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

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

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

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

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

Indicate by check mark which financial statement item the registrant has elected to follow:
[X][X]  Item 17     [   ] Item 18

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

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TABLE OF CONTENTS

Financial Statements:

i

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

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

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS

Not required.

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

Not required.

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ITEM 3. KEY INFORMATION

A.        Selected Financial Data

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

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

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year ended 31 January 2005 under the share bonus program were understated by $638,000. The Company has restated its consolidated financial statements for the years ended 31 January 2006 and 2005 to reflect these items. As a result of the restatement, Loss per Share for the year ended 31 January 2005 increased by $0.02.

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

D.        Risk Factors

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

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RISKS RELATING TO OUR BUSINESS

Our metals explorationWe may experience delays, higher than expected costs, difficulties in obtaining environmental permits and development efforts are highly speculative in nature and may be unsuccessful.other obstacles when implementing our capital expenditure projects.

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

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

We are investing heavily in various facets of our NorthMet Project. Our project is subject to all of the risks inherent in the mining industry, including, without limitation, the following:

• Success in discovering and developing commercially viable quantities of minerals is the result of a number of factors, includingrisks that may make it less successful than anticipated, including:

  • we may encounter delays or higher than expected costs in obtaining the quality of management, the interpretation of geological data, the level of geologicalnecessary equipment or services to build and technical expertiseoperate our projects, and the quality of land available for exploration;

  • Exploration for minerals is highly speculativeadverse mining conditions may delay and involves substantial risks, even when conducted on properties known to contain significant quantities of mineralization, and most exploration projects do not result in the discovery of commercially mineable deposits of ore;

  • Operations are subject to a variety of existing laws and regulations relating to exploration and development, permitting procedures, safety precautions, property reclamation, employee health and safety, air and water quality standards, pollution and other environmental protection controls, all of which are subject to change and are becoming more stringent and costly to comply with;

  • A large number of factors beyond our control, including fluctuations in metal prices and production costs, inflation, the proximity and liquidity of precious metals and energy fuels markets and processing equipment, government regulations, including regulations relating to prices, taxes, royalties, land tenure, land use, importing and exporting of minerals and environmental protection, and other economic conditions, will affect the economic feasibility of mining;

  • Substantial expenditures are required to construct mining and processing facilities; and

  3

  ---

  • In the development stage of a mining operation, our mining activities could be subject to substantial operating risks and hazards, including metal bullion losses, environmental hazards, industrial accidents, labor disputes, encountering unusual or unexpected geologic formations or other geological or grade problems, encountering unanticipated ground or water conditions, cave-ins, pit-wall failures, flooding, rock falls, periodic interruptions due to inclement weather conditions or other unfavorable operating conditions and other acts of God. Some of these risks and hazards are not insurable or may be subject to exclusion or limitation in any coverage which we obtain or may not be insured due to economic considerations.

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

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

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

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

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

  As a development stage company with no holdings in any producing mines, we continue to incur losses and expect to incur losses in the future. As of January 31, 2007, we had an accumulated deficit of $52,599,000. We may not be able to achieve or sustain profitability in the future. If we do not begin to generate revenues or find alternate sources of capital, we may either have to suspend or cease operations.

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

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

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

  The figures for reserves and mineral resources stated in this Annual Report are estimates and no assurances can be given that the anticipated tonnages and grades will be achieved or that the indicated level of recovery will be realized. Market fluctuations and the prices of metals may render reserves and mineral resources uneconomic. Moreover, short-term operating factors relating to the mineral deposits,

  4

  ---

  such as the need for the orderly development of the deposits or the processing of new or different grades of ore, may cause a mining operation to be unprofitable in any particular accounting period.

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

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

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

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

• protect the environment, including the quality of the air and water in the vicinity of exploration, development, and mining operations;

• remediate the environmental impacts of those exploration, development, and mining operations;

• protect and preserve wetlands and endangered species;species, and

• mitigate negative impacts on certain archeological and cultural sites.

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

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

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

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standards imposed by federal, state, or local governments may be changed or become more stringent in the future, which could materially and adversely affect our proposed activities.

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

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

• expectations for inflation;

• the strength of the United States dollar;

• global and regional supply and demand;demand, and

• political and economic conditions and production costs in major metals producing regions of the world.

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

We are dependent on our key personnel

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

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

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

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

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

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

4

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

• Success in discovering and developing commercially viable quantities of minerals is the result of a number of factors, including the quality of management, the interpretation of geological data, the level of geological and technical expertise and the quality of land available for exploration;

• Exploration for minerals is highly speculative and involves substantial risks, even when conducted on properties known to contain significant quantities of mineralization, and most exploration projects do not result in the discovery of commercially mineable deposits of ore;

• Operations are subject to a variety of existing laws and regulations relating to exploration and development, permitting procedures, safety precautions, property reclamation, employee health and safety, air and water quality standards, pollution and other environmental protection controls, all of which are subject to change and are becoming more stringent and costly to comply with;

• A large number of factors beyond our control, including fluctuations in metal prices and production costs, inflation, the proximity and liquidity of precious metals and energy fuels markets and processing equipment, government regulations, including regulations relating to prices, taxes, royalties, land tenure, land use, importing and exporting of minerals and environmental protection, and other economic conditions, will affect the economic feasibility of mining;

• Substantial expenditures are required to construct mining and processing facilities;

• Title to mining properties may be subject to other claims, and

• In the development stage of a mining operation, our mining activities could be subject to substantial operating risks and hazards, including metal bullion losses, environmental hazards, industrial accidents, labor disputes, encountering unusual or unexpected geologic formations or other geological or grade problems, encountering unanticipated ground or water conditions, cave- ins, pit-wall failures, flooding, rock falls, periodic interruptions due to inclement weather conditions or other unfavorable operating conditions and other acts of God. Some of these risks and hazards are not insurable or may be subject to exclusion or limitation in any coverage which we obtain or may not be insured due to economic considerations.

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

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

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

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

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

5

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

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

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

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

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

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

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

• industrial accidents;

• railroad accidents;

• labor disputes;

• environmental hazards;

• electricity stoppages;

• equipment failure;failure, and

• severe weather and other natural phenomena.

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

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

We face intense competition from other mining and producing companies. In recent years, the mining industry has experienced significant consolidation among some of our competitors, as a result these

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companies may be more diversified than us. We cannot assure you that the result of current or further consolidation in the industry will not adversely affect us.

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

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

We are investing heavily to further increase our production capacity, logistics capabilities and to expand the scope of minerals we produce. Our expansion and mining projects are subject to a number of risks that may make them less successful than anticipated, including:

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

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

RISKS RELATED TO THE OWNERSHIP OF OUR STOCK

We may experience volatility in our stock price.

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

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

Our shares that are eligible for future sale may have an adverse effect on the price of our stock. As of January 31, 20072008 there were 121,378,876136,991,075 of our common shares outstanding. The average trading volume for the three months prior to January 31, 20072008 was approximately 51,00085,000 shares per day on the Toronto Stock Exchange and 133,000212,000 shares per day on the American Stock Exchange. Sales of substantial amounts of our common shares, or a perception that such sales could occur, and the existence of options or warrants to purchase common shares at prices that may be below the then current market price of our common shares, could adversely affect the market price of our common shares and could impair our ability to raise capital through the sale of our equity securities.

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

We have issued common shares and options, and warrants to purchase our common shares to satisfy our obligations and fund our operations (see Item 5.A). In the future, becauseSince we currently do not have a source of revenue, we will likely issue additional common shares, options, warrants, preferred stock or other securities exercisable for or convertible into our common shares to raise money for our continued operations or as non-cash incentives to our own and our subsidiaries' directors, officers, insiders, and key

7

employees. If additional sales of equity occur, your ownership interest and voting power in us will be diluted and the market price of our common shares may decrease.

Under our “rolling” Stock Option2007 Omnibus Share Compensation Plan (the “Plan”) which was adopted on October 3, 2003,May 25, 2007, and approved by our shareholders on May 28, 2004, and accepted byJune 27, 2007, the TSX-Venture Exchange on June 29, 2004, optionsaggregate number of Common Shares that may be granted equal in numberissuable pursuant to the Plan may not at any time exceed the greater of (i) 10% of theour issued and outstanding capitalcommon shares and (ii)18,592,888 common shares, representing 13.62% of the Companyour outstanding common shares at the time of grantthe approval of the stock option.Plan, of which 5,940,000 common shares are reserved for issuance as awards other than options. As of January 31, 2007 we could issue options2008 the aggregate number of Common

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Shares issuable pursuant to purchase up to 12,137,887the Plan was 13,655,887 shares. Under ourOur bonus share incentive plan (the “Bonus Plan”) was established for our directors and key employees and was approved by the disinterested shareholders at the Company’s shareholders’ meeting held on May 28, 20042004. Under the Bonus Plan we may issue an additional 4,940,000 shares upon achieving certain milestones. On November 4, 2004, the Company adopted, and the shareholders approved, a revised Bonus Plan limiting the aggregate shares that may be issued under the Bonus Plan and the Company’s Amended Stock Option plan to not more than 20% of the Company’s issued and outstanding capital at the time of the issuance of options and bonus shares.

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

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

AAn updated Shareholders Rights Plan between us and shareholders effective as of December 3, 2003June 27, 2007 and certain employment and management agreements contain provisions that could discourage an acquisition or change of control without our board of directors’ approval. Under the ShareholdersShareholders’ Rights Plan, if a shareholder individually or in concert with other shareholders acquires 20% or more of our common shares outstanding without complying with the ShareholderShareholders’ Rights Plan or without the approval of our Boardboard of Directors,directors, all holders of record will have a right to one common share for each share owned. Each right entitles the holder to a certain number of shares, as calculated under the Rights Plan. We have also entered into agreements with certain key employees and officers that contain severance provisions in the event of a take-over bid. The Shareholders’ Rights Plan and the preceding agreements may make it more difficult for a third party to acquire control of us, even if such a change of control is more beneficial to shareholders.

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

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

Conflicts of Interest

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

Absence of Dividends

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

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

Legal, accounting and other expenses associated with public company reporting requirements have increased significantly in the past few years. We anticipate that general and administrative costs

8

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

ITEM 4. INFORMATION ON THE COMPANY

A.        History and Development of the Company

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

Our principal executive office is situated at Suite 1003 –1177– 1177 West Hastings Street, Vancouver, B.C. V6E 2K3. Our phone number is (604) 669-4701. Our registered and records office is located at our legal counsel’s offices situated at 2500 – 700 West Georgia Street, Vancouver, B.C. V7Y 1B3.1B3, CANADA. Our agent in the U.S. is Poly Met Mining, Inc. whose office isoperational headquarters are located at P.O. Box 475, 6500 County Road 666, Hoyt Lakes, Minnesota 55750-0475.55750-0475, United States.

