If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.
Item 17 [   ]     Item17[ ]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]Yes[ x ]No

3

TABLE OF CONTENTS

Financial Statements:

4

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

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

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

NOMENCLATURE

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

5

PART I

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS

Not required.

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

Not required.

- 1 -

ITEM 3. KEY INFORMATION

A. Selected Financial Data

The following selected financial information,data, as ofat January 31, 2013 and 2012 and for the years ended January 31, 2013, 2012, and 2011 has been derived from our audited consolidated financial statements, which are included elsewhereunder “Item 18, Financial Statements”. The information should be read in this Annual Report. The selected financial data as ofconjunction with “Item 5 - Operating and forFinancial Review and Prospects”, and in conjunction with the years ended January 31, 2010, 2009 and 2008 have been derived from our audited consolidated financial statements notand related notes of the Company included in this Annual Report. under “Item 18 – Financial Statements."

Our consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”), effective with our transition to IFRS on February 1, 2010. Previously, our consolidated financial statements were prepared in accordance with Canadian Generally Accepted Accounting Principles (“CGAAP”). Material measurement differences between CGAAP and accounting principles in the United States applicable to us were described in our previous consolidated financial statements.

The following table summarizes certain selected financial information as at and for our fiscal years ended January 31, 2012, 2011, and opening balance sheet as at February 1, 2010 reported under IFRS. The selected financial data should be read in conjunction with the consolidated financial statements and related notes thereto and other information included elsewhere in the Annual Report.

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

The following table summarizes certain selected financial information as at and for our fiscal years ended January 31, 2010, 2009 and 2008 as previously reported under CGAAP. The 2010 income statement information is presented in accordance with CGAAP and may not be appropriate as a comparative basis. The selected financial data should be read in conjunction with the consolidated financial statements and related notes thereto and other information included elsewhere in the Annual Report.

- 2 -

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

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

6

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

B. Capitalization and Indebtedness

Not Applicable

C. Reasons for the Offer and Use of Proceeds

Not Applicable

- 3 -7

D. Risk Factors

Factors thatOur business is subject to many risks and uncertainties, which may affect our future financial performance. If any of the events or circumstances described below occurs, our business and financial performance could causebe harmed, our actual results tocould differ materially from those described inour expectations and the forward-looking statements contained in this Annual Reportmarket value of our securities could decline. The risks and other documentsuncertainties discussed below are not the only ones we file with the SEC.face. There may be additional risks and uncertainties not currently known to us or that we currently do not believe are material that may harm our business and financial performance.

RISKS RELATING TO OUR BUSINESS

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

We are investing heavily in various facets of our NorthMet Project, which comprises the NorthMet copper-nickel-precious metals ore body and the Erie Plant, a large processing facility located approximately six miles from the ore body in the established mining district of the Mesabi Range in northeastern Minnesota, USA (the "NorthMet Project"). TheProject. Our NorthMet Project is subject to a number of risks that may make it less successful than anticipated, including:

• we may encounter delays or higher than expected costs completing the environmental review process necessary before construction and operating permits can be issued;

• delays in the issuance of permits after completion of the environmental review process;

• delays or higher than expected costs in obtaining the necessary equipment or services to build and operate the NorthMet Project,our projects, and

• adverse mining conditions may delay and hamper our ability to produce the expected quantities of minerals.

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

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

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

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

• protect and preserve wetlands and endangered species, and

• mitigate negative impacts on certain archeologicalarchaeological 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, ("EPA"), Army Corp of Engineers, ("USACE"), Forest Service, ("USFS"), 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.

- 4 -8

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

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

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

• global and regional supply and demand;

• political and economic conditions and production costs in major metalsmetal producing regions of the world;

• the strength of the United States dollar, and

• expectations for inflation.

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

We are dependent on our key personnel.

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

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

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

9

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 operatingother businesses.

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

- 5 -

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

We are subject to all of the risks inherent in the mining industry, including: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.

10

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

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

- 6 -

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

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

We may not successfully establish mining operations or profitably produce metals at any of our properties. As such, we do not know if we will ever generate revenues or profits.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 ofat January 31, 2012,2013, we had an accumulated deficit of $81.8$88.4 million. 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 have prepared our consolidated financial statements on a going concern basis which contemplates the realization of assets and the settlement of liabilities in the normal course of operations.

We currently have negative cash flow from operating activities. The Company cannot predict if or when it will operate profitably, to generate positive cash flows. However, the Company intends to use proceeds raised primarily for construction engineering with respect to the development of the NorthMet Project thereby leading to construction and operation of the NorthMet Project.

We have taken steps to fund our operations through the issuance of equity and debt. We plan to meet our financial obligations to the point at which all regulatory approvals for our NorthMet Project have been obtained and which will allow us to raise capital to construct our mine and commence commercial production.

Since January 1, 2007, PolyMet has raised US$118 million in equity, US$25 million initial principal debt exchangeable into equity upon receipt of permits necessary to build and operate the NorthMet Project, and US$20 million initial principal debt that is not exchangeable into equity.

PolyMet will need to raise sufficient funds to meet its current obligations as well as fund ongoing development, capital expenditures and administration expenses, in accordance with the Company’s spending plans for the next year. While in the past the Company has been successful in closing financing agreements with Glencore and other parties, there can be no assurance it will be able to do so again in the future.

Since January 1, 2007, PolyMet has raised US$118 million in equity and US$25 million initial principal debt exchangeable into equity upon receipt of permits necessary to build and operate the NorthMet Project.

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

11

We may not have adequate, orif 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,failures, and

• severe weather and other natural phenomena.

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

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

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

- 7 -

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

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

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

Recent market events and conditions, including disruptions in the international credit markets and other financial systems and the deterioration of global economic conditions could impede our access to capital or increase the cost of capital. These unprecedented disruptions in the current credit and financial markets have had a significant material adverse impact on a number of financial institutions and have limited access to capital and credit for many companies.companies, including us. These disruptions could, among other things, make it more difficult for us to obtain, or increase our cost of obtaining capital and financing for our operations. Our access to additional capital may not be available on terms acceptable to us or at all.

As a result of current global financial conditions, numerous financial institutions have gone into bankruptcy or have been rescued by government authorities. As such, we are subject to the risk of loss of our deposits with financial institutions that hold our cash.12

RISKS RELATED TO THE OWNERSHIP OF OUR COMMON SHARES

We may experience volatility in our share price.

Our common shares are listed for trading on the Toronto Stock ExchangeTSX and on the NYSE Amex.MKT. Our shareholders may be unable to sell significant quantities of ourthe common shares into the public trading markets without a significant reduction in the price of our shares, if at all. The market price of our common shares may be affected significantly by factors such as changes in our operating results, the availability of funds, fluctuations in the price of metals, the interest of investors, traders and others in development stage public companies such as us and general market conditions. In recent years the securities markets have experienced a high level of price and volume volatility, and the market price of securities of many companies, particularly 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 share price.

Our shares that are eligible for future sale may have an adverse effect on the price of our common shares. As ofat January 31, 20122013 there were 174,738,124183,250,082 of our common shares outstanding. The average trading volume for the three months prior to January 31, 20122013 was approximately 51,000 shares per day on the Toronto Stock ExchangeTSX and 232,000173,000 shares per day on the NYSE Amex.MKT. Sales of substantial amounts of our common shares, or a perception that such sales could occur, and the existence of options or warrants to purchase common shares and debt convertible into common shares at prices that may be below the then current market price of our common shares, could adversely affect the market price of our common shares and could impair our ability to raise capital through the sale of our equity securities.

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

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

- 8 -

Under our 2007 Omnibus Share Compensation Plan, as amended and restated (the “Plan”(“Omnibus Plan”), the aggregate number of our common shares that may be issuable pursuant to the Omnibus Plan may not at any time exceed the greater of (i) 10% of our issued and outstanding common shares and (ii)18,592,888shares. As at January 31, 2013, the aggregate number of our common shares representing 13.62% of our outstanding commonissuable pursuant to the Omnibus Plan was 14,920,000 shares. In addition, as at January 31, 2013, the Company granted bonuses comprising 785,882 restricted shares at the timefor U.S. employees and consultants and restricted shares units for Canadian employees and consultants with 709,882 of the approvalrestricted shares issued in trust to a third party. 50% of each award is to be issued upon receipt of permits and the Plan,balance to be issued upon start of which 3,967,500 common shares are reserved for issuance as awards other than options under ourproduction. Our bonus share incentive plan, (the "Bonus Plan") which weor the “Bonus Plan,” was established for our directors and key employees. As of January 31, 2012employees and was approved by the aggregate number of commondisinterested shareholders at the Company’s shareholders’ meeting held on May 28, 2004. Under the Bonus Plan we may issue an additional 3,640,000 shares issuable pursuant to the Plan was 14,625,388 shares.upon achieving certain milestones.

Upon any issuances or exercise of awards granted pursuant to the Plan beingoptions issued, the ownership interests and voting power of existing shareholders may be further diluted.

13

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

A Shareholders Rights Plan between us and our shareholders effective as of June 27, 2007, modified on June 17, 2008 and reapproved by shareholders on July 13, 2011 and certain employment and management agreements contain provisions that could discourage an acquisition or change of control without our board of directors’ approval. Under the Shareholders’ Rights Plan, if a shareholder individually or in concert with other shareholders acquires 20% or more of our outstanding common shares without complying with the Shareholders’ Rights Plan or without the approval of our boardBoard of directors,Directors, all holders of record will have a right to receive one common share for each common share owned. We have also entered into agreements with certain key employees and officers that contain severance provisions in the event of a take-over bid. The Shareholders’ Rights Plan and the preceding agreements may make it more difficult for a third party to acquire control of us, even if such a change of control is more beneficial to shareholders.

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

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

Absence of DividendsDividends.

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.

- 9 -

Increased Costs and Compliance Risks as a Result of Being a Public CompanyCompany.

Legal, accounting and other expenses associated with public company reporting requirements have increased significantly in the past few years. We anticipate that general and administrative costs associated with regulatory compliance will continue to increase as a result ofwith 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 NYSE MKT and the TSX. We expect these rules and regulations to significantly increase our 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 National Instrument 52-109 – Certification ofFinancial Disclosure in Issuer’s Annual and Interim Filings (“NI 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 share 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 NI 52-109 could be impaired, which could cause ourthe share price to decrease.

- 10 -14

ITEM 4. INFORMATION ON THE COMPANY

A. History and Development of the Company

PolyMet Mining Corp. was incorporated under the British ColumbiaCompanies Actand 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 corporate office is located at 100 King Street West, Suite 5700, Toronto, ON M5X 1C7, Canada and our principal executive office of our wholly owned Minnesota subsidiary, Poly Met Mining, Inc. (“PMI”), is situatedlocated at 390 – 3600 Lysander Lane, Richmond, B.C V7B 1C3, Canada. Our phone number is (604) 248-0939.444 Cedar Street, Suite 2060, St. Paul, MN 55101, USA. Our registered and records office is located at our legal counsel’s offices situated at 2500 – 700 West Georgia Street, Vancouver, B.C. V7Y 1B3, Canada. Our operational headquarters are located at P.O. Box 475, 6500 County Road 666, Hoyt Lakes, MinnesotaMN 55750-0475, United States.USA.

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

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

During the years ended January 31, 2013, 2012, 2011, and 20102011 we made net investments of $18.404 million, $16.137 million, $16.519 million, and $17.754$16.519 million, respectively to acquire property, advance the environmental review, and perform work following completion of the Definitive Feasibility Study (“DFS”) on our NorthMet Project.Project to obtain the necessary permits.

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

B. Business Overview

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

In the years ended January 31, 2013, 2012, 2011, and 2010,2011, we conducted exploration, development and acquisition activities only and did not conduct any operations that generated revenues. Thus, we rely principally on equity or debt convertible into equity financings to fund our projects and expenditures.

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

Acquisition of the Erie Plant.The Erie Plant is a large processing facility and associated infrastructure located approximately six miles west of our NorthMet ore body. On November 15, 2005 and December 20, 2006, wethe Corporation entered into a total of three Contracts for Deed with Cliffs Erie LLC, a subsidiary of Cliffs Natural Resources Inc. (formerly Cleveland Cliffs, Inc.) (“Cliffs”), under which we now own a 100,000 ton-per-day crushing and milling facility, a railroad and railroad access rights connecting the Erie Plant to the NorthMet ore body, tailings facilities, 120 railcars, locomotive fueling and maintenance facilities, water rights and pipelines, large administrative offices on site and approximately 6,000 acres to the east and west of and contiguous to the existing tailing facilities. As partial consideration, we have agreed to indemnify Cliffs for the liability related to final reclamation and closure of the acquired property.

15

Environmental Review and permitting.Permitting.To commence commercial production at our NorthMet Project, various regulatory approvals are needed. In October 2005, the Minnesota Department of Natural Resources ("MDNR"(“MDNR”) published its Environmental Assessment Worksheet Decision Document establishing the MDNR as the lead state agency and the USACEUnited States Army Corps of Engineers (“USACE”) as the lead federal agency (together, the “Lead Agencies”) for preparation of an Environmental Impact Statement (“EIS”) for our NorthMet Project.

- 11 -

In November 2009, the Lead Agencies published the PolyMet Draftdraft EIS, which marked the start of a period for public review and comment that ended on February 3, 2010. During this period, the Lead Agencies held two public meetings and received more than 3,700 submissions containing approximately 22,000 separate comments, including an extensive comment letter from the EPAUnited States Environmental Protection Agency (“EPA”) in its role as reviewer of projects that could impact the environment.

On June 25, 2010, the Lead Agencies announced that they intended to complete the EIS process by preparing a SDEISsupplemental draft EIS that incorporates a proposed land exchange with the USFS Superior NationalUnited States Forest Service (“USFS”) and expands government agency cooperation. The USFS joined the USACE as a federal co-lead agency through the completion of the EIS process. In addition, the EPA has joined the effort as a cooperating agency. The MDNR remains the state co-lead agency.

On October 13, 2010, the USACE and the USFS published a Notice of Intent to complete the SDEIS,supplemental draft EIS, which will:

Once the SDEIS is completed, it will be made available for public review. We expect the public review priorperiod to preparationcommence during the summer of the Final EIS. 2013.

Completion of the Finalfinal EIS, incorporating appropriate responses to public comments, and a subsequent Adequacy Decisionadequacy decision by the MDNR and Record of Decision by the federal agencies are necessary before the land exchange can occur and various permits required to construct and operate the NorthMet Project can be issued.

Prior to receipt of these permits, we intend to secure production debt financing that would be available upon receipt of key permits, with construction slated to start upon receipt of permits and availability of construction finance.

16

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

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

SinceBetween September 2006 and October 2007 we have completed additional drilling and expanded the reserves. In May 2008 we completed an internal update of the DFS (the “DFS Update”), which contemplates an initial stage in which we would sell concentrate during completion of construction and commissioning of the hydrometallurgical plant that was contemplated in the DFS. This approach has the advantage of staging capital costs so that the hydrometallurgical plant can be funded in part from cash flow from sales of concentrate, and it reduces our reliance on delivery of long lead-time equipment before we start commercial production.

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

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

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

Financing and corporate development.development. Since 2003 we have raised approximately $145$155 million from equity private placement financings and the exercise of warrants issued as part of those financings. We have also issued $25$45 million initial principal debentures and have a loan of $4 million secured by land acquired with proceeds from the loan.

In October 2008, we entered into a strategic partnership with Glencore AG (“Glencore”) whereby Glencore agreed (i) to purchase up to $50 million of our floating rate secured debentures, of which $25 million has been issued, which are exchangeable into our common shares, and (ii) to purchase all of our production of concentrates, metal, or intermediate products on market terms at the time of delivery, for at least the first five years of production. We also appointed Stephen Rowland, a senior executive at Glencore, to our Board of Directors, and a senior technical representative of Glencore to join our Technical Steering Committee.

