
Property, plant and equipment                                    5,527,000
Patents                                                          7,363,000
Other assets                                                       225,000
Other liabilities                                               (2,192,000)
Deferred income taxes                                           (2,025,000)
                                                               -----------
                                                               $ 8,971,000
                                                               -----------
CONSIDERATION
Carrying value of investment at date of
 acquisition of remaining interest                             $ 2,372,000
Capital stock                                                    6,599,000
                                                               -----------
                                                               $ 8,971,000
                                                               -----------
</TABLE>


The operating results of Alumitech have been included in the consolidated
statements of income from the date of acquisition. On the basis of a pro forma
consolidation of the results of operations as if the acquisition had taken
place at the beginning of fiscal 1994, rather than at February 15, 1995,
consolidated net sales would have been $64,500,000 for fiscal 1994, and
$86,900,000 for fiscal 1995. Consolidated pro forma income and earnings per
share would not have been materially different from the reported amounts for
fiscal 1994 and 1995. Such pro forma amounts are not necessarily indicative of
what the actual consolidated results of operations might have been if the
acquisition had been effective at the beginning of fiscal 1994.

Acquisition of the Assets of Benwood Limestone Company, Inc.

On May 15, 1995, the Corporation acquired the assets of Benwood Limestone
Company, Inc. ("Benwood"), through its wholly-owned subsidiary, Suzorite
Mineral Products, Inc. ("SMP"), for $3,658,000. The acquisition of Benwood
augmented the Corporation's talc and mineral processing capability.






<PAGE>   37



PAGE 37

DISPOSITIONS

Asset Sale

During the third quarter of 1997, the Corporation sold certain assets
previously utilized to manufacture refractory ceramic fiber. These assets were
vended into a joint venture in which the Corporation retained an interest. The
sale resulted in a pre-tax gain of $1,768,000, which has been included in other
income (expense). Total proceeds were $4,324,000, which included $2,050,000 in
cash and $2,274,000 in notes receivable included in accounts receivable.

3. INVENTORIES

<TABLE>
<CAPTION>
                                                    1997             1996
                                               ------------      -----------
<S>                                            <C>              <C>
ORE, CONCENTRATES AND FINISHED PRODUCTS
Industrial minerals                            $  8,312,000      $ 8,565,000
Metal products                                    4,110,000        5,035,000
                                               ------------      -----------
                                                 12,422,000       13,600,000
MATERIALS AND SUPPLIES
Industrial minerals                               3,955,000        3,683,000
Metal products                                    1,218,000          888,000
                                               ------------      -----------
                                                  5,173,000        4,571,000
                                               ------------      -----------
                                               $ 17,595,000      $18,171,000
                                               ------------      -----------

</TABLE>

4. PROPERTY, PLANT AND EQUIPMENT

<TABLE>
<CAPTION>
                                                    1997             1996
                                               ------------      -----------
 <S>                                           <C>              <C>
Land                                           $  5,344,000      $ 5,246,000
Mining properties and deferred costs              8,125,000        6,605,000
Buildings                                        18,092,000       16,728,000
Machinery and equipment                          64,952,000       50,937,000
Construction in progress                          8,308,000       15,065,000
                                               ------------      -----------
Total property, plant and equipment, at cost    104,821,000       94,581,000
Less: Accumulated depreciation,
 depletion and amortization                      34,009,000       32,497,000
                                               ------------      -----------
Net property, plant and equipment              $  70,812,000     $62,084,000
                                               ------------      -----------
</TABLE>

The effective lives of the Corporation's buildings and machinery and equipment
are estimated to be 30-40 years and 3-15 years, respectively. As of December 31,
1997, the Corporation estimates that approximately $3,973,000 will be expended
to complete its construction in progress.






<PAGE>   38



PAGE 38

5. OTHER ASSETS


<TABLE>
<CAPTION>
                                                      1997         1996
                                                   ----------   ----------
 <S>                                               <C>          <C>
 Prepaid pension cost (Note 7)                     $1,378,000   $1,488,000
 Assets held for resale (Note 10)                     300,000      300,000
 Deferred financing costs                             646,000      659,000
 Long term note receivable                            549,000            -
 Other                                                547,000      318,000
 Patents, net                                       6,357,000    6,673,000
                                                   ----------   ----------
                                                   $9,777,000   $9,438,000
                                                   ----------   ----------
</TABLE>

6. INCOME TAXES

The provision for income taxes consists of the following components:


<TABLE>
<CAPTION>
                                         1997         1996         1995
                                      ----------  -----------   ----------
<S>                                   <C>          <C>          <C>
Income from operations before
 provision for income taxes
Domestic                              $7,476,000   $1,492,000   $7,708,000
Foreign                                  586,000      171,000      191,000
                                      ----------   ----------   ----------
Total pre-tax income                  $8,062,000   $1,663,000   $7,899,000
                                      ----------   ----------   ----------
Current tax provision
Federal                               $1,277,000     $478,000   $1,849,000
State and local                          211,000      123,000      293,000
Foreign                                  350,000       76,000       37,000
                                      ----------   ----------   ----------
Total                                  1,838,000      677,000    2,179,000
                                      ----------   ----------   ----------
Deferred tax provision
Federal                                  279,000   (1,369,000)     283,000
State and local                          152,000     (257,000)      55,000
Foreign                                        -            -       40,000
                                      ----------   ----------   ----------
Total                                    431,000   (1,626,000)     378,000
                                      ----------   ----------   ----------
Benefit of operating loss
 and tax credit carryforwards                  -            -   (3,076,000)
                                      ----------   ----------   -----------
Provision for (recovery of)
 income taxes                         $2,269,000   $ (949,000)  $ (519,000)
                                     -----------   ----------   ----------
</TABLE>







<PAGE>   39




PAGE 39

The following tabulation reconciles the U.S. federal statutory income tax rate
to the federal, state and foreign overall effective income tax rate.

<TABLE>
<CAPTION>
                                                             1997         1996       1995
                                                            -----         -----      -----
                                                              %             %          %
<S>                                                          <C>          <C>         <C>
Statutory federal rate                                       34.0         34.0        34.0
State income tax (net of federal benefit)                     3.0         (0.9)        1.4
Non-recognition from foreign loss                             1.3            -           -
Difference in foreign tax rates                               0.5            -           -
Benefit of operating loss carryforwards
 (net of foreign income taxes)                                  -        (43.8)      (38.1)
Percentage depletion                                        (11.4)       (47.9)       (4.9)
Other                                                         0.7          1.5         1.0
                                                            -----        -----       -----
Effective income tax rate                                    28.1        (57.1)       (6.6)
                                                            -----        -----       -----
</TABLE>

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. At December 31, 1997 and
December 31, 1996, the Corporation had unused tax benefits of $6,661,000 and
$6,172,000, respectively, related to U.S. federal and state net operating loss
and tax credit carryforwards. Significant components of the Corporation's
deferred tax assets and liabilities as of December 31 are as follows (dollars
in thousands):

<TABLE>
<CAPTION>
                                                     1997                            1996
                                U.S.     Foreign    Total       U.S.     Foreign     Total
                              -------   --------   -------      ----     -------     -----
<S>                           <C>       <C>         <C>       <C>        <C>        <C>
Deferred tax assets
Net operating loss and
tax credit carryforwards       $6,661   $    -      $6,661     $6,172    $    -     $6,172
Accrued expenses and reserves     958        -         958        763         -        763
Bad debt allowances               110        -         110        139         -        139
Inventories                       280        -         280        526         -        526
Other                             167        -         167         63         -         63
                              -------               ------    -------    ------     ------
Gross deferred tax assets       8,176        -       8,176      7,663         -      7,663
Valuation allowance              (523)       -        (523)         -         -          -
                              -------   ------      ------    -------    ------     ------
Net deferred tax assets         7,653        -       7,653      7,663         -      7,663
                              -------   ------      ------    -------    ------     ------
Deferred tax liabilities
Property, plant and equipment   3,206    2,012       5,218      2,656     2,075      4,731
Patent                          1,658        -       1,658      1,791         -      1,791
Pension contributions             580        -         580        521         -        521
Other                             357        -         357        424         -        424
Total                           5,801    2,012       7,813      5,392     2,075      7,467
                              -------   ------      ------    -------    ------     ------
Net deferred tax
 (assets) liabilities         $(1,852)  $2,012      $  160    $(2,271)   $2,075     $ (196)
                              -------   ------      ------    -------    ------     ------
</TABLE>
<PAGE>   40



PAGE 40

At December 31, 1997, the Corporation had approximately $12,462,000 of federal
net operating loss carryforwards available to reduce future taxable income,
which will expire between 2002 and 2011. Additionally, the Corporation has
unused general business tax credits, which expire between 1998 and 2011, and
alternative minimum tax credits. The Corporation also has state net operating
losses and investment credit carryforwards; however, a valuation allowance of
$523,000 has been recognized to offset the related deferred tax asset due to
the uncertainty of realizing the full benefit of the tax attribute
carryforward.

7. PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS

Pension Plans

The Corporation has several pension plans covering substantially all domestic
employees. The plans covering salaried employees provide pension benefits that
are based on the compensation of the employee. In all plans, the plan assets
exceed the benefit obligations and hence the plans are overfunded.