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

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

During the years ended January 31, 2008, 2007, 2006, and 20052006 we spent $21.161 million, $13.015 million $12.130 million and $1.623$12.130 million, respectively to acquire property, and perform pre-feasibility work and perform work postfollowing completion of our Definitive Feasibility Study primarily on our NorthMet Project located in Minnesota, USA. In addition, during the years ended January 31, 2008, 2007, 2006, and 20052006 we issued shares valued at $nil, $6.160 million $7.564 million and $0.229$7.564 million, respectively, in optioning and purchasing a nearby crushing and grinding plant and associated infrastructure (the “Erie Plant”) and land.

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

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B.         Business Overview

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

In the years ended January 31, 2008, 2007 2006 and 2005,2006, we conducted exploration, development and acquisition activities only and did not conduct any operations that generated revenues. Thus, we rely principally on equity financings to fund our projects and expenditures.

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

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On December 20, 2006 respectively we acquiredentered into two Contracts for Deed with Cliffs Erie LLC, a subsidiary of Cleveland Cliffs, Inc. of Cleveland, Ohio (“Cliffs”), under which we now own a large processing facility, a tailings disposal facility, and extensive additionalassociated infrastructure associated withlocated approximately six miles west of our NorthMet Project from Cliffs. We obtaineddeposit. In combination, the Erie Plant includes a 100,000 ton-per-day crushing and milling facility, a railroad connection linkingand railroad access right connecting the mine development site andErie Plant to the existing crushing and grinding plant that was acquired from Cliffs in 2005NorthMet deposit, as well as a 120-railcar fleet,120 railcars, locomotive fueling and maintenance facilities, water rights and pipelines, large administrative offices on site and approximately 6,000 acres to the east and west of the mine development site andErie Plant, contiguous to ourthe existing tailing facilities.

Environmental permitting.To commence commercial production at NorthMet, various regulatory approvals are needed. The purchase price for this additional infrastructure consistedMinnesota Department of 2 millionNatural Resources (the “MDNR”), the United States Forest Service (the “USFS”) and the United States Army Corps of Engineers (the “USACE”) agreed to cooperate in preparing a single Environmental Impact Statement (the “EIS”) under state guidelines issued by the MDNR. The MDNR has taken longer than it originally expected to complete its review of the environmental testing and analysis that supports the EIS. Most recently, in February 2008 the MDNR informed us that, in order to make the draft EIS as thorough and complete as possible, extra time is being taken by the MDNR to validate and verify sampling, monitoring, and modeling data. The MDNR anticipates the validation and drafting of the draft EIS will be completed before the end of the second quarter of 2008.

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

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

Bateman was responsible for completing the process design and US$15 million in cashdetail engineering and cost estimates for the plant and infrastructure. This work was supported by other firms that provided geo-statistical reviews of the ore body, mine planning and scheduling of ore and waste, and assessment of the market for the metals and intermediate products planned to be issuedproduced.

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

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11staging capital costs so that the hydrometallurgical plant can be funded at least in part from cash flow from sales of concentrate, and it reduces our reliance on delivery of long lead-time equipment before we start commercial production.

Financing and corporate development. Since 2003 we have raised approximately $80 million from equity private placement financings. We have also continued to strengthenexpanded and strengthened our management team at both the corporate level and at our facilities in Minnesota. During the period endedteam. Since January 31, 2007,2008 we appointed Joe Scipioni as Vice President – Operations and Construction and Niall Moore as Corporate Secretary and Group Controller. Subsequenthave relocated our operational headquarters to the fiscal year end we appointed William D. Corneliuson to the Board, and we promoted Joe Scipioni to the position of Chief Operating Officer and appointed Phillip Brodie-Hall as Group Vice President – Construction and Andy Clark as Area Manager – Facilities. We also reported that Warren Hudelson had decided to retire from his position as Executive Vice President and Director of the US subsidiary, Poly Met Mining, Inc. but he will continue as an advisor to the Company in connection with permitting.Hoyt Lakes, Minnesota.

C.        Organizational Structure

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

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

D.        Property, Plant and Equipment

PlantProperty - NorthMet Project, Minnesota, USA

Our primary mineral property is the NorthMet Project, a polymetallic project located in northeastern Minnesota, USA. Our Erie Plant comprises a large crushing, grinding and milling facility that was built by LTV Steel in the mid-1950s and processed low grade iron ore known as taconite that was transported to the facility by railroad from local mines. Since the mid-1960s the plant was operated by Cliffs on behalf of LTV Steel and processed approximately 100,000 tons per day of taconite ore. The plant was shut down in 2000 when LTV Steel filed for bankruptcy protection since when it has been maintained initially by Cliffs and, since November 15, 2005, by us. The plant did not operate during the period ended January 31, 2007. The plant is located approximately six miles west of ourthe NorthMet deposit, about five miles north-northwest ofore body.

In the town of Hoyt Lakes, itself located about fifteen miles west of Virginia, Minnesota. The plant covers approximately 6,400 acres, or approximately 10.0 square miles.

On December 20,years ended January 31, 2008, 2007 and 2006, we acquired from Cliffs a railroad connection linking the mineconducted exploration, development site and the Erie Plant as well as a 120-railcar fleet, locomotive fuelingacquisition activities only and maintenance facilities, water rights

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and pipelines, large administrative offices on site and approximately 6,000 acres to the east and west of and contiguous to PolyMet's existing tailing facilities.

Before 2000, Cliffs had undertaken numerous programs to update and modernize control systems in the Erie Plant. The plant is generally in good physical condition and was operating at or near full capacity prior to its closure. We have examined the plant in detail and have restarted certain pieces of equipment and believe it to be serviceable.

Equipment

All of our material fixed assets are located at the Erie Plant and include: two rail dump pockets each with a 60” gyratory crusher, 3 x seven-foot standard cone crushers, 6 x seven-foot short-head crushers, 30 mill circuits each comprising one 12’x 14' rod mill and one 12’x 14' ball mill, 3 x 12'x 24' regrind mills, flotation cells, maintenance facilities and spare parts, extensive conveyors, feeders, bins, auxiliary facilities and offices, established infrastructure including a 250 MVA high voltage electrical substation, water supply, roads, tailings basins, 120 rail cars, locomotive fueling and maintenance facilities, water pipelines, and large administrative offices.

We are currently in the environmental process to obtain all necessary permits required to operate the Erie Plant and all the material fixed assets, as listed above.

Property - NorthMet Project, Minnesota, USAdid not conduct any operations.

(a)       History

The NorthMet Project is located immediately south of the historic Mesabi Iron Range in northeastern Minnesota. Mining in the Iron Range dates back to the 1850’s1880’s when high grade iron ore known as hematite was first mined commercially. During the 1940s and 50s, with reserves of hematite dwindling, the iron industry began to focus on taconite, a lower-grade iron ore. SixEight large crushing, grinding, milling facilities were built by various iron and steel companies to process the taconite, including the Erie Plant that we acquired in November 2005.

FollowingIn the discovery of1940s, copper and nickel in the 1940s,were discovered nearby, following which, in the 1960s, United States Steel Corporation (“US Steel”) staked ground atdrilled what was then called Dunka Road,is now called NorthMet. At that time, the market did not recognize platinum group metals (PGMs) or gold and the market for PGMs was small because there was no reliable method to assay low grades of these metals.our NorthMet property. US Steel investigated the deposit as a high-grade, underground copper-nickel resource, but considered it to be uneconomic based on its inability to produce separate, clean nickel and copper concentrates with the metallurgical processes available at that time. In addition, prior to the development of the autocatalyst market in the 1970s, there was little market for platinum group metals (PGMs) and there was no economic and reliable method to assay for low grades of these metals.

In 1987, the Minnesota Natural Resources Research Institute (“NRRI”) published data suggesting thatthe possibility of a large resource of platinum group minerals or PGMs may be in the base of the Duluth Complex. In 1989, we acquired a 20-year renewable mining lease over the property from US Steel and commenced an investigation into the potential for mining and recovery of copper, nickel, and PGMs. We conducted a program to re-assayre-assayed pulps and rejects from the previous drill core forUS Steel drilling to obtain data on the PGMs. WeSequentially we entered into joint venture agreements with Nerco and Argosy Mining, which assisted in identifying and quantifying potential PGM

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values. However, the challenge of producing separate concentrates of saleable copper and nickel remained.

In the mid-90’s, we began investigating the use of hydrometallurgicalalternative metallurgical processes, including bio-leaching and pressure oxidation. In 1998 we focused on a hydrometallurgical extractive technology which led to the development of the PlatSol™ Process. This processthat uses autoclaves, which are vessels operating at high temperature, high pressure, and in an oxygen-enriched vessels,environment, to oxidize the sulfidic ores and leach the metals therein. This technology has been used commercially in the copper, nickel, cobalt, and precious metals industries since the 1980s.

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

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

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

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

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

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

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

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

• 2 million of our common shares;

• $1 million in cash was paid at closing;

• $7 million in cash is payable in quarterly installments of $250,000 commencing December 31, 2006 with the balance payable upon receipt of commercial financing. Interest on the outstanding amount be payable quarterly from December 31, 2006 at theWall Street JournalPrime Rate. As of March 31, 2008 the remaining balance was $5.5 million; and

• $7 million in cash is payable in quarterly installments of $250,000 commencing on December 31, 2009. Interest will begin to accrue on the outstanding amount beginning on December 31, 2009 after which it will be payable quarterly at theWall Street JournalPrime Rate.

PolyMet also assumed certain liabilities associated with the property.

As of January 31, 2007,2008, we have expended $38.166$65.0 million primarily on the acquisition of the Erie Plant and related infrastructure. Under the Asset Purchase Agreement we have paid $3.0 million plus interest and owe Cliffs $0.4 million. Under Cliffs II we have paid $2.25 million plus interest and owe $12.75 million.

During the three years ended January 31, 20072008 we expended andan additional $21.587$20.0 million on pre-feasibilityfeasibility work at the deposit and plant. Since inception, we have a cumulative deficit of $52.599$56.3 million, much of which has been incurred directly and indirectly in connection with our NorthMet Project. These expenditures supported drilling, sampling, assaying, environmental, metallurgical testing, and the pre-feasibility studies.

The following diagram illustrates the location of the NorthMet Project.

Figure No. 1
NorthMet Project Map

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(b)        Location/Access/Climate

The NorthMetPolyMet Project land position covers a total of 16,600 acres or 25.9 square miles comprising two areas: the NorthMet mine site totaling 4,200 acres or 6.5 square miles of patentedleased mineral rights and the Erie plant site totaling 12,400 acres of freehold land located approximately six miles west of the mine site. The property is located in St. Louis County in the Mesabi Range District about 60 miles north of Duluth, Minnesota. The Project is easily accessible via state and county roads. The surfaced Hoyt RoadCounty Highway 666 links the plant to the town of Hoyt Lakes, itself approximately fifteen25 miles east of Virginia, Minnesota which is located on State Highway 53. The mine site is accessible by an all-season gravel road from the plant site and a private railroad crosses the property immediately south of the deposit and runs to the plant site. ThereThe plant site is serviced by commercial railroad which connects into the US national and Trans-Canadian railroad systems, as well as a private railroad providing access to port facilities located on Lake Superior. Three high-voltage power linelines supplied by Minnesota Power that suppliessupply the plant site and there is ready access to industrial electric power at the mine site. Two other railway lines are located within ten miles and connect with three ports on Lake Superior and into the US national and Trans-Canadian railroad system.

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

(c)        Claims and ownership

              (i)               NorthMet Lease

Pursuant to an agreement dated January 4, 1989, subsequently amended and assigned, we lease certain lands in covering 4,162 acres or 6.5 square miles located in St. Louis County, Minnesota, known as the NorthMet Project, from RGGS Land & Minerals Ltd., L.P (“RGGS”). During the year ended January 31, 2005, US Steel assigned the lease to RGGS. The current term of the renewable lease is 20 years and calls for future annual lease payments of $150,000 in January 2007 through 2009.of each year.

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

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

              (ii)             The Erie Plant

By a Memorandum of Understanding dated December 5, 2003 and an option agreement dated February 14, 2004, we obtained an option (“Cliffs Option”) to acquire certain property, plant, and equipment (“Cliffs Assets”) from Cleveland Cliffs of Cleveland, Ohio (“Cliffs”) located near our NorthMet Project. As consideration for the exclusive Cliffs Option, we paid $500,000 prior to January 31, 2004 and issued to Cliffs 1,000,000 common shares on March 30, 2004, valued at $229,320 to maintain our exclusive rights until June 30, 2006. The option gave us exclusive rights until June 30, 2006 subject to the payment of an additional $5 million to Cliffs with six months of completion of a bankable feasibility study.

On September 15, 2005 we reached an agreement with Cliffs on the terms for the early exercise of our option to acquire 100% ownership of large portions of the former LTV Steel Mining Company ore processing plant in northeastern Minnesota (the “Asset Purchase Agreement”).

On November 15, 2005, we consummated the Asset Purchase Agreement and completed the acquisition thereunder. The property, plant, and equipment assets we now own include land, crushing, milling, and

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flotation capacity, complete spare parts, plant site buildings, real estate, tailings impoundments and mine work shops, as well as access to extensive mining infrastructure.

The consideration for the Asset Purchase Agreement was $1.0 million in cash, the issuance of 6,200,547 of our common shares (issued on November 15, 2005, at fair market value of $7,564,444), and a note in the aggregate principal amount of $2.4 million plus interest at 4% a year that will be paid in quarterly installments of $250,000 commencing March 31, 2006. As of March 31, 2007 the first five payments have been made. As of January 31, 2007, $169,000 of accrued interest has been capitalized as part of the cost of the NorthMet Project assets.

On September 14, 2006, we announced that our wholly-owned US subsidiary Poly Met Mining, Inc. had entered into an agreement with Cliffs whereby we would acquired property and associated rights (Cliffs II.) We closed the transaction on December 20, 2006. The transaction provides us with a railroad connection linking the mine development site and the existing crushing and the Erie Plants well as a 120-railcar fleet, locomotive fueling and maintenance facilities, water rights and pipelines, large administrative offices on site and approximately 6,000 acres to the east and west of and contiguous to our existing tailing facilities.

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

• 2 million shares of PolyMet;
• US$1 million in cash paid at closing;
• US$7 million in cash payable in quarterly installments of US$250,000 commencing December 31, 2006 with the balance payable upon receipt of commercial finance. Interest will be payable quarterly from December 31, 2006 at the Wall Street Journal Prime Rate; and
• US$7 million payable in quarterly installments of US$250,000 commencing on December 31, 2009. There will be no interest accrued until December 31, 2009 after which it will be payable quarterly at the Wall Street Journal Prime Rate.

PolyMet also assumed certain liabilities associated with the property.

As of March 31, 2007 we had paid the first two quarterly installments of the loan plus interest.

The Erie Plant

As set forth under the Asset Purchase Agreement, we have assumed certain ongoing site-related environmental and reclamation obligations of Cliffs in connection with the Erie Plant. Once we obtain our permit to mine and Cliffs is released from its obligations by certain state agencies, we will be directly obligated to comply with applicable environmental and reclamation obligations. Prior to Cliffs acquisition of the plant from LTV Steel and prior to our acquisition of the plant from Cliffs, both Cliffs and we undertook environmental assessments and concluded that there were no material liabilities other than the ultimate closure and reclamation of the site. Until operating permits are granted to us, Cliffs remains the named party of record for such obligations although, as part of the Asset Purchase Agreement, we have indemnified Cliffs for such costs. As of January 31, 20072008 we estimate that liability to be approximately $23.4$23.5 million and, based on the expected timing of such payments, our cost of capital, and anticipated inflation rates, we made a provision of $3.4 million in our financial statements at that date.

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

As of January 31, 2007, we do not have any producing mines, thus, we are not yet utilizing the Erie Plant.

The Erie Plant comprises a large crushing, grinding and millionmilling facility that was built by LTV Steela consortium of steel companies in the mid-1950s and processed low grade iron ore known as taconite that was transported to the facility by railroad from localnearby mines. SinceIn the mid-1960smid-1980’s, the plantconsortium was consolidated into a single owner – LTV Steel. Pickands-Mather and its successor Cliffs operated by Cliffsthe plant on behalf of LTV Steel

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and processedthe owners, processing approximately 100,000 tons per day of taconite ore. The plant was shut down in 20002001 when LTV Steel filed for bankruptcy protection since whenprotection. Since then it has been maintained initially by Cliffs and, since November 15, 2005, by us. The plant did not operate during the period ended January 31, 2007.2008.

The plant is located approximately six miles west of our NorthMet deposit,ore body, about five miles north-northwest of the town of Hoyt Lakes, itself located about fifteen25 miles west of Virginia, Minnesota. The plant site covers approximately 12,400 acres, or approximately 19.4 square miles, and is powered by electricity from local power lines.

The total plant facilities include two rail dump pockets, each with atwo primary 60” gyratory crusher, 3 xcrushers, four secondary seven-foot standard cone crushers, 6 xseven tertiary seven-foot standard cone crushers, 14 seven-foot short-head crushers, 30 mill circuits each comprising one 12’x 14' rod mill and one 12’x 14' ball mill, 3 xthree 12'x 24' regrind mills, flotation cells, maintenance facilities and spare parts, extensive conveyors, feeders, bins, auxiliary facilities and offices, established infrastructure including a 250225 MVA high voltage electrical substation, water supply, roads, tailings basins and rail facilities.

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

Until the plant was closed in 2000,2001, Cliffs had undertaken numerous programs to update and modernize control systems. The plant is generally in good physical condition and was operating at or near full capacity prior to its closure. We are not yet utilizing the Erie Plant but we have examined the plant in detail and have restarted certain pieces of equipment and believe it to be serviceable.

We plan to use less than one thirdapproximately one-third of the historic productive capacity to crush and grind material that we expect to mine from the NorthMet deposit. We intend to construct new facilities to recover copper metal, nickel and cobalt concentrates,hydroxides, and precious metal precipitates. These new facilities replace the equivalent facilities used historically to recover iron from the taconite, which are not applicable to our anticipated metal products.

(d)        Permitting and Environmental

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

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

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

On October 25, 2005, the MDNR issued the Final Scoping EAW and related Final Scoping Decision after a period of public review and comment. These documents defined the scope of the EIS and were used to develop a request for proposal (the “RFP”) for third-party preparation of an EIS that will involve public

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participation. On April 3, 2006 the Minnesota DNR selected the independent EIS contractor which is preparing the EIS.

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

Once the draft EIS is published, non-government organizations, government agencies and the public will have an opportunity to comment. The final EIS will incorporate analysis and appropriate responses to comments, a process that can take several months. Once the EIS receives a declaration of “adequacy” the various permits required withfor construction can be issued. It should be noted that the Minnesota Department of National Resources asgovernment agencies that are preparing the lead agency.

Two winter wildlife studies, wetland and plant species evaluations, and preliminary geohydrology and rock geochemistry studies were completed in 1999, 2000, and 2001. These environmental studiesEIS are important to future permitting efforts.the same agencies that will be responsible for preparing the permits that we will need before we can commence construction.

We commenced the permitting process in early 2004. As of January 31, 2007,2008, we had spent approximately $6.5$14.581 million on environmental and permitting activities and we anticipate spending an additional $5.0$4.0 million to complete this work.

(e)        History of Exploration

Prospectors first discovered copper and nickel near Ely, Minnesota about 20 miles north of NorthMet in the 1940s. Subsequently, the Bear Creek Mining Company conducted a regional exploration program resulting in the discovery of the Babbitt deposit (northeast of NorthMet). US Steel stakedbegan an exploration program in the Duluth Complex in the late 1960’s and over the next few years drilled 112114 core holes into the NorthMet property (then called Dunka Road).

In 1987, the Minnesota NRRI published data suggesting the presence of a large resource of PGMs in the base of the Duluth Complex and, in 1989 we commenced an investigation into the potential for mining

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and recovery of copper, nickel, and PGMs. We re-assayed pulps and rejects from the previous US Steel drilling to obtain data on the PGMs.

In the early 1990s we leased the NorthMet property first to Nerco Minerals and later to Argosy Mining which continued to delineate the contained PGMs and drilled a few additional core holes.

From 1998 to present, we have conducted four drilling programs totaling 243 holes for approximately 146,000 ft. of core and reverse circulation drilling. The latest campaign comprising 47 holes totaling 19,000 feet was completed subsequent to the fiscal year ended January 31, 2007 and, combined with earlier drilling, brings the total to 357 diamond and reverse circulation holes aggregating to approximately 280,000 feet. In addition, we have meticulously recompiled all prior work started by US Steel in 1969.