$7.5 million of the debentures were issued in October 2008, $7.5 million were issued in December 2008, $5.0 million were issued in June 2009, and $5 million were issued in August 2009. The final $25 million debentures were not issued and any commitments in connection with the final $25 million were cancelled in November 2010. We also issued to Glencore warrants to purchase 6.25 million of our common shares at any time prior to September 30, 2011 at $5.00 per share if exercised before the NorthMet Project entered into commercial production.

In November 2009, we entered into an agreement with Glencore whereby, in two installments, Glencore purchased $25 million of our common shares at $2.65 per share. The first installment of $10 million closed on November 23, 2009 and the second installment of $15 million closed on January 26, 2011. We also decreased the exercise price of the warrants issued in October 2008 to $3.00 per share.

In November 2010, we entered into a further agreement with Glencore whereby:

On January 17 2011 and July 15, 2011 Glencore funded the first and second $10 million tranches of the November 2010 financing agreement and we issued a total of 10 million of our common shares to Glencore. The final $10 million will be funded and we will issue an additional 5 million common shares to Glencore no later than October 15, 2012.

In December 2011, we entered into a further agreement with Glencore whereby:

- 13 -

On June 18, 2011 we closed a loan from the Iron Range Resources and Rehabilitation Board (“IRRRB”), an economic development agency with no regulatory oversight for mine permitting activities. The loan is secured by land acquired with the proceeds of the loan, carries a fixed interest rate of 5% per annum, compounded annually if not paid, and is repayableSee additional discussion on the earlier of June 30, 2016 or the date which the related land is exchanged with the USFS. PolyMet issued warrants giving the IRRRB the right to purchase up to 400,000 shares of our common shares at $2.50 per share at any time until the earlier of June 30, 2016 and one year after permits are received.financing activities in section 5(b).

C. Organizational Structure

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

- 14 -18

D. Property, Plant and Equipment

Mineral Property - NorthMet Project, Minnesota, USA

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

In the years ended January 31, 2013, 2012, 2011, and 2010,2011, we conducted exploration, development and acquisition activities only and did not conduct any operations.

(a) History

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

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

In 1987, the Minnesota Natural Resources Research Institute (“NRRI”) published data suggesting the possibility of a large resource of PGMs in the base of the Duluth Complex. In 1989, we acquired a 20-year renewable mining lease over the property from US Steel and commenced an investigation into the potential for mining and recovery of copper, nickel, and PGMs. We re-assayed pulps and rejects from the previous US Steel drilling to obtain data on the PGMs. Sequentially we entered into joint venture agreements with Nerco and Argosy Mining, which assisted in identifying and quantifying potential PGM values. However, the challenge of producing separate concentrates of saleable copper and nickel remained.

In the mid-90’s, we began investigating the use of alternative metallurgical processes, including bio-leaching and pressure oxidation. In 1998 we focused on a hydrometallurgical technology that uses autoclaves, which are vessels operating at high temperature, high pressure, and in an oxygen-enriched environment, to oxidize the sulfidic ores and leach the metals therein. This technology was developed in the 1950s and has been used commercially in the copper, nickel, cobalt, and gold mining industries since the 1980s.

In July 2000, we entered into a joint venture arrangement with North Limited (“North”), a major Australian mining company, to advance the NorthMet projectProject (which did not include the Erie Plant at that time) to commercial production. Under the joint venture arrangement, North had the opportunity to earn an 87.5% interest in the NorthMet projectProject by producing a feasibility study and funding 100% of the total capital costs to develop the project.

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

19

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

- 15 -

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

By a Memorandum of Understanding dated December 5, 2003 and an option agreement dated February 14, 2004, we obtained an option (the “Cliffs Option”) to acquire certain property, plant, and equipment located near our NorthMet ore body from Cliffs. As consideration for the Cliffs Option, we paid $500,000 prior to January 31, 2004 and issued to Cliffs 1,000,000 of our common shares on March 30, 2004, valued at $229,320 to maintain our exclusive rights until June 30, 2006. On September 15, 2005 we reached agreement with Cliffs on the terms for the early exercise of our option and expansion of the assets to be acquired to include 100% ownership of the Erie Plant (the “Asset Purchase Agreement”). Under this agreement we agreed to pay Cliffs $1 million in cash, 6.2 million of our common shares, and commence quarterly payments of $250,000 starting on March 31, 2006 for a total of $2.4 million plus interest at 4% per annum on the outstanding balance. The final payment was made on June 30, 2008.

On November 15, 2005, we consummated the Asset Purchase Agreement and completed the acquisition thereunder. The final payment was made on June 30, 2008.

On September 14, 2006, we entered into an agreement through two separate contracts for deed with Cliffs whereby we would acquire property and associated rights (“Cliffs II.”) for 2 million of our common shares valued at $6.16 million and $15 million in cash and two notes, each for $7 million. We closed the transaction on December 20, 2006.2006 and repaid the outstanding balance of the two $7 million notes plus accrued interest on December 21, 2011.

The Erie Plant facility includes land, crushing and milling equipment, extensive spare parts, plant site buildings, real estate, tailings impoundments and workshops, access to extensive mining infrastructure, a railroad connection to the site of the NorthMet ore body, a 120-railcar fleet, locomotive fueling and maintenance facilities, water rights and pipelines, large administrative offices on site and approximately 6,000 acres to the east and west of and contiguous to our existing tailings facilities.

The purchase price for Cliffs II consisted of 2 million of our common shares valued at $6.16 million and $15 million in cash to be issued and paid in three tranches, comprising:

• $1 million in cash, paid at closing;

• $7 million in cash payable in quarterly installments of $250,000 commencing December 31, 2006. Interest on the outstanding amount was payable quarterly from December 31, 2006 at the Wall Street Journal Prime Rate, and

• $7 million in cash payable in quarterly installments of $250,000 commencing on December 31, 2009 with a balloon payment of any unpaid balance due on December 31, 2011. Interest began to accrue on the outstanding amount beginning on December 31, 2009 and was payable quarterly at the Wall Street Journal Prime Rate.

We also assumed certain liabilities associated with the property.

We repaid the outstanding balance of the two $7 million notes plus accrued interest on December 21, 2011 and therefore, as of January 31, 2012 we have no further obligations to Cliffs other than the assumed environmental liabilities. See additional discussion in section 4D(c)(ii).

Since inception, we have a cumulative deficit of $81.8$88.4 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.

- 16 -20

The following diagram illustrates the location of the NorthMet Project.

Figure No. 1
NorthMet Project Map

(b) Location / Access / Climate

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

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

- 17 -21

• Pursuant to an agreement dated January 4, 1989, subsequently amended and assigned, we lease 4,162 acres from RGGS Land & Minerals Ltd., L.P (“RGGS”). During the year ended January 31, 2005, US Steel assigned the lease to RGGS. The initial term of the renewable lease was 20 years and called for total lease payments of $1.450$1.475 million. We can indefinitely extend the 20-year term by continuing to make $150,000 annual lease payments on each successive anniversary date. All lease payments have been paid or accrued to January 31, 2012.2013.
  
  We can, at our option, terminate the lease at any time by giving written notice to the lessor not less than 90 days prior to the effective termination.
  
  The lease payments are considered advance royalty payments and will be deducted from future production royalties payable to RGGS,the lessor, 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.

• Pursuant to an agreement effective December 1, 2008, we lease 120 acres that are encircled by the RGGS property from LMC Minerals (“LMC”). The initial term of the renewable lease is 20 years and calls for minimum annual lease payments of $3,000 on each successive anniversary date until our project commences commercial production, or for the first four years, whichever is the shorter, after which the minimum annual lease payment increases to $30,000. The initial term may be extended for up to four additional five-year periods on the same terms. All lease payments have been paid or accrued to January 31, 2011.2013.
  
  The lease payments are considered advance royalty payments and will be deducted from future production royalties payable to LMC,the lessor, which range from 3% to 5% based on the net smelter return that we receive. Our recovery of the advance royalty payments is subject to the lessor receiving an amount not less than the amount of the annual lease payment due for that year.

(ii) The Erie Plant

The Erie Plant
As set forth under the Asset Purchase Agreement, we have assumed certain ongoing site-related environmental and reclamation obligations of Cliffs in connection with the Erie Plant. Once we obtain our permit to mine and Cliffs is released from its obligations by certain state agencies, we will be directly obligated to comply with applicable environmental and reclamation obligations. Prior to Cliffs' acquisition of the plant from LTV Steel and prior to our acquisition of the plant from Cliffs, both Cliffs and ourselves undertook environmental assessments and concluded that there were no material liabilities other than the ultimate closure and reclamation of the site. Until operating permits are granted to us, Cliffs remains the “Regulated Party” for such obligations although, as part of the Asset Purchase Agreement, we have indemnified Cliffs for such costs.

The Erie Plant comprises a large crushing, grinding and milling facility that was built by a consortium of steel companies in the mid-1950s and processed low grade iron ore known as taconite that was transported to the facility by railroad from nearby mines. In the mid-1980’s, the consortium was consolidated into a single owner – LTV Steel. Pickands-Mather and its successor Cliffs operated the plant on behalf of the owners, processing approximately 100,000 tons per day of taconite ore. The plant was shut down in 2001 when LTV Steel filed for bankruptcy protection. Since then it has been maintained initially by Cliffs and, since November 15, 2005, by us. The plant did not operate during the 12 months ended January 31, 2012.2013.

- 18 -

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

The plant facilities include two rail dump pockets, two primary 60” gyratory crushers, eight secondary 36” gyratory crushers, seven tertiary seven-foot standard cone crushers, 14 seven-foot short-head crushers, 30 mill circuits each comprising one 12’x 14' rod mill and one 12’x 14' ball mill, three 12'x 24' regrind mills, maintenance facilities and spare parts, extensive conveyors, feeders, bins, auxiliary facilities and offices, established infrastructure including a 225 MVA high voltage electrical substation, water supply, roads, tailings basins and rail facilities.

22

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

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

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

As set forth under the Asset Purchase Agreement, we have assumed certain ongoing site-related environmental and reclamation obligations of Cliffs in connection with the Erie Plant. Once we obtain our permit to mine and Cliffs is released from its obligations by certain state agencies, we will be directly obligated to comply with applicable environmental and reclamation obligations. Prior to Cliffs' acquisition of the plant from LTV Steel and prior to our acquisition of the plant from Cliffs, both Cliffs and ourselves undertook environmental assessments and concluded that there were no material liabilities other than the ultimate closure and reclamation of the site. Until operating permits are granted to us, Cliffs remains the “Regulated Party” for such obligations although, as part of the Asset Purchase Agreement, we have indemnified Cliffs for such costs.

On January 28, 2010, Cliffs received a notice of intent to sue pursuant to Section 505 of the Clean Water Act on behalf of the Center for Biological Diversity, Save Lake Superior Association and the Indigenous Environmental Network. Pursuant to the notice, these environmental groups intended to file a lawsuit in Federal court for alleged violations by Cliffs Erie of National Pollutant Discharge Elimination System ("NPDES") permits at three separate locations on the Cliffs Erie property.

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

As ofat January 31, 20122013 we estimate the total indemnification liability (including the additional liabilities associated with the consent decree) to be approximately $25.8$57.5 million in present day costs and, based on the expected timing of such payments, our cost of capital, and anticipated inflation rates, we made a provision of $22.8$53.5 million in our financial statements at that date under IFRS.date.

This is our best estimate of the future liability. However, there is substantial uncertainty related to the cost of implementation of the Long Term Mitigation Plan related to uncertainty about applicable water quality standards, the engineering scope and cost of mitigation required to meet those standards, and responsibility for the financial liability. Outcomes that are unfavorable to us could result in material additional liability.

23

(d) PermittingEnvironmental Review and EnvironmentalPermitting

We commenced the environmental review and permitting process in early 2004. In October 2005, the MDNR published its Environmental Assessment Worksheet Decision Document establishing the MDNR as the lead state agency and the USACE as the lead federal agency (together the “Lead Agencies”) for preparation of an EIS for the project. In 2006 these Lead Agencies selected an independent environmental contractor (“the EIS Contractor”) to prepare the EIS. The EIS Contractor is Environmental Resources Management, a leading global provider of environmental, health and safety, risk, and social consulting services. The EIS Contractor team included members with expertise and experience in mining sulfidic ores. Several other government agencies (including the USFS, the Bois Forte Band of Chippewa and the Fond Du Lac Band of Lake Superior Chippewa) joined the EIS preparation team as Cooperating Agencies, which brought their special expertise to the process.

- 19 -

In January 2007, we submitted a Detailed Project Description (“DPD”) to state and federal regulators. The DPD laid out our development plans and proposed environmental safeguards including a mine plan, a wetland mitigation plan, air and water quality monitoring plans and a closure plan with closure estimate. Since then, we have submitted a supplemental DPD as well as more than 100 supporting research studies, including comprehensive mine waste characterization studies, water quality modeling and air quality modeling.

Under state and federal guidelines and regulations, a Draft EIS identifies the environmental impact of a proposed project as well as evaluating alternatives and ways to mitigate potential impacts. We were involved in the process of alternative/mitigation development and had input into the technical and economicaleconomic feasibility of potential alternatives and mitigations. The EIS Contractor prepared a series of preliminary versions of the Draft EIS that were reviewed and commented on by the Lead Agencies, other governmental agencies, and PolyMet.

In November 2009, the Lead Agencies published the PolyMet Draft EIS with formal notification of publication in the Minnesota Environmental Quality Board (“EQB”) Monitor and the Federal Register, which started a 90-day period for public review and comment, which ended on February 3, 2010. During this period, the lead Agencies held two public meetings – one in the town of Aurora, MN near the project location and one in Blaine, MN in the metropolitan Minneapolis-St. Paul area.

The Lead Agencies received more than 3,700 submissions containing approximately 22,000 separate comments, including an extensive comment letter from the EPA in its role as reviewer of projects that could impact the environment.

On June 25, 2010 the Lead Agencies announced that they intended to complete the EIS process by preparing a Supplemental Draft EIS ("SDEIS) that incorporates a land exchange proposed with the USFS Superior National Forest land exchange and expands government agency cooperation. The USFS joined the USACE as a federal co-lead agency through the completion of the EIS process. In addition, the EPA has joined the effort as a cooperating agency. The MDNR remains the state co-lead agency.

On October 13, 2010 the USACE and the USFS published a Notice of Intent to complete the SDEIS, which will:

• Supplement and supersede the Draft EIS and respond to concerns identified by the EPA and other comments on the Draft EIS,EIS; and
• Incorporate potential effects from the proposed land exchange between the USFS Superior National Forest and us.

Public review of the scope of the land exchange ended on November 29, 2010. The Notice of Intent stated that the proposed land exchange would eliminate conflicts between the United States and private mineral ownership and consolidate land ownership to improve Superior National Forest management effectiveness and public access to federal lands. The proposed exchange is in accordance with Forest Service Strategic Plan Goals to provide and sustain long-term socioeconomic benefits to the American people, conserve open space, and sustain and enhance outdoor recreation activities.

The NorthMet mine site encompasses approximately 2,840 of the 6,650 acres of land proposed for exchange to private ownership; the remaining federal property would improve intermingled and inefficient ownership patterns and eliminate conflicts if minerals development were to expand in the future.

The lands that would be received by the Superior National Forest consist of forest and wetland habitat as well as lake frontage. These lands would enhance public recreation opportunities and complement existing federal ownership by eliminating or reducing private holdings surrounded by Superior National Forest land.

- 20 -

On February 1, 2012 we reported continued progress toward completion of the SDEIS. ERM, the Lead Agencies' environmental consultant, has completed a significant amount of work on the document, which will comprise nine chapters. The first four chapters, comprising over 400 pages and including more than 100 figures, have been drafted and are being reviewed by the Lead Agencies.

Other important milestones achieved as at February 1, 2012 include:

• Approval of air emission estimates.
• Approval of cumulative visibility, acid deposition, and fiber impact evaluation reports.
• Completion of geotechnical stability modeling with results now under review.
• Completion of direct wetland impact evaluation and wetland mitigation plans, which are now under review.
• Completion of hazardous materials assessment; threatened, endangered and sensitive species analysis; assessments of wildlife and heritage resources; and wetland/floodplain analysis reports for the lands involved in the land exchange, which have been delivered to the USFS for review.
• Delivery by us of updated project documents including the detailed project description, mine plan, reclamation and waste disposal plans, and extensive data packages.

As SDEIS preparation moves into the final stages, the Lead Agencies have completed a detailed assessment of tasks outstanding and the timeline. The key task is completion of detailed environmental modeling, including quality assurance/quality control plans as well as generation, verification, review, and documentation of modeling input data and model assumptions.

Once all aspects of modeling have been completed, the results will be incorporated into aA preliminary SDEIS that will be available for review by the Cooperating Agencies (including the EPA). Comments from the Cooperating Agencies will be incorporated as appropriate, which will then be published for public review and comment. A final EIS will incorporate comments, after which a subsequent Adequacy Decision by the MDNR and Record of Decision by the federal co-lead agencies are necessary before the land exchange can occur and various permits required to construct and operate the project can be issued.

A number of permits will need to be issued by the MDNR, the MPCA and the USACE before construction can begin - the The major permits are:

24

Prior to receipt of Engineers

• Section 404 Individual Permit for Impacted Wetlands

          Minnesota Departmentthe permits, the Company intends to secure construction financing that would be available upon receipt of Natural Resources

• Permitkey permits, with construction slated to Mine
• Water Appropriations Permit
• Dam Safety Permit
• Wetland Replacement Plan

          Minnesota Pollution Control Agencystart upon availability of construction finance. Construction of NorthMet is expected to be made up of four major components:

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

As ofat January 31, 2012,2013, we had spent approximately $40.3$52.7 million on environmental review and permitting activities comprising $6.5 million expensed prior to October 2006 and $33.8$46.2 million since October 2006.

- 21 -25

(e) History of Exploration

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

FromSince 1998 through a winter drill program in 2006/7, we have conducted a series of drilling programs totaling 243323 holes for approximately 146,000172,000 feet of core and reverse circulation drilling. These holes, combined with recompilation of all prior work, for a total of 357437 diamond and reverse circulation holes aggregating to approximately 280,000306,000 feet, were the basis of our most recentDecember 2007 resource and reserve estimates. Since the summer of 2007 we have drilled an additional 80 shallow holes totaling 26,000 feet, which were not incorporated intoestimates in our 2007most recent Technical Report under NI 43-101. Total43-101 as amended, filed on April 5, 2013.

The historic drilling was conducted using industry standard procedures of the time. The core was retained and has been resampled by PolyMet. More recent work by PolyMet has been conducted using standard industry protocols, including Quality Assurance/Quality Control procedures under the supervision of Qualified Persons. We believe that the resulting drill hole database is 437 holes to an average depthreliable and can be confidently used in the estimation of 700 feet.the NorthMet resource and reserves.

- 22 -26

Mineral Resources and Reserves

Within the overall mineralized envelope defined by these exploration programs, the DFS defined measured and indicated mineral resources above the 500-foot elevation (approximately 1,120 feet below surface.) On August 9,The results of additional drilling through October 2007 we reported thatresulted in a further increase in measured and indicated mineral resources at the NorthMet Project had increased by 51% to 638694 million short tons from the 422 million short tons reported in the DFS. The revised mineral resource estimates are based on the same cut-off grades used in the DFS – namely–namely a Net Metal Value (“NMV”) of $7.42 per ton, reflecting mine planning at a copper price of $1.25 per pound and a nickel price of $5.60 per pound – see notes to the following table.

The increase in mineral resources reflects two changes:

• Data from the calendar 2007 drill program which confirmed the continuity of the main mineralized zone and the size of the Magenta Zone, which was extended down dip and to the west. 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 (0’ – elevation), compared with the prior cutoff at approximately 1,120 feet below surface (500’ – elevation). This change contributed 67 million short tons to the increase in measured and indicated mineral resources.

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

Updated Mineral Resources compared with DFS

The mineral resource estimate update was completed by a team from thePierre Desautels of AGP Mining Consultants in Toronto office of Wardrop Engineering working closely with PolyMet’s chief geologist, at the time, Richard Patelke. A NI 43-101 compliant report describing this increase was issued in September 2007October 20012, amended in January 2013, and has been filed as amended on PolyMet’s website (www.polymetmining.com)EDGAR on April 5, 2013 and on SEDAR at www.sedar.com. Pierre Desautels of Wardrop and Richard Patelke of PolyMet are the Qualified Persons for this report.on January 23, 2013.

- 23 -

On September 26, The 2006/2007 PolyMet reported thatdrill program also increased proven and probable mineable reserves at the NorthMet Project had increased by 51% to 275 million short tons from the 182 million short tons reported in the DFS.

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

27

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.

Updated Reserves compared with DFS

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

(f) Geology and Mineralization

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

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

- 24 -28

The Duluth Complex is represented by the Partridge River intrusion which overlays the Biwabik Iron Formation – the Partridge River intrusion is locally sub-divided into seven troctolitic units:

• Unit 7 and Unit 6 – texturally homogeneous plagioclase-rich troctolite, each with a persistent ultramafic base. Units 6 and 7 are each about 400 ft. thick.

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

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

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

• Unit 2 – homogeneous troctolite with abundant ultramafic units and a generally persistent basal ultramafic. This unit shows the most variation in thickness and may be locally absent. Units 2 & 3 are modeled as a single package for resource estimation.

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

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

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

The metals of interest at NorthMet are copper, nickel, cobalt, platinum, palladium, gold and lesser amounts of rhodium and ruthenium. In general, the metals are positively correlated with copper mineralization, cobalt being the main exception. Unit 1 mineralization is found throughout the deposit. A less extensive mineralized zone is found in Units 4, 5, and 6 in the western part of the deposit, it is copper-rich relative to sulfur, and moderately enriched in PGMs.

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

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

- 25 -29

(g) Development Plans

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

We believe that we have completed exploration work required for the initial phases of production at NorthMet, however, we may need to conduct further in-fill drilling during the anticipated life of the project. Since publication of the DFS, we have recognized the commercial potential to sell concentrates during the construction and commissioning of the new hydrometallurgical facilities.

DFS Update

On May 20, 2008 we reported revised plans and cost estimates for construction and operating costs. These revised plans included:

• the sale of concentrate during the construction and commissioning of new metallurgical facilities resulting in a shorter pre-production construction period (12-15 months) and reduced estimates of capital costs prior to first revenues ($312 million versus $380 million) despite the inclusion of an estimated $65 million of additional measures to protect the environment;;
• the new metallurgical facilities to be constructed during initial production and sales of concentrate. We anticipate that much of the additional estimated $290 million of capital costs including $20 million(for total estimated project capital of additional environmental measures,$602 million) will be largely funded from cash flow from initial operations;
• mine plans (based on copper at $1.25 per pound) reflect the increase in reserves and decrease in stripping ratio reported on September 26, 2007, the use of 240-ton trucks, and owner versus contract mine operations, and
• $77an estimated $77 million of mining equipment, which was assumed to be provided by a mining contractor in the DFS has been incorporated as an operating lease in updated operating costs.

On February 2, 2011 we reported a further refinement toannounced that we had simplified the developmentproposed metallurgical process and now plan whereby we propose to build the project in two phases:

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

Previous plans included a second autoclave and a copper solvent extraction/electro-winning (“SX-EW”) circuit to produce copper metal along with value added nickel-cobalt hydroxide and precious metals precipitate products. The changes reflect continued metallurgical process and other project improvements as well as improved environmental controls that are being incorporated into the SDEIS. The analysis is based on likely metal market conditions.environmental review process. The advantages, compared with the earlier plan, include a better return on capital investment, reduced financial risk, lower energy consumption, and reduced waste disposal and emissions at site.

Approximately $127 million of the total $602 million in total capital costs and ofestimated in the $290 million capital costs for the larger scale metallurgical facilities described in theMay 2008 DFS Update was attributed to the second autoclave and the copper circuit.will not be incurred in this revised plan.

We plan to provide a detailed project update when the project development plans now being analyzed in the SDEIS are finalized. This detailed project update will include revised mine plans, process and project improvements, and will incorporate the latest environmental controls.

Saleable Products

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

- 26 -30

On September 4, 2008 we announced that we had reached an agreement with Glencore whereby Glencore would purchase our production of concentrates, metals, or intermediate products at prevailing market terms at the time of delivery for at least the first 5 years of production. We executed the agreement on October 31, 2008 as part of a strategic alliance between us and Glencore.

Capital Costs

Our May 2008 DFS Update set out that, on a like-for-like basis (excluding scope changes), the total capital cost had increased to an estimated $516.8 million. This increase reflects both cost inflation and design scope changes since the DFS, including facilities needed to ship concentrate during the construction and commissioning of the new hydrometallurgical plant. This staged approach shortens the initial construction period, makes the project less sensitive to the delivery schedule for long lead time equipment such as autoclave vessels, and means that we can commence operations of the mine, the existing crushing and milling plant, the existing tailings disposal facilities, and the new flotation circuit, before starting the new hydrometallurgical plant.

In addition to these scope changes and the effect of inflation, we anticipate spending an additional $85.1 million on measures to protect the environment, over and above the measures contemplated in the DFS. $76.6 million for mining equipment that was assumed to be provided by a mining contract in the DFS has been incorporated as an operating lease in updated operating costs.

May 2008 DFS Update Capital Costs

(US dollars, millions)

In February 2011 we announced that we had simplified the metallurgical process whereby we plan to build one hydromet circuit to process nickel concentrate, and continue producing and marketing copper concentrate over the long term. This revised process eliminates the planned copper solvent-extraction/electro-winning circuit. These elements represented approximately $127 million of the total $602 million capital costs, but have no effect on the capital cost for the concentrates-only phase of the project.

May 2008 DFS Update Operating Plans and Costs

The overall mining and operating plan remains the same as that defined in the DFS and which forms the basis of the plan being analyzed in the environmental impact statement. We intend to mine 32,000 tons of ore per day for an operating life of twenty years, processing a total of 224 million tons of ore. The mine plan continues to be based on the following metal prices: copper - $1.25/lb, nickel - $5.60 per pound, cobalt - $15.25/lb, palladium - $210 per ounce, platinum - $800 per ounce, and gold - $400 per ounce.

Operating costs per ton of ore processed have increased to $13.33 from $11.02 in the DFS reflecting higher fuel, mine equipment, and other consumable costs, as well as general inflation. The cost of mining and delivering ore to the plant is now estimated at $4.31 per ton compared with $3.80 per ton in the DFS. The increase in mining costs has been partially offset by the lower strip ratio, larger mining equipment, and owner versus contractor operation.

- 27 -31

The economic analysis is based on SEC-reserve standards using prices at the time, namely the three-year trailing average at April 30, 2008. This price deck is: copper - $2.90/lb, nickel - $12.20/lb, cobalt - $23.50/-$23.50/lb, palladium - $320/oz, platinum - $1,230/oz, and gold - $635/oz. While these prices are somewhat higher than those used on the economic analysis in the DFS, the price are slightly below the three-year average at the end of our fiscal 2009 year, namely: copper - $3.13/lb, nickel - $12.45/lb, cobalt - $27.34/-$27.34/lb, palladium - $342/oz, platinum - $1,343/oz, and gold - $733/oz.

The DFS Update prices translate into copper cash costs of $1.05 per pound using a co-product basis to calculate costs, compared with the DFS estimate of $0.81 per pound. Taking revenues from the other metals as a deduction against costs, the co-product basis shows a cost of $(0.28) per pound compared with $0.06 per pound in the DFS.

We plan to further update the DFS during the course of our current fiscal year to reflect all project changes that are being incorporated into the SDEIS.

Economic Summary - May 2008 DFS Update Highlights

Key economic metrics include earnings before interest, tax, depreciation, and amortization (EBITDA) which is projected to increase to $217.3 million on average over the first five years of operations from $175.3 million estimated in the DFS. The net present value of future cash flow (after tax) discounted at 7.5% is estimated to be $649.4 million compared with $595.4 million in the DFS, and the after tax internal rate of return is now estimated at 30.6% compared with 26.7% in the DFS. The table below also sets out the affecteffect on EBITDA of a 10% change in each metal price.

- 28 -32

(h) Regulations and Government Rules

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

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

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

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

"During the year ended January 31, 2013, non-U.S. affiliates of the largest shareholder of the Company ("Shareholder Affiliates") entered into sales contracts for wheat and coal as well as sale and purchase contracts for metal oxides and metals with Iranian entities, which are either fully or majority owned by the GOI. The GOI is in the process of privatizing some of these entities. All transactions were conducted in compliance with applicable sanction laws and, where required, with the necessary prior approvals by the relevant governmental authorities.

The gross revenue of the non-U.S Shareholder Affiliates related to these transactions did not exceed the value of $645 million for the twelve months ended January 31, 2013. This figure includes the gross revenue of goods sold in the period but purchased in previous periods. The non-U.S. Shareholder Affiliates do not allocate net profit on a country-by-country or activity-by-activity basis, but estimate that the net profit attributable to the transactions with the GOI would not exceed a small fraction of the gross revenue from such transactions. It is not possible to determine accurately the precise net profit attributable to these transactions.

The non-U.S. Shareholder Affiliates believe that these transactions disclosed above do not constitute violations of applicable sanctions laws administered by the U.S. Department of the Treasury, Office of Foreign Assets Control, and are not the subject of any enforcement actions under Iran sanction laws.

In accordance with applicable U.S. and foreign sanctions laws, the non-U.S. Shareholder Affiliates expect to continue to engage in similar activities in the future."

Neither the Company nor any of its subsidiaries (i) engaged in any transactions or activities requiring disclosure under ITRA nor (ii) were involved in the transactions described in this section. As of the date of this report, the Company is not aware of any other activity, transaction or dealing by us or any of its affiliates during the fiscal year ended January 31, 2013 that requires disclosure in this report under Section 13(r) of the Exchange Act.

ITEM 4A. UNRESOLVED STAFF COMMENTS

None.

33

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. statements and related notes for the years ended January 2013, 2012, and 2011 appearing under Item 18 – Financial Statements and listed under Item 19 – Exhibits.

Our functional currency is the United States dollar and our financial statements arehave been prepared in accordance with IFRSInternational Financial Reporting Standards (“IFRS”) as issued by the IASB, effective with the Company’s transition to IFRS on February 1, 2011. Previously, the Company’s consolidated financial statements were prepared in accordance with CGAAP. Fiscal 2010 income statement information is presented in accordance with CGAAP and may not be appropriate as a comparative basis. Material measurement differences between CGAAP and accounting principles in the United States, applicable to the Company, were described in the Company’s previous consolidated financial statements.International Accounting Standards Board (“IASB”).

Summary of EventsKey Developments During the Fiscal Year Ended January 31, 20122013

During the year ended January 31, 2012,2013, and through the date of the filing of this Annual Report, we continued to advance our NorthMet Project including the activities noted below.

Key Developments – Environmental Review

Since February 1, 2012 our focus has continued to be advancing the NorthMet environmental review. The MDNR EIS Contractor has completed a significant amount of work on the SDEIS and is finalizing internal review of groundwater, surface water, and air dispersion models including quality assurance/quality control review of data that is being incorporated into the SDEIS.

On February 2, 2011September 11, 2012 we reported that we had hired Foth Infrastructure & Environment ("Foth") to assist in completion of the NorthMet environmental review and permitting process. Separately, we reported that we had completed a mine site groundwater monitoring program in order to addresses concerns expressed by the EPA in its review of the 2009 Draft EIS.

On October 10, 2012 we announced that we had simplifiedsuccessfully treated over one million gallons of water through its Reverse Osmosis (RO) pilot water treatment plant. We partnered with GE Water & Process Technologies (GE) and Barr Engineering to design and operate the proposed metallurgical processpilot plant using RO membrane technology developed by GE. The test work demonstrates the technical and now planregulatory viability of RO as a water treatment method that will enable us to buildsuccessfully develop the project in two phases:

• Phase I: produceNorthMet Project and market concentrates containing copper, nickel, cobaltmeet state and precious metals, and
• Phase II: process the nickel concentrate through a single autoclave, resulting in production and salefederal water quality standards.

  On November 19, 2012 we announced completion of high grade copper concentrate, value added nickel-cobalt hydroxide, and precious metals precipitate products.

Previous plans included a second autoclave and a copper solvent extraction/electro-wining (“SX-EW”) circuit to produce copper metal along with value added nickel-cobalt hydroxide and precious metals precipitate products. The changes reflect continued metallurgical process and other project improvementsengineering control designs as well as improvedthe design of and inputs to groundwater, surface water and air dispersion models to assess potential environmental controls thatimpacts from the NorthMet Project. Following extensive quality assurance/quality control review by Foth Infrastructure & Environment and Barr Engineering, we delivered these results to the state regulatory agencies and the EIS Contractor for review, which is largely complete. The results are being incorporated into the SDEIS. The advantages, compared with the earlier plan, include a better return on capital investment, reduced financial risk, lower energy consumption, and reduced waste disposal and emissions at site. Approximately $127 million of the total $602 million capital costs estimated in the May 2008 DFS UpdateSDEIS which will not be incurred in this revised plan.

On March 10, 2011 we appointed Alan R. (Al) Hodnik and Michael M. (Mike) Sill to our Board of Directors.

On April 15, 2011 we reported that the Company and the Lead Agencies expect to finalize detailed work plans for the SDEIS by May 2011. The detailed project, which includes the simplified metallurgical process and reduction in capital costs that we announced on February 2, 2011, will then be modeled to predict environmental impacts of the project. The third party contractor hired by the lead agencies will then prepare a preliminary supplemental draft Environmental Impact Statement, which will be reviewed by the Lead Agencies,EPA and other governmental and cooperating agencies (includingprior to publication for public review.

On February 14, 2013 we announced project improvements resulting from addressing comments on the US Environmental Protection Agency and tribal governments) and ourselves. Once thatdraft EIS. We have undertaken an extensive review process has been completed, the SDEIS will be finalized for publication and public comment.

- 29 -

On April 15, 2011 the Boardof all aspects of the Iron Range ResourcesNorthMet Project which has resulted in numerous improvements and Rehabilitation Board (“IRRRB”) reapprovedreduced environmental impacts. Reductions in the environmental impact are a secured loan to our subsidiary, Poly Met Mining, Inc. of up to $4 million. The loan closed on June 28, 2011, is secured by the land acquired, carries a fixed interest rate of 5% per annum, compounded annually if not paid, and is repayable on the earlier of June 30, 2016 or the date which the related land is exchanged with the USFS. PolyMet issued warrants giving the IRRRB the right to purchase up to 400,000 of our shares at $2.50 per share at any time until the earlier of June 30, 2016 and one year after permits are received.

On July 15, 2011 the Company sold to Glencore 5 million common shares at $2.00 per share pursuant to the November 2010 private placement agreement. In a separate transaction, Glencore acquired 9.2 million of our common shares from Cliffs, representing that company's entire holding of our common shares.

On September 19, 2011 we reported thatsignificant step toward completion of the SDEIS, was taking longer than had been anticipated due to the time the Lead Agencies were spending receiving and considering input from Cooperating Agencies during the planning process, an important step in producing an adequate and defensible SDEIS. In addition, some time was lost because of the Minnesota state government shutdown in July.which is on track for mid-summer 2013.

We also announcedreported that we were commencing detailed capital and operating cost updates based on these project changes and are reviewing detailed construction plans and schedules to prepare for project construction upon receipt of permits.

34

As discussed in Section 4D(c)(ii), we received a response from the GovernorMPCA in October 2012 approving pilot tests of Minnesota had announced important strengtheningvarious treatment options related to the Consent Decree to determine the best course of action for long term mitigation. Although there is substantial uncertainty related to applicable water quality standards, engineering scope, and responsibility for the financial liability, the October response from the MPCA provides clarification to the potential liability for the Long Term Mitigation Plan. The Company has included its best estimate of the state's managementliabilities related to this consent decree in its environmental rehabilitation provision for the period ended January 31, 2013 in the amount of $31.8 million.

The Company’s best estimate of the environmental reviewrehabilitation provision at January 31, 2013 was $53.5 million (January 31, 2012 - $22.8 million) based on estimated cash flows required to settle this obligation in present day costs of $24.5 million (January 31, 2012 - $23.9 million) for Cliffs I and permitting process$33.0 million (January 31, 2012 - $2.0 million) for mining projects, comprising two elements: creationCliffs II, an annual inflation rate of a Mining Coordinator position to oversee and coordinate the environmental review and permitting process for mining projects, and creation of a Mining Sub-Cabinet comprised of the Commissioners of the DNR, the MPCA, the Department of Employment and Economic Development ("DEED"2.00% (January 31, 2012 – 2.00%), a risk-free interest rate of 2.79% (January 31, 2012 – 2.55%), a mine life of 20 years and the IRRRB.a rehabilitation period of 10 years.

Other Key Developments

On December 6, 2011March 9, 2012 we soldentered into an option agreement over certain land that it plans to Glencore 13,333,333have restored to wetlands through an agreement with AG for Waterfowl, LLP ("AG"). We paid AG $2.0 million cash and issued 2,788,902 of its common shares at $1.50 per share and issued warrants to purchase 2,600,0001,083,333 of ourits common shares at $1.50 per share at any time until December 31, 2015, subject2015. AG has provided us security over its requirement to mandatory exercise ifperform the 20-day volume weighted average pricewetlands conversion work in the form of our shares is equala $5.9 million face value five year zero interest rate mortgage over land currently in agricultural use that AG will restore to or greater than 150%wetlands in order to earn wetland credits. The mortgage will be proportionately released as part of the exercise price andlands are fully restored to approved wetland status, at which time we provide notice to Glencorewill receive formal wetland credits. Any lands that we have received permits necessarynot requested be restored to start constructionwetland will revert to AG and the remaining mortgage, if any, will be released on February 28, 2017. We are committed to pay AG an additional $0.680 million over seven years as compensation for the work AG is continuing to undertake. AG was subsequently acquired by Environmental Investment Partners (“EIP”) and we consented to the assignment of the North Met Project and availability of senior construction finance, in a form reasonably acceptableagreement to Glencore. Approximately $7.0 million was used to repay all outstanding notes payable to Cliffs.EIP on September 7, 2012.

On December 6, 2011 the CompanyJune 21, 2012 we announced that Jon Cherry, a senior mining executive, would join us as CEO and Glencore also amended somePresident effective July 16, 2012. Mr. Cherry held increasingly senior positions at operations and projects for subsidiaries of Rio Tinto plc, one of the existing financing agreements comprising:

• The maturity dateworld's largest mining companies. Most recently he was responsible for strategic direction in environmental permitting and compliance, legal matters, and external relations related to development of the Tranche A-D debentures (collectively,Resolution copper project in Arizona, a joint venture between Rio Tinto and BHP Billiton. Previously, he was responsible for permitting and initial development of the "Issued Debentures"Eagle nickel-copper project in Michigan's Upper Peninsula. He started his career with Cyprus Thompson Creek in Idaho before joining Kennecott in Utah. Former CEO and President Joe Scipioni remains with us as Chief Operating Officer.

  At our annual shareholders’ meeting on July 10, 2012, shareholders approved amendment and restatement of the 2007 Omnibus Share Compensation Plan (the "Plan") and reapproved the Plan and all unallocated option or awards entitled to be granted thereunder. The amended Plan (a) amended the number of common shares reserved for issuance, (b) increased the maximum term of expiry from seven years to ten years; and (c) clarified the definition of "Market Price". The amended Plan was extended from September 30,approved by the TSX on July 19, 2012.

  On October 15, 2012 we sold to Glencore 5 million shares at US$2.00 per share resulting in gross proceeds to us of US$10,000,000 pursuant to the earlier of i) us giving Glencore 10 days notice that we have received permits necessary to start construction of the NorthMet project and availability of senior construction finance, in a form reasonably acceptable to Glencore (the "Early Maturity Event"), and ii) September 30, 2014.

• Upon occurrence of the Early Maturity Event, the initial principal and capitalized interest will be exchanged into common shares of PolyMet at $1.50 per share. The Issued Debentures were issued in four tranches (Tranches A-D) between October 2008 and September 2009.
• The warrants issued to Glencore in November 2010 (the "2010 Warrants") have been amended such that Glencore has the right to purchase 3 million of our common shares at $1.50 per share at any time until December 31, 2015, subject to mandatory exercise if the 20-day volume weighted average price of our shares is equal to or greater than 150% the exercise price and we provide notice to Glencore that we have received permits necessary to start construction of the NorthMet Project and availability of senior construction finance, in a form reasonably acceptable to Glencore.

The final tranche of the 2010 private placement comprising the sale of 5 million common shares at $2.00 per share no later than October 15, 2012 is unaffected by the amendments to the financing agreements, as are the off take and marketing agreements whereby Glencore will market all of PolyMet's products for a minimum of five years from the start of commercial production at NorthMet.agreement.

- 30 -35

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

As ofYear ended January 31, 2012, we operated in one segment,2013 compared with the explorationyear ended January 31, 2012

Overall: Our focus for the fiscal year ended January 31, 2013 was to provide the Lead Agencies with input into the SDEIS and development of the base and precious metalspermit work at our NorthMet Project. Head office comprises generalProject, and administrative costs, share based compensation expense, financing expenses, foreign exchange interest income, assets, purchaseobtain additional financing.

Loss for the year:During the year ended January 31, 2013, we incurred a loss of property, plant and equipment and amortization reported by$6.626 million ($0.04 loss per share) compared to a loss of $3.045 million ($0.02 loss per share) during the Canadian head office. 2010 operating loss information is presented in accordance with CGAAP and may not be appropriate as a comparative basis.

On November 12, 2010, we announced that we had renegotiated our debenture financing with Glencore. The agreed amendments to the debenture financing are as follows:

• The maturity date, and therefore accounting for accretion, of the Issued Debentures was extended from September 30, 2011 to September 30, 2012. The Issued Debentures were issued in four tranches between October 2008 and September 2009. The total initial principal of the Issued Debentures is $25 million with $4.018 million of accrued interest as ofyear ended January 31, 2012. The amended Issued Debentures were exchangeable into our commonincrease in the net loss for the year was primarily attributable to the following:
  • an increase in share based compensation in the current year to $2.255 million (prior year - $0.625 million) relating to grants of options and RSU’s, amortization of previously issued options, bonus shares, at $4.00 per share.
  • Cancellation of Glencore’s commitment to purchase, and our commitment to issue, $25 million of Tranche E Debentures which were to be issued upon publicationRSU’s, and a shareholder approved modification of the Final Environmental Impact Statement, receiptexpiry dates of a term sheet for construction financing,outstanding share options;
  • an increase in salaries and other customary conditions.benefits in the current year to $1.394 million (prior year - $0.664 million) relating to restructuring and termination benefits incurred;
  • Cancellation of warrantsan increase in filing and regulatory fees in the current year to purchase 6.25$0.281 million of our common shares issued in October 2008 and amended in November 2009.
  • Issuance of warrants(prior year - $0.099 million) related to purchase 3 million of our common shares at $2.00 at any time until December 31, 2015.

  On November 12, 2010, we announced that we had entered into a definitive agreement with Glencore to sell in a private placement 15 million common shares at $2.00 per share for gross proceeds of $30 million, before deducting estimated offering expenses. Completionrenewal of the sale of these shares and funding are expected to occuruniversal shelf registration;

• a decrease in the following three tranches subject,non-cash future income tax recovery in each case,the current year to certain closing conditions:

  $nil (prior year - 31 -

  ---

  • Tranche 1$0.657 million) relating to prior year expiration of $10 million closed on January 17, 2011;
  • Tranche 2 of $10 million closed on July 15, 2011,share purchase warrants; and
  • Tranche 3 of $10an increase in finance income and costs in the current year to $0.821 million will close no later than October 15, 2012.

  Glencore has a right of first refusal(prior year - $0.351 million) primarily due to provide all material financings, subject to regulatory approval, if it owns 10% or more of our issued and outstanding shares and, if it owns more than 5% of our issued and outstanding shares, Glencore hasan increase in the right to participate in any equity-related financing to maintain its partially diluted ownership interest.

  In accordance with IFRS, the November 2010 transactions, whereby our existing convertible debt at that date with a book value of $26.546 million was deemed to have been extinguished and reissued, allaccretion of the costs associated with the transaction have been recordedenvironmental rehabilitation provision as a non-cash expenseresult of $2.931the increased liability and increase in the discount rate.

These items were partially offset by the following:

• a decrease in professional fees in the current year to $0.374 million
  (prior year - $0.740 million) primarily due to transition to IFRS in the prior year.

Year ended January 31, 2012 compared with the year ended January 31, 2011

Overall.Overall:Our focus for the fiscal year ended January 31, 2012 was to provide the Lead Agencies with input into the SDEIS and permit work at our NorthMet Project and to obtain additional financing.

Loss for the year.year:During the year ended January 31, 2012, we incurred a loss of $3.045 million ($0.02 loss per share) compared to a loss of $6.662 million ($0.04 loss per share) in 2011. The decrease in the net loss for the current year was primarily attributable to:to the following:

• $2.931 million non-cash loss on refinancing of convertible debt during the prior year;
• our decision, in the prior year, to review alternatives for construction financing and not to renew our agreement with BNP Paribas Loan Services (which was to advise and assist us in all aspects of preparation for construction finance) which expired on July 31, 2010. As such, $1.830 million, $1.197 million of which was non-cash related to the fair value of warrants issued, recorded as a deferred financing cost asset was written off the consolidated statement of loss in the prior year,year; and
• a gain of $72,000$0.072 million on assets held for sales in the current year (January 31, 2011 – loss of $520,000)$0.520 million).

36

These items were partially offset by:by the following:

• an increase in share based compensation in the current year period to $625,000$0.625 million compared to a recovery in the prior year period of $119,000$0.119 million including $212,000$0.212 million (January 31, 2011 – nil) relating to board and other management changes;
• director’s fees and expenses of $248,000$0.248 million (January 31, 2011 - nil);
• a non-cash future income tax recovery related to expiration of share purchase warrants previously issued of $657,000$0.657 million (January 31, 2011 – $1,390,000),$1.390 million); and
• an increase in professional fees to $740,000$0.740 million (prior year period - $365,000)$0.365 million) primarily due to increased corporate activities.transition to IFRS.

(b) Liquidity and Capital Resources

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

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

The Company expects to repay the IRRRB long-term loan from working capital or additional financing and to either exchange the Glencore debt into equity or repay from additional financing or from operations once commercial production has commenced.

Year endedEnded January 31, 20112013 compared with the year ended January 31, 20102012

Overall.Our focus for the fiscal year endedAs at January 31, 2011 was to provide2013 we had working capital of $2.629 million compared with working capital of $16.375 million as at January 31, 2012 consisting primarily of cash of $8.088 million (January 31, 2012 - $17.478 million), trade and other receivables of $0.830 million (January 31, 2012 - $0.440 million), prepaid expenses of $0.771 million (January 31, 2012 - $0.934 million), trade payables and accrued liabilities of 5.269 million (January 31, 2012 - $1.679 million), and the Lead Agencies with input into the SDEIS and permit work at our NorthMet Project, obtain additional financing and to continue to develop the NorthMet Project including updating the mineral reserves and mineral resources estimates and preparing for construction.current portion of environmental rehabilitation provision of $1.808 million (January 31, 2012 - $0.828 million).

Loss for the year. 2010Cash used in operating loss information is presentedactivities in accordance with CGAAP and may not be appropriate as a comparative basis. During the year ended January 31, 2011, we incurred a loss of $6.6622013 was $1.116 million ($0.04 loss per share) compared to a loss of $9.023 million ($0.06 loss per share)cash used in 2010. The decrease in the net loss for the period was primarily attributable to:

- 32 -

• A non-cash future income tax recovery related to expiration of share purchase warrants previously issued of $1,390,000 (January 31, 2010 – $nil);
• A non-cash reversal of previously recorded stock-based compensation costs relating to board and other management changes resulting in a credit of $119,000 in the current year (January 31, 2010 – expense of $915,000);
• A non-cash charge of $4.920 million for the amendment of share purchase warrants in the prior year period (current year period - $nil), and
• Investor relations and financing expenses of $420,000 due to the filing of an F-3 registration statement during the prior year period (current year period - $118,000).

These items were partially offset by the non-cash costs associated with extending the term of our debentures by a year, the fair value of the amendments to the Glencore warrants, which resulted in a non-cash charge of $2.931 million to our income statement. A further offset to the decrease in reported net loss derived from our decision to review alternatives for construction financing and not to renew our agreement with BNP Paribas Loan Services, which agreement was to advise and assist us in all aspects of preparation for construction finance, which expired on July 31, 2010. As such, the $1.830 million, $1.197 million of which was non-cash related to the fair value of warrants issued, recorded as a deferred financing cost asset was written off the consolidated statement of loss in the current year. In addition, we recorded a loss of $520,000 in the current year period as a result of our decision to reclassify an asset as held for sale and write-down its carrying value to fair value less cost to sell.

(b)           Liquidity And Capital Resources

Financing Activities

On November 12, 2010, we entered into an agreement with Glencore whereby Glencore agreed to purchase 15 million of our common shares at $2.00 per share in three tranches to occur no later than certain agreed dates, and according to our needs based on a budget to be agreed. The first two tranches of 5 million shares for gross proceeds of $10 million were funded on January 17, 2010 and July 15, 2011. The remaining tranche, for gross proceeds of $10 million, will close on or before October 15, 2012. Transaction costs for the first tranche totaled $106,000.

On November 24, 2009 we closed the first tranche of an equity financing with Glencore for 3,773,585 of our common shares at $2.65 per share for gross proceeds of $10 million. On January 26, 2010, we closed the second tranche of the equity financing with Glencore of an additional 5,660,377 common shares at $2.65 per common share for gross proceeds of $15 million. Transactions costs for these two financings totaled $499,000.

During the year ended January 31, 2011 we issued 845,000 common shares (prior year period – 775,000) upon exercise2012 of options for proceeds of $808,000 (prior year period - $477,000) and nil common shares (prior year period 167,954) upon exercise of share warrants for proceeds of $nil (prior year period - $494,000).

On August 27, 2009, we announced that we had filed a universal shelf registration on Form F-3 with the SEC. This universal shelf registration allows us to have the option to offer and sell, from time to time in one or more offerings, up to $500 million of our debt securities, common shares, warrants and units.

On October 31, 2008, we entered into a financing with Glencore for an aggregate of $50 million floating rate secured debentures due on September 30, 2011 issued by PolyMet US and guaranteed by the Company.$2.955 million. The debentures bear interest at 12-month US dollar LIBOR plus 4%. Interest is payablevariance in cash or by increasing the principal amount of the Debentures, at Glencore’s option. The debentures are secured by all of our assets. The debentures were exchangeable into our common shares at Glencore’s option at $4.00 per share.

- 33 -

On October 31, 2008, we issuedis primarily due to Glencore warrants to purchase 6.25 million our common shares at $5.00 if exercised before the NorthMet Project produced a total of 20,000 metric tonnes of concentrate, or $6.00 thereafter.

On November 17, 2009, we agreed to modify certain terms ofchanges in non-cash working capital balances and the above transaction. Under the new terms the warrants entitled Glencore to purchase 6.25 million of our common shares at $3.00 and expired on September 30, 2011. The incremental $158,000 increase in the fair value of the warrants due to the warrant exchange was debited to warrant amendment expense and credited to contributed surplus. Separately in November 2009, we agreed to modify the terms of the final $25 million Tranche E of the $50 million Debenture with Glencore such that Tranche E, if drawn, could be exchanged at $2.65 per share.noted operating variances.

On November 12, 2010, we announced that we had agreed upon additional modification of certain terms of the above transaction:

• the maturity date of the Debentures was extended from September 30, 2011 to September 30, 2012;
• Glencore’s commitment to purchase, and our commitment to issue, $25 million of Tranche E Debentures, which were to be issued upon publication of the Final Environmental Impact Statement and other conditions, were cancelled;
• warrants to purchase 6.25 million of our common shares at $3.00 at any time until September 30, 2011 issued to Glencore were cancelled, and
• we issued warrants to purchase 3 million of our common shares at $2.00 at any time until December 31, 2015.

DuringCash provided by financing activities for the year ended January 31, 2010 we issued 775,000 shares (prior year period – 262,800) upon exercise of options for proceeds of $477,000 and 167,954 shares upon exercise of share warrants for proceeds of $494,000.

During2013 was $10.130 million compared to cash provided in the year ended January 31, 2008, we issued 15 million units at $2.75 per unit, with each unit comprising one common share and one-half2012 of one warrant (for accounting purposes, the value$26.209 million. The current year includes funding of the units was bifurcated between the common shares2010 Glencore financing Tranche 3 and the warrants) and 520,000 warrants for finders' fees related to the transaction. Each whole warrant was exercisable into a commonexercise of share at a price of $4.00 at any time until October 13, 2008 (see amendment below), subject to an early trigger if the 20-day volume weighted average priceoptions. The prior year includes funding of the common shares was $6.00 or more. On October 10, 2008, we announced that we had received2010 Glencore financing Tranche 2, the consent from2011 Glencore financing, the holdersIRRRB loan, and exercise of more than two-thirds of the 8,020,000 warrants issued as part of the April 2007 private placement to exchange those warrants into:

• 4,010,000 warrants, each warrant entitling the holder to purchase one of our common shares at $3.00 per share at any time until the sooner of 30 calendar days after publication of the draft Environmental Impact Statement by the State of Minnesota in the State’s Environmental Quality Board Monitor and October 13, 2009, and
• 4,010,000 warrants, each warrant entitling the holder to purchase one of our common shares at $5.00 if exercised before the NorthMet Project has produced a cumulative total of 20,000 metric tonnes of concentrate, or $6.00 thereafter and prior to August 31, 2011. We can accelerate the expiration of the warrants if our volume-weighted 20-day average share price trades at a 50% premium to the exercise price applicable at any time.

In October 2009, we received the consent from holders of more than two-thirds of the above warrants to exchange the 4,010,000 warrants due to expire on October 13, 2009 for 4,010,000 warrants, each warrant entitling the holder to purchase one of our common shares at $3.00 at any time until the sooner of 30 calendar days after publication of the draft Environmental Impact Statement by the State of Minnesota in the State’s Environmental Quality Board Monitor and December 31, 2009. The incremental $1,005,000 increase in the fair value of the warrants due to the warrant exchange was debited to warrant amendment expense and credited to contributed surplus.

- 34 -

In November 2009, we received the consent from holders of more than two-thirds of the above warrants to exchange the 4,010,000 warrants due to expire the earlier of 30 calendar days after publication of the draft Environmental Impact Statement by the State of Minnesota in the state’s Environmental Quality Board Monitor and December 31, 2009 for 4,010,000 warrants, each warrant entitling the holder to purchase one of our common shares at $3.00 at any time until the sooner of 21 business days after publication of the final Environmental Impact Statement by the State of Minnesota in the State’s Environmental Quality Board Monitor and December 31, 2010. The incremental $3,757,000 increase in the fair value of the warrants due to the warrant exchange was debited to warrant amendment expense and credited to contributed surplus.

Warrants to purchase 167,954 of our common shares had been exercised prior to January 31, 2010 and, on December 31, 2010 warrants to purchase 3,842,046 of our common shares at $3.00 expired. We recorded a future income tax recovery as the expiration of the warrants triggered a capital gain for tax purposes, which wasoptions, partially offset by the applicationrepayment of tax losses carried forward resulting in a credit of $1,219,000.

Year Ended January 31, 2012the Cliffs loan.

Cash used in investing activities for the year ended January 31, 20122013 was $16.137$18.404 million compared with $16.519 millionto cash used in the year ended January 31, 2011,2012 of $16.137 million. The increase was primarily due to cash consideration paid to enter into wetland credit options and development agreements. See further discussion in the “Other Key Developments” section above.

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

37

Year Ended January 31, 2012 compared with the decrease beingyear ended January 31, 2011

As at January 31, 2012 we had working capital of $16.375 million compared with working capital of $4.199 million as at January 31, 2011 consisting primarily due theof cash of $17.478 million (January 31, 2011 - $10.361 million), trade and other receivables of $440,000 (January 31, 2011 - $318,000), prepaid expenses of $934,000 (January 31, 2011 - $636,000), asset held for sale of $nil (January 31, 2011 - $3.420 million); accounts payable and accrued liabilities of $1.679 million (January 31, 2011 - $2.444 million), the used drill, partially offset by purchasing land forcurrent portion of the USFS land exchange with funds received fromnotes to Cliffs of $nil (January 31, 2011 - $6.750 million) and the loan from the IRRRB.current portion of environmental rehabilitation provision of $828,000 (January 31, 2011 - $1.408 million).

Cash used in operating activities in the year ended January 31, 2012 was $2.955 million compared to cash used in the prior year of $3.068 million. The variance in cash is primarily due to changes in non-cash working capital balances and the above noted operating variances.

Cash provided by financing activities for the year ended January 31, 2012 was $26.209 million (prior year - $8.666-$8.666 million). The current year activity was primarily due to the Glencore financings and the IRRRB loan and the issuance of share capital on the exercise of share options for $902,000 (prior year - $808,000), partially offset by the repayment of $8.500 million of debt (prior year - $2 million).

Cash used in investment activities for the year ended January 31, 2012 was $16.137 million compared with $16.519 million in the year ended January 31, 2011, with the decrease being primarily due to the sale of the used drill, partially offset by purchasing land for the USFS land exchange with funds received from the loan from the IRRRB.

Total cash for the year ended January 31, 2012 increased by $7.117 million for a balance of $17.478 million compared to the year ended January 31, 2011 where cash decreased $10.921 million to a balance of $10.361 million.

Substantially all cash and equivalents are held inFinancing Activities

On August 27, 2009 we announced that we had filed a universal shelf registration on Form F-3 with the United States currency.Securities and Exchange Commission (“SEC”) and short form base shelf prospectus with the various Canadian Provincial Security Commissions. This universal shelf registration statement expired in 2012. These documents allowed PolyMet to have the option to offer and sell, from time to time in one or more offerings, up to $500 million of its debt securities, common shares, warrants and units in the United States and Canada. A new universal shelf registration on Form F-3 and short form base shelf prospectus was filed and declared effective in January 2013 for the same offering limit and covering the same securities. Unless otherwise specified the net proceeds from the offering of the securities will be used for construction finance for our copper, nickel, precious metals development project located in Minnesota and for working capital.

Glencore AG (“Glencore”) Financing

Since October 31, 2008 Glencore has entered into a series of financing agreements with us and a marketing agreement with us whereby Glencore committed to purchase all of our production of concentrates, metal, or intermediate products on market terms at the time of delivery, for at least the first five years of production. We agreed to propose, and shareholders approved, the election of a Glencore senior executive as a director and also appointed a senior member of Glencore's technical team to our Technical Steering Committee. As a result of the series of financing transactions and the purchase by Glencore of our common shares previously owned by Cliffs, Glencore's current and potential ownership of PolyMet comprises:

• 46,967,842 shares representing 25.6% of our issued and outstanding common shares;

• $25.0 million initial principal floating rate secured debentures due September 30, 2014. Including capitalized interest as at January 31, 20122013, these debentures are exchangeable at $1.50 per share into 20,338,440 of our common shares upon us giving Glencore notice that we had working capitalhave received permits necessary to start construction of $16.375 million compared with working capital of $4.199 million at January 31, 2011 consisting primarily of cash of $17.478 million (January 31, 2011 - $10.361 million), trade and other receivables of $440,000 (January 31, 2011 - $318,000), prepaid expenses of $934,000 (January 31, 2011 - $636,000), asset held for sale of $nil (January 31, 2011 - $3.420 million); accounts payable and accrued liabilities of $1.679 million (January 31, 2011 - $2.444 million), the current portion of the notes to Cliffs of $nil (January 31, 2011 - $6.750 million) and the current portion of environmental rehabilitation provision of $828,000 (January 31, 2011 - $1.408 million). The Company expects to repay the $4 million IRRRB loan plus capitalized interest from working capital or additional financing and to either exchange the debentures into equity or repay them from additional financing or from operations once commercial production has commenced. The Company’s cash is primarily held in deposits and bearer deposits of a major Canadian bank and does not include any exposure to asset-backed commercial paper.

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

  Should we wish to continue to further advance the NorthMet Project and availability of senior construction finance in a form reasonably acceptable to commercial productionGlencore or are repayable on September 30, 2014. The exercise price of the exchange warrants and the number of warrants are subject to conventional anti-dilution provisions; and

38

• Glencore holds warrants to purchase 5,600,000 common shares at $1.50 per share, subject to conventional anti-dilution provisions, at any time until December 31, 2015, subject to mandatory exercise if the 20-day Value Weighted Average Price (“VWAP”) of PolyMet common shares is equal to or greater than 150% the exercise price and PolyMet provides notice to Glencore that it has received permits necessary to start construction of the NorthMet Project and availability of senior construction finance, in a form reasonably acceptable to Glencore.

If Glencore were to exercise all of its rights and obligations under these agreements, it would own 72,906,282 of our common shares, representing 34.9% on a partially diluted basis, that is, if no other options or warrants were exercised or 32.4% on a fully diluted basis.

On November 12, 2010, Glencore entered into a definitive agreement with us (“2010 Agreement”) to:

On November 30, 2011, Glencore entered into a definitive agreement with us (“2011 Agreement”) to:

• Sell in a private placement to Glencore, 13,333,333 common shares at $1.50 per share for gross proceeds of $20 million (before deducting offering expenses) and issue to Glencore warrants (the 2011 Warrants) to purchase 2,600,000 of our common shares at $1.50 per share at any time until December 31, 2015, subject to mandatory exercise if the 20-day Value Weighted Average Price (“VWAP”) of our shares is equal to or greater than 150% the exercise price and we will require additional funds. Asprovide notice to Glencore that we have no operating revenues,received permits necessary to start construction of NorthMet and availability of senior construction finance, in a form reasonably acceptable to Glencore. Approximately $7.0 million of the only sourceproceeds from the sale of liquidity consists primarily of cash from proceeds of project debt, other debt and equity financing.
  these shares was used to repay outstanding notes (including interest) to Cliffs Natural Resources Inc.;

- 35 -39

• Extend the term of the $25 million initial principal debentures to the earlier of i) us giving Glencore ten days notice that we have received permits necessary to start construction of NorthMet and availability of senior construction finance, in a form reasonably acceptable to Glencore (the "Early Maturity Event"), and ii) September 30, 2014, on which date all principal and interest accrued to such date will be due and payable. Upon occurrence of the Early Maturity Event, the initial principal and capitalized interest would be exchangeable into common shares of PolyMet at $1.50 per share. Alternatively, Glencore has the right to exchange some or all of the debentures at any time under the same conversion terms; and

• Amend the terms of the warrants issued to Glencore in 2010 (the "2010 Warrants”) to conform to the 2011 Warrants, giving Glencore the right to acquire 3,000,000 of our common shares at $1.50 per share at any time until December 31, 2015, subject to mandatory exercise if the 20-day VWAP of PolyMet shares is equal to or greater than 150% the exercise price and we provide notice to Glencore that we have received permits necessary to start construction of NorthMet and availability of senior construction finance, in a form reasonably acceptable to Glencore.

On April 10, 2013, PMI agreed to issue a debenture with the principal amount of US$20,000,000 to Glencore and Glencore agreed to a Standby Purchase Agreement related to a $60,000,000 rights offering by us. The US$20,000,000 debenture is payable on the earlier of (i) a US$60,000,000 rights offering by us or (ii) May 1, 2014. The sale of the debenture was consummated on April 11, 2013. The debenture is guaranteed by us and is secured by the assets of us and our wholly-owned subsidiary. The debenture carried a fixed interest rate of 4.721% per annum. The debenture contains certain events of default that are customarily included in financings of this nature. In the event of default, Glencore may declare all of the then outstanding principal amount of the debenture, including any accrued and unpaid interest, to be due and payable immediately.