Net periodic pension cost (income) included the following components:



<TABLE>
<CAPTION>
                                        1997         1996         1995
                                     ----------   ----------   ---------
<S>                                  <C>          <C>          <C>
Current service costs                $  466,000   $  528,000   $  369,000
Interest cost on projected
 benefit obligations                    978,000    1,028,000      940,000
Actual return on assets              (1,383,000)    (389,000)  (2,587,000)
Net amortization and deferral            49,000   (1,023,000)   1,164,000
                                     ----------   ----------   ----------
Net pension expense (income)         $  110,000   $  144,000   $ (114,000)
                                     ----------   ----------   ----------
</TABLE>


Net amortization and deferral consists of amortization of net assets at
transition and deferral of subsequent net gains and losses. The assumptions
used to determine projected benefit obligations were (i) a discount rate of 7%
in 1997, 1996 and 1995; (ii) an expected long term rate of return on assets of
8.75% in 1997, 1996 and 1995; and (iii) an increase in the level of
compensation of 4% in 1997, and 6% in each of 1996 and 1995.






<PAGE>   41

PAGE 41

The status of the plans and the amounts recognized in the consolidated balance
sheets of the Corporation for its pension plans as of December 31, 1997 and
1996 are tabulated below:

<TABLE>
<CAPTION>
                                                   1997          1996
                                              -------------  ------------
 <S>                                           <C>            <C>
 Actuarial present value of benefit
   obligations vested benefit
   obligation                                  $ 11,191,000   $ 11,687,000
                                               ------------   ------------
 Accumulated benefit obligation                $ 11,350,000   $ 11,896,000
                                               ------------   ------------
 Projected benefit obligation                  $(15,126,000)  $(15,925,000)
 Plan assets at fair value                       17,147,000     16,432,000
                                               ------------   ------------
 Plan assets in excess of projected
  benefit obligation                              2,021,000        507,000
 Unrecognized net loss                             (662,000)     1,071,000
 Prior service cost not yet recognized
  in net periodic pension cost                      196,000        239,000
 Unrecognized net assets at year end               (177,000)      (329,000)
                                               ------------    -----------
 Prepaid pension cost included in
  consolidated balance sheets                  $  1,378,000    $ 1,488,000
                                               ------------    -----------
</TABLE>

Other Postretirement Benefits

The Corporation provides healthcare and life insurance benefits for certain
retired employees, which are accrued as earned (Note 1). The cost of such
benefits was $66,000 in 1997, $85,000 in 1996 and $95,000 in 1995. The
unrecognized obligation for postretirement benefits is not material.

8. LONG TERM DEBT

<TABLE>
<CAPTION>
                                            1997            1996
                                        -----------     -----------
<S>                                     <C>             <C>
Credit facility (a)                     $18,056,000     $14,167,000
Other term loans (b)                              -         813,000
Industrial Development
 Revenue Bonds (c)                        3,570,000       4,080,000
Promissory notes                             70,000         113,000
Capital leases (d)                          654,000         488,000
Other                                       196,000         337,000
                                        -----------     -----------
Total debt                               22,546,000      19,998,000
Less: Current portion                     2,019,000       2,201,000
                                        -----------     -----------
Long term debt                          $20,527,000     $17,797,000
                                        -----------     -----------
</TABLE>

(a) During 1995, the Corporation entered into a $30,224,000 credit facility
with a syndicate of two banks. During 1997, the credit facility was amended to
increase the total availability to $50,224,000. The amended credit facility is
further subdivided into four facilities: (i) a $30,000,000 revolving credit
facility; (ii) a $10,000,000 multiple advance term loan facility; (iii) a
$5,224,000 standby letter of credit; and (iv) a $5,000,000 operating line.
These facilities are secured by specific assets and a floating charge over the
Corporation's assets. The facilities bear interest at rates varying from bank
prime to bank prime plus 0.25% and from LIBOR plus 1.25% to LIBOR plus

<PAGE>   42



PAGE 42

2.25%, depending upon certain financial tests. As at December 31, 1997 and
December 31, 1996, there was $3,000,000 and $5,000,000, respectively,
outstanding under the operating line and $8,056,000 and $9,167,000,
respectively, outstanding under the multiple advance term loan facility.
Advances under the revolving credit facility as at December 31, 1997 and 1996
were $10,000,000 and $5,000,000, respectively, and the standby letter of credit
was issued to secure Pyron Corporation's ("Pyron") Industrial Development
Revenue Bonds (see (c) below). The operating line matures June 30, 1998 and is
reviewed annually for renewal. The multiple advance term loan facility requires
quarterly payments of $278,000 which commenced April 1, 1996 with the balance
outstanding, if any, due January 1, 2000.

(b) The other term loans incurred interest at the prime rate of the lending
institution plus 1.25% to 1.5% and were repaid in full during 1997.

(c) Pyron entered into a lease agreement on November 29, 1989 with the Niagara
County Industrial Development Agency (the "Agency") to partially finance the
construction of a manufacturing facility, acquire and install equipment and
machinery, and renovate the existing Pyron facility for the purpose of
manufacturing atomized steel powders. The agreement authorized the Agency to
issue and sell Industrial Development Revenue Bonds in the aggregate principal
amount of $7,650,000 to provide the funds for the project.

     While the bonds are not the obligation of Pyron, the agreement requires
Pyron to make quarterly rental payments equal to the debt service under the
sinking fund requirements and interest on the outstanding principal to the
Agency. The amount outstanding at December 31, 1997 and 1996 was $3,570,000 and
$4,080,000, respectively. Pyron's annual obligation under the agreement is
$510,000 until paid.

     The bonds bear interest at a variable rate not to exceed 15% per annum.
The rate at December 31, 1997 was 4.15% and at December 31, 1996 was 4.15%.
Pyron has the option to convert the bonds to a fixed interest rate at any time
during the term. Under the lease agreement, Pyron may purchase the facility at
any time during the term, which expires November 1, 2004, by paying the
outstanding principal amount of the bonds plus $1.

     The bonds are collateralized by a mortgage on the land, the new facility
and the existing facility, which have an aggregate net book value of
approximately $9,602,000 at December 31, 1997.

     A bank has provided Pyron with a letter of credit which is available to
support Pyron's obligations under the lease agreement. If the bondholders
tender their bonds for repayment, the letter of credit will be utilized to pay
the bondholders. The letter of credit is collateralized under the credit
facility in (a) above. The letter of credit expires on October 1, 1999.

(d) The Corporation has long term capital lease agreements at various rates and
for various terms with maturities ranging from 1998 to 2002 for equipment used
in its operations. The carrying value of the leased equipment as of December
31, 1997 was $623,000. The current obligation under the long term lease
agreement is $280,000.






<PAGE>   43



PAGE 43

Principal repayments on long term debt are as follows:


<TABLE>
<CAPTION>
<S>                                      <C>
                                         -----------
1998                                     $ 2,019,000
1999                                       1,850,000
2000                                      16,515,000
2001                                         618,000
2002                                         524,000
Thereafter                                 1,020,000
                                         -----------
                                         $22,546,000
                                         -----------
</TABLE>

Interest

Interest earned and expensed in each of the past three years is summarized
below:

<TABLE>
<CAPTION>
                                       1997          1996         1995
                                    ----------   ------------   ---------
<S>                                 <C>           <C>           <C>
Interest income                    $   150,000    $    93,000    $ 268,000
Interest expense                    (2,094,000)    (1,041,000)    (791,000)
                                   -----------    ------------   ---------
Net interest expense               $(1,944,000)   $  (948,000)   $(523,000)
                                   -----------    ------------   ---------

</TABLE>



9. COMMON SHARES, STOCK OPTIONS AND WARRANTS

Shares Outstanding

During 1995, the Corporation increased its authorized common stock from
10,000,000 to 25,000,000, par value one dollar per share, of which 20,000,000
will be denominated common shares and 5,000,000 will be denominated preferred
shares. There were 8,463,491 common shares  issued and outstanding as of
December 31, 1997 and 8,269,099 common shares as of December 31, 1996.

During 1997, 1996 and 1995, 90,000, 80,000 and 49,000 common shares,
respectively, were purchased pursuant to the Corporation's employee stock
purchase plan for an aggregate cost of $729,000, $672,000 and $471,000,
respectively.

As part of a share repurchase program in 1997, the Corporation purchased 60,000
common shares  on the open market for an aggregate cost of $492,000, 344,000
common shares in 1996 for an aggregate cost of $3,170,000, and 376,000 common
shares in 1995 for an aggregate cost of $3,572,000.

In 1995, the Corporation completed its purchase of 100% of Alumitech by issuing
722,352 common shares with an ascribed value of $6,599,000.






<PAGE>   44




PAGE 44

Dividends

On November 21, 1997, the Corporation declared a 2% stock dividend to
shareholders of record on December 1, 1997, which was paid December 15, 1997.
Retained earnings were charged $1,598,000 as a result of the issuance of
165,537 common shares of the Corporation, and cash payments of $5,000 in lieu
of fractional shares.

On October 18, 1996, the Corporation declared a 2% stock dividend to
shareholders of record on November 4, 1996, which was paid November 18, 1996.
Retained earnings were charged $1,255,000 as a result of the issuance of
161,398 common shares of the Corporation, and cash payments of $5,000 in lieu
of fractional shares.

On November 10, 1995, the Corporation declared a 2% stock dividend to
shareholders of record on November 24, 1995, which was paid December 8, 1995.
Retained earnings were charged $1,403,000 as the result of the issuance of
167,149 common shares of the Corporation, and cash payments of $3,000 in lieu
of fractional shares.

Stock Options

The Corporation provides stock option incentive plans and has, with shareholder
approval, issued options to certain directors outside of the plans. The plans
are intended to provide long term incentives and rewards to executive officers,
directors and other key employees contingent upon an increase in the market
value of the Corporation's common shares. Options for 10% of the Corporation's
outstanding common shares are issuable under the plans.

The following is a summary of option transactions under the Corporation's stock
option plans:

<TABLE>
<CAPTION>
                                               1997          1996          1995
                                              -------       -------       -------
<S>                                           <C>           <C>           <C>
Options outstanding at beginning of year      845,550       852,550       556,550
Options granted during the year               198,000        61,000       341,000
Options exercised during the year             (13,800)      (45,000)      (38,250)
Options canceled during the year              (87,000)      (23,000)       (6,750)
Options outstanding at end of year            942,750       845,550       852,550
Options exercisable at end of year            628,250       631,550       511,550
Price range of options granted
  during the year                        $7.00 - 8.63  $7.75 - 9.75  $9.125-10.13
</TABLE>


The options expire from 1998 to 2003. In addition, directors out of the plan
were, in aggregate, granted 30,000 shares in 1997.

The Corporation does not recognize compensation expense for its stock-based
compensation plans. Had compensation cost for the stock option plans been
determined based upon fair value at the grant date for awards under these plans
consistent with the methodology prescribed under SFAS No. 123, "Accounting for
Stock-Based Compensation", the Corporation's net income and earnings per share
would have been reduced by approximately $221,000 or $0.03 per share in 1997,
$341,000 or $0.04 per share in 1996 and $2,177,000 or $0.28 per share in 1995.
The fair value of the options granted during 1997, 1996 and 1995 is estimated
to be $221,000, $173,000 and $1,344,000, respectively. The fair value of each
option grant is estimated on the date of grant using the






<PAGE>   45

PAGE 45


Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1997, 1996 and 1995: dividend yield of 0%;
expected volatility of 32%, 38% and 39%, respectively; risk-free interest rate
of 5.5%; and an expected life of 5 years.

Warrants

During 1993, in connection with the acquisition of Suzorite Mica Products Inc.,
the Corporation issued a transferable warrant to Dundee Bancorp to purchase at
any time prior to July 15, 1995 up to 100,000 common shares (104,040 shares
after adjustments for stock dividends) at $7.00 per share. The warrant was
exercised by Dundee Bancorp on July 14, 1995 for proceeds of $700,000. As a
result of a stock rights offering in 1990, 725,769 warrants were issued. Each
warrant entitled the holder to purchase, prior to July 15, 1995, 1.08 common
shares at an exercise price of $8.56 per share, which was repriced from $9.25
per share as a result of dilution due to the issuance of stock dividends. Of
the 725,769 warrants originally issued, the Corporation repurchased 218,046
warrants at an aggregate cost of $222,000. During 1995, 448,000 warrants were
exercised for 484,027 common shares for net proceeds of $4,143,000. During
1994, 31,514 warrants were exercised resulting in the issuance of 32,771 common
shares at an exercise price of $8.88 per share for aggregate proceeds of
$291,000. There were no remaining warrants outstanding as at December 31, 1995.

Note Receivable from Shareholder

The note receivable from shareholder of $1,749,000 represents amounts due from
the Corporation's President and Chief Executive Officer pursuant to the Key
Executive Common Stock Purchase Plan. The loan, which was used to acquire
357,000 common shares of the Corporation, is non-interest bearing and secured
by a pledge of most of the shares acquired. The terms were amended in 1997 and
the loan is now due on the earlier of August 12, 1998 or 30 days after the
termination of employment. Since the loan arose from the sale of shares, it is
classified as a reduction of shareholders' equity.

10. REORGANIZATION CHARGES AND UNUSUAL ITEMS

Reorganization Charges

During the first quarter of 1996, the Corporation recognized reorganization
costs of $1,752,000 in connection with the reorganization of its minerals
division, a write-down to market of inventory held in Brazil, and the
recognition of a provision for costs associated with storing and selling the
material. The Brazilian enterprise was unsuccessful primarily due to rapidly
deteriorating market prices which made market penetration extremely difficult.






<PAGE>   46



PAGE 46

Unusual Items

In December 1991, the Corporation closed its industrial minerals plant located
in Connecticut. The assets of this operation were reclassified to assets held
for resale and written down in 1991 by $430,000 to their estimated net
realizable value. These assets were written down by a further $300,000 in 1993.
In 1995, a portion of the property was sold for approximately net book value.
In 1996, the purchaser defaulted on the payment obligations. Accordingly, the
Corporation instituted legal action to repossess the property. A provision of
$723,000 has been recorded to provide for reclamation costs, legal costs and to
write-down the property to current market value.

11. OPERATING LEASES AND OTHER COMMITMENTS

Operating Leases

The Corporation has a number of operating lease agreements primarily involving
equipment, office space, warehouse facilities and rail sidings. The operating
lease for equipment provides that the Corporation may, after the initial lease
term, renew the lease for successive yearly periods or may purchase the
equipment at the fair market value. An operating lease for office facilities
contains escalation clauses for increases in operating costs and property
taxes. The majority of the leases are cancellable and are renewable on a yearly
basis.