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

Mineral Resources and Reserves

The NorthMet deposit has been extensively drilled during several campaigns starting with US Steel Corporation’s work in the late 1960s and culminating in PolyMet’s 2005 program. Within the overall

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mineralized envelope PolyMet hasdefined by these exploration programs, the 2006 DFS defined measured and indicated mineral resources above the 500-foot elevation (approximately 1,0601,120 feet below surface.)

In addition to inferred On August 9, 2007 we reported that measured and indicated mineral resources at the NorthMet Project had increased by 51% to 638 million short tons from the 422 million short tons reported in the DFS. The revised mineral resource envelope remains open along strikeestimates are based on the same cut-off grades used in the DFS – namely a Net Metal Value (“NMV”) of US$7.42 per ton, reflecting mine planning at a copper price of US$1.25 per pound and down dip. The DFS observes that, in additiona nickel price of US$5.60 per pound – see notes to the following table.

The increase in mineral resources reflects two changes:

• Data from the winter drill program which confirmed the continuity of the main mineralized zone and the size of the Magenta Zone, which was extended down dip and to the west. These changes contributed 149 million short tons to the increase in measured and indicated mineral resources.

• Extension of the overall mineral envelope to approximately 1,620 feet below surface, compared with the prior cutoff at approximately 1,120 feet below surface. This change contributed 67 million short tons to the increase in measured and indicated mineral resources.

As a result, measured and indicated mineral resources have increased by 216 million short tons to 638 million short tons and inferred mineral resources there is another 75-100have been expanded to 252 million short tons of “potential material” abovefrom 121 million short tons – all on the 500-foot elevation captured by extending the areaDFS cut-off grade. Details of influence assumed for each sample and that historic drilling as much as 2,500 feet below surface (nearly 1,500 feet below the 500-foot elevation) has encountered mineralization with a grade comparable to or better than nearer-surface resources.

Within the mineral resources are set out in the following table.

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Updated Mineral Resources compared with DFS

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

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

July 2006 Mineral ResourceThese reserves are constrained to mineable blocks associated with material contained in the measured and Reserve Estimateindicated resource blocks in the DFS for which detailed mining cost estimates, infrastructure planning, and waste rock stockpile locations were prepared as part of a larger study supporting the DFS. It should be noted that the inferred resources were not included in the DFS or in this interim reserve update.

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

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Updated Reserves compared with DFS

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

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

f)        Geology and Mineralization

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

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

The Duluth Complex is represented by the Partridge River Intrusionintrusion which overlays the Biwabik Iron Formation – the Partridge River Intrusion can beintrusion is locally sub-divided into seven lithologictroctolitic units:

• Unit 7 and Unit 6 – texturally homogeneous plagioclase-rich troctolite, each with a persistent ultramafic base. Unit 6 contains a mineralized horizon in the southwestern portion of NorthMet which is relatively enriched in PGM’s relative to copper. Units 6 and 7 are each about 400 ft. thick and form the shallowest units.thick.

• Unit 5 – coarse grained anorthositic troctolite (300 ft.) grading down to Unit 4.

• Unit 4 – homogeneous augite troctolite and troctolite, with a less persistent ultramafic horizon. The contact between 4 and 5 is difficult to establish and the two units may actually be a single unit.

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• Unit 3 – the most easily recognized unit because of its mottled appearance due to olivine oikocrysts. It is fine grained troctolitic anorthosite to anorthositic troctolite. Average thickness is 250 ft. but locally can be up to 500 ft.

• Unit 2 – homogeneous troctolite with abundant ultramafic units and a generally persistent basal ultramafic. This unit shows the most variation in thickness and may be absent entirely.

• Unit 1 – the most heterogeneous unit, both texturally and compositionally. Grain size is generally coarser at the top of the unit and fines downward. The unit contains abundant inclusions of the footwall rock and is noritic towards the base. This is the main sulfide bearing unit. Two ultramafic layers are generally present. Unit 1 is probably the result of multiple pulses of magma injection. Average thickness is about 450 ft.

The general trend of the sedimentary rocks at the base of the NorthMet deposit is to strike to thestriking east-northeast and to dipdipping to the southeast about 15-25°, and the Partridge River Intrusionintrusion appears to follow this general trend. Two east-northeast trending faults have been identified through the construction of cross sections. The faults are steeply dipping and normal in character; offset ranges from negligible to 600 ft. down to the southeast. A third major fault has been identified in the western portion of the area and can be traced to the Northshore Mine in the north. Movement on this fault is down to the east. Numerous other faults can be identified in the cross-sections, but offset is small and they lack continuity. The cross-sectional view shows considerable offset in the more southerly fault, and less offset on the more northerly fault. This relationship can vary over the strike of the deposit.

There are two types of mineralization related to the rift system: hydrothermal and magmatic. The hydrothermal deposits include native copper in basalts and sedimentary interbeds, such as on the Keewenaw Peninsula, sediment-hosted copper sulfide and native copper, represented by the White Pine Mine of Michigan, copper sulfide veins in volcanics and polymetallic veins (silver-nickel-cobalt) in volcanics. The magmatic deposits include copper-nickel-PGM mineralization and titanium-iron mineralization in the Duluth complex, uranium and rare earth elements in carbonatites and Cu-Mo in breccia pipes. More locally the magmatic deposits lie along the northwestern contact of the Duluth Complex with the underlying sediments and Giants Range Batholith. NorthMet and the Babbit (or Minnamax) deposits are the largest of the copper-nickel- PGM mineralization.

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

The metals of interest at NorthMet are copper, nickel, cobalt, platinum, palladium, gold and lesser amounts of rhodium and ruthenium. In general, the metals are positively correlated with copper mineralization, cobalt being the main exception. Mineralization occurs in four horizons throughout the NorthMet property. Three of these horizons are within basal Unit 1 and in some drill holes the horizons are indistinguishable from each other. The thickness of each of the three horizons varies from 5 to more than 200 feet. Unit 1 mineralization is found throughout the deposit. A less extensive mineralizationmineralizated zone is found in UnitUnits 4, 5, and 6 andin the western part of the deposit, it is relativelycopper-rich relative to sulfur, and moderately enriched in PGM’s compared to Unit 1.PGMs.

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

The NorthMet deposit has been identified over a length of approximately 2.5 miles and has been found to a depth of more than 1,000 feet, and is several hundred feet thick.2,600 feet. It is covered by a thin layer of glacial till but otherwise reaches to the subsurface.subsurface at the northern edge.

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(g)        Development Plans

SinceOur development plans were set out in our Definitive Feasibility Study prepared by Bateman Engineering Pty. in September 2006. This contemplated the previous Technical Report was published in July 2004, there have been numerous changesdevelopment of a new open pit mine at our NorthMet ore body, using rail infrastructure we acquired as part of Cliffs II to the scope of the project. Most notably, the processing rate has been expanded by nearly 20% totransport approximately 32,000 tons of ore per day. In addition, PolyMet is commitmentday from the mine site to exceeding Minnesota’s environmental standards, whichour Erie Plant, where we would use our existing facilities to crush and mill the rock. The finely ground material would then pass to a new flotation circuit with waste material sent to existing waste tailings facilities and the concentrate being passed to a new hydrometallurgical plant that we plan to build at the Erie Plant site.

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

We are amongst the most stringent in the world, resulting in additional costs.

Other scope changes, including constructionprocess of additional facilitiesupdating capital and operating cost estimates to house the hydrometallurgical and metallurgical plants, have added to project capital. Totalreflect inflation of capital costs as well as scope changes including the expanded processing rate, account for approximately $90 millionequipment needed to enable us to ship concentrate and additional measures we plan to take to protect the environment that were not included in the DFS.

Once we have completed these estimates and incorporate changes to the detailed mine plan within the approximate overall pit envelop that has formed the basis of all of our environmental analysis, and our Board has had an opportunity to review, revise and adopt the increase in capital costs since the previous estimate in 2004.revised plans, we will make a public announcement of material revisions.

DFS Economic Summary

DFS Capital Cost Estimate
($’000)

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

• High grade copper cathode that can be sold on the LME or COMEX markets or shipped directly to copper fabricators. Such product could potentially capture a premium price that has not been included in the economic analysis.

• A mixed hydroxide of nickel and cobalt that will be shipped to a third-party processor to produce nickel and cobalt metals. PolyMet isWe are in advanced discussions with potential buyers for the product. In conjunction with these negotiations, PolyMet is continuing to analyze the economics of producing separate nickel- and cobalt-hydroxides at site.

• A precious metals precipitate that will be shipped to a third-party refiner for production of palladium, platinum and gold – PolyMet isgold. We are in advanced discussions with potential buyers.buyers for the product.

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

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

Key Data and Economic Analysis
The economics reported in the DFS reflect the initial mine plan which in turn is based on the permit application for a processing rate of 32,000 tons per day for an initial period of 20 years. As previously described, the pit plan is not fully optimized and the 20-year permit application covers significantly less than half of the measured and indicated resources already defined.

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

DFS Base Case Price and Operating Assumptions and Key Production Numbers

Note: Costs are for Low Case metal price assumptions
assumptions.

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

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

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DFS Economic Projections on a Range of Metal Price Assumptions

We believe that we have completed exploration work required for the initial phases of production at NorthMet, however, we may need to conduct further in-fill drilling during the anticipated life of the project. The exploration work is being compiled in the DFS which is considering the commercial viability of an open-pit mine. The DFS is contemplating construction of a project mining an average of approximately 70,000 tons of rock per day and processing approximately 32,000 tons per day through the Erie Plant. The finely ground material from the Erie Plant would then be processed through a new hydrometallurgical plant to produce copper metal, nickel-cobalt concentrates, and a precious metals precipitate.

(h)        Regulations and Government Rules

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

ITEM 4A. UNRESOLVED STAFF COMMENTS

Not applicable.In a letter dated April 9, 2008 the SEC Staff requested that we amend our Form 20-F filing for the period ended January 31, 2007 to include a narrative discussion of the material terms of verbal agreements between us and Messrs. Dreisinger and Swearingen, two of our directors who have provided consulting services beyond their responsibilities as members of our Board. We have incorporated our response to that request in this Form 20-F and will file an Amendment No. 1 to our Form 20-F for the period ended January 31, 2007 (the “Form 20-F/A) when we receive notice from the SEC that our proposed amendment, as further amended if necessary, satisfactorily addresses the SEC’s comments.

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ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

(a)        Operating Results

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

Summary of Events During the Fiscal Year Ended January 31, 20072008

During the year ended January 31, 2007,2008, and through the date of the filing of this Annual Information Form / Annual Report on Form 20-F, the Company continued to advance its NorthMet Project including the activities noted below.