DebtIron Range Resources & Rehabilitation Board ("IRRRB")

Pursuant to Asset Purchase Agreements, our wholly owned subsidiary Poly Met Mining, Inc. signed three notes payable to Cliffs in the amounts of $2,400,000, $7,000,000 and $7,000,000, respectively. The first note was fully repaid in prior years and the second two notes were fully repaid in December 2011.

On June 30, 2011 PolyMetwe closed a $4$4.000 million loan from the IRRRB. At the same time, the Companywe exercised itsour options to acquire two tracts of land totaling approximately 5,300 acres of forests, wetlands, and lakes with high recreational value that are included as part of the proposed land exchange with the USFS. The loan is secured by the land acquired, carries a fixed interest rate of 5% per annum, compounded annually if not paid, and is repayable on the earlier of June 30, 2016 or the date which the related land is exchanged with the USFS. PolyMet hasUSFS (not expected to occur within 12 months from January 31, 2013). We issued warrants giving the IRRRB the right to purchase 400,000 of our common shares at $2.50 per share at any time until the earlier of June 30, 2016 or one year after permits are received.

PursuantAG for Waterfowl, LLP ("AG") Financing
On March 9, 2012 we acquired a secured interest in land (“AG Land”) owned by AG that is permitted for restoration to a financing agreement with Glencore,wetland. AG was subsequently acquired by Environmental Investment Partners (“EIP”) and we have entered into convertible debenture agreements for $25 million. As part of a December 2011 transaction,consented to the termassignment of the $25 million initial principal debentures were extended fromagreement to EIP on September 30, 20127, 2012. EIP will restore the wetlands and, upon completion, wetland credits are to be issued by the earlier of i) PolyMet giving Glencore ten days notice that PolyMet has received permits necessaryproper governmental authorities. We plan to startuse the wetland credits to offset wetlands disturbed during construction and operation of the NorthMet Project and availability of senior construction finance, inProject. We hold a form reasonably acceptable to Glencore (the "Early Maturity Event"), and ii) September 30, 2014,first mortgage on the AG land, which date all principal and interest accrued to such date will be dueproportionately released as wetland credits are transferred to us. We have the option to exercise five separate phases of wetland credit development. Any option not exercised by February 28, 2017 will expire and payable. Glencore has the right to exchange some or all of the debentures atremaining mortgage, if any, time. Upon occurrence of the Early Maturity Event, the initial principal and capitalized interest will be exchanged into common shares of PolyMet at $1.50 per share.

released. As at January 31, 20122013, we had exercised the outstanding long term debt was as follows:option on phase 1.

We anticipate using workingpaid initial consideration of $2.0 million cash and issued 2,788,902 of our common shares valued at $3.375 million (of which 371,854 held in escrow pending completion of construction of the first phase) and a warrant to purchase 1,083,333 of our common shares at $1.50 per share at any time until December 31, 2015 as consideration for a $5.9 million mortgage to secure performance by EIP. In addition to the initial consideration, performance commitments for phase 1 totaling $0.68 million will be due over the seven years following wetland construction completion for ongoing maintenance by AG. Performance payments totaling $1.063 million per phase for completion and maintenance of phase 2 through 5 will only be incurred if and when we exercise our option on those phases, and will be due over the seven years following completion of each phase. If wetland credits are issued by the proper governmental authorities before the seven-year anniversary, any unpaid amounts are due upon issuance of the wetland credits.

40

We have concluded the transaction was negotiated between unrelated parties and therefore at the fair value of the services received. To date, we have recorded $5.992 million to Wetland Credit Intangibles, which comprises the aggregate value of shares ($3.375 million), warrants ($0.525 million), cash ($2.0 million), and transaction costs ($0.092 million). Since we expect to exercise each of the remaining options prior to expiration, we determined that the total consideration price of approximately $10.833 million should be allocated equally amongst the total credits with approximately $2.167 million being allocated to each phase after all payments have been made.

Other Financings
On August 31, 2011, the unexercised warrants, to purchase 4,010,000 of our common shares at $5.00 per share if exercised before NorthMet has produced a cumulative total of 20,000 metric ton of concentrate, or $6.00 thereafter, expired. We recorded a deferred income tax charge as the expiration of the warrants triggered a capital additionalgain for tax purposes, which was offset by the application of tax losses carried forward resulting in a credit of $657,000.

During the year ended January 31, 2013 we issued 185,000 shares (prior year period – 1,185,000) upon exercise of options for proceeds of $148,000 (prior year period - $902,000).

During the year ended January 31, 2013, we also issued 87,174 shares (prior year period – 135,000) as partial payment for options to purchase land.

See discussion of subsequent event financing and funds from operations once commercial production has commenced to meetin Item 8(b).

Escrowed Securities
As at January 31, 2013, we had the above payment obligations to IRRRB and Glencore.following outstanding securities held in escrow:

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

We do not engage in any research and development activities and have no patents or licenses that are materially important to us.

(d) Trend Information

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

(e) Off-Balance Sheet Arrangements

None.

- 36 -41

(f) Tabular Disclosure of Contractual Obligations

The following table lists as ofat January 31, 20122013 information with respect to the Company’sour known contractual obligations:

Long-term debt obligations (including the current portion) are comprised of long-term and convertible debt balances, are set out in this table on an undiscounted basis and include anticipated interest. Asset retirement obligation represents the undiscounted obligation at January 31, 2012. Contractual obligations of the Company in the above table exclude future option payments required to maintain the Company’s interest in certain mineral properties.

(g) Critical Accounting Policies

Our consolidated financial statements have been prepared in accordance with IFRS as issued by the IASB which requires the use of certain critical accounting principles generally accepted in Canada (IFRS as of February 1, 2010 and CGAAP before that date) thatestimates. These critical accounting estimates require management to make assumptionsjudgments 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

Critical accounting estimates usedand judgments made 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

Plant and equipment are recorded at historical cost less accumulated depreciation and if applicable, accumulated impairment losses. Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, if it is probable that the future economic benefits embodied within the part will flow to the Company and its cost can be measured reliably. The carrying amount of a replaced part is derecognized. All other repairs and maintenance are charged to the income statement during the year in which they are incurred. Plant and equipment is depreciated over the estimated life of the related assets calculated on a unit of production or straight-line basis, as appropriate.

Depreciation of plant and equipment is calculated using the cost of the asset, less its residual value, on a straight-line basis over the estimated useful life of the asset. Estimated useful lives are as follows:

Mineral property, plant and equipment, related to the NorthMet Project will begin to be amortized, mainly on a unitsrestoration provisions, recognition of production basis, at the time the project commences operations. The Company conducts an annual review of residual balances, useful livesdeferred tax amounts and depreciation, methods utilized for mineral property, plantdepletion and equipment. Any changes in estimate that arise from this review are accounted for prospectively.amortization.

- 37 -

(ii) Impairment of Non-Financial Assets
non-financial assets

The carrying amounts of our non-financial assets, including mineral property, plant and equipment, and wetland credit intangible are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. The recoverable amount of an asset isestimated at the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. An impairment loss is recognized if the carrying amount of an asset exceeds its estimated recoverable amount. An impairment loss previously recorded is reversed if there has been a change in the estimates used to determine the recoverable amount.

Share-Based PaymentsFor our mineral property interest we consider both external and Share Purchase Warrants
All share-based payment awards made to directors, employeesinternal sources of information in assessing whether there are any indications of impairment. External sources of information we consider include changes in the market, economic and non-employeeslegal environment in which we operate that are measurednot within our control and recognized using a fair value based method. For directors and employees, or those providing services similar to employees,affect the fair valuerecoverable amount of mining property interests. Internal sources of information we consider include indications of economic performance of the award is measured atasset. No indicators of impairment for its mining property were identified for the date of the grant and recognized as an expense over the vesting period. The amount recognized as an expense is adjusted to reflect the number of awardsyear ended January 31, 2013 or 2012.

42

(iii) Provisions for which the related service and non-market vesting conditions are expected to be met on the vesting date. Stock options issued to non-employees are recognized based on the fair value of the goods or services received.Environmental Rehabilitation Costs

For directors, employees and non-employees, the fair value of the award is accrued and charged either to operations or mineral property, plant and equipment, with the offsetting credit to warrants and share-based payment reserve, on a graded method over the vesting period. If and when stock options are ultimately exercised or performance share units or restricted share units or restricted stock vest, the applicable amounts from the warrants and share-based payment reserve are transferred to share capital.

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

When we amend the terms of either share options or share purchase warrants, the incremental change in the fair value of the options or warrants due to the amendment is booked to warrant amendment expense and the warrants and share-based payment reserve.

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

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

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

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

43

Financial Assets
All financial assets are initially recorded at fair value and designated upon inception as one of the following four categories: held to maturity, available for sale, loans and receivables or at fair value through profit or loss (“FVTPL”). Financial assets classified as FVTPL are measured at fair value with unrealized gains and losses recognized through profit and loss. Financial assets classified as loans and receivables and held to maturity are measured at amortized cost using the effective interest method less any allowance for impairment. The effective interest method is a method of calculating the amortized cost of a financial asset and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial asset, or, where appropriate, a shorter period. Financial assets classified as available for sale are measured at fair value with unrealized gains and losses recognized in other comprehensive loss except when there is objective evidence that the asset is impaired, the cumulative loss that had been recognized in other comprehensive loss shall be reclassified from equity to profit or loss as a reclassification adjustment. Transactions costs associated with FVTPL financial assets are expensed as incurred, while transaction costs associated with all other financial assets are included in the initial carrying amount of the asset.

Financial Liabilities and Equity Instruments
Financial liabilities are recognized when the Company becomes a party to the contractual provisions of the instrument. Financial liabilities at amortized cost include trade payables and long term debt. Trade payables are initially recognized at the amount required to be paid, less, when material, a discount to reduce the payables to fair value. Subsequently, trade payables are measured at amortized cost using the effective interest method. Long term debt is recognized initially at fair value, net of any transaction costs incurred, and subsequently at amortized cost using the effective interest method. Financial liabilities are classified as current liabilities if payment is due within twelve months. Otherwise, they are presented as non-current liabilities.

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

- 39 -

ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

A. Directors and Senior Management

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

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

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

W. Ian L. Forresthas served as a member of our board of directors since October 2003, and as our Co-Chair since January 2011.2011 and our Chairman since July 2012. Mr. Forrest previously served as Chairman of our board until February 5, 2008. He also serves on our audit, compensation, and nominating and corporate governance committees. Having played an important role in our revival in 2003, he was appointed Chairman in May 2004. Mr. Forrest is a member of the Institute of Chartered Accountants of Scotland and continues to practice as a public accountant in Geneva, Switzerland. Mr. Forrest has more than 30 years of experience with public companies in the resource sector. His experience encompasses the areas of promotion, financing, exploration, production and company management. He has also participated in several notable projects including Gulfstream's North Dome gas discovery, Qatar, Reunion Mining's Scorpion zinc, Namibia, which was subsequently developed by Anglo American, and Ocean Diamond Mining, which pioneered the independent diamond dredging industry off the west coast of southern Africa. He also served as a director of MGold Resources Inc. until October, 2011 and Belmore Resources (Holdings) plc until July, 2011 when it was acquired by Lundin Mining Ltd. He currently serves on the boards of Georex SA and Poros SAS. Mr. Forrest was a director of Viatrade plc, which was put into receivership in August 2009. Mr. Forrest currently resides in Vaud, Switzerland.

Jonathan Cherry has served as our President and Chief Executive Officer and as a member of our board of directors since July 16, 2012. He also serves as the Chair on our safety, health and environmental committee. Prior to July 2012, Mr. Cherry’s career spanned more than 25 years with Rio Tinto where he worked in a number of positions, including general manager, where he was responsible for permitting and the initial development of the Eagle Mine in Michigan’s Upper Peninsula. His last position was Vice President with Rio Tinto, responsible for strategic direction in environmental permitting and compliance, legal matters and external relations related to mine development of the Resolution copper project in Arizona. Mr. Cherry is a licenced Professional Engineer. Mr. Cherry currently resides in Minnesota, United States.

Dr. David Dreisinger has served as a member of our board of directors since October 2003. Dr. Dreisinger also served on our audit committee prior to June 2006. Currently, Dr. Dreisinger serves on our safety, health and environmental committee and on our corporate governance committee. Since 1988, Dr. Dreisinger has been a member of the faculty at the University of British Columbia in the Department of Materials Engineering and is currently Professor and Chairholder of the Industrial Research and Chair in Hydrometallurgy. He has published over 200 papers and has been extensively involved as a process consultant in industrial research programs with metallurgical companies. Dr. Dreisinger has participated in 16 U.S. patents for work in areas such as pressure leaching, ion exchange removal of impurities from process solutions, use of thiosulfate as an alternative to cyanide in gold leaching, and leach-electrolysis treatment of copper recovery from sulfide ores, and the Sepon Copper Process for copper recovery from sulfidic-clayey ores. Dr. Dreisinger serves as a director of Search Minerals, Inc. and as Vice President – Metallurgy/Process for each of Baja Mining Corp, Clifton Star Resources and South American Silver Corp. Dr. Dreisinger currently resides in British Columbia, Canada.

Alan R. Hodnik has served as a member of our board of directors since March 9, 2011. He also serves on our compensation committee and our corporate governance and nominating committee. Mr. Hodnik was named President of ALLETE, Inc. in May 2009, CEO in May 2010, and Chairman of that company in May 2011. Since joining ALLETE in 1982, Mr. Hodnik has served as Vice President-Generation Operations, Senior Vice President of Minnesota Power Operations, and Chief Operating Officer. As Chief Operating Officer, he led transmission, distribution, generation, and engineering for all aspects of the Company. Mr. Hodnik was the elected mayor of the City of Aurora, MN from 1988 to 1998. He is a member of the board of Essentia Health - East Region and of the Area Partnership for Economic Expansion (APEX). Mr. Hodnik currently resides in Minnesota, United States.

William Murrayserved as our Executive Chairman from February 5, 2008 to December 31, 2010 and has served as a member of our board of directors since March 2003. He previously served as our President and Chief Executive Officer from March 2003 until February 2008. Mr. Murray is an engineer in the mining industry with more than 35 years of experience in construction management, project evaluation in North America and Africa. From April 1993 to 2003, Mr. Murray provided consulting services to the mining industry as a principal of Optimum Project Services Ltd. Prior to that, Mr. Murray was employed by Fluor Daniel, a large U.S. Engineering & Construction contractor, as the Director of New Business from October 1989 to April 1993. From September 1981 to May 1986, Mr. Murray was a Director of Project Services at Denison Mines where he was part of the core team than built the $1.2 billion Quintette Coal project. From September 1970 to August 1981, Mr. Murray held a number of positions at Anglo American Corp in South Africa, principally in the Gold Division. Mr. Murray is also a director of Aura Minerals, Inc., and Prospero Silver Corp. Mr. Murray currently resides in British Columbia, Canada.

44

Stephen Rowlandhas served as a member of our board of directors since October 30, 2008. He also serves on our compensation and nominating and corporate governance committees. Mr. Rowland has been an executive with Glencore, a diversified natural resources company, since 1988. Mr. Rowland has held various positions with responsibility for international trading in metals and minerals in London, Switzerland, and the United States. Prior to joining Glencore, Mr. Rowland started his career in 1985 with Cargill, Inc. in Minneapolis. Mr. Rowland currently resides in Connecticut, United States.

Michael M. Sillhas served as a member of our board of directors since March 9, 2011. He also serves on our audit committee and our safety, health and environmental committee. Mr. Sill has served as President and CEO of Road Machinery & Supplies Co. since 1994, having joined the company in 1988. Road Machinery is a distributor of construction, mining and forestry equipment. Educated at Dartmouth College and J.L. Kellogg Graduate School of Management, Mr. Sill started his career as a financial analyst and commercial lending officer with The Northern Trust Company. He has served on the boards of the Associated Equipment Distributors, Associated General Contractors of Minnesota, and the Twin Cities Regional Board of US Bank. Mr. Sill currently resides in Minnesota, United States.