Future minimum rental payments required by operating leases that have initial
or remaining non-cancellable lease terms in excess of one year as of December
31, 1997 are as follows:


<TABLE>
<CAPTION>
Years                                               Minimum Lease Payments
-----                                               ----------------------
<S>                                                         <C>
1998                                                      $  515,000
1999                                                         341,000
2000                                                         287,000
2001                                                         282,000
2002                                                         273,000
Thereafter                                                   556,000
                                                          ----------
Total minimum lease payments                              $2,254,000
                                                          ----------
</TABLE>


Rent expense was $492,000, $668,000 and $442,000 in 1997, 1996 and 1995,
respectively.






<PAGE>   47



PAGE 47

12. QUARTERLY FINANCIAL DATA (UNAUDITED)

The following is a summary of certain unaudited quarterly financial data.


<TABLE>
<CAPTION>
                                           1997          1996
                                       -----------    -----------
<S>                                    <C>            <C>
NET SALES
 First quarter                         $23,700,000    $22,405,000
 Second quarter                         25,199,000     21,356,000
 Third quarter                          24,773,000     21,601,000
 Fourth quarter                         23,554,000     21,058,000
                                       -----------    -----------
                                       $97,226,000    $86,420,000
                                       -----------   ------------
OPERATING INCOME
  First quarter                         $1,766,000      $ 170,000
  Second quarter                         2,255,000      1,512,000
  Third quarter                          2,372,000      1,444,000
  Fourth quarter                         1,978,000        (60,000)
                                        ----------     ----------
                                        $8,371,000     $3,066,000
                                        ----------     ----------
 NET INCOME
  First quarter                         $  862,000     $    6,000
  Second quarter                         1,064,000        819,000
  Third quarter                          2,095,000        779,000
  Fourth quarter                         1,772,000      1,008,000
                                        ----------     ----------
                                        $5,793,000     $2,612,000
                                        ----------     ----------
 NET INCOME PER SHARE - BASIC
  First quarter                               $.11           $.00
  Second quarter                               .13            .10
  Third quarter                                .26            .10
  Fourth quarter                               .22            .13
                                              ----           ----
</TABLE>


13. FINANCIAL INSTRUMENTS

Financial instruments which potentially subject the Corporation to
concentrations of credit risk consist principally of trade receivables.
Concentrations of credit risk with respect to trade receivables are limited due
to the large number of customers comprising the Corporation's customer base and
their dispersion across a number of different industries, principally
construction, glass, electrical and automotive.

Financial instruments comprise cash and cash equivalents, accounts receivable,
short term bank borrowings, accounts payable, accrued liabilities, and long
term debt. The fair value of these financial instruments approximates their
carrying value reflecting: (i) the proximity to market rates of the interest
obligations on the debt instruments; and (ii) the limited durations of all of
the other instruments.






<PAGE>   48



PAGE 48

14. CHANGES IN NON-CASH WORKING CAPITAL ITEMS

The changes in non-cash working capital items are as follows:


<TABLE>
<CAPTION>
                                                   1997          1996          1995
                                               -----------   -----------   -----------
<S>                                            <C>           <C>            <C>
(Increase) in accounts receivable              $(1,285,000)  $(1,838,000)  $  (783,000)
Decrease (increase) in inventories                 576,000     2,005,000    (2,742,000)
Decrease (increase) in prepaid expenses            602,000      (547,000)      (16,000)
Increase (decrease) in accounts
  payable and accrued liabilities                2,882,000      (185,000)   (1,495,000)
Increase in accrued income taxes                   934,000        32,000       376,000
                                               -----------    ----------   -----------
                                               $ 3,709,000    $ (533,000)  $(4,660,000)
                                               -----------    ----------   -----------
</TABLE>

15. RELATED PARTY TRANSACTIONS

As at December 31, 1997 and 1996, accounts receivable included amounts due from
directors of $115,000 and $350,000, respectively. These amounts are
non-interest bearing, with no fixed terms of repayment, and have not otherwise
been disclosed in the consolidated financial statements.

During 1997, the Corporation agreed to guarantee a personal loan in the amount
of $600,000 drawn down by the President and Chief Executive Officer. The
proceeds of the loan were used to acquire common shares of the Corporation on
the open market. The shares acquired are held by the Corporation as security
for the guarantee.

16. SEGMENT INFORMATION

The Corporation has two principal lines of business and is organized into two
operating units based on its product lines: (i) industrial minerals, and (ii)
metal products. Industrial mineral products include feldspar, kaolin, mica,
talc, baryte, feldspathic sand and industrial sand. These products are marketed
principally to the automotive, housing, and ceramics industries in North
America. They are produced from mines and processing plants located near Edgar,
Florida; Monticello, Georgia; Murphy, North Carolina; Spruce Pine, North
Carolina; Natural Bridge, New York; Van Horn, Texas; Benwood, West Virginia;
Boucherville, Quebec; and Suzor Township, Quebec. Metal products are processed
in Niagara Falls, New York; St. Marys, Pennsylvania; and Greenback and
Maryville, Tennessee. The Corporation's ferrous and non-ferrous metal powders
are marketed primarily in North America to manufacturers of powder metallurgy
parts used in the automotive and transportation industries. Aluminum dross is
recycled at a plant in Cleveland, Ohio and ceramic fiber products are marketed
from a plant in Streetsboro, Ohio. Corporate assets principally include cash,
term deposits, and furniture and fixtures.






<PAGE>   49



PAGE 49

Information pertaining to sales and earnings from operations and assets by
business segment appears below:



<TABLE>
<CAPTION>
                                        1997           1996         1995
                                    ------------   ------------  ------------
<S>                                 <C>             <C>           <C>
Net sales (a)
 Industrial minerals                 $43,396,000    $40,469,000   $37,089,000
 Metal products                       53,830,000     45,951,000    47,967,000
                                    ------------    -----------  ------------
Total                                $97,226,000    $86,420,000   $85,056,000
                                    ------------    -----------  ------------
Operating income (a)
 Industrial minerals                  $5,203,000    $ 3,118,000    $4,622,000
 Metal products                        3,221,000      1,868,000     3,677,000
 Reorganization charges (b)                    -     (1,752,000)            -
 General unallocated corporate           (53,000)      (168,000)       43,000
                                    ------------    -----------  ------------
Total                                  8,371,000      3,066,000     8,342,000
                                    ------------    -----------  ------------
Interest expense net                  (1,944,000)      (948,000)     (523,000)
Other income, (expense) net (b)        1,635,000       (455,000)       80,000
Income before income taxes            $8,062,000     $1,663,000    $7,899,000
Capital expenditures (a) (c)
Industrial minerals                   $9,945,000    $11,855,000    $9,653,000
Metal products                         6,633,000      4,528,000     5,784,000
Corporate                                  6,000         43,000        14,000
                                    ------------    -----------  ------------
Total                                $16,584,000    $16,426,000   $15,451,000
                                    ------------    -----------  ------------
Depreciation, depletion
 & amortization (a)
Industrial minerals                   $3,228,000     $2,352,000    $1,932,000
Metal products                         2,241,000      1,948,000     1,451,000
Corporate                                402,000        394,000       306,000
Total                                 $5,871,000     $4,694,000    $3,689,000
Identifiable assets at year end (a)
Industrial minerals                  $65,750,000    $60,915,000   $52,348,000
Metal products                        42,400,000     37,145,000    34,133,000
Corporate (d)                         10,624,000     11,316,000    10,200,000
                                    ------------   ------------   -----------
Total                               $118,774,000   $109,376,000   $96,681,000
                                    ------------   ------------   -----------
</TABLE>



(a) The Corporation's businesses are located in the United States and Canada,
which the Corporation considers one geographic segment.

(b) See Note 10.

(c) Capital expenditures for 1995 exclude property, plant and equipment of
$9,027,000 acquired in connection with the Corporation's 1995 acquisitions
(Note 2).

(d) Includes cash and cash equivalents for all years presented.






<PAGE>   50



PAGE 50

17. CONTINGENCIES

The Corporation is involved in various legal actions in the normal course of
business. In the opinion of management, the aggregate amount of any potential
liability, for which provision has not already been made, is not expected to
have a material adverse effect on the Corporation's financial position or its
results.

18. SUBSEQUENT EVENTS

(i) In January 1998, the Corporation, through its wholly-owned subsidiary,
Zemex Industrial Minerals, Inc., acquired Aspect Minerals, Inc., a muscovite
mica producer, for approximately $2,200,000, which includes the assumption of
debt. The two facilities acquired in the purchase are located in the Spruce
Pine, North Carolina area and will operate under the name Zemex Mica
Corporation. The acquisition was financed through borrowings on the
Corporation's credit facility.

(ii) On February 24, 1998, Industria Mineraria Fabi S.r.l. ("Fabi") became a
partner in the Corporation's talc facility located in Benwood, West Virginia by
acquiring a 40% interest in a new limited liability company, Zemex
Fabi-Benwood, LLC. As part of the transaction, Fabi paid $3,400,000 and is
providing access to its technology. SMP, a wholly-owned subsidiary of the
Corporation, will manage the new entity pursuant to an operating agreement.

19. COMPARATIVE FIGURES

Certain 1996 and 1995 figures in the consolidated financial statements have
been reclassified to conform with the 1997 presentation.






<PAGE>   51



PAGE 51

         -----------------------------------------------------------------
                            SELECTED FINANCIAL DATA
         -----------------------------------------------------------------

<TABLE>
<CAPTION>
                              1997          1996          1995          1994           1993
                         ------------  -------------  ------------  ------------   -----------
<S>                       <C>           <C>            <C>           <C>           <C>
SUMMARY OF OPERATIONS
Net Sales                $ 97,226,000   $ 86,420,000   $85,056,000   $55,306,000   $47,958,000
Reorganization
 and Restructuring
 Charges                            -      1,752,000             -             -     1,250,000
Operating Income            8,371,000      3,066,000     8,342,000     5,841,000     1,237,000
EBITDA(a)                  15,877,000      7,305,000    12,111,000     8,319,000     6,952,000
Other Income
  (Expenses)                 (309,000)    (1,403,000)     (443,000)     (262,000)    2,421,000
Net Income                  5,793,000      2,612,000     8,418,000     6,250,000     1,852,000
                         ------------   ------------   -----------   -----------   -----------
FINANCIAL POSITION
Working Capital          $ 18,975,000   $ 18,688,000   $19,709,000   $26,046,000   $ 9,288,000
Total Assets              118,774,000    109,376,000    96,681,000    70,864,000    48,414,000
Long Term Debt
  (non-current
  portion)                 20,527,000     17,797,000     7,485,000     5,461,000     8,735,000
                        -------------   ------------   -----------   -----------    ----------
COMMON SHARES
Average Common
 Shares
 Outstanding                8,097,642      7,937,379     7,843,992     5,149,401     4,148,009
Actual Common
 Shares Issued
 and Outstanding
 at Year End                8,463,491      8,269,099     8,355,722     7,168,153     4,535,283
                        -------------   ------------   -----------   -----------    ----------
PER COMMON SHARE
Basic Earnings
  per Share                     $0.72          $0.33         $1.07         $1.21         $0.45
Diluted Earnings
  per Share                      0.70           0.32          1.03          1.12          0.40
  EBITDA(a) per Share            1.96           0.92          1.54          1.62          1.68
                        -------------   ------------   -----------    ----------    ----------
COMMON SHARE PRICES
High                           $10.94         $10.00        $10.88        $12.25         $8.00
Low                              6.75           6.88          8.25          6.13          4.50
Year End                         8.75           7.00         10.00          8.63          6.75
                        -------------   ------------   -----------    ----------   -----------
</TABLE>


(a) EBITDA is defined as earnings before interest, tax, depreciation and
amortization






<PAGE>   52



PAGE 52

CORPORATE DIRECTORY

BOARD OF DIRECTORS
Paul A. Carroll
Chairman and Chief Executive Officer,World Wide Minerals Ltd. (1)

Morton A. Cohen
Chairman, President and Chief Executive Officer,Clarion Capital Corporation

John M. Donovan
Corporate Consultant (1)(2)(3)

Thomas B. Evans, Jr.
Vice Chairman, The Evans Group, Ltd. (2)

Ned Goodman
Chairman, President and Chief Executive Officer, Dundee Bancorp Inc.

Peter O. Lawson-Johnston
Chairman and Trustee, Solomon R. Guggenheim Foundation;
Chairman, The Harry Frank Guggenheim Foundation (1)(3)

Richard L. Lister
President and Chief Executive Officer of the Corporation (3)

Patrick H. O'Neill
Corporate Consultant (2)

William J. vanden Heuvel
Counsel, Strook, Strook & Lavan (3)

(1) Member of the Executive Compensation/Pension Committee
(2) Member of the Audit Committee
(3) Member of the Executive Committee

OFFICERS
Peter O. Lawson-Johnston
Chairman of the Board

Richard L. Lister
President and Chief Executive Officer

Allen J. Palmiere
Vice President and Chief Financial Officer

Peter J. Goodwin
Vice President
President, Industrial Minerals

Terrance J. Hogan
President, Alumitech, Inc.

George E. Gillespie
President, Metal Powders

Patricia K. Moran
Corporate Secretary and Assistant Treasurer






<PAGE>   53



EXECUTIVE OFFICE
Zemex Corporation
Canada Trust Tower
BCE Place, 161 Bay Street
Suite 3750, P.O. Box 703
Toronto, Ontario
Canada M5J 2S1
Telephone: (416) 365-8080
Fax: (416) 365-8094
Website: www.zemexcorp.com

INDEPENDENT PUBLIC ACCOUNTANTS
Deloitte & Touche
Toronto, Ontario, Canada

TRANSFER AGENT AND REGISTRAR CAPITAL STOCK
First Union National Bank of North Carolina
Shareholder Services Group
1525 West W.T. Harris Blvd-3C3
Charlotte, North Carolina
U.S.A. 28262-1153
Telephone: (704) 590-7387
Fax: (704) 590-7598

FORM 10-K
Copies of Form 10-K filed with the Securities and Exchange Commission for the
year ended December 31, 1997 will be available after April 1, 1998
by writing to Shareholder Relations at the Executive Office

Printed in Canada on recycled paper

Design: Tara Pain Rowlands Design
Photography: Jim Allen
Production: Walter J. Mishko & Co. Inc.