The Company reported the results of its pilot plant testing of flotation and hydrometallurgical extraction of metals from NorthMet ore samples. The test program was completed at SGS Lakefield Research (Canada) under the supervision of Bateman Engineering (Australia). The pilot plant program confirmed the technical feasibility of the NorthMet flotation and hydrometallurgical treatment process. Copper, nickel, cobalt, gold, platinum and palladium were successfully concentrated from three ore composites and extracted via the autoclave process. The extracted precious metals were recovered in a precipitate for off-site delivery to a refinery for treatment. Copper was recovered as LME grade-A copper cathode by conventional solvent extraction and electro-winning. Nickel and cobalt were recovered as either a combined "mixed hydroxide precipitate" or as separate purified nickel and cobalt hydroxide precipitate products for off-take/refinery treatment. The pilot plant provided engineering data for completion of the Definitive Feasibility Study. The pilot plant also provided environmental data for permitting of the NorthMet metallurgical facility.

On 25 September 2006 PolyMet announced that the Definitive Feasibility Study (“DFS”) prepared by Bateman Engineering (Pty) Ltd. (“Bateman”) confirms the economic and technical viability of the Company’s NorthMet copper-nickel-precious metals project. The executive summary of the DFS has

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been summarized in a Technical Report that confirms to National Instrument 43-101 and has been filed on PolyMet’s website (www.polymetmining.com) and on SEDAR.

The DFS describes measured and indicated mineral resources of 422.1 million tons grading 0.28% copper, 0.08% nickel and 0.01 ounces per ton (“opt”) of precious metals (palladium, platinum and gold). In addition, the DFS reports inferred mineral resources of 120.6 million tons grading 0.25% copper, 0.07% nickel, and 0.01 opt of precious metals. Mineral resources are not reserves and do not have demonstrated economic viability.

The DFS also established proven and probable mineral reserves. This material, contained within the measured and indicated mineral resources, totals 181.7 million tons grading 0.31% copper, 0.09% nickel, and 0.01 opt of precious metals. These mineral reserves are based on copper at $1.25 per pound, nickel at $5.60 per pound, and precious metal prices of $210, $800, and $400 per ounce respectively for palladium, platinum and gold.

The DFS is based on processing of 32,000 tons of ore per day, which is the size of operation being permitted.

Initial direct capital costs, including contingency, are estimated at approximately $312 million. Indirect costs including engineering and construction management, project insurance, the anticipated cost of environmental insurance related to reclamation and closure guarantees, and other owner’s costs are estimated at $68 million, for a total capital cost of approximately $380 million. Sustaining capital is projected at $72 million for the first 20 years.

The DFS estimates that the project will provide full-time employment for at least 400 people.

On 20 December 2006February 1, 2007, we acquired extensive additional infrastructure associated with our NorthMet Project from Cliffs. We obtained a railroad connection linking the mine development site and the existing crushing and grinding plant that we acquired from Cliffs in 2005 as well as a 120-railcar fleet, locomotive fueling and maintenance facilities, water rights and pipelines, large administrative offices on site and approximately 6,000 acres to the east and west of the mine development site and contiguous to our existing tailing facilities.

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

• 2 million shares of PolyMet;
• US$1 million in cash was paid at closing;
• US$7 million in cash is payable in quarterly installments of US$250,000 commencing 31 December 2006 with the balance payable upon receipt of commercial financing. Interest on the outstanding amount is payable quarterly from 31 December 2006 at theWall Street Journal Prime Rate; and
• US$7 million in cash is payable in quarterly installments of US$250,000 commencing on 31 December 2009. Interest will begin to accrue on the outstanding amount beginning on 31 December 2009 after which it will be payable quarterly at theWall Street JournalPrime Rate.

PolyMet has indemnified Cliffs for ongoing reclamation and remediation associated with the property.

With a total of 9,200,547 shares, Cliffs is now the beneficial owner of approximately 7.6% of the Company’s issued and outstanding common shares. Cliffs continues to have the right to participate on a pro-rata basis in future equity financings. PolyMet has the first right of refusal to place or acquire Cliff’s shares should Cliffs wish to dispose of its interest.

In January 2007, the Company submitted its NorthMet Project Description to state and federal regulators. The Project Description lays out the Company’s development plans and proposed environmental safeguards. Independent environmental contractors are preparing the Environmental Impact Statement (“EIS”) for the project. PolyMet and the regulatory authorities are discussing a revised schedule for

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completion and publication of the draft EIS. All parties recognize that it is imperative that the published document fully reflects PolyMet’s commitment to meet or exceed Minnesota’s environmental regulations and that a thorough and complete draft EIS should properly address concerns of interested parties. In view of these considerations, the draft EIS will not be published during the second quarter of 2007 as previously expected. PolyMet will report a revised schedule as soon as it becomes available.

Following publication of the draft EIS there will be a public comment period following which the final EIS is expected to be published for public comment. The issuance of a final EIS would allow PolyMet to apply for environmental and operating permits. Prior to receipt of these permits, the Company intends to secure production debt financing that would be available upon receipt of key permits, with construction slated to start upon availability of finance.

The final operational mine plan is currently being developed and is expected to include the results from a highly selective drill campaign which is focused on converting mineral resources into proven and probable mineral reserves as well as completion of pit optimization that is expected to reduce the strip (waste:ore) ratio, optimize equipment selection and mine scheduling and lower the mining costs. The optimized mine plan is scheduled for completion in the third quarter of 2007.

In March 2007, PolyMet appointed key operating and construction staff for the development of the NorthMet Project. The Company also engaged URS Corporation (“URS”) as lead contractor for the Engineering, Procurement and Construction Management of the NorthMet Project. PolyMet expects to benefit from URS’ International purchasing group as well as its project control systems that will provide cost and schedule monitoring for the Company and the anticipated project finance lenders. It is planned that Bateman will continue as the Owner’s Engineer and the DFS team will remain as the Process Design group. To optimize the construction phase of the project, Bateman has commenced developing detailed process packages in conjunction with the completion of the DFS.

Since completing the DFS in 2006, PolyMet’s construction team has been focused on optimizing the construction timeline and logistics, including assessing the possibility of achieving earlier sales of some products, as well as deferring substantial capital expenditures. Should this be practicable, PolyMet would not anticipate any significant change in the schedule for achieving initial revenues in late 2008 or early 2009.

Construction of NorthMet is expected to be made up of four major components:

In addition to the aforementioned developments relating to the NorthMet Project, PolyMet completed the following corporate related activities.

On 10 April 2006 the Company announced that it was accelerating the expiry of all of the then outstanding share purchase warrants raising $14.31 million.

In June 2006, PolyMet commenced trading on the American Stock Exchange under the symbol PLM.

On 31 October 2006 the Company entered into an agreement with BNP Paribas (“BNPP”) whereby BNPP will advise and assist the Company in all aspects of preparation for construction financing. BNPP was issued warrants to purchase 600,000 common shares of PolyMet at $4.00 per share at any time prior to October 30, 2010 and, upon delivering a bona fide offer of project financing, warrants to purchase an additional 500,000 common shares of PolyMet at $4.00 per share at any time prior to October 30, 2010 will vest. In March 2007, BNPP, acting in its construction financing advisor capacity, retained Micon International Limited (“Micon”) as Independent Engineer in connection with construction finance for the NorthMet Project. Micon is undertaking a detailed review of the DFS.

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In February 2007, PolyMet graduated from the TSX Venture Exchange to the Toronto Stock Exchange (“TSX”)TSX and commenced trading on the TSX under the symbol POM.

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

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

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

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

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

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

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

On September 4, 2007 we announced that we had signed a Project Labor Agreement (“PLA”) with 15 construction trade unions in Northeastern Minnesota governing an estimated 1 million man-hours of construction labor. The PLA secures a supply of construction labor for NorthMet and defines the ground

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rules for working conditions, schedules, overtime and safety. The agreement also encourages apprenticeships and includes "no strike" provisions.

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

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

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

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

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

Summary of Operating Results

As of January 31, 2007,2008, we operated in one segment, the exploration and development of the base and precious metals at itsour NorthMet Project in Minnesota, United States. Head office comprises general and administrative costs, stock based compensation expense, financing expenses, foreign exchange interest income, assets, purchase of property, plant and equipment and amortization reported by the Canadian head office.

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

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

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

• Upon completion of the DFS in late September 2006, we commenced capitalizing those costs directly related to the NorthMet Project (prior to this those costs had been expensed in line with our accounting policy in this area);
• During fiscal 2008, stock-based compensation expense was $635,000 compared to $4.723 million in the prior year due to the fact that $2.422 million of stock option costs were capitalized to mineral property, plant and equipment in 2008 (prior year period - $nil) and the timing of accounting as most of the options issued in fiscal 2008 have vesting periods while almost all of those issued in fiscal 2007 vested on issuance;
• During fiscal 2007, we issued $1.289 million of bonus shares for the successful completion of Milestone 3 (completion of a DFS which indicates that commercial production from the NorthMet Project is viable), and
• Interest income in the year ended January 31, 2008 was $1.168 million compared to $428,000 in the prior year period due primarily to higher cash balances as a result of the completion of a private placement in April 2007.

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

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

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

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

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

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

Loss for the year. We recorded a loss in the year ended January 31, 2007 of $17.893 million ($0.16 loss per share) compared to a loss of $15.929 million ($0.22 loss per share) in 2006 and $4.416 million ($0.09 loss per share) in 2005.fiscal 2006. The increase in the net loss for the year was primarily attributable to: the increased level of work; and an increase in general and administrative costs including non-cash stock compensation expense of $4.723 million (2006 - $3.523 million) and non-cash consulting fees expense of $1.289 million (2006 - $Nil). This was partially offset by lower pre-feasibility costs as the DFS was completed effective October 1, 2006 and site costs from that date were capitalized.

During the period ended January 31, 2007 we expended $8.844 million in exploration, pre-feasibility and lease payments compared to $11.120 million in 2006 and $1.623 million in 2005.fiscal 2006. The decrease in fiscal 2007 was a result of the completion of the DFS during the third quarter and the subsequent capitalizing of site costs.

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

• Consulting fees were $1,621,000$1,458,000 (2006 - $388,000)$366,000) as a result of increased activity at both the corporate and project level and the issuance of bonus shares for successful completion of Milestone 3 (completion of a DFS which indicates that commercial production from the NorthMet Project is viable);
• Professional fees totaled $790,000 (2006 - $151,000) owing to increased legal, audit and other advisory fees as a result of increased corporate activity;activity, and
• Transfer agent and filing fees were $272,000 (2006 - $65,000) as a result of listing on the Toronto Stock Exchange and the American Stock Exchange during the period.

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

During the year, the Company re-examined its accounting for warrants and the share bonus program. As a result of this re-examination, the Company determined that share capital and contributed surplus were inappropriately measured and recognized during the year ended 31 January 2006. Furthermore, the Company determined that consulting fees charged to the consolidated statement of loss for the year ended 31 January 2005 under the share bonus program were understated by $638,000.

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

Year ended January 31, 2006 compared with the year ended January 31, 2005 (restated)

Overall. Our focus for the fiscal year ended January 31, 2006, was to advance the feasibility study, to complete a drill program, conduct pilot plant testing, and advance the environmental and permitting process at the NorthMet Project. We expanded our operations in Minnesota by retaining several key consultants to assist in the completion of the environmental study and permitting requirements of the project. We raised $22.2 million in new equity and we acquired the Cliffs Assets from Cliffs.

Loss for the year. We recorded a loss for the fiscal year ended January 31, 2006 of $15,929,000 ($0.22 loss per share) compared to a loss of $4,416,000 ($0.09 loss per share) in 2005. The increase in the net loss for the year was primarily attributable to the increased level of work, the Company’s accounting policy of expensing the costs of pre-feasibility work related to the NorthMet Project of $11,120,000 (2005 – $1,623,000), and an increase in general and administrative costs including non-cash stock compensation expense of $3,523,000 (2005 -$993,000) and non-cash consulting fees expense of $nil (2005 – $872,000).

During 2006 we expended $11,120,000 in exploration, pre-feasibility and lease payments compared to $1,623,000 in 2005. The substantial increase was a result of our direct participation in the environmental and permitting advancement at the NorthMet Project.

Stock-based compensation expense for the year ended January 31, 2006 was $3,523,000 representing an increaseof approximately 255% compared to stock-based compensation expense of $993,000 for the year ended January 31, 2005. The stock-based compensation expense incurred during the fiscal year ended January 31, 2006 is the result of issuing 3,580,000 options to directors, officers, consultants, and employees, which is 1,035,000 more options than the 2,545,000 options issued during the year ended January 31, 2005, combined with a greater value per option based on the Black-Scholes calculation. These additional incentive options were part of our overall plan to align corporate development and shareholder value.

(b)        Liquidity And Capital Resources

Financing Activities

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

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

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

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• 2,193,000 common shares upon the exercise of options for proceeds of $765,000, and

• 2,350,000 common shares under the Company’s Bonus Share Plan for deemed proceeds of $1,289,000.

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

• a non-brokered private placement for 3,544,657 units at a price of CDN$1.40 per unit. Each unit consisted of one common share and one half of one share purchase warrant. One full warrant entitles the holders, on exercise, to purchase one additional common share of ours at a price of CDN$2.00 per warrant share at any time until the close of business on the day which is 18 months from the date of closing, provided that if the closing price of the our shares as traded on the Toronto Stock Exchange (the “Exchange”) is over CDN$2.50 per share for 20 consecutive trading days, the Warrants will terminate 30 days thereafter;

• a non brokered private placement for 6,672,219 units at a price of CDN$0.90 per unit. Each unit consisted of one common share and one half of one common share purchase warrant. One full warrant entitles the holders, on exercise, to purchase one additional common share of ours at a price of CDN$1.25 per warrant share at any time until the close of business on the day which is 30 months from the date of closing, provided that if the closing price of our shares as traded on the Exchange is over CDN$2.50 per share for 20 consecutive trading days, the warrants will terminate 30 days thereafter;

• a brokered private placement for 9,277,777 units at a price of CDN$0.90 per unit. Each unit consisted of one common share and one half of one common share purchase warrant. One full warrant entitles the holders, on exercise, to purchase one additional common share of ours at a price of CDN$1.25 per warrant share at any time until the close of business on the day which is 30 months from the date of closing, provided that if the closing price of our shares as traded on the Exchange is over CDN$2.50 per share for 20 consecutive trading days, the warrants will terminate 30 days thereafter;thereafter, and

• a non brokered private placement for 9,000,000 units at a price of CDN$0.55 per unit. Each unit consisted of one common share and one half of one common share purchase warrant. One full warrant entitles the holders, on exercise, to purchase one additional common share of ours at a price of $0.70 per warrant share at any time until the close of business on the day which is 24 months from the date of closing, provided that if the closing price of the our shares as traded on the Exchange at or exceed $1.00 per share for 30 consecutive trading days, the Warrants will terminate 30 days thereafter.

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

• 5,700,628 common shares pursuant to the exercise of 5,700,628, share purchase warrants for total proceeds of $3,296,143;$3,296,143, and

• 1,795,852 common shares pursuant to the exercise of stock options for total proceeds of $196,988.

DuringYear Ended January 31, 2008

Cash used in operating activities in the year ended January 31, 2005, we issued:

• 5,277,574 common share purchase warrants were exercised at exercise prices between CDN$0.10 - CDN$0.25 for proceeds2008 was $2.690 million compared to cash used in the prior year of $828,554;

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• stock options in the amount of 1,088,400 were exercised at prices between CDN$0.08 - CDN$0.13 per share for proceeds of $81,383; and

• a private placement for 1,550,000 units at a price of CDN$0.80 per unit and a private placement for 1,250,000 units at a price of CDN$0.80 per unit for total proceeds of $1,733,984.

Year Ended January 31, 2007

Our operating activities used cash of $12,228,000 during the fiscal year ended January 31, 2007 as compared to using cash of $10,846,000 during the fiscal year ended January 31, 2006 and $2,576,000 in the fiscal year ended January 31, 2005. The cash used for operations during the fiscal year ended January 31, 2007 was primarily due to our loss of $17,893,000, consulting fees of $1,289,000 paid with bonus shares and stock-based compensation paid of $4,723,000.

Cash used in investing activities was $4,171,000 the fiscal year ended January 31, 2007 as compared to using cash of $203,000 during the fiscal year ended January 31, 2006 and $823,000 in the fiscal year ended January 31, 2005. The cash used for investing activities during the fiscal year ended January 31, 2007 was primarily due to capitalization of site related costs subsequent to the completion of the DFS late in September 2006 and a payment of $1,000,000 made to Cliffs in connection with the acquisition of the additional property and associated rights near the Erie Plant.

We generated cash of $13,625,000 in financing activities during the fiscal year ended January 31, 2007 as compared to generating cash of $22,209,000 during the fiscal year ended January 31, 2006 and $3,414,000 in the fiscal year ended January 31, 2005. Cash fromprovided by financing activities for the year ended January 31, 2008 was $37.533 million compared with $13.625 million in the prior year. The current year activity was primarily due to the private placement which closed in April and $2.000 million of scheduled repayment of debt (prior year period - $1.250 million) and deferred financing costs of $293,000 relating to BNPP (prior year period - $200,000). In the year ended January 31, 2007 was from the exerciseoption and warrant exercises provided cash of options, and share purchase warrants, partially offset by scheduled debt repayments. $15.075 million (current year - $303,000).

Cash from financingused in investing activities for the year ended January 31, 20062008 was from$23.656 million compared with $4.171 million in the proceedspreceding year, with the increase being the result of capitalization of site related costs for the full year, compared to only four private placements,months in the exerciseprior year, and the purchase of share purchase warrants and stock options, and proceeds from share subscriptions.$2.495 million of common shares of a publicly traded Canadian mining company whose primary business is the operation of a recently re-commissioned base metal mine.

Total cash for the year ended January 31, January 2007 decreased2008 increased by $2.774$11.187 million for a balance of $8.897$20.084 million compared to the year ended January 31, January 20062007 where cash increased $11.160decreased by $2.774 million to a balance of $11.671$8.897 million.

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

As at January 31, January 2007 the Company2008 we had working capital of $5.650$16.558 million compared with $9.070$5.240 million at January 31, January 20062007 consisting primarily of cash of $8.897$20.084 million (31 January 200631, 2007 - $11.671$8.897 million), prepaids of $793,000 (January 31, 2007 - $210,000) investments of $1.445 million (January 31, 2007 - $nil) accounts payable and accrued liabilities of $1.518$4.266 million (31 January 2006(January 31, 2007 - $1.717$1.518 million) and the current portion of the notes to Cliffs of $2.000$1.401 million (31 January 2006(January 31, 2007 - $1.000$2.000 million). The Company expectsWe expect to pay the remaining balance of $11.853$10.834 million (31 January 200631, 2007 - - $1.420$11.853 million) long term notes to Cliffs from working capital, additional financing and funds from operations once commercial production has commenced.

On 17 April 2007, the Company closed Our cash is primarily held in deposits and bearer deposits of a non-brokered private placement financing of 15 million units at US$2.75 per unit, with each unit comprising one common sharemajor Canadian bank and one-half of one warrant. Each whole warrant is exercisable into a common share at a price of US$4.00 atdoes not include any time until 13 October 2008, subjectexposure to an early trigger if the 20-day volume weighted average price of the common shares is US$6.00 or more. In connection with the private placement, the Company has paid finders’ fees totaling US$1.43 million in cash, 150,000 shares and 520,000 broker warrants having the same terms as the warrants described above.

As a result of the private placement as described above, the Company is able to meet its current obligations through to permitting and to service and repay its debt to Cliffs due in the next year.asset-backed commercial paper.

Should the Companywe wish to continue to further advance the NorthMet Project to commercial production PolyMetwe will require additional funds. As the Company haswe have no operating revenues, the only source of

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liquidity consists primarily of cash flows from proceeds of project debt, other debt and equity issues and eventual project financing. The Company has entered into an agreement with BNP Paribas (“BNPP”) whereby BNPP will advise and assist PolyMet in all aspects of preparation for construction finance. As part of this agreement, BNPP was issued warrants, subject to regulatory approval, to purchase 600,000 shares of PolyMet common stock at $4.00 at any time prior to October 30, 2010 and, upon delivering a bona fide offer of project financing, warrants to purchase an additional 500,000 shares of PolyMet at $4.00 at any time prior to October 30, 2010 will vest.

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

Debt

Pursuant to Asset Purchase Agreements, the Company’sour wholly owned subsidiary Poly Met Mining, Inc. signed three notes payable to Cliffs in the amounts of $2,400,000, $7,000,000 and $7,000,000, respectively. The first note is interest bearing at the annual simple rate of four percent (4%) and shall beis being paid in quarterly instalments equal to $250,000 for total repayment of $2,500,000.$2,400,000. The second note is interest bearing at theWall Street JournalPrime Rate and shall beis being paid in quarterly instalments equal to $250,000 commencing December 31, December 2006, with the balance repayable upon receipt of commercial financing, for total repayment of $7,000,000. The third note is interest bearing at theWall Street JournalPrime Rate and shall be paid in quarterly instalments equal to $250,000 commencing on December 31, December 2009 for total repayment of $7,000,000. No interest will be payable on the third note until December 31, December 2009, accordingly it has been fair valued, for balance sheet purposes, by discounting it at theWall Street JournalPrime Rate.8.25% . As at January 31, January 20072008 the outstanding long term debt was as follows:

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

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

Not applicable.

(d)        Trend Information

Not applicable.

(e)        Off-Balance Sheet Arrangements

Not applicable.

(f)        Tabular Disclosure of Contractual Obligations

The following table lists as of January 31, January 20072008 information with respect to the Company’s known contractual obligations:

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Long-term debt obligations (including the current portion) are set out in this table on an undiscounted basis and include anticipated interest. Asset retirement obligation represents the undiscounted obligation at January 31, January 2007.2008.

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(g)        Critical Accounting Policies

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

Mineral Property, Plant and Equipment

Mineral property costs, aside from mineral property acquisitionsacquisition costs, incurred prior to determination of the DFS are expensed as incurred and expenditures incurred subsequent to the DFS and mineral property acquisition costs are deferred/capitalized until the property is placed into production, sold, allowed to lapse or abandoned.

Acquisition costs include cash and fair market value of common shares.

As a result of the Definitive Feasibility StudyDFS on the NorthMet Project, the Company has nowNorthMet Project entered the development stage and has elected to defereffective October 1, 2006. We have deferred mineral property development expenditures related to the NorthMet Project effective 1 October 2006.from that date.

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

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

Stock-Based Compensation and Share Purchase Warrants

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

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

Asset Retirement Obligations

The recommendations of Canadian Institute of Chartered Accountants (“CICA”)Company follows CICA Handbook Section 3110,Asset Retirement Obligations(“CICA 3110”), became effective on 1 February 2004. This section which requires the recognition of a legal liability for obligations relating to the retirement of property, plant and equipment and obligations arising from the acquisition, construction, development, or normal operation of those assets. Such asset retirement costs must be recognized at fair value, when a reasonable estimate of fair value can be estimated, in the year in which the liability is incurred. A corresponding increase to the carrying amount of the related asset, where one is identifiable, is recorded and amortized over the life of the asset. Where a related asset is not easily identifiable with a liability, the change in fair value over the

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course of the year is expensed. The amount of the liability is subject to re-measurement at each reporting year-end. The estimates are based principally on legal and regulatory requirements. It is possible that the Company’s estimates of its ultimate reclamation and closure liabilities could change as a result of changes in regulations, changes in the extent of environmental remediation required, changes in the means of reclamation or changes in cost estimates.

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

Financial Instruments

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

ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

A.        Directors and Senior Management

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

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

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

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William Murrayhas served as our Executive Chairman since February 5, 2008 and has served as a member of our board of directors since March 17, 2003. He previously served as our President and Chief Executive Officer and as director sincefrom March 2003.17, 2003 until February 5, 2008. Mr. Murray is an engineer in the mining industry with 37more than 35 years of experience in construction

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management and project evaluation in North America and Africa. He became involved with our operations in MarchFrom April 1993 to 2003, Mr. Murray provided consulting services to the mining industry as a principal of Optimum Project Services Ltd., a consulting firm whose work with us led to technical improvements and large capital cost reductions on the NorthMet Project. Prior to that, Mr. Murray was employed by at Fluor Daniel, a large U.S. Engineering & Construction contractor, as the Director of New Business from October 1989 to April 1993. From September 1981 to May 1987,1986, Mr. Murray was a Director of Project Services at Denison Mines where he participated inwas part of the construction ofcore team than built the $1.2 billion Quintette Coal project. From September 1970 to August 1981, Mr. Murray held a number of positions at Anglo American Corp in South Africa, principally in the Gold Division, where he was eventually promoted to the rank of Chief Engineer.Division. Mr. Murray is also a Directordirector of Baja Mining Corp.Corp and Aura Minerals, Inc. Mr. Murray currently resides in British Columbia, Canada.

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

Douglas J. Newbyhas served as our Chief Financial Officer since November 2005. Mr. Newby has approximately 26nearly 30 years of experience in the evaluation and financing of mining companies and projects around the world. Before coming to PolyMet, Mr. Newby served variously as a Director, Executive Vice President, interim Chairman, President and Chief Executive Officer of Western Goldfields, Inc. a US-based gold mining company. Mr. Newby has also been President of Proteus Capital Corp., a corporate advisory firm that specializes in the natural resource industries, since July 2001. Mr. Newby served as Managing Director of Proteus Consultants Ltd. from January 1991 to July 2001 and Managing Partner of Moyes Newby & Co., Inc. from April 1994 to December 1998, both of which provided corporate advisory services primarily to the international energy and mining industries. SinceFrom January 2004 to March 2006, Mr. Newby has served as Vice-President of Cadence Resources Corporation, an oil and gas exploration and development company. Before forming Proteus Consultants Ltd.,Prior to January 1991, Mr. Newby held senior positions with the investment banking firms of S.G. Warburg & Co., Inc., Morgan Grenfell & Co., and James Capel & Co. His primary responsibility with us is to structure and arrange financing to place our NorthMet Project into production.

Joseph Scipionihas served as Vice-President – Operations and Construction since July 2006 and as Chief Operating Officer since March 2007. Mr. Scipioni has more than 30 years experience withNewby currently resides in New York, United States Steel Corporation where he worked in a number of progressively senior positions in operations. His last position was Plant Manager at the Keewatin Taconite plant in Minnesota. In addition, Mr. Scipioni has served in leadership positions with the Iron Mining Association of Minnesota, Central Iron Range Initiative, United Way of Northeastern Minnesota and Hibbing Chamber of Commerce.States.

Niall Moore has served as our Corporate Secretary since December 2006 and as our Group Controller since September 2007.2006. Mr. Moore has over 20 years of experience with public companies in the resource sector. Most recently,From November 2002 to May 2006, he worked fulltime aswas Director, Corporate Reporting for Placer Dome Inc. and from May 2006 until December 2006 he worked as a consultant to Barrick Gold, Inc. following that company’s acquisition of Placer. Prior to thatNovember 2002, Mr. Moore was an audit partner at Ernst & Young LLP. He has extensive experience in financial reporting, compliance and valuation work. His primary responsibilities with the Company include legal and regulatory compliance, financial reporting and internal controls. Mr. Moore currently resides in British Columbia, Canada.

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

33

State University. He served in the U.S. Marine Corps where he achieved the rank of Captain. Mr. Corneliuson also serves as Chairman of the board of Medwave Inc., a medical device development company. Mr. Corneliuson currently resides in Wisconsin, United States.

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

W. Ian L. Forresthas served as a member of our board of directors since October 2003. Mr. Forrest3, 2003 and served as Chairman of our board until February 5, 2008. He also serves on our audit, compensation, and nominating and corporate governance committees. Mr. Forrest is a membersmember of the Institute of Chartered Accountants of Scotland and continues to practice as a public accountant in Geneva, Switzerland. Mr. Forrest has more than 30 years of experience with public companies in the resource sector. His experience encompasses the areas of promotion, financing, exploration, production and company management. He has also participated in several notable projects including Gulfstream's

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North Dome gas discovery, Qatar, Reunion Mining's Scorpion zinc, Namibia, which was subsequently developed by Anglo American, and Ocean Diamond Mining which pioneered the independent diamond dredging industry off the west coast of southern Africa. He also serves as a director on the boards two Canadian public companies, Caledonian Mining Corporation andof Mengold Resources Inc. Having played an important role in the revival of PolyMet Mining Corporation in 2003, he was appointed Chairman in May 2004. Mr. Forrest currently resides in Vaud, Switzerland.

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

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

James Swearingenhas served as a member of our board of directors since January 14, 2005. From September 1994 to April 2003, Mr. Swearingen formerly managedwas General Manager of US Steel Corporation’s Minnesota Ore Operations located at the Minntac mine and plant, the largest mining operation in North America,America. He held a series of progressively senior positions with US Steel's Minntac mineSteel Corporation between 1964 and plant along Minnesota's Mesabi Iron Range, serving as General Manager of Minnesota Ore Operations.his retirement in 2003. He currently serveshas served as co-chair of the Governor's Committee on Minnesota's Mining

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Future. Mr. Swearingen is also active with other groups that bring new technology to northeasternnorth-eastern Minnesota to develop non-ferrous mines and new, value added, projects in steel making. He is also an active advisor to the University of Minnesota's Natural Resources Research Institute based in Duluth, Minnesota, and was recently elected to the City Council of Biwabik, Minnesota. Mr. Swearingen currently resides in theMinnesota, United States.

William Corneliusonhas served asW. Ian L. Forrest was a memberdirector of our board of directors since March 2007.Mr. Corneliuson is founder, PresidentAB Airlines plc from June 30 to July 30, 1999 and, Chief Investment Officer of B.C. Holdings. He has over 30 years of investment experienceon August 2, 1999 AG Airlines plc was placed in a range of asset management positions including managing large institutional portfolios, mutual funds and a private investment fund. Prior to founding B.C. Holdings, Mr. Corneliuson co-founded Strong Capital Management in 1976, which became Strong/Corneliuson Capital Management, where he served as the firm's president and raised and managed several billion dollars of institutional assets and a variety of mutual funds that achieved superior ratings. Mr. Corneliuson received a B.A. in Political Science and subsequently an MBA from Michigan State University. He served in the U.S. Marine Corps where he achieved the rank of Captain.administrative receivership.

B.        Statement of Executive Compensation

During the fiscal year ended January 31, 2007, the Company2008, we had twothree Named Executive Officers (“NEOs”) (for the purposes of applicable securities legislation), namely:

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

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(1) February 1 to January 31.

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

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

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

(5) On November 14, 2005 Douglas Newby replaced Terese Gieselman as the Company’s CFO.

(6) Comprising of management fees payable to Group 4 Ventures Ltd. (“Group 4”), a non-reporting company owned by William Murray in the amount of CDN $11,000 per month for the period February 1, 2005 to September 30, 2005 and thereafter at a rate of CDN $17,000 per month and management fees paid to William Murray in the amount of CDN $5,000 per month, commencing February 1, 2005.

(7) Comprising of management fees payable to Group 4 in the amount of CDN $17,000 per month and management fees paid to William Murray in the amount of CDN $5,000 per month.

(8) Pursuant to the Bonus Share Incentive Plan, 600,000 common shares were accrued at a deemed price of (CDN) $0.19 per share. By treasury order dated March 8, 2005 and amended March 23, 2005, the shares were issued to Group 4.35

(9)(6) 250,000 of these options are held in the name of Proteus Capital Corp. a non-reporting company owned by Douglas Newby.

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Option/SAR Grants During the Most Recently Completed Financial Year

(1) Reflected as a percentage of the total number of options to purchase common shares granted (4,500,000) during the Financial Period.

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

Financial Year-End Option/SAR Values”

(1) "In-the-money" meansAmounts presented under the excesscaption “Value of Unexercised in-the-money Options at January 31, 2008” are based on C$2.80 per share, which was the market valuelast reported sale price of theour common shares ofon the Company onTSX as of January 31, 2007 (CDN$3.58), over2008, minus the baseexercise price, multiplied by the number of the options. In the case of Mr. Murray, the base price was $0.13 with respectshares subject to the above exercised options.stock option, without taking into account any taxes that might be payable in connection with the transaction.

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

Pension Plan

The Company doesWe do not have a pension plan.

Compensation of Directors

During the Financial Period, no compensation was paid or is payable by the Companyus to the directors of the Company, other than the Named Executive OfficersNEOs (the “Other Directors”), or the Company’sour subsidiaries, if any, for their services:

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

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

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

⁽¹⁾Pursuant to the Bonus Plan, 250,000 common shares were issued to each of the above directors at a deemed price of Cdn$0.75 per share.

⁽²⁾ Consulting Fees paid in connection with the Company’s NorthMet Project Project.

During the most recently completed financial year (February 1, 20062007 to January 31, 2007)2008) (the "Financial Period"), the.the Company granted the following incentive stock options to its Other Directors and insiders:

Reference is made to the section captioned "Election of Directors" for further details with respect to the present positions of the aforesaid persons and number of common shares held in the Company.

The following are particulars of incentive stock options exercised by the Other Directors and insiders of the Company during the Financial Period:

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

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Summary of Bonus Plan

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

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

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

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

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

Upon achievement of the Milestone, 1,300,000 shares will be issued, of which 900,000950,000 have been designated to the following directors:

and an additional 400,000350,000 shares will be issued to certain Key Employeeskey employees as more fully set forth below:

39Douglas Newby has served as our Chief Financial Officer since November 2005.

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

As atAt January 31, 2007, Warren Hudelson2008 Joseph Scipioni was our Chief Operating Officer. Since February 5, 2008 he has served as our President and Chief Executive Officer and, since February 19, 2008, as a directormember of our U.S. subsidiary, Poly Met Mining, Inc., and was involved in the permitting process. Subsequent to that date, he retired from his full-time capacity and continues as a consultant to the presidentboard of the Company.directors.

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

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

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

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

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

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

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

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

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

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

Upon the achievement of Milestone 4, 2,400,0002,640,000 shares will be issued to the Directorsour directors as follows:

and an additional 1,240,0001,000,000 shares will be issued to certain Key Employees as follows:

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

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

C.       Board Practices

Term

All of our directors hold office until the next annual meeting of shareholders and until their successors have been elected and qualified. Our officers are elected by the shareholders at each annual meeting of shareholders and hold office until death, resignation, removal from office, or upon a successor having been elected. For the periods each person has served in his respective office, see Item 6(A) Directors and Senior Management.

Employment Agreements

Under an employment agreement between us and Mr. William Murray, dated February 1, 2005, Mr. Murray has the right to receive a severance allowance in the event of a take-over bid as defined in Section 13 of theSecurities Act(British Columbia), and where the rule requires that the offeror take up and pay for more than 50% of our issued shares. The severance allowance was based on our implied market capitalization under the take-over-bid, calculated by multiplying the number of shares outstanding on a fully diluted basis by the take-over bid price per share. This severance allowances have been terminated pursuant to an oral amendment to this contract and will be replaced by a termination agreement representing three times the average annual compensation, including cash bonuses, if any, in the three years prior to change of control.

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Notwithstanding the aforementioned provisions, if we terminate the employment agreement with Mr. Murray for any reason other than cause, under the terms of the agreement, Mr. Murray will be entitled to receive 200% of all compensation to be paid for the remaining balance of the term of the agreement which expired on January 31, 2007.

Under an employment agreement between us and Mr. Douglas Newby, dated October 28, 2006, which superseded a prior agreement dated November 22, 2005, Mr. Newby has the right to receive a severance allowance in the event of a take-over bid as defined in Section 13 of theSecurities Act(British Columbia), and where the rule requires that the offeror take up and pay for more than 50% of our issued shares, representing three times the average annual compensation in the three years prior to change of control.

Under an employment agreement between us and Mr. Joseph Scipioni, Mr. Scipioni has the right to receive a severance allowance in the event of a take-over bid as defined in Section 13 of theSecurities Act(British Columbia), and where the rule requires that the offeror take up and pay for more than 50% of our issued shares, representing three times the average annual compensation in the three years prior to change of control.

Under an employment agreement between us and Mr. Niall Moore, dated September 1, 2006, Mr. Moore has the right to receive a severance allowance in the event of a take-over bid as defined in Section 13 of theSecurities Act(British Columbia), and where the rule requires that the offeror take up and pay for more than 50% of our issued shares, representing three times his annual compensation.

Audit Committee

Our audit committee consists of George Molyviatis, W. Ian L. Forrest, and David Dreisinger, all of whom are independent under AMEX guidelines. The audit committee oversees our audit procedures, reviews the audited and unaudited financial statements and disclosures, oversees our internal systems of accounting and management controls, makes recommendations to our board of directors as to the selection and appointment of our auditors, and ensures an open outlet to protect individuals who report concerns from retaliatory action. Our Audit Committee Charter is attached as Appendix 1 of the attached Exhibit 12.1.

Compensation Committee

The Compensation Committee, consisting of George Molyviatis and W. Ian L. Forrest, recommends to the board, compensation levels of our executive officers. See “Report on Executive Compensation” below for further details.

Report on Executive Compensation
As part of its responsibilities, the compensation committee reviews our overall compensation plan and the policies to ensure they are consistent with our goals of attracting and retaining the best available personnel, align employees’ interests with ours, and suitably pay for performance. In establishing remuneration levels and in granting stock options, the compensation committee evaluates an executive’s performance, level of expertise, responsibilities, length of service with us, and comparable levels of remuneration paid to executives of other companies of comparable size and development within the industry.

Statement of Corporate Governance Practices

Corporate governance relates to the activities of the board, the members of which are elected by and are accountable to the shareholders, and takes into account the role of the individual members of management who are appointed by the board and who are charged with managing our day-to-day business. Our board is committed to sound corporate governance practices, which are in the interests of our shareholders and contribute to effective and efficient decision-making. As a company listed on the TSX, we are required to comply with the guidelines for improved corporate governance in Canada as

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adopted by the TSX (the “Exchange Guidelines”). Our approach to corporate governance in the context of 14 specific Exchange Guidelines is set out in the attached Exhibit 11.2.

D.        Employees

As of January 31, 20072008 we had three14 full-time employees, our president and chief executive officer, corporate secretary and group controller and an office manager, allwith four located in our Vancouver office and the other ten located in our Hoyt Lakes office.None of our employees are covered by a collective bargaining agreement.

During the fiscal year ended January 31, 2007,2008, we employed an average of 1022 consultants working out of our Vancouver and Minnesota offices.

E.        Share Ownership

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

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

ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

A.        Major Shareholders

The following table sets forth, as of May 23, 2007,April 30, 2008, certain information regarding the ownership of our voting securities by each stockholder known to our management to be (i) the beneficial owner of more than 5% of our outstanding common stock, (ii) our directors, (iii) our current executive officers identified under Item 6(A), and (iv) all executive officers and directors as a group. We believe that, except as otherwise indicated, the beneficial owners of the common stock listed below, based on information furnished by such owners, have sole investment and voting power with respect to such shares.

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

As of May 23, 2007,April 30, 2008, there were 379344 holders of record of our common shares of which 278263 were U.S. residents owning 40,662,475 (29.78%)30.92% of our outstanding common shares.

B.        Related Party Transactions

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

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

During the year ended January 31, 2008, the Company paid $63,000 (2007 - $62,000 and 2006 - $37,000) to Dr. Dreisinger for consulting fees primarily in connection with activities related to the processing / technical side of the NorthMet Project and related expenses (the latter were supported by invoices and receipts). The consulting fees in 2008 were based on a monthly fee of Canadian $5,500 plus general sales tax.

During the year ended January 31, 2008, the Company paid $55,000 (2007 - $59,600 and 2006 - $41,000) to Mr. Swearingen for consulting fees primarily in connection with activities related to our agreements with Cliffs Erie L.L.C. and land tenure and related expenses (the latter were supported by invoices and receipts). The consulting fees in 2007 were based on a monthly fee of $5,000.

ITEM 8. FINANCIAL INFORMATION

A.        Consolidated Statements and Other Financial Information

See Item 17.

Legal Proceedings

GARY K. NORGAARD, AS ASSIGNEE OF THE ASSETS OF CROWN HOLDINGS, INC. AND CROWN FINANCIAL GROUP INC. has filed suit in the UNITED STATES DISTRICTCOURT, DISTRICT OF NEW JERSEY against us claiming that it held 225,000 options to acquire our stock. We believe that this claim has no merit and do not believe we have any liability in the matter.None.

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Dividend Policy

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

B.        Significant Changes

SubsequentThere have been so significant changes subsequent to January 31, 2007:2008.

On 17 April 2007, the Company closed a non-brokered private placement financing of 15 million units at US$2.75 per unit, with each unit comprising one common share and one-half of one warrant. Each whole warrant is exercisable into a common share at a price of US$4.00 at any time until 13 October 2008, subject to an early trigger if the 20-day volume weighted average price of the common shares is US$6.00 or more. In connection with the private placement, the Company has paid finders’ fees totalling US$1.43 million in cash, 150,000 shares and 520,000 broker warrants having the same terms as the warrants described above.

The Company granted 1,950,000 stock options to directors, officers, consultants and employees at prices ranging from US$2.88 to $2.99. Of these options, 475,000 vested immediately and 1,475,000 are scheduled to vest at future dates or upon future events.

On 25 April 2007, the Company’s agreement with Minnesota Power, whereby Minnesota Power will provide all of PolyMet’s electric service needs at its NorthMet Project through 2018 was approved by the Minnesota Public Utilities Commission.

ITEM 9. THE OFFER AND LISTING

A.        The Offer and Listing Details

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

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

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