Frank L. Simshas served as a member of our board of directors since February 2008 and as our Co-Chair sincefrom January 2011.2011 to July 2012. He also serves on our audit, compensation, and nominating and corporate governance committees. Mr. Sims has held a series of progressively senior positions with Cargill, Incorporated between 1972 and his retirement in December 2007. Most recently he served as Corporate Vice President. Minnesota-headquartered Cargill is an international provider of food, agricultural and risk management products and services. Mr. Sims currently serves on the board of Piper Jaffray Companies.Companies and South Jersey Industries. Mr. Sims has previously served on the board of Tennant Company, as Vice-Chair of the U.S. Marine Transportation System National Advisory Council, was a Chairman of the board of the North American Export Grain Association, and as Chairman of the Federal Reserve Bank of Minneapolis. Mr. Sims currently resides in Georgia, United States.

- 40 -45

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. He also serves on our safety, health and environmental committee. 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. Mr. Scipioni is an active advisor to the University of Minnesota Natural Resources Research Institute based in Duluth, Minnesota, is an officer of the Minnesota Section of the Society of Mining, Metallurgy and Exploration (SME), and serves as an executive officer of Mining Minnesota. Mr. Scipioni currently resides in Minnesota, United States.

Douglas J. Newbyhas served as our Chief Financial Officer since November 2005. Mr. Newby has nearlymore than 30 years of experience in the evaluation and financing of mining companies and projects around the world. Before coming to PolyMet, Mr. Newby served variously as a Director, Executive Vice President, interim Chairman, President and Chief Executive Officer of Western Goldfields, Inc. (now New Gold, Inc.) a US-based gold mining company. Mr. Newby has also been President of Proteus Capital Corp., a corporate advisory firm that specializes in the natural resource industries, since July 2001. Mr. Newby served as Managing Director of Proteus Consultants Ltd. from January 1991 to July 2001 and Managing Partner of Moyes Newby & Co., Inc. from April 1994 to December 1998, both of which provided corporate advisory services primarily to the international energy and mining industries. Since June 2011 Mr. Newby has served as a director of Coronet Metals, Inc., a Canadian company developing a gold mine in Peru. From January 2004 to March 2006, Mr. Newby served as Vice-President of Cadence Resources Corporation, an oil and gas exploration and development company. Prior to January 1991, Mr. Newby held senior positions with the investment banking firms of S.G. Warburg & Co., Inc., Morgan Grenfell & Co., and James Capel & Co. Mr. Newby currently resides in New York, United States.

Joseph Scipionihas served as our Chief Operating Officer since March 2007. He also serves on our safety, health and environmental committee. Prior to July 2012, Mr. Scipioni also 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 and as General Manager of our Minnesota operations since July 2006. Prior to June 2006, Mr. Scipioni's career spanned more than 30 years with United States Steel Corporation where he worked in a number of progressively senior positions in operations. His last position was Plant Manager at the Keewatin Taconite plant in Minnesota. Mr. Scipioni is an active advisor to the University of Minnesota Natural Resources Research Institute based in Duluth, Minnesota, is an officer of the Minnesota Section of the Society of Mining, Metallurgy and Exploration (SME), and serves as an executive officer of Mining Minnesota. Mr. Scipioni currently resides in Minnesota, United States.

Bradley C. Moorehas served as our Executive Vice President, Environmental & Government Affairs since January 24, 2011. Mr. Moore has nearly 30 years experience in government and regulatory positions. He served as Commissioner of the Minnesota Pollution Control Agency from 2006 to 2008, and as Assistant Commissioner for Operations of the Minnesota Department of Natural Resources (MDNR) from January 1999 to August 2006. Prior to that, he worked in leadership and policy analyst positions with the MDNR and the Minnesota Department of Public Service (now the Department of Commerce). In December 2008, Mr. Moore joined Barr Engineering as Senior Advisor, Public and Governmental Affairs where he advised several companies, including PolyMet, on environmental strategy. Mr. Moore currently resides in Minnesota, United States.

Niall MooreRyan Vogthas served as our Corporate Secretary since December 2006 and as our Group Controller since September 2006.July 2012. Mr. MooreVogt has over 2512 years of experience with public companies in the resource sector.accounting, financial reporting, and internal controls. From November 2002April 2004 to May 2006,April 2012, he was Director, Corporate Reporting for Placer Domean assistant controller at World Data Products, Inc. (“Placer”) and from May 2006 until December 2006April 2012 to present he worked as a consultant to Barrick Gold, Inc. following that company’s acquisition of Placer.has been with the Company. Prior to November 2002,April 2004, Mr. MooreVogt was an audit partnera financial statement auditor at Ernst & YoungKPMG LLP. Mr. Moore has extensive experience in financial reporting, compliance and valuation work. Mr. Moore currently resides in British Columbia, Canada.

Dr. David Dreisinger has served as a member of our board of directors since October 2003. Dr. Dreisinger also served on our audit committee prior to June 2006. Currently, Dr. Dreisinger is the chair of our safety, health and environmental committee. Since 1988, Dr. Dreisinger has been a member of the faculty at the University of British Columbia in the Department of Materials Engineering and is currently Professor and Chairholder of the Industrial Research and Chair in Hydrometallurgy. He has published over 200 papers and has been extensively involved as a process consultant in industrial research programs with metallurgical companies. Dr. Dreisinger has participated in 14 U.S. patents for work in areas such as pressure leaching, ion exchange removal of impurities from process solutions, use of thiosulfate as an alternative to cyanide in gold leaching, and leach-electrolysis treatment of copper recovery from sulfide ores, and the Sepon Copper Process for copper recovery from sulfidic-clayey ores. Dr. Dreisinger serves as a director of Search Minerals, Inc. and as Vice President – Metallurgy/Process for each of Baja Mining Corp and South American Silver Corp. Dr. Dreisinger currently resides in British Columbia, Canada.

- 41 -

Alan R. Hodnik has served as a member of our board of directors since March 9, 2011. He also serves on our compensation committee and our corporate governance and nominating committee. Mr. Hodnik was named President of ALLETE, Inc. in May 2009, CEO in May 2010, and Chairman of that company in May 2011. Since joining ALLETE in 1982, Mr. Hodnik has served as Vice President-Generation Operations, Senior Vice President of Minnesota Power Operations, and Chief Operating Officer. As Chief Operating Officer, he led transmission, distribution, generation, and engineering for all aspects of the Company. Mr. Hodnik was the elected mayor of the City of Aurora, Minnesota from 1988 to 1998. HeVogt is a member of the board of Essentia Health - East Region and of the Area Partnership for Economic Expansion (APEX).Certified Public Accountant. Mr. HodnikVogt currently resides in Minnesota, United States.

William MurrayStephanie Hunterhas served as our Executive Chairman from February 5, 2008 to December 31, 2010Manager, Corporate Operations since April 2004 and has served as a member of our board of directors since March 2003. He previously served as our PresidentCorporate Secretary since November 2012. Mrs. Hunter has over 20 years of legal experience with public companies and Chief Executive Officer from March 2003 until February 2008. Mr. Murray is an engineer in9 years within the mining industrysector. From January 1999 to March 2004, she was a senior legal administrator and corporate law clerk at Stikeman Elliott LLP and from April 2004 to present she has been with more than 35 years ofthe Company. Prior to January 1999, Mrs. Hunter was a Corporate Records Clerk at Holmes Greenslade LLP. Mrs. Hunter has extensive experience in construction managementadministration of public companies, statutory and project evaluation in North Americaregulatory compliance requirements and Africa. From April 1993 to 2003, Mr. Murray provided consulting services to the mining industry as a principalmaintenance of Optimum Project Services Ltd. Prior to that, Mr. Murray was employed by Fluor Daniel, a large U.S. Engineering & Construction contractor, as the Director of New Business from October 1989 to April 1993. From September 1981 to May 1986, Mr. Murray was a Director of Project Services at Denison Mines where he was part of the core team than built the $1.2 billion Quintette Coal project. From September 1970 to August 1981, Mr. Murray held a number of positions at Anglo American Corp in South Africa, principally in the Gold Division. Mr. Murray is also a director of South American Silver Corp., Aura Minerals, Inc., and Prospero Silver Corp. Mr. Murraycompany records. Mrs. Hunter currently resides in British Columbia,Ontario, Canada.

Stephen Rowlandhas served as a member of our board of directors since October 30, 2008. He also serves on our audit and compensation committees. Mr. Rowland has been an executive with Glencore, a privately held diversified natural resources company, since 1988. Mr. Rowland has held various positions with responsibility for international trading in metals and minerals in London, Switzerland, and the United States. Prior to joining Glencore, Mr. Rowland started his career in 1985 with Cargill, Inc. in Minneapolis. Mr. Rowland currently resides in Connecticut, United States.

Michael M. Sill has served as a member of our board of directors since March 9, 2011. He also serves on our audit committee and our safety, health and environmental committee. Mr. Sill has served as President and CEO of Road Machinery & Supplies Co. since 1994, having joined the company in 1988. Road Machinery is a distributor of construction, mining and forestry equipment. Educated at Dartmouth College and J.L. Kellogg Graduate School of Management, Mr. Sill started his career as a financial analyst and commercial lending officer with The Northern Trust Company. He has served on the boards of the Associated Equipment Distributors, Associated General Contractors of Minnesota, and the Twin Cities Regional Board of US Bank. Mr. Sill currently resides in Minnesota, United States.

- 42 -46

B. Statement of Executive Compensation

The following table sets forth the compensation paid to our Named Executive Officers for the fiscal year ended January 31, 2012:2013:

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

During the fiscal year ended January 31, 2012,2013, we had threefour Named Executive Officers (“NEOs”) (for the purposes of applicable securities legislation), namely:

Other than the arrangements noted in the table below, during the fiscal year ended January 31, 2012,2013, no compensation was paid or is payable by us to the directors of the Company, other than the NEOsNamed Executive Officers (the “Other Directors”), or our subsidiaries, if any, for their services in their capacity as directors, including any amounts payable for committee participation or special assignments;

During the quarter ended January 31, 2012, we sold a used drill for $3.68 million. A company controlled by one of our Directors, Michael M. Sill, received a commission of $200,000$0.200 million related to this sale.

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

47

C. Board Practices

All of our directors hold office until the next annual meeting of shareholders and until their successors have been elected and qualified. Our officers are elected by the Board of Directors at the first Board of Directors meeting after each annual meeting of shareholders and hold office until death, resignation, or upon removal from office.

- 43 -

None of our directors havehas a service contractscontract with us providing for benefits upon termination of theirhis employment.

Our Audit Committee consists of W. Ian L. Forrest (Chair), Stephen Rowland, Michael M. Sill, and Frank L. Sims, all of whom are independent directors. All four members of the Audit Committee meetMr. Forrest meets the criteria of an “Audit Committee Financial Expert” under the applicable rules and regulations of the SEC and such designation has been ratified by the Board of Directors. The Audit Committee oversees our auditing procedures, receives and accepts the reports of our independent certified public accountants, oversees our internal systems of accounting and management controls, and makes recommendations to the Board of Directors as to the selection and appointment of our auditors. The Audit Committee is governed by the terms of the Charter of the Audit Committee of the Board of Directors which has previously been filed as Exhibit 16.1.

Our Compensation Committee consists of W. Ian L. Forrest (Chair), Alan R. Hodnik, Stephen Rowland, and Frank L. Sims. The function of the Compensation Committee is to administer the 2007 PolyMet Omnibus Share Compensation Plan and to have authority over the salaries, bonuses, and other compensation arrangements of our executive officers.

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

D. Employees

As ofat January 31, 20122013 we had 1820 full-time employees, with 21 located in our VancouverToronto office, and 1614 located in our Hoyt Lakes office,. and 5 located in our St. Paul office. None of our employees are covered by a collective bargaining agreement. We believe that our relations with our employees are good.

During the fiscal year endedAs at January 31, 2012,2013, we employed an average of 4had 3 consultants working out of our Vancouver, Toronto, and Minnesota offices.

E. Share Ownership

For theSee Item 7(A) for shareholdings of our directors and executive officers seepersons listed in Item 7(A)6(B).

- 44 -48

ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

A. Officers, Directors and Major Shareholders

The following table sets forth, as of April 24, 2012,18, 2013, certain information regarding the ownership of our voting securities by each shareholder known to our management to be (i) the beneficial owner of more than 5% of our outstanding common shares, (ii) our directors, (iii) our current 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 shares listed below, based on information furnished by such owners, have sole investment and voting power with respect to such shares.

*Less than 1.00%

49

- 45 -

50

- 46 -

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

As ofat April 24, 2012,18, 2013, there were 346354 holders of record of our common shares of which 266275 were U.S. residents owning 20.46%20.1% of our outstanding common shares.

- 47 -51

B. Related Party Transactions

We have conducted transactions with key management personnel, comprising of certain members of senior management, officers, directors and persons or companies related to directorsthese individuals, and paid or accrued amounts as follows:

The amounts chargedShare-based payment represents the fair value determined at grant date to usbe expensed over the vesting period.

None of PolyMet’s directors has a service contract with the Company providing for the services provided have been determined by negotiation among the parties. These transactions werebenefits upon termination of his employment. There are agreements with certain key employees and officers that contain severance provisions for termination without cause or in the normal courseevent of operations and were measured at the exchange value, which is the amount of consideration established and agreed to by the related party.a take-over bid.

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

During the year ended January 31, 2011, we paid $nil (2011 - $59,000 and 2010 - $59,000) to Dr. Dreisinger for consulting fees primarily in connection with activities related to the processing / technical side of the NorthMet Project and related expenses (the latter were supported by invoices and receipts). The consulting fees were based on a monthly fee of Canadian $5,500 plus general sales tax. Throughout the term of his engagement, Dr. Dreisinger has conducted in-person and telephonic meetings with Mr. William Murray, the Company’s then Executive Chairman and formerly its President and Chief Executive Officer, and other members of management at which he provided both verbal and written updates on the status of test work and made recommendations for future activities. These meetings occurred approximately every two to three weeks for the past six years.

The agreement with Dr. Dreisinger was entered into at a time when our current business plans were being formulated and were month to month and oral in nature. The agreement was approved by Mr. William Murray. It was discussed with our board of directors who did not consider that formal approval and a written contract was necessary at that time. We believe that the contract was negotiated on terms at least as good as could be obtained from third parties.

During the quarter ended The agreement with Dr. Dreisinger was terminated effective January 31, 2012, we sold2011.

As a used drill rigresult of Glencore’s ownership of 25.6% of the Company it is also a related party. Transactions with Glencore are described in Item 5(b) above.

The amounts charged to us for $3.680 million. A company controlledthe services provided have been determined by onenegotiation among the parties. These transactions were in the normal course of our Directors, Michael M. Sill, received a commissionoperations.

To the knowledge of $200,000 related to this sale.the Company, except as disclosed above, none of the directors, executive officers or other insiders, as applicable, of the Company or any affiliate of the Company has or has had any material interest, direct or indirect, in any transaction within the three most recently completed financial years or during the current financial year that has materially affected or will materially affect the Company.

C. Interests of experts and counsel.

Not applicable.

52

ITEM 8. FINANCIAL INFORMATION

A. Consolidated Statements and Other Financial Information

See Item 18.

Legal Proceedings and Regulatory Actions

Neither we, nor our subsidiaries,To the knowledge of Company’s management, there are no material legal proceedings or regulatory actions outstanding to which the Company is a party, or to norwhich any of its property is our propertysubject to during the financial year ended January 31, 2013, and no such proceedings or regulatory actions are known to the propertyCompany to be threatened or pending, as of our subsidiaries the subject of, any pending legal or arbitration proceeding that is material.date hereof.

Dividend Policy

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

- 48 -

B. Significant Changes

On February 1, 2012 we reportedApril 10, 2013, the Company announced the filing of a preliminary prospectus with the securities regulatory authorities in the provinces of British Columbia, Alberta, and Ontario in Canada and a registration statement on Form F-10 with the U.S. Securities and Exchange Commission for an offering of rights (“Rights”) to holders of common shares of the Company to raise up to $60 million in gross proceeds (the “Rights Offering”).

The proceeds from the Rights Offering will be used for:

• Repayment of the Bridge Loan (as described below)
• Anticipated costs to complete the environmental review and permitting of NorthMet
• Detailed engineering in preparation for the start of project construction
• Commitments to long-lead time equipment
• Maintaining existing infrastructure
• General corporate purposes

Under the Rights Offering, all shareholders of PolyMet (subject to applicable law) will receive one Right for every common share of PolyMet owned on the statusrecord date (the “Record Date”), which will be set seven trading days after the final prospectus for the Rights Offering is filed with the applicable securities regulatory authorities. In accordance with the rules of the NorthMet environmental review. ERM,TSX, the Lead Agencies' environmental consultant, has completedsubscription price (“Rights Price”) for the common shares of PolyMet to be purchased upon exercise of the Rights will be a significant amountdiscount of worknot less than 20% to the US dollar equivalent of the 5-day volume weighted average price (“VWAP”) of PolyMet common shares on the SDEIS, whichTSX on the day the final prospectus is filed. The number of Rights needed to subscribe for one new common share of PolyMet will comprise nine chapters. The first four chapters, comprising over 400 pages and including more than 100 figures, have been drafted and are being reviewedbe determined by the Lead Agencies.

Other important milestones already achieved include:

• Approval of air emission estimates.
• Approval of cumulative visibility, acid deposition, and fiber impact evaluation reports.
• Completion of geotechnical stability modeling with results now under review.
• Completion of direct wetland impact evaluation and wetland mitigation plans, which are now under review.
• Completion of hazardous materials assessment; threatened, endangered and sensitive species analysis; assessments of wildlife and heritage resources; and wetland/floodplain analysis reports for the lands involved in the land exchange, which have been delivered to the USFS for review.
• Delivery by us of updated project documents including the detailed project description, mine plan, reclamation and waste disposal plans, and extensive data packages.

As SDEIS preparation moves into the final stages, the Lead Agencies have completed a detailed assessment of tasks outstandingRights Price and the timeline. The key task is completionnumber of detailed environmental modeling, including quality assurance plans as well as generation, verification, review, and documentation of modeling data.

The Lead Agencies expect that all aspects of modeling will be completed in the spring of 2012, with the preliminary SDEIS available for review by the Cooperating Agencies during the summer, and public review and comment in the fall of 2012.

On March 9, 2012 PolyMet acquired control of land that it plans to restore to wetlands through an agreement with AG for Waterfowl, LLP ("AG"). PolyMet paid AG $2.0 million cash and issued 2,788,902 of its common shares and a warrant to purchase 1,083,333 of its common sharesin issue at $1.50 per share at anythe time until December 31, 2015 as consideration for the purchase of a $5.9 million face value five year zero interest rate mortgage over land currently in agricultural use that AG will restore to wetlands(currently approximately 183 million) in order to create wetland credits. The mortgagereceive gross proceeds of $60 million.

Glencore has entered into a Standby Purchase Agreement with PolyMet whereby Glencore will be partially released as partpurchase any PolyMet common shares offered under the Rights Offering that are not subscribed for by holders of the lands are fully restoredRights, subject to approved wetland status, at which timecertain conditions and limitations described below. Under the Standby Purchase Agreement, the maximum number of PolyMet common shares to be acquired by Glencore (the “Standby Commitment”) shall be the lesser of such number of PolyMet common shares:

• calculated by dividing $53.0 million (being 24.99% of PolyMet’s market capitalization on the date of the agreement less the aggregate of the Standby Fee and the fair market value of all other transactions contemplated by the Standby Purchase Agreement in so far as they relate to Glencore as determined by PolyMet’s board acting reasonably), and the Rights Price; and

53

• so that the total number of PolyMet common shares acquired by Glencore under the Rights Offering and the Standby Purchase Agreement, together with the 47.0 million PolyMet common shares currently held by Glencore, does not exceed 49.99% of the issued and outstanding PolyMet common shares immediately following the completion of the Rights Offering and the issue of shares under the Standby Commitment.

Glencore will receive formal wetland credits. Any lands that PolyMet has not requested be restored to wetland, will revert to AG and the remaining mortgage, if any, will be released on February 28, 2017. PolyMeta cash fee of approximately $1.06 million, which is committed to pay AG an additional $680,000 over seven years and will release part2% of the mortgage.total Standby Commitment. In addition, PolyMet and Glencore have agreed to enter into certain corporate governance arrangements under which, effective January 1, 2014, Glencore may appoint that number of the directors of PolyMet which is proportionate to Glencore’s ownership of PolyMet common shares (on a fully diluted basis), subject to certain limitations including that Glencore may not appoint more than 49% (rounding down) of the directors.

- 49 -Separately, the Company and Glencore amended the existing convertible debt agreement pursuant to which Glencore provided a $20 million bridge loan (“Bridge Loan”) to fund operations until the completion of the Rights Offering (“Bridge Loan”). The Bridge Loan was funded on April 11, 2013 and is secured by the assets of the Company on the same terms as the existing convertible debentures held by Glencore. The Bridge Loan is due on May 1, 2014, subject to mandatory repayment on closing of the Rights Offering, and carries a fixed interest rate of 4.721% per annum. Among other things, if the Rights Offering is not completed within 90 days of the execution of the Standby Purchase Agreement, Glencore has the right to declare all of the then outstanding principal and interest under the Bridge Loan and all other debentures held by Glencore to be due and payable.

54

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:

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

The following table outlines the high and low market prices for each of the most recent six months and April 20122013 to-date:

55

B. Plan of Distribution

Not applicable.

- 50 -

C. Markets

In April 1984, our common shares commenced trading on what is now the TSX Venture Exchange in British Columbia, Canada under the symbol "POM.” On February 1, 2007, our common shares graduated to trading on the Toronto Stock Exchange in British ColumbiaTSX under the symbol “POM”. In August 2000, our common shares began trading on the OTCBB under the symbol “POMGF.” On June 26, 2006, our common shares commenced trading on what is now the NYSE AmexMKT under the symbol “PLM.”

D. Selling Shareholders

Not applicable.

E. Dilution

Not applicable.

F. Expenses of the Issue

Not applicable.

ITEM 10. ADDITIONAL INFORMATION

A. Share Capital

Not Applicable.

B. Memorandum and Articles of Association

Incorporation

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

Powers and Functions of the Directors

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

56

- 51 -

Rights and Restrictions Attached to the Shares

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

Alteration of Share Rights

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

Annual General Meetings

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

Foreign Ownership Limitations

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

Change of Control

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

Share Ownership Reporting Obligations

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

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

- 52 -57

C. Material Contracts

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

Asset Purchase Agreements

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

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

  Share Purchase Agreement

• For a complete description of the stockshare purchase agreement entered into with Glencore AG, see Item 5(B).

D. Exchange Controls

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

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

E. Taxation

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

Certain Canadian Federal Income Tax Consequences.

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

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

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

- 53 -

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

58

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

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

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

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

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

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

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

Certain United States Federal Income Tax Consequences.

The following discussion is a summary of certain U.S. federal income tax consequences that may be relevant with respect to the ownership and disposition of our common shares by a U.S. Holder (as hereinafter defined). This discussion is based upon the provisions of the U.S. Internal Revenue Code of 1986, as amended (the “Code”), Treasury regulations promulgated thereunder, administrative rulings and judicial decisions, in each case as of the date hereof. These authorities are subject to differing interpretations and may be changed, perhaps retroactively, resulting in U.S. federal income tax consequences different from those discussed below. We have not sought any ruling from the U.S. Internal Revenue Service (“IRS”) with respect to the statements made and the conclusions reached in this discussion, and there can be no assurance that the IRS will agree with such statements and conclusions. This discussion applies only to U.S. Holders who hold our common shares as capital assets within the meaning of Section 1221 of the Code. In addition, this summary does not address all U.S. federal income tax considerations that may be applicable to a U.S. Holder’s particular circumstances or to U.S. Holders who may be subject to special tax rules, including, without limitation: tax-exempt organizations, qualified retirement plans, individual retirement accounts and other tax-deferred accounts, financial institutions, insurance companies, partnerships or other entities treated as partnerships for U.S. federal income tax purposes, real estate investment trusts, regulated investment companies, broker-dealers, non-resident alien individuals, U.S. Holders whose “functional currency” is not the U.S. dollar, persons subject to the alternative minimum tax, persons who hold our common shares as part of a straddle, hedging or conversion transaction, and persons who own, actually or constructively, 10% or more of our common shares.

- 54 -59

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

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

In addition, this discussion does not address any U.S. federal alternative minimum tax, U.S. federal estate, gift, or other non-income tax; or state, local or non-U.S. tax consequences of the acquisition, ownership and disposition of Common Shares. In addition, this discussion does not address the U.S. federal income tax consequences to certain categories of U.S. Holders subject to special rules, including U.S. Holders that are (i) banks, financial institutions or insurance companies; (ii) regulated investment companies or real estate investment trusts; (iii) brokers or dealers in securities or currencies or traders in securities that elect to use a mark-to-market method of accounting; (iv) tax-exempt organizations, qualified retirement plans, individual retirement accounts or other tax-deferred accounts; (v) holders that hold Common Shares as part of a hedge, straddle, conversion transaction or a synthetic security or other integrated transaction; (vi) holders that have a “functional currency” other than the United States dollar; (vii) holders that own directly, indirectly or constructively 10 percent or more of the voting power of the Corporation; and (viii) United States expatriates.

If a partnership (or any other entity treated as a partnership for U.S. federal income tax purposes) holds our common shares, the tax treatment of a partner in such partnership will generally depend on the status of the partner and the activities of the partnership. Such a partner should consult its own tax advisors as to the U.S. federal income tax consequences of being a partner in a partnership that holds or disposes of our common shares.

This discussion addresses only certain aspects of U.S. federal income taxation to U.S. Holders. U.S. Holders should consult their own tax advisors regarding the U.S. federal, state, local, non-U.S. and other tax consequences of the ownership and disposition of our common shares.

Distributions on Our Common Shares. Subject to the discussion below under “Passive Foreign Investment Company,” U.S. Holders receiving dividend distributions (including constructive dividends) with respect to our common shares generally are required to include in gross income for U.S. federal income tax purposes the gross amount of such distributions (without reduction for any Canadian income or other tax withheld from such distributions), equal to the U.S. dollar value of such distributions on the date of receipt (based on the exchange rate on such date), to the extent that we have current or accumulated earnings and profits(as (as determined for U.S. federal income tax purposes). To the extent that the amount of the distribution exceeds our current and accumulated earnings and profits, it will be treated as a return of capital to the extent of a U.S. Holder’s adjusted tax basis in our common shares and thereafter as capital gain from the sale or exchange of such common shares. We do not intend to calculate our earnings and profits under U.S. federal income tax principles. Therefore, a U.S. Holder should expect that the full amount of a distribution with respect to the common shares will be treated, and reported by us, as a dividend.

For taxable years beginning before January 1, 2011, dividendsDividends received by U.S. Holders that are individuals, estates or trusts from a “qualified foreign corporation,” as defined in Section 1(h)(11) of the Code, generally are taxed at the same preferential tax rates applicable to long-term capital gains. A corporation that is a “PFIC,”“passive foreign income company” as defined below under “Passive Foreign Investment Company,” for its taxable year during which it pays a dividend, or for its immediately preceding taxable year, however, is not a “qualified foreign corporation.” We believe we will meet the definition of a PFIC, and dividends received by U.S. Holders that are individuals, estates or trusts generally will be subject to U.S. federal income tax at ordinary income tax rates (and not at the preferential tax rates applicable to long-term capital gains). Dividends paid on our common shares will not be eligible for the dividends received deduction provided to corporations receiving dividends from certain U.S. corporations.

- 55 -60

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

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

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

Passive Foreign Investment Company.We. We believe that we will meet the definition of “passive foreign investment company” (“PFIC”) within the meaning of Sections 1291 through 1298under Section 1297 of the Code. A U.S. Holder whothat holds shares in a non-U.S. corporation during any year in which such corporation is a PFIC is subject to numerous special U.S. federal income tax rules. A non-U.S. corporation is considered to be a PFIC for any taxable year if either:

• at least 75% of its gross income is passive income (the “income test”), or
• at least 50% of the value of its assets (based on an average of the quarterly values of the assets during a taxable year) is attributable to assets that produce or are held for the production of passive income (the “asset test”).

For purposes of the income test and the asset test, respectively, we will be treated as earning our proportionate share of the income and owning our proportionate share of the assets of any other corporation in which we own, directly or indirectly, 25% or more (by value) of the shares. In addition, for purposes of the income test, passive income does not include any interest, dividends, rents, or royalties received or accrued by us from a “related person” (as defined in Section 954(d)(3) of the Code),certain related persons, to the extent such items are properly allocable to income of such related person that is not passive.

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

- 56 -61

If we are a PFIC for any taxable year during which a U.S. Holder holds our common shares, such U.S. Holder will be subject to special tax rules with respect to any “excess distribution” that it receives and any gain it realizes from a sale or other disposition (including a pledge) of the common shares, unless the U.S. Holder makes a “mark-to-market” election, as discussed below. Distributions received by a U.S. Holder in a taxable year that are greater than 125% of the average annual distributions such U.S. Holder received during the shorter of the three preceding taxable years and its holding period for the common shares will be treated as an excess distribution. Under these special tax rules:

• rules, (a) the excess distribution or gain will be allocated ratably over the U.S. Holder’s holding period, for the common shares;

• (b) the amount allocated to the current taxable year and any taxable year prior to the first taxable year in which we became a PFIC will be treated as ordinary income, and

• (c) the amount allocated to each other taxable year will be subject to the highest tax rate in effect for that year and the interest charge generally applicable to underpayments of tax will be imposed on the resulting tax attributable to each such year. You will be required to file IRS Form 8621 if you hold our Rights or Common Shares in any year in which we are classified as a PFIC.

The tax liability for amounts allocated to taxable years prior to the year of disposition or “excess distribution” cannot be offset by any net operating losses for such years, and gains (but not losses) realized on the disposition of the common shares cannot be treated as capital, even if the U.S . Holder holds the common shares as capital assets.capital.

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

Although a U.S. Holder may be eligible to make a mark-to-market election with respect to our common shares, no such election may be made with respect to the stock of any of our non-U.S. subsidiaries that is also a PFIC and that a U.S. Holder is treated as owning, because such stock is not marketable. Hence, the mark-to-market election will not be effective to eliminate the interest charge described above with respect to deemed dispositions of subsidiary PFIC stock or distributions from a subsidiary PFIC.

The mark-to-market election is available only for “marketable stock,” which is stock that is traded in other than de minimis quantities on at least 15 days during each calendar quarter on a “qualified exchange,” including the Toronto Stock ExchangeTSX and the NYSE Amex,MKT, or other market, as defined in applicable U.S. Treasury regulations. We expectcannot provide any assurances that our common shares will continue to be listed on each of the Toronto Stock ExchangeTSX and the NYSE AmexMKT on at least 15 days during each calendar quarter and traded in other than de minimis quantities, and, consequently,quantities. You are urged to consult your own tax advisor concerning the availability of the mark-to-market election would be available to U.S. Holders of common shares if we were to be a PFIC.election.

- 57 -

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

Congress recently enacted the Hiring Incentives to Restore Employment Act (“HIRE”). Under HIRE, U.S. Holders of a PFIC are required to file an annual report containing any information that may be required by the Treasury. While these information requirements have not yet been specified by the Treasury, a U.S. Holder that holds common shares in any year in which we are a PFIC generally will be required to file IRS Form 8621 regarding distributions received on the common shares and any gain realized on the disposition of the common shares.

U.S. HoldersYou are urged to consult theiryour own tax advisors regardingconcerning the applicationU.S. federal income tax consequences of theholding Common Shares if we are considered a PFIC rules to their investment in our common shares.any taxable year.