Docoh
Loading...

PLM Polymet Mining

Filed: 6 Jul 05, 8:00pm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

AMENDED FORM 20-F ANNUAL REPORT
FISCAL ENDED 2004 JANUARY 31, 2004

¨ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal period endedJanuary 31, 2004

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______________ to ______________

Commission file number0-18701

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

British Columbia, Canada
(Jurisdiction of incorporation or organization)

Suite 1116-925 West Georgia St., Vancouver, British Columbia V6C 3L2
(Address of principal executive offices)

Securities to be registered pursuant to Section 12(b) of the Act:
None

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

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None

Indicate the number of outstanding shares of each of the issuer's classes of capital or common shares as
of the close of the period covered by the annual report. 44,992,054

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

Indicate by check mark which financial statement item the registrant has elected to follow:
Item 17 x Item 18 ¨


TABLE OF CONTENTS

ITEM 1.IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS3
   
ITEM 2.OFFER STATISTICS AND EXPECTED TIMETABLE3
   
ITEM 3.KEY INFORMATION4
   
ITEM 4.INFORMATION ON THE COMPANY7
   
ITEM 5.OPERATING AND FINANCIAL REVIEW AND PROSPECTS14
   
ITEM 6.DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES18
   
ITEM 7.MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS24
   
ITEM 8.FINANCIAL INFORMATION25
   
ITEM 9.THE OFFER AND LISTING26
   
ITEM 10.ADDITIONAL INFORMATION27
   
ITEM 11.QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK32
   
ITEM 12.DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES33
   
ITEM 13.DEFAULT, DIVIDEND ARREARAGES AND DELINQUENCIES33
   
ITEM 14.MATERIAL MODIFICATIONS TO THE RIGHT OF SECURITY HOLDERS AND USE OF PROCEEDS33
   
ITEM 15.CONTROLS AND PROCEDURES33
   
ITEM 16A.AUDIT COMMITTEE FINANCIAL EXPERT34
   
ITEM 16B.CODE OF ETHICS34
   
ITEM 17.FINANCIAL STATEMENTS36
   
ITEM 18.FINANCIAL STATEMENTS36
   
ITEM 19.EXHIBITS36
   
SIGNATURES59


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

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

We advise you that these cautionary remarks expressly qualify in their entirety all forward-looking statements attributable to us or persons acting on our behalf. We assume no obligation to update our forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting such 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.

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS

Not required

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

Not required


ITEM 3. KEY INFORMATION

A.           Selected Financial Data

The following table presents selected financial information. The Company's financial statements are stated in United States Dollars and are prepared in accordance with Canadian Generally Accepted Accounting Principles (GAAP); the application of which, in the case of the Company, conforms in all material respects for the periods presented with US GAAP, except as disclosed in footnotes to the financial statements.

Selected Financial Data
(US$ in 000’s)

 Year Year Year Year Year 
 Ended Ended Ended Ended Ended 
 1/31/04 1/31/03 1/31/02(1) 1/31/01(1) 1/31/00(1) 
   Restated Restated Restated 
Revenue $0 $0 $0 $0 $0 
Net Income (Loss) ($147($ 472($1156($3,314($5,725
(Loss) Per Share ($0.00($ 0.01($0.04($0.12($.26) 
Dividends Per Share $0.00 $0.00 $0.00 $0.00 $0.00 
Wtg. Avg. Shares (000) 35,452 32,658 31,925 27,041 22,714 
Working Capital $424 ($ 73$322 $1,181 $1,020 
Long-Term Debt 0 $0 $0 $0 $0 
Shareholders’ Equity $926 ($ 31$441 $1,319 $2,266 
Total Assets $1,025 $52 $504 $1,741 $1,883 
           
US GAAP Net Loss(2) ($147($ 469($1,226($3,303($2,279
US GAAP EPS $0 (0.01($0.04($.12) ($.12) 
US GAAP Mineral Prop. $0 $0 $0 $0 $0 
US GAAP Shareholders’ Equity      
 $926 ($ 29$441 $1,319 $2,266 
US GAAP Total Assets $1,025 $52 $504 $1,741 $2,397 

 (1)     During fiscal year 2003, the Company changed is accounting policy with respect to accounting for exploration expenditures. In 2002 and prior periods, acquisition and exploration expenditures were capitalized to mineral properties. Under the new policy, exploration expenditures (including lease/option payments) are expensed while acquisition expenditures continue to be capitalized. This change has been applied retroactively and has increased the deficit as at 31 January 2000 by $2,876,565 and increased the loss for the years ending 31 January 2001 and 2002 by $2,680,623 and $606,162 respectively.
 
 (2)     Cumulative Restated Net Loss since incorporation has been ($14,361,251).
 
 (3)     Under US GAAP and SEC regulations, the Company would have expensed all mineral property acquisition/exploration costs in the period incurred.
   
 

Under US GAAP, long-term investments would be written down to market value on an individual basis and charged to a contra-equity account for unrealized losses on investments.

Under US GAAP, contingently-cancelable (and escrowed) common shares would not have been included in the calculation of weighted-average-number-of-shares used to determine EPS.

The rate of exchange was 1.3222 on July 15, 2004.



All monetary amounts are expressed in United States dollars except otherwise indicated. The following table sets forth the rate of exchange for the Canadian Dollar at the end of each of the previous six months and the five most recent fiscal years ended January 31st, the average rates for each year and the range of high and low rates for month end period and each year. For purposes of this table, the rate of exchange means the noon buying rate in New York City for cable transfers in foreign currencies as certified for customs purposes by the Federal Reserve Bank of New York. The table sets forth the number of Canadian Dollars required under that formula to buy one US Dollar. The average rate means the average of the exchange rates on the last day of each month during the year.

 For the month end HighLow
 June 30, 2004 1.34531.3383
 May 31, 2004 1.36371.3603
 April 30, 2004 1.37621.3664
 March 31, 2004 1.31031.3048
 February 28, 2004 1.35101.3333
 January 31, 2004 1.33601.3238

 For the year ended AverageHighLow 
 1/31/04 1.381.531.27 
 1/31/03 1.561.611.50 
 1/31/02 1.561.611.52 
 1/31/01 1.481.451.45 
 1/31/00 1.471.511.45 

B.           Capitalization and indebtedness

Not applicable.

C.           Reason for the offer and use of proceeds.

Not applicable.

D.           Risk Factors

An investment in our common shares is highly speculative and subject to a number of risks. Only those persons who can bear the risk of the entire loss of their investment should participate. An investor should carefully consider the risks described below and the other information that we file with the Securities and Exchange Commission and with Canadian securities regulators before investing in our common shares. The risks described below are not the only ones faced. Additional risks that we are aware of or that we currently believe are immaterial may become important factors that affect our business. If any of the following risks occur, or if others occur, our business, operating results and financial condition could be seriously harmed and the investor may lose all of their investment.

Exploration and Development

Mineral exploration is a speculative business and involves a high degree of risk. There is no known body of commercial ore on the NorthMet Project and there is no certainty that the expenditures to be made by us in the exploration or completion of a Definitive Feasibility Study or otherwise will result in discoveries of commercial quantities of minerals. The exploration for and development of mineral deposits involves significant risks, which even a combination of careful evaluation, experience and knowledge may not eliminate. Although the discovery of an ore body may result in substantial rewards, few properties explored are ultimately developed into producing mines. Significant expenditures may be required to


locate and establish ore reserves, to develop metallurgical processes and to construct mining and processing facilities at a particular site. It is impossible to ensure that the current exploration programs planned by PolyMet will result in a profitable commercial mining operation. Significant capital investment is required to achieve commercial production from successful exploration efforts.

The commercial viability of a mineral deposit is dependent upon a number of factors. These include deposit attributes such as size, grade and proximity to infrastructure, current and future metal prices (which can be cyclical), and government regulations, including those relating to prices, taxes, royalties, land tenure, land use, importing and exporting of minerals and necessary supplies and environmental protection. The complete effect of these factors, either alone or in combination, cannot be entirely predicted, and their impact may result in PolyMet not receiving an adequate return on invested capital.

The figures for mineral resources stated in this Annual Report are estimates and no assurance 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 resources uneconomic. Moreover, short-term operating factors relating to the mineral deposits, such as the need for orderly development of the deposits or the processing of new or different grades of ore, may cause a mining operation to be unprofitable in any particular accounting period.

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

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

Conflicts of Interest
Certain directors, officers or promoters of the Company are directors, officers, significant shareholders or promoters of other publicly listed companies. As a result, potential conflicts of interest may arise with respect to the exercise by such persons of their respective duties for the Company. In the event that such a conflict of interest arises at a meeting of the directors of the Company, a director who has such a conflict will abstain from voting for or against the approval of such participation or such terms. In the appropriate cases, the Company will establish a special committee of independent directors to review a matter in which several directors, or management, may have a conflict. Other than as indicated, the Company has no other procedures or mechanisms to deal with conflicts of interest.

Absence of Dividends
The Company has never declared or paid cash dividends on its Common Shares and does not anticipate doing so in the foreseeable future. There can be no assurance that the Company's board of directors will ever declare cash dividends, which action is exclusively within its discretion. Investors cannot expect to receive a dividend on the Company's Common Shares in the foreseeable future, if at all.

Dilution
The Company may in the future grant to some or all of its own and its subsidiaries' directors, officers, insiders and key employees options to purchase the Company's Common Shares as non-cash incentives to those employees. Such options may be granted at exercise prices equal to market prices at time when the public market is depressed. To the extent that significant numbers of such options may be granted and exercised, the interests of the then existing shareholders of the Company may be subject to additional dilution.

The Company is currently without a source of revenue and will most likely be required to issue additional securities to finance its operation and may also issue substantial additional securities to finance the development of any or all of its projects.


Volatility of Common Share Price and Volume
The Company's Common Shares are listed for trading on the TSX Venture Exchange. Shareholders of the Company may be unable to sell significant quantities of the Common Shares into the public trading markets without a significant reduction in the price of the shares, if at all. The market price of the Common Shares may be affected significantly by factors such as changes in the Company's operating results, the availability of financings, fluctuations in the price of metals, the interest of investors, traders and others in small exploration stage public companies such as the Company 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 exploration companies similar to the Company, have experienced wide fluctuations, which have not necessarily been related to the operating performances, underlying asset values or future prospects of such companies. There can be no assurance that future fluctuations in the price of the Company's shares will not occur.

Adverse Tax Consequences to U.S. Shareholders Resulting From the Company's PFIC Status
The Company believes that it is qualified as a passive foreign investment company ("PFIC") for the fiscal year ended January 31, 2003 and may qualify as a PFIC in the future with respect to U.S. Holders of the Company's common shares because the only source of income is interest, a passive source of income under the PFIC rules.

See Item 10 Additional Information - Taxation - United States Federal Income Tax

Consequences for a more detailed discussion of material United States federal income tax consequences for U.S. Shareholders.

ITEM 4. INFORMATION ON THE COMPANY

A.           History and Development of the Company

The Company was incorporated in British Columbia, Canada on March 4, 1981 under the name Fleck Resources Ltd. The Company changed its name from Fleck Resources to Polymet Mining Corp. on June 10, 1998.

The Company’s head office is situated at Suite 1116 – 925 West Georgia Street, Vancouver, B.C. V6C 3L2. Its registered and records office is the Company’s legal counsels offices situated at 1040 – 999 West Hastings Street, Vancouver, B.C. V6C 2W2. The Company is a reporting issuer in each of the provinces of Albert, British Columbia and Ontario. The Company’s shares have been listed on the TSX Venture Exchange (TSX V) since April 13, 1984 with the symbol "POM" and on the Over the Counter Bulletin Board (“OTCBB”) under the symbol “POMGF” in the United States.

The principal expenditures of the Company are related to its NorthMet Project located in Minnesota, USA. During the years ended January 31, 2004, 2003 and 2002 expenditures totaling $6,736,016.

The Company relies principally on equity financing to fund its projects and expenditures.

B.           Business Overview

PolyMet Mining Corp. (hereinafter referred to as the "Company" or "Registrant") is engaged in the exploration and development, when warranted, of natural resource properties. The Company’s primary mineral property is the NorthMet Project, a polymetallic project in northeastern Minnesota, USA.


The Company controlled and explored several minerals properties prior to Fiscal 2000; however, exploration activities subsequently have concentrated on development of the NorthMet Project. During 2000 and 2001 the Company completed diamond core and reverse circulation, drilling programs and in April 2001 completed a pre-feasibility study. During 2002 (fiscal 2003), the only on-site project work completed was associated with environmental mitigation.

In the years ended January 31, 2004, 2003 and 2002, the Company did not have any active operations that generated revenues.

On March 17, 2003, the Company incurred a change of management. As a result the Company’s officers and directors resigned and a new President, Secretary, Chief Financial Officer and three board members were appointed. Subsequently, the Company moved is head offices from Denver, Colorado to Vancouver, British Columbia as noted hereinabove.

Management’s primary focus for the year ended was to achieve an understanding of the economic viability on its Northmet project. In order to do so, Polymet had several milestones to accomplish most importantly:

  • In December 2003, the Company, entered into a Memorandum of Understanding granting and option to acquire certain equipment from Cleveland Cliffs of Cleveland, Ohio (“Cliffs”) located near the Company’s NorthMet projects as well as certain other infrastructure facilities. Under the terms of the agreement Cliffs will maintain available designated elements of the facility while the Company develops its feasibility study on the NorthMet project. As consideration for the exclusive option, the Company has agreed to a cash payment of $500,000 by 31 January 2004 (paid) and the issuance to Cliffs of 1,000,000 common shares (issued 30 March 2004) to maintain the exclusive rights until 30 June 2006. Within six months of completion of a definitive feasibility study for the NorthMet project the Company shall complete the acquisition for an agreed consideration.

  • In January 2004 the Company commenced an independent scoping study, to update the process and infrastructure aspects of its 2001 pre-feasibility study integrating the key components of the Cliffs-Erie facility. The study was completed on March 31, 2004 and the results of which determined a capital cost reduction could be available by simplifying the on-site hydrometallurgical process and the inclusion of the Cliffs-Erie plant and infrastructure.

  • In the event the acquisition of the Cliffs-Erie facilities is completed, management is of the belief this could allow the Company to expedite environmental permitting since most of the difficult construction and infrastructure components have been completed. In February 2004, Polymet retained Barr Engineering Company of Minneapolis to ascertain the requirements for an Environmental Impact Study and put in place field monitoring and permit applications required to permit the project in light of existing permits in place for the Cliffs-Erie facility and in the event of a favourable definitive feasibility study this would also include permits for a new open pit at NorthMet.

  • Polymet retained Bateman Engineering Pty. of Brisbane, Australia as the principal engineer for the Definitive Feasibility Study for the NorthMet project.

  • On June 17, 2004 the Company announced the closing of a non-brokered private placement for a total of 1,550,000 Units (the "Units"), each Unit comprised of one common share and one-half of one non-transferable share purchase warrant, in the capital stock of the Company at $0.80 per unit to net the treasury an aggregate of $1,240,000 took place effective June 8, 2004. One full share purchase warrant entitles the investors to purchase one additional common share of the Company for a period of 18 months from the closing at $1.20 per share. A finder's fee in the amount of 7.5% of the gross proceeds with respect to the placement of 825,000 units has been paid in the form of 61,875 shares in the capital stock of the Company at a deemed price of $0.80 per share.


In accordance with the Company’s primary objective of developing its NorthMet project, by an agreement dated 12 September 2003, which closed on 21 January 2004, the Company sold the Marathon leases and related land for proceeds of $250,000.

C.           Organizational Structure

As at January 31, 2004 the Company had two (2) wholly owned subsidiaries, Fleck Minerals Inc., incorporated in Ontario, and PolyMet Mining Inc., incorporated in Minnesota, USA.

D.           Property, plant and equipment

NorthMet Project, Minnesota, USA

Cautionary Note to U.S. Investors

The Company is incorporated under the laws of British Columbia in Canada. The mineral reserves and resources described in this Annual Report are estimates and have been prepared in compliance with NI 43-101. The definitions of proven and probable reserves used in NI 43-101 differ from the definitions in SEC Industry Guide 7. In addition, the terms "mineral resources", "measured mineral resource", "indicated mineral resource" and "inferred mineral resource" are defined in and required to be, disclosed by NI 43-101; however, these terms are not defined terms under SEC Industry Guide 7 and normally are not permitted to be used in reports and registration statements filed with the SEC. Accordingly, information, contained in this Annual Report containing descriptions of the Company's mineral deposits may not be comparable to similar information made public by U.S. companies subject to the reporting and disclosure requirements under the United States federal securities laws and the rules and regulations thereunder.For clarification, we have no properties that contain “reserves” as defined by the SEC and we have provided the following property information in accordance with National Instrument 43-101.

(a)           History

The NorthMet Project was discovered by US Steel Corp (“USX”) in 1969. Originally, it was thought to be a high-grade, underground copper-nickel resource. Drilling in the 1970’s demonstrated that it was in fact a high tonnage, low grade deposit, amenable to open pit mining. The grade improved at depth. The inability to produce separate clean nickel or copper concentrates led to further process evaluation and development. At that time there was no recognition of any contained PGM’s.

The Minnesota Department of Natural Resources (“DNR”) subsequently discovered that PGM’s were associated with the nickel and copper in the resource. In 1989, Fleck Resources (“Fleck”) acquired a 20-year renewable mining lease over the property from USX and commenced an investigation into the potential for mining and recovering copper, nickel and PGM’s. Fleck re-assayed pulps and rejects from previous drilling to obtain data on PGM’s. The encouraging potential to produce extra revenue attracted joint venture partners (Nerco and Argosy Mining) who assisted in identifying and quantifying the PGM values. However these companies were not able to develop a metallurgical process that could economically produce separate acceptable concentrates for sale to a smelter, or economically extract the contained metals from a bulk concentrate.

In the mid-90’s, Fleck began investigating the use of hydrometallurgical processes, including bio-leaching and pressure oxidation, to determine the benefit to the Project. Fleck Resources changed its name to PolyMet Mining Corporation in 1998 and focused on a hydrometallurgical extractive technology. This led to the development of the PlatSolTM Process in 1998. The operating conditions of the PlatSolTM Process are such that the copper, nickel, cobalt and precious metals are all placed in solution in a single operation. Since the initial PlatSolTM testwork, the process has evolved and testwork on concentrates other deposits around the world led to improved recoveries of PGMs from the 92% level to 97%.


In July 2000, PolyMet entered into a joint venture arrangement with North Limited (“North”), a major Australian mining company, to progress the NorthMet Project to commercial production. Under the joint venture arrangement, North had the opportunity to ultimately earn an 87.5% interest in the PolyMet Project through funding and production of a Feasibility Study and funding 100% of the total capital costs to develop the project.

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

Following completion of the metallurgical pilot plant work in November 2000, PolyMet commissioned a Pre-Feasibility Study on the project in November 2000, based on the PlatSol process. This study was completed in April 2001. The Pre-Feasibility Study was for a 50,000tpd operation. The economics of this project were found to be unacceptably low and required a high up front capital expenditure. No further work was done until March 2003, when new management took over the company and commenced a detailed review of the project.

To date the Company has expended $6,236,016. These expenditures supported drilling, sampling, assaying, environmental, metallurgical testing and the pre-feasibility studies.

The following diagrams illustrate the location of the NorthMet Project.

Figure No. 1
NorthMet Project Map

(b)           Location/Access/Climate

The NorthMet Project land position covers 4,162 acres or 6.5 square miles of patented mineral rights. The property is located in St. Louis County in the Mesabi Range District about 60 miles north of Duluth, Minnesota. The Project is easily accessible via state and county roads. A 12-mile all-season gravel road links the NorthMet Project to the nearby town of Babbitt. A private railroad crosses the property immediately south of the deposit. Two other railway lines are located within ten miles and connect with three ports on Lake Superior. There is ready access to industrial electric power. The property is zoned for patented mineral rights.



(c) Claims and ownership
   
 (i)

NorthMet Lease

Pursuant to an Agreement dated January 4, 1983, the Company entered into a lease agreement with USX Corporation on certain lands in St. Louis County, Minnesota. The property is characterized as being mineralized with nickel, copper, platinum, palladium and gold. The term of the lease is 20 years, with annual lease payments as follows:

US$10,000 paid on execution of the lease
US$10,000 paid on the first anniversary
US$25,000 paid on the second and third anniversary
US$40,000 paid on the fourth and fifth anniversary
US$50,000 paid on the sixth through ninth anniversary
US$75,000 paid on the tenth through sixteenth anniversary
US$150,000 paid on the seventeenth anniversary and each year thereafter.

Due to the financial difficulties experienced by PolyMet during 2002, the Company obtained approval from US Steel to make the annual lease payment on the NorthMet property on a quarterly basis. US Steel has agreed to payment of the $75,000 owing 4 January 2003 as to $18,750 on 31 January 2003, $18,750 on 9 March 2003 and $37,500 on 18 June 2003.

The Company can, at its option, terminate the lease at any time by giving written notice to the lessor not less than 90 days prior to the effective termination date or can extend the 20-year term by continuing to make annual lease payments. The lease payments are considered advance royalty payments and shall be deducted from future production royalties payable to the lessor, which range from 3% to 5% based on the net smelter return per ton of ore mined received by the Company. The Company’srecovery of the advance royalty payments is subject to the lessor receiving an amount not less than the amount of the annual lease payment for that year.

   
 (ii)

State of Minnesota Minerals Leases (USA).

During Fiscal 2002 PolyMet successfully bid on 16 State of Minnesota minerals leases covering 4,363.41 acres. These leases are in proximity of proposed mining and waste disposal sites associated with the Project. The strategic location of these leases should facilitate Project economics and viability over the long term. Total cost of these three-year leases is US$16,784.67 paid in advance.

(e)            Permitting and Environmental

The environmental review process in Minnesota is reasonably well defined. Various permits from state and federal authorities will be necessary. An environmental impact Statement (EIS) will be required, with the Minnesota Department of National Resources as the lead agency.

Two winter wildlife studies, wetland and plant species evaluations, and preliminary geohydrology and rock geochemistry studies were completed in 1999, 2000 and 2001. These environmental studies are important to future permitting efforts.

Based on the Pre-feasibility Study, permitting of the NorthMet project will require substantial investment of both time and funds. The estimated permitting time frame is 3 to 3.5 years at an estimated cost of $6


to $6.5 million. The timetable for the NorthMet project to move from pre-feasibility through permitting and construction to full operation is estimated to be six years. This estimate incorporates the 3 to 3.5 years for permitting and 1.5 years for plant construction.

As both EIS and permitting of the project will be subject to the arrangements of a land swap, PolyMet believes that this land swap with US Forest Service should be completed in conjunction with the feasibility study. PolyMet anticipates that negotiations with US Forest Service take approximately 2 years from the commencement of a feasibility study and will cost approximately $3.5 million to complete. The Company has no assurance with land swap will be completed and that it will do so in this time frame or cost.

Subsequent to the Company’s option with Cliffs-Erie, in the event the Company acquires the facilities management is of the belief the permitting requirements will be reduced substantially as it is the Company’s intention to utilize permits already in place for the Cliffs facility. There is no assurance at this time the Company will meet its option requirements and therefore use of permits currently in place with Cliffs is speculative.

(f)            History of Exploration

During September 1999 to February 2000, and again in the forth quarter of Fiscal 2001, the Company completed diamond core and reverse circulation drilling programs. These programs were designed with two-fold purposes: 1) in-fill drilling for estimated resource calculations, and 2) collect mineralized material for a mini-continuous pilot plant testing program. PolyMet has drilled 87 of the 201 drill holes now in the deposit. In addition, the Company, with the assistance of Minnesota’s Natural Resources Research Institute, assayed previously unassayed sections of the USX drill core. Chemex Labs in Reno, Nevada assayed samples of mineralized rock. Acme Analytical in Vancouver, B.C. ran check assays. The Company has incorporated the drill results into the calculations included in the pre-feasibility study completed in April 2001.

The only on-site project work during 2002 was associated with environmental mitigation. Buckets of drill cuttings from previous drilling campaigns were collected and subsequently disposed of in a manner specified by appropriate state and federal environmental personnel. Also, all drill holes were plugged in accordance with State of Minnesota regulations and appropriate paperwork filed.

(i)            Drilling

The NorthMet Project is a large, low-grade, polymetallic disseminated magmatic sulfide deposit containing copper, nickel, palladium, platinum, cobalt, gold and silver.

The NorthMet Project has been extensively drilled. To date, 201 holes have been drilled over a 4.5 km open ended strike length of the area for a total drilled length of 55,800 metres.

Cautionary Note to United States Investors Concerning Estimates of Measured, Indicated and Inferred Resources

This section uses the terms 'measured resources’, 'indicated resources’ and 'inferred resources’. PolyMet advises the United States investors that while these terms are recognized and required by Canadian regulations (under National Instrument 43-101 Standards of Disclosure for Mineral Projects), the United States Securities and Exchange Commission does not recognize them.United States investors are cautioned not to assume that any part or all of the mineral deposits in these categories will ever be converted to reserves. In addition, 'inferred resources’ have a great amount of uncertainty as to their existence and economic and legal feasibility. It cannot be assumed that all or any part of an Inferred Mineral Resource will ever be upgraded to a higher category. Under Canadian Rules, estimates of Inferred Mineral Resources may not form the basis of Feasibility or Pre-Feasibility Studies, or economic studies except for a Preliminary Assessment as defined under 43-101.United States investors are cautioned not


to assume that part or all of an inferred resource exists, or is economically or legally mineable.

The resource estimates included in the Pre-feasibility Study of April 2001 and prepared by Independent Mining Consultants Inc. of Tucson (“IMC”) are shown in the table below.

Geological
Resource
Above
$7.42
cuttoff
Ktonnes
Above
Cutoff
%
Average Grades 
Of
NSR CuEq Cu Ni Co Pd Pt Au 
TotalUS$/t g/t g/t g/t 
Measured

201,653 46.8%       11.97 0.878 0.364 0.099 71.20 0.354 0.095 0.049 
Indicated 133,853 31.0%       12.41 0.939 0.379 0.096 66.77 0.384 0.110 0.055 
Inferred 95,653 22.2%       12.74 0.998 0.387 0.095 62.76 0.424 0.123 0.059 
Total 431,159        12.27 0.924 0.374 0.097 67.95 0.379 0.106 0.053 

The drilling to date has been adequate to complete the pre-feasibility level work (conceptual) required for mine planning. Appendix 6 indicates the definition for pre-feasibility requirements. It is proposed to complete further in-fill drilling, sufficient to establish a mineable pit reserve, as part of a feasibility study.

(i)            Future Exploration

The very large size of the NorthMet Project, both in terms of resource size and capital cost estimates, requires PolyMet to seek some form of joint venture agreement with a large, financially sound mining company. These efforts are ongoing.

The next step necessary to attract a partner in this project is to re-evaluate the project using parameters that coincide more closely with the mining economy and metal prices as they exist currently. Given the results from the initial pre-feasibility study, the project should now be optimized to reflect better economics, along with reduced capital and operating costs.

After completion of a more optimized project size and scope, a final feasibility study should be prepared. The funding requirements to complete this final feasibility study will depend on the type of project resulting from the optimization study. It is estimated that this final feasibility study, including permitting, environmental studies, land acquisitions, etc., will cost less than US$20 million.

The Marathon Deposit, Ontario, Canada:

By an agreement dated 6 November 2000, the Company granted a third party the option to acquire a 50% working interest in certain leased mineral properties located in Ontario, Canada referred to as the Marathon property. During the year ended 31 January 2004, the Company received termination notification from the optionee.

By an agreement dated 12 September 2003, which closed on 21 January 2004, the Company sold the Marathon leases and related land for proceeds of $250,000. Details of the related gain (loss) on sale are as follows:

   Marathon   Marathon   
   Leases   Land  Total 
 Proceeds $219,925  $30,075 $250,000 
 Cost    (38,582 (38,582
 Gain (loss) on sale $219,925  $(8,507$211,418 


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

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

This discussion and analysis should be read in conjunction with the Company's consolidated financial statements. The Company's reporting currency is the United States dollar and are prepared in accordance with Canadian Generally Accepted Accounting Principles (GAAP); however, there are no material differences between U.S. GAAP and Canadian GAAP regarding the financial statements. All amounts in this discussion and in the consolidated financial statements are expressed in United States dollars, unless identified otherwise.

(a)            Operating Results

Summary of Financial Results

Polymet recorded a loss in 2004 of $146,800 ($0.00) compared to a loss of $471,679 ($0.01 per share) in 2003 and a loss of $1,155,762 ($0.04 per share) in 2002. Losses in 2002 were attributed the restatement of exploration and pre-feasibility acquisition costs due to a change in accounting principles and the downsizing and eventual move of the Company’s head office operations.

The Company during 2004 expended $288,699 in general and administrative costs compared to $331,886 in 2003 and $595,076 in 2002 and $91,616 in exploration, pre-feasibility and lease payments compared to $112,318 in 2003 and $606,162 in 2002.

Change in Accounting Policy

The Company adopted the recommendations of CICA Handbook Section 3870, Stock-Based Compensation and Other Stock-Based Payments, effective for all awards granted on or after 1 February 2003. This established standards for the recognition, measurement and disclosure of stock-based compensation and other stock-based payments made in exchange for goods and services.

As encouraged by CICA Handbook Section 3870, the Company has enacted prospectively early adoption of the fair value based method of accounting for awards issued to employees for the fiscal year beginning 1 February 2003.

The new standard requires that all stock-based awards made to employees and non-employees be measured and recognized using a fair value based method. In prior years, stock-based compensation expense was only recognized when stock-based compensation awards were made to non-employees, while pro-forma disclosure was acceptable for awards made to employees.

During fiscal year 2003, the Company changed is accounting policy with respect to accounting for exploration expenditures. In 2002 and prior periods, acquisition and exploration expenditures were capitalized to mineral properties. Under the new policy, exploration expenditures (including lease/option payments) are expensed while acquisition expenditures continue to be capitalized. This change has been applied retroactively and has increased the deficit as at 31 January 2000 by $2,876,565 and increased the loss for the year ended 2002 by $606,162.


Summary of Operating Results

As at January 31, 2004, the Company operated in one segment, the exploration of the base and precious metals at its NorthMet Project in Minnesota, United States. Other reconciling adjustments comprise general and administrative costs, stock based compensation expense, financing expenses, foreign exchange interest income, assets, purchase of property, plant and equipment and amortization reported by the Canadian head office.

2004  NorthMet   Other   
  Project in   reconciling   
  U.S.   adjustments  Consolidated
         
Segment operating loss $124,473 $22,327 $146,800
Purchase property, plant and         
equipment $500,000 $2,061 $502,061
         
Proceeds on sale of resource property $ $219,925 $219,925
Proceeds on disposal of property, plant         
and equipment $33,331 $ $33,331
Identifiable assets $505,500 $519,437 $1,024,937
         
2003         
Segment operating loss $376,462 $95,217 $471,679
Purchase property, plant and       $ 
equipment $ $  
Proceeds on disposal of property, plant         
and equipment $48,301 $ $48,301
Identifiable assets $11,626 $40,001 $51,627

Fiscal 2004 Ended 1/31/04 versus Fiscal 2003

The Company’s primary objective for the current year was to achieve certain milestones with respect to the NorthMet project. The Company was successful in obtaining the option to acquire the Cliffs-Erie facility, which upon exercise will significantly reduce the capital costs for the project. In addition an independent scoping study on the NorthMet project was completed integrating the Cliffs-Erie facility and its impact on the overall pre-feasibility capital costs. Expenditures of $500,000 were made to obtain the option to acquire the Cliffs-Erie facility and during March 2004, upon receipt of regulatory approval of the option agreement, the Company issued 1,000,000 common shares to maintain the exclusive rights under the option to 30 June 2006.

With the Company’s focus on the NorthMet project, it reached an agreement for the sale of Marathon leases and related land for proceeds of $250,000.

Fiscal 2003 Ended 1/31/03 versus Fiscal 2002

Fiscal 2003 focused on survivability of the Company during very difficult economic conditions. Management continued its efforts to attract a strategic partner for the NorthMet Project, as well as solicit investment equity capital into the Company. The Company subsequent to year end completed a private placement for net proceeds of $73,410.

The only work performed on-site at the NorthMet Project consisted of environmental mitigation of drill holes and the disposal of drill cuttings from previous drilling campaigns. All such work has now been completed.

No field work of significance was performed by Geomaque Explorations on the Marathon Project.


Fiscal 2002 Ended 1/31/02 versus Fiscal 2001

In Fiscal 2002 the Company completed two major milestones impacting the NorthMet Project. The first was completion of and final reporting on operations of the continuous mini-pilot plant used to demonstrate the PlatSol metallurgical process previously developed by the Company. The pilot plant testing program successfully demonstrated application of the process to NorthMet mineralization, with high recoveries of payable minerals/metals achieved. Also, rigid environmental testing of every phase of pilot plant operations showed the process to be free of any significant environmental issues.

The second milestone achieved was completion of the NorthMet Project Pre-feasibility Study. This study was conducted by external consultants and evaluated the Project under one set of operating design, production and metals pricing assumptions. There was no attempt to optimize Project size or economics. The resulting financial data showed the Project, under the conditions evaluated, would generate an estimated before-tax Internal Rate of Return (IRR) of 14.1%, a Net Present Value (NPV) at a 10% discount rate of US$171.1 million, and an undiscounted Payback Period of 5.4 years after the start of production. PolyMet’s management believes the study’s results show the Project to be deserving of further work and financial expenditures to take it to the next level, which is completion of a final feasibility study or bankable document. This next phase of Project advancement is estimated to cost approximately US$20 million, including land acquisition.

The status of the Marathon Project was advanced during Fiscal 2002 as a result of additional exploration work performed on the property by Geomaque Explorations, Ltd. Exploration activities focused on the drilling of 15 diamond core holes, the resampling and assaying of core from previously drilled holes, surface mapping and sampling, the construction of a complete database, and modeling of the deposit. The work performed by Geomaque was the result of an “earn-in” agreement between PolyMet and Geomaque, whereby the later company performs necessary exploration on the property in exchange for an equity position in the Project.

The new resource estimate for the Marathon Project, based on the most recent data, show the resource to contain in excess of one million ounces of platinum and palladium at grades presently being mined at a property north of the Marathon Project. These ounces are contained in the “measured” and “indicated” resource categories.

Liquidity And Capital Resources

Working Capital

As at January 31, 2004, Polymet had working capital of $423,526, with approximately $495,551 in cash and, $27,347 in other working capital and $501,786 in mineral property, plant and equipment expenditures.

The Company relies principally on equity financing to fund its projects and expenditures. The Company has no internal source of funding and thus it depends on the ability to finance by raising funds by the sale of shares.

Planned Exploration Activities

The Company’s current available cash and working capital will be adequate to maintain its property lease summarized in Item 4. of this Annual Report and administrative costs for the next 12 months. In order to advance the NorthMet project further additional funding will be required and there are no assurances the Company will be able to complete the necessary financings or joint venture in order to carry out any further work. See Risk Factors.


Operating Cash Flow

For the year ended January 31, 2004, net cash inflows of $1,044,684 exceeded cash outflows of $552,320 resulting in a positive cash flow of $492,364, which when combined with the $3,187 cash balance from year end 2003 results in an ending cash position of $495,551. The cash inflows were a result of three private placements for a total of 11,648,318 shares at prices ranging from CDN $0.0525 to CDN $0.15 per share for proceeds of $1,035,071. Cash outflows comprised principally of $500,000 for the Cliffs-Erie acquisition and general and administrative costs of $288,699.

Financing Activities

The following outlines the Company’s financing activities for the period ended January 31, 2004:

  • March 2003, the Company arranged a private placement of 1,904,760 units at CDN $0.0525 per unit for cash in the amount of CDN$67,507. Each unit consists of one common share and one share purchase warrant to purchase one common share at CDN $0.10 for one year. Two directors subscribed for 190,476 units;

  • September 2003, the Company arranged a private placement of 2,746,892 units at CDN $0.10 for cash in the amount of CDN$247,158. Each unit consists one common share and one share purchase warrant to purchase an additional common share at CDN $0.15 in year one and CDN $0.17 in year two;

  • January 2004, the Company completed a private placement of 6,996,666 units at CDN$0.15 for cash in the amount of CDN$1,049,499. Each unit consists of one common share and one-half of one share purchase warrant. One full share purchase warrant entitles the holder to purchase one additional common share for a period of 24 months at a price of CDN$0.25 per share provided that should the Company’s shares trade on the TSX Venture Exchange at over CDN$0.50 per share for over 25 consecutive trading days, the warrants will terminate 30 days thereafter. A finders’ fee of CDN$50,000 cash and 60,000 commons shares at a deemed price of CDN$0.15 per share was paid.

  • During the year ended, 486,610 share purchase warrants were exercised at an exercise price of CDN$0.10.

  • During the year ended stock options in the amount of 89,600 were exercised at a price of CDN$0.08 per share.

There were no shares or financing activities for the fiscal period ended January 31, 2003.

During 2002 the Company completed a private placement for 3,428,923 units at CDN $0.13 per unit, which netted the Company $277,713. Each unit consists of one common share and one share purchase warrant which allow the holder to acquire 3,428,923 additional common shares for CDN $0.17 in the first year, CDN $0.18 in the second year, and CDN $0.20 in the third year through fifth year following issuance of the units. Proceeds from the financing were primarily utilized for ongoing exploration work at the NorthMet Property of $606,162 and for general administrative expenses of $595,076.

Requirements of Financing

Development of the NorthMet project to feasibility will require additional equity and possible debt financing both which involve significant risks some of which have been referred to previously in this document. As we are in the exploration stage, we do not have revenues from operations and, except for income from cash and cash equivalents, we rely on equity funding for our continuing financial liquidity. We do not have any arrangements or commitments in place for any additional financing.


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

Not applicable. See Item 4, Information on the Company, D. Property, Plant and Equipment, for a review of the Company’s exploration activities.

(d)          Trend Information

There are no trends, commitments, events or uncertainties presently known to management that are reasonably expected to have a material effect on the Company’s business, financial condition or results of operation other than uncertainty as to the speculative nature of the business (Refer to the heading entitled “Risk Factors”).

(e)          Off-Balance Sheet Arrangements

Not applicable.

(f)          Tabular Disclosure of Contractual Obligations

 Payments due Period 
 Less than 1 Year 1 –3 Years 3 – 5 Years More than Five
years
Lease
Obligations
150,000 – 450,000 150,000 – 450,000 150,000 per
annum
     

By an agreement dated 4 January 1989 and a subsequent amendment, the Company entered into a lease agreement with USX Corporation (“USX”) on certain lands in St. Louis County, Minnesota. The term of the lease is 20 years and calls for total annual lease payments of $1,475,000. All lease payments have been paid or accrued to 31 January 2004. The agreement requires future annual lease payments of $75,000 by 4 January 2005 and $150,000 from 4 January 2006 to 2009.

The Company can, at its option, terminate the lease at any time by giving written notice to the lessor not less than 90 days prior to the effective termination date or can extend the 20-year term by continuing to make $75,000 ($150,000 after January 2005) annual lease payments on each successive anniversary date.

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

(g)          Safe Harbour

Not applicable.

ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

A.           Directors and Senior Management


Each Director serves until the next annual general meeting or until his/her successor is duly elected, unless his/her office is vacated in accordance with the Articles of the Company. The laws/regulations of British Columbia require that a majority of the members of the Board of Directors consist of Canadian residents.

Casual vacancies on the Board of Directors are filled by election from nominees by the remaining Directors and the persons filling those vacancies hold office until the next Annual General Meeting, at which time they may be re-elected or replaced.

The following table sets out the name of the directors as at July 15, 2003,the country in which each is ordinarily a resident, all office of the Company now held by each of them, their principal occupations, the period of time for which each has been a director of the Company, and the number of common shares of the Company beneficially owned by each, directly or indirectly, or over which control or direction is exercised, as at the date hereof.

Name and municipality of
residence and position
Business Experience for the past five yearsPrevious service
as a director or
officer
William F. Murray, P.Eng(2)
Canada
Mining Executive, director and officer of a private engineering and management firm, director of several public resource companies; Director, President and CEO of the Company wherein 85% of was dedicated to the affairs of the Company.March 17, 2003 
George Molyviatis(1)(3),
Geneva
Financier, Banker, President of an international lumber company; Director of the CompanyMarch 17, 2003 
Ian Forrest(1)(3),Geneva Chartered Accountant, director of several public resource companies director of the CompanyOct. 3, 2003 
Dr. David Dreisinger(1) (2) (3) 
Canada 
Ph.D., a professor of the Faculty of Applied Science, Department of Metal and Materials Engineering at University of British Columbia. Director of the CompanyOct. 3, 2003 
Terese J. Gieselman
Canada 
Mining Executive, director and officer of private consulting management firm, officer of several public resource companies; Chief Financial Officer of the Company wherein 50% of her time was dedicated to the affairs of the Company.October 3, 2003 

1     Member of the Audit Committee
2.     Member of the Compensation Committee
3.     Member of Corporate Governance Committee
4.     Shares beneficially owned, directly or indirectly, or over which control or direction is exercised, as at April 14, 2004, based upon information furnished to the Company by individual Directors. Unless otherwise indicated, such shares are held directly.


STATEMENT OF EXECUTIVE COMPENSATION

The Company has one (1) Named executive officer. The Statement of Executive Compensation required under Form 51-904F to the Securities Act requires disclosure of compensation for each Chief Executive Officer and for each of the Company’s (including subsidiaries) four most highly compensated executive officers, other than the CEO, provided that disclosure is not required for an executive officer where total salary and bonus does not exceed $100,000.

Summary Compensation Table
Name & Principal
Position
Year Annual Compensation Long Term Compensation 
Salary
($)
Bonus
($)
Other
($)
Awards Payouts 
   Securities
Under 
Option 
(#)
Restricted
Shares or
Restricted
Share
Units ($)
LTIP
Payouts
($)
All Other
Compens-
ation ($)
William Murray 
President/CEO 
2004 
2003 
2002
US$45,810 
N/A 
N/A 
Nil 
N/A 
N/A 
Nil 
N/A 
N/A 
956,600 
N/A 
N/A 
Nil
N/A
N/A
Nil 
N/A 
N/A 
Nil 
N/A 
N/A 
Dr. Donald W. Gentry
Former 
President/CEO 
2004 
2003 
2002 
NIL 
US$103,288 
US$115,000

nil 
nil 

nil 
nil 
500,000 
541,052 
541,052 
Nil
nil
nil
Nil 
nil 
nil 
Nil 
nil 
nil 

Effective March 17, 2003, Mr. Donald W. Gentry resigned and William F. Murray was appointed President and CEO.

Long Term Incentive Plan (LTIP) Awards

The Company does not have a LTIP, pursuant to which cash or non-cash compensation intended to serve as an incentive for performance (whereby performance is measured by reference to financial performance or the price of the Company’s securities) was paid or distributed to the Named Executive Officer during the most recently completed financial year.

Option/Stock Appreciation Rights (“SAR”) Grants

During the Most Recently Completed Financial Year

Name

Securities
Under
Option/SARs
Granted
(#)

% of Total
Options/SARs
Granted to
Employees in
Financial Year

Exercise or
Base Price
($/Security)

Market Value
of Securities
Underlying
Options/SARs
on the Date of
Grant
($/Security)

Expiration
Date
William Murray 656,600 20%CDN $0.10 CDN $0.10 July 18, 2008 
William Murray 300,000 9%CDN $0.13 CDN $0.10 October 3, 2008


Aggregated Options/SAR Exercises in Last Financial Year
and Financial Year-End Option/SAR Values

The following table (presented in accordance with the Rules) sets forth details of all exercises of stock options during the most recently completed financial year by each of the Named Executive Officers and the number of unexercised options held by the Named Executive Officers.

Name Securities
Acquired on
Exercise

(#)
Aggregate Value
Realized

($)
Unexercised
Options/ SARs at
Fiscal Year-End
($)

Exercisable/
Unexercisable
Value of
Unexercised In-
the-Money
Options/ SARs at
Fiscal Year-End
($)

Exercisable/
Unexercisable
William F. Murray Nil Nil 956,600 153,682 

Option Re-Pricing

Pursuant to an Independent Contractor Agreement dated 1 August 2002, the Company contracted for the services of its former president/chief executive officer for a term of one year to 31 July 2003. Under the terms of the agreement, the compensation included the retention of 541,052 previously granted options to purchase shares of the Company wherein the, 541,052 options were re-priced to CDN $0.10 and extended to 17 March 2007.

Defined Benefit or Actuarial Plan Disclosure

There is no pension plan or retirement benefit plan that has been instituted by the Corporation and none are proposed at this time.

Compensation Committee

The Compensation Committee, consisting of William Murray, Terry O’Kane and David Dreisinger, determines the compensation of the executive officers of the Company. See “Report on Executive Compensation” for further details.

Compensation of Directors

The Company has no arrangements, standard or otherwise, pursuant to which Directors are compensated by the Company or its subsidiaries for their services in their capacity as Directors, or for committee participation, involvement in special assignments or for services as consultant or expert during the most recently completed financial year or subsequently, up to and including the date of this information circular.

The Company does have a formalized stock option plan (the “Plan”) for the granting of incentive stock options to the officers, employees and Directors. The purpose of granting such options is to assist the Company in compensating, attracting, retaining and motivating the Directors of the Company and to closely align the personal interests of such persons to that of the shareholders.


The following stock options were outstanding to directors of the Company at the most recently completed financial year:

 Number of Exercise Price  
Date Granted Shares under Option Per Share Expiry Date 
    
7/18/03 1,641,500 CDN $0.107/18/08 
10/3/03 950,000 CDN $0.1310/3/08 

Bonus Share Agreements

The Company, subject to regulatory acceptance, has established a share incentive plan for its Directors and Key Employees. The plan provides for share bonuses to be issued to the individuals upon the Company reaching certain identifiables in its business plan, and is intended to reward the individuals for their unique expertise and experience in achieving these milestones. The Board of Directors is of the view that, from a corporate governance perspective, it is more appropriate to provide a reward mechanism of this nature than to provide incentive to insiders exclusively in the form of stock options, since the Company’s share price can vary in accordance with a range of external factors not related to the performance of management and key employees.

The milestones have been established as follows:

Milestone 1: Completion of an agreement with Cleveland Cliffs for the use or purchase of what is referred to as the Cliffs Erie Facility. This consist of certain real property located near Hoyt Lakes, Minnesota (the “Erie Site”), on which are located various ore processing facilities formerly operated by LTV Steel Mining Company as part of that company’s taconite mining and processing operations (the “Property”). The Property will be used to process mineral products from the Company’s Northmet property, in nearby Babbitt, Minnesota.

Share Bonus: On achievement of Milestone 1, 1,500,000 shares will be issued to the Directors as a group and an additional 90,000 shares will be issued to the Key Employees.

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

Share Bonus: On achievement of Milestone 2,900,000 shares will be issued to the Directors as a group and an additional 400,000 shares will be issued to the Key Employees.

Milestone 3: Completion of a bankable feasibility study which indicates that production from the Northmet Property is commercially feasible.

Share Bonus: On completion of Milestone 3, 1,500,000 shares will be issued to the Directors as a group and an additional 950,000 shares will be issued to the Key Employees.

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

Share Bonus:On completion of Milestone 4, 2,400,000 shares will be issued to the Directors as a group and an additional 840,000 shares will be issued to the Key Employees.

The Company received shareholder approval for the Bonus Share Plan on May 28, 2004 and is currently awaiting regulatory approval.

Other Remuneration


During the last financial year there was not any other remuneration paid or payable, directly or indirectly by the Company and any of its subsidiaries pursuant to an existing plan or arrangement to its directors or Named Executive Officer.

Report on Executive Compensation

As part of its responsibilities, the Compensation Committee reviews the Company’s overall compensation plan and the policies pertaining thereto to ensure that they are consistent with the Company’s goals of attracting and retaining the best available people, align the employee’s interests with those of the Company, and pay for performance. In establishing levels of remuneration and in granting stock options, the executive’s performance, level of expertise, responsibilities, length of service to the Company and comparable levels of remuneration paid to executives of other companies of comparable size and development within the industry are taken into consideration.

See “Report on Executive Compensation Table” for more information on remuneration of Named Executive Officer.

Defined Benefit or Actuarial Plan Disclosure

There is no pension plan or retirement benefit plan that has been instituted by the Corporation and none are proposed at this time.

C.           Board Practices

CORPORATE GOVERNANCE PRACTICES

Board of Directors

During the 2004 reporting period the board of directors of the Company (the “Board”) was comprised of two related and three unrelated members.

The Board is committed to a high standard of corporate governance and, although not listed on The Toronto Stock Exchange (“TSE”), the Board follows the Guidelines for Improved Corporate Governance adopted by the TSE.

Two Directors, namely, William Murray, the President and Chief Executive Officer and Terry O’Kane, the Chief Financial Officer are related directors. Mr. George Molyviatis, Ian Forrest and David Dreisinger are unrelated Director as that term is used in the TSE Guidelines.

Committees of the Board

The Company’s Board shall be comprised of five directors, of which three can be defined as “unrelated director” or “director who is independent of management and if free from any interest an any business or other relationship which could, or could reasonably be perceived to, materially interfere with the directors’ ability to act with a view to the best interests of the Company, other than interests and relationships arising from shareholdings” and do not have interests in or relationships with the Company.

The Board has established three standing committees, the Audit Committee, Compensation Committee and Corporate Governance Committee.

The main objective for the Compensation Committee is to attract, retain and appropriately motivate the Company’s Executive Officers to maximize shareholder value. Having regard to the Company’s present state of development and limited financial resources, the compensation of Executive Officers has two components, namely, a salary and stock options. The Corporate Governance Committee’s mandate is to enhance the Company’s governance through continuing assessment of the Company’s approach to corporate governance. The Committee is responsible for recommending to the Board, candidates for


nomination as Directors, and the composition of various Board committees, and reviews the Company’s structures to ensure that the Board is able to function independent of management.

D.           Employees

From January 2002 to the end of July 2002, the Company had one employee. From August 2002 to March 17, 2003, the Company utilized the services of a consultant for the majority of the administrative and all financial/accounting activities, during this relatively dormant period. None of the Company's employees were covered by a collective bargaining agreement. Subsequent to the change of management the President is paid as a consultant along with an independent consultant for administrative and accounting activities.

E.           Share Ownership

See B. Compensation.

ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

A.           Major Shareholders

To the best of the knowledge of the directors and senior officers of the Company, the following is the only shareholder of the Company that beneficially owns, directly or indirectly, or exercises control over, shares carrying more than 5% of the outstanding voting rights attached to the Company's Common Shares as at July 22, 2004.

Name of Shareholder No. of Shares % of Issued Shares 
    
Northern Securities Limited 3,251,600 .06% 

As at July 22, 2003, there were 390 holders of record of the Company's Common Shares of which 300 were U.S. residents owning 9,828,726 (18%) of the Company's outstanding shares.

The Registrant is a publicly owned Canadian corporation, the shares of which are owned by Canadian residents, US residents, and residents of other countries. The Registrant is not owned or controlled directly or indirectly by another corporation or any foreign government. There are no arrangements, known to the Company, the operation of which may at a subsequent date result in a change of control of the Company.

B.           Related Party Transactions

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

 a)Paid or accrued amounts as follows:

    2004   2003   2002 
           
  Administration fees and wages $52,388  $103,288  $188,710 

 b)     As at 31 January 2004, accounts payable included $NIL (2003 - $18,750) owed to a director.
 
 c)     Issued 2,143,906 shares and 1,881,476 warrants to related parties on private placements during the year ended 31 January 2004 for cash in the amount of $99,925.


C.           Interest of experts and counsel

Not applicable.

ITEM 8. FINANCIAL INFORMATION

A.           Consolidated Statements and Other Financial Information

See Item 17

Legal Proceedings

The Company does not know of any material active or pending legal proceedings against them; nor is the Company involved as a plaintiff in any material proceeding or pending litigation. The Company knows of no active or pending proceedings against anyone that might materially adversely affect an interest of the Company.

Dividend Policy

Since its incorporation, Polymet has not declared or paid, and has no present intention to declare or to pay in the foreseeable future, any cash dividends with respect to its Common Shares. Earnings will be retained to finance further growth and development of the business of Polymet. However, if the Board of Directors declares dividends, all Common Shares will participate equally in the dividends, and, in the event of liquidation, in the net assets, of Polymet.

B.           Significant Changes

The Company issued 145,400 common shares on exercise of options at CDN $0.08 for proceeds of approximately $8,750.

The Company issued 95,238 common shares on exercise of warrants at CDN $0.10 for proceeds of approximately $7,150.

The Company granted 620,000 options at CDN $0.40 to employees and officers, expiring 3 March 2008.

On May 28, 2003 the Company received shareholder approval to amend its Plan to a maximum number of shares to a rolling 10% of the Company’s issued and outstanding shares.

In addition the Company received shareholder approval to establish a bonus share plan for a maximum of 8,580,000 shares over a three-year time frame (the “Bonus Plan”). The bonus shares are intended as an incentive and compensation for certain critical achievements related to the development of the Company’s NorthMet project. The Bonus Plan is subject to further regulatory approval.

On June 17, 2004 the Company announced the closing of a non-brokered private placement for a total of 1,550,000 Units (the "Units"), each Unit comprised of one common share and one-half of one non-transferable share purchase warrant, in the capital stock of the Company at $0.80 per unit to net the treasury an aggregate of $1,240,000 took place effective June 8, 2004. One full share purchase warrant entitles the investors to purchase one additional common share of the Company for a period of 18 months from the closing at $1.20 per share. A finder's fee in the amount of 7.5% of the gross proceeds with respect to the placement of 825,000 units has been paid in the form of 61,875 shares in the capital stock of the Company at a deemed price of $0.80 per share.

On July 5, 2004 the Company granted 1,175,000 options at CDN $0.66 ( a Discounted Market Price in accordance with the policies of the TSX Venture Exchange) to various directors, employees and consultants, expiring 5 July 2009. The options are subject to a four month hold period.


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 periods:

Fiscal Period High Low 
January 31, 2004.30 .25 
January 31, 2003.12 .04 
January 31, 2002.66 .10 
January 31, 20011.25 .42 
January 31, 20002.87 .95 

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

Fiscal Quarter High Low 
   
April 30, 2004 .89 .82 
January 31, 2004 .30 .25 
October 31, 2003 .17 .14 
July 31, 2003 .09 .08 
April 30, 2003 .08 .05 
January 30,2003 .08 .045 
July 31, 2002 .27 .10 
April 30, 2002 .12 .08 

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

Month High Low 
   
June 30, 2004 .83 .80 
May 31, 2004 .81 .78 
April 30, 2004 .89 .82 
March 31, 2004 .80 .74 
February 28, 2004 .55 .475 

B.           Plan of Distribution

Not applicable.

C.           Markets

The Company's common shares trade on the TSX Venture Exchange in British Columbia, Canada under the symbol "POM”. The Company's common shares commenced trading April 1984. In August 2000, the Company listed on the OTCBB under the symbol “POMGF”.

D.           Selling Shareholders

Not applicable.

E.           Dilution

Not applicable.


F.           Expense of the issue

Not applicable.

ITEM 10. ADDITIONAL INFORMATION

A.           Share Capital

Not applicable.

B.           Memorandum and articles of association

The Company’s Certificate of Incorporation and Articles/By-Laws are Incorporated by Reference to Form 20-FR. The Company confirms no changes have been made the Company’s Articles/By-Laws.

C.           Material Contracts

The Company has not entered into any material contracts for the past two fiscal periods ending January 31, 2004 and January 31, 2003 other than those contracts entered into in the ordinary course of business.

D.           Exchange Controls

There are currently no governmental laws, decrees, regulations or other legislation of Canada, which affects the import or export of capital, including the availability of cash and cash equivalents for use by the Company. For a general discussion of the remittance of dividends, interest or other payments to non-resident holders of the Common Shares. See "E. Taxation".

E.           Taxation

Taxation - The following summary of the material Canadian federal income tax considerations generally applicable in respect of the common shares reflects the Company’s opinion. The tax consequences to any particular holder of common shares will vary according to the status of that holder as an individual, trust, corporation or member of a partnership, the jurisdiction in which that holder is subject to taxation, the place where that holder is resident and, generally, according to that holder’s particular circumstances. This summary is applicable only to holders who are resident in the United States, have never been resident in Canada, deal at arm’s length with the Company, 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 at the date of the Annual Report and the current administrative practices of Revenue Canada, Customs, Excise and Taxation. This summary does not take into account Canadian provincial income tax consequences.

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


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

Disposition of Common Shares - If a non-resident were to dispose of common shares of the Company to another Canadian corporation which deals or is deemed to deal on a non-arm’s length basis with the nonresident and that, immediately after the disposition, is connected with the Company (i.e., which holds shares representing more than 10% of the voting power and more than 10% of the market value of all issued and outstanding shares of the Company), 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) have not held a “substantial interest” in the Company (25% or more of the shares of any class of the Company’s stock) at any time in the five years preceding the disposition. Generally, the Tax Convention will exempt from Canadian taxation any capital gain realized by a resident of the United States, provided that the value of the common shares is not derived principally from real property situated in Canada.

Dividend - In the case of any dividends paid to non-residents, the Canadian tax is withheld by the Company, which remits 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 the Company’s voting shares upon ratification of the Protocol amending the treaty. In the absence of the Tax Convention provisions, the rate of Canadian withholding tax imposed on non-residents is 25% of the gross dividend. Stock dividends received by non-residents from the Company are taxable by Canada as ordinary dividends and therefore the withholding tax rates will be applicable.

Where a holder disposes of common shares to the Company (unless the Company 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 paid by the Company exceeds the paid-up capital of such stock. 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. A common share of the Company 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 nonresident 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 the issued shares of any class or series of the Company. In the case of a non-resident holder to whom shares of the Company represent taxable Canadian property and who is resident in 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-resident holder previously held the shares while resident in Canada. The Company believes that the value of its common shares is not derived from real property situated inside Canada.


Certain United States Federal Income Tax Consequences - The following is a discussion of certain possible United States Federal income tax consequences, under the law, generally applicable to a U.S. Holder (as defined below) of common shares of the Company. This discussion does not address all potentially relevant Federal income tax matters and it does not address consequences peculiar to persons subject to special provisions of Federal income tax law, such as those described below as excluded from the definition of a U.S. Holder. In addition, this discussion does not cover any state, local or foreign tax consequences.

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

U.S. Holders - As used herein, a (“U.S. Holder”) includes a holder of common shares of the Company who is a citizen or resident of the United States, a corporation created or organized in or under the laws of the United States or of any political subdivision thereof and any other person or entity whose ownership of common shares of the Company is effectively connected with the conduct of a trade or business in the United States. A U.S. Holder does not include persons subject to special provisions of Federal income tax law, such as tax-exempt organizations, qualified retirement plans, financial institutions, insurance companies, real estate investment trusts, regulated investment companies, broker-dealers, non-resident alien individuals or foreign corporations whose ownership of common shares of the Company is not effectively connected with the conduct of a trade or business in the United States and shareholders who acquired their stock through the exercise of employee stock options or otherwise as compensation.

Distributions on Common Shares of the Company - U.S. Holders receiving dividend distributions (including constructive dividends) with respect to common shares of the Company are required to include in gross income for United States Federal income tax purposes the gross amount of such distributions to the extent that the Company has current or accumulated earnings and profits, without reduction for any Canadian income tax withheld from such distributions. Such Canadian tax withheld may be credited, subject to certain limitations, against the U.S. Holder’s United States Federal Income tax liability or, alternatively, may be deducted in computing the U.S. Holder’s United States Federal taxable income by those who itemize deductions. (See more detailed discussion at “Foreign Tax Credit” below). To the extent that distributions exceed current or accumulated earnings and profits of the Company, they will be treated first as a return of capital up to the U.S. Holder’s adjusted basis in the common shares and thereafter as gain from the sale or exchange of the common shares. Preferential tax rates for long-term capital gains are applicable to a U.S. Holder which is an individual, estate or trust. There are currently no preferential tax rates for long-term capital gains for a U.S. Holder which is a corporation.

Dividends paid on the common shares of the Company will not generally be eligible for the dividends received deduction provided to corporations receiving dividends from certain United States corporations. A U.S. Holder which is a corporation may, under certain circumstances, be entitled to a 70% deduction of the United States source portion of dividends received from the Company (unless the Company qualifies as a “foreign personal holding company” or a “passive foreign investment company”, as defined below) if such U.S. Holder owns shares representing at least 10% of the voting power and value of the Company. The availability of this deduction is subject to several complex limitations which are beyond the scope of this discussion.


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

Disposition of Common Shares of the Company - A U.S. Holder will recognize gain or loss upon the sale of common shares of the Company equal to the difference, if any, between (i) the amount of cash plus the fair market value of any property received, and (ii) the shareholder’s tax basis in the common shares of the Company. This gain or loss will be capital gain or loss if the common shares are capital asset in the hands of the U.S. Holder, which will be a short-term or long-term capital gain or loss depending upon the holding period of the U.S. Holder. Gains and losses are netted and combined according to special rules in arriving at the overall capital gain or loss for a particular tax year. Deductions for net capital losses are subject to significant limitations. For U.S. Holders which are individuals, any unused portion of such net capital loss may be carried over to be used in later tax years until such net capital loss is thereby exhausted. For U.S. Holders which are corporations (other than corporations subject to Subchapter S of the Code), an unused net capital loss may be carried back three years from the loss year and carried forward five years from the loss year to be offset against capital gains until such net capital loss is thereby exhausted.

Other Considerations - In the following four circumstances, the above sections of the discussion may not describe the United States Federal income tax consequences resulting from the holding and disposition of common shares of the Company. However, on the basis of (a) the number of shareholders of its common shares, (b) the majority ownership of its shares by Canadian residents, and c) the majority of its assets are actively managed (not passively held), the Company believes that its is neither a “Foreign Personal Holding Company”, “Foreign Investment Company”, “Passive Foreign Investment Company”, nor a “Controlled Foreign Corporation”.

Foreign Personal Holding Company - If at any time during a taxable year more than 50% of the total combined voting power or the total value of the Company outstanding shares is owned, actually or constructively, by five or fewer individuals who are citizens or residents of the United States and 50% or more of the Company’s gross income for such year was derived from certain passive sources (e.g. from dividends received from its subsidiaries), the Company would be treated as a “foreign personal holding company”. In that event, U.S. Holders that hold common shares of the Company would be required to include in gross income for such year their allowable portions of such passive income to the extent the Company does not actually distribute such income.


Foreign Investment Company - If 50% or more of the combined voting power or total value of the Company outstanding shares are held, actually or constructively, by citizens or residents of the United States, United States domestic partnerships or corporations, or estates or trusts other than foreign estates or trusts (as defined by the Code Section 7701(a)(31)), and the Company is found to be engaged primarily in the business of investing, reinvesting, or trading in securities, commodities, or any interest therein, it is possible that the Company might be treated as a “foreign investment company” as defined in Section 1246 of the Code, causing all or part of any gain realized by a U.S. Holder selling or exchanging common shares of the Company to be treated as ordinary income rather than capital gains.

Passive Foreign Investment Company - As a foreign corporation with U.S. Holders, the Company could potentially be treated as a passive foreign investment company (“PFIC”), as defined in Section 1297 of the Code, depending upon the percentage of the Company’s income which is passive, or the percentage of the Company’s assets which is held for the purpose of producing passive income. Certain United States income tax legislation contains rules governing PFICs which can have significant tax effects on U.S. shareholders of foreign corporations. These rules do not apply to non-U.S. shareholders. Section 1297(a) of the Code defines a PFIC as a corporation that is not formed in the United States and, for any taxable year, either (i) 75% or more of its gross income is “passive income”, which includes interest, dividends and certain rents and royalties or (ii) the average percentage, by fair market value (or, if the company is a controlled foreign corporation or makes an election, by adjusted tax basis), of its assets that produce or are held for the production of “passive income” is 50% or more. The taxation of a US shareholder who owns stock in a PFIC is extremely complex and is therefore beyond the scope of this discussion. US persons should consult with their own tax advisors with regards to the impact of these rules.

Controlled Foreign Corporation - If more than 50% of the voting power of all classes of stock or the total value of the stock of the Company is owned, directly or indirectly, by citizens or residents of the United States, United States domestic partnerships and corporations or estates or trusts other than foreign estates or trusts, each of whom own 10% or more of the total combined voting power of all classes of stock of the Company or the total value of the stock of (“United States shareholder”), the Company could be treated as a controlled foreign corporation” under Subpart F of the Code.

This classification would effect many complex results including the required inclusion by such United States shareholders in income of their pro rata share: of “Subpart F Income” (as specially defined by the Code) of the Company; of the Company’s earnings invested in U.S. property; and of earnings invested “excess passive assets” (as specifically defined by the Code). The Company, in addition, under Section 1248 of the Code, gain from the sale or exchange of common shares of the Company by a U.S. person who is or was a United States shareholder (as defined in the Code) at any time during the five years period ending with the sale or exchange is treated as ordinary dividend income to the extent of earnings and profits of the Company attributable to the stock sold or exchanged. Because of the complexity of Subpart F, and because it is not clear that the Company is a controlled foreign corporation, a more detailed review of these rules is outside of the scope of this discussion.

F.           Dividends and Paying Agents

Not applicable.

G.           Statements by Experts

Not applicable


H.           Documents on Display

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

Polymet Mining Corp.
#1116 – 925 West Georgia Street
Vancouver, British Columbia
V6C 3L2 Canada

The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended, and it files reports, registration statements and other information with the Securities and Exchange Commission (the "SEC").

The Company's reports, registration statements and other information can be inspected on the SEC's website at www.sec.gov, and such information can be inspected and copies ordered at the public reference facilities maintained by the SEC at the following locations:

Judiciary Plaza 
Room 1024 
Washington, DC 20549 
500 West Madison 
Suite 1400 
Chicago, IL 60661 
 
 
 

I.           Subsidiary Information

Not Applicable.

ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

The Company is exposed only to market risk from changes in foreign currency exchange, although the exposure is not considered sufficient to have a material effect on our results of operations and financial condition. The Company’s only means of funding is by way of equity financing which would be completed in Canadian Funds. The result of which exposes the Company to foreign currency exchange rate risk as our reporting currency is the U.S. dollar. Polymet holds financial instruments in Canadian dollars. A depreciation of the Canadian dollar against the United States dollar will decrease the fair value and an appreciation of the Canadian dollar against the U.S. dollar will increase the fair value of such financial instruments.

The Company has no publicly or privately traded securities or market instruments aside from its own equity. The only publicly traded securities are the Common Shares of the Company, which trade on the TSX Venture Exchange. The Company has no debt instruments subject to interest payments, sales contracts, swaps, derivatives, or forward agreements or contracts, or inventory.

The Company has no currency or commodity contracts, and the Company does not trade in such instruments.

The Company has no cash flow or revenue from operations, the Company does not have currency or other market exposure to operating activity.

The Company has no debt instruments, which are subject to interest payments.

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


ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

Not Applicable.

ITEM 13. DEFAULT, DIVIDEND ARREARAGES AND DELINQUENCIES

None

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

Option Re-pricing

On 5 May 2003, consent resolutions were approved to re-price the 541,052 previously granted options from CDN $0.25 to CDN $0.10 per share and to amend the expiry date to 17 March 2007, subject to regulatory approval.

Shareholder Rights Plan

Effective 4 December 2003, the Company adopted a Shareholder Rights Plan (“Rights Plan”), subject to the ratification by the Company's shareholders at a meeting to be held within six months of the date of the Rights Plan, such approval was received on May 28, 2004. Under the Rights Plan, the Company has issued one right for no consideration in respect of each outstanding common share of the Company to all holders of record of common shares on 4 December 2003. All common shares issued by the Company during the term of the Rights Plan will have one right represented by the certificates representing the common shares of the Company. The term of the Rights Plan is 10 years, unless the rights are earlier redeemed or exchanged. The Rights issued under the Rights Plan become exercisable only if a party acquires 20% or more of the Company's common shares without complying with the Rights Plan or without the approval of the Board of Directors of the Company.

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

ITEM 15. CONTROLS AND PROCEDURES

A.           Evaluation of Disclosure Controls and Procedures

An evaluation was performed under the supervision and with the participation of the Company’s management, including the chief executive officer and chief financial officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15 of the Exchange Act, as amended) as of the end of the period covered by the Annual Report on 20-F. Based on that evaluation, the Company’s management, including the chief executive officer and chief financial officer, concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this Annual Report to provide reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act, as amended, is recorded, processed, summarized and reported with the time period specified in the U.S. Securities and Exchange Commission rules and forms.


B.           Changes in Internal Controls

The Company’s management which includes the chief executive officer and chief financial officer, identified no change in the Company’s internal control over financial reporting that occurred during the Company’s fiscal year ended January 31, 2004, and that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

The term “internal control over financial reporting” is defined as a process designed by, or under the supervision of, the registrant's principal executive and principal financial officers, or persons performing similar functions, and effected by the registrant's board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

 (1)     Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the registrant;
 
 (2)     Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the registrant are being made only in accordance with authorizations of management and directors of the registrant; and
 
 (3)     Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the registrant's assets that could have a material effect on the financial statements.

ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT

As at the Company’s financial year ended January 31, 2004, the audit committee consisted of three directors, one of whom would be determined as a financial expert.

Ian Forrest
Mr. Forrest is a Chartered Accountant practicing in Geneva and specializing in finance, banking and tax consulting. He is a director of two Canadian public companies, Caledonian Mining Corporation and Mengold Resources Inc.

David Dreisinger
Dr. Dreisinger is a professor in the Faculty of Applied Science, Department of Metal and Materials Engineering, at the University of British Columbia and holds the prestigious Industrial Research Chair in Hydrometallurgy. In addition to his professorship, Dr. Dreisinger is a consultant to many of the major mining companies worldwide. Dr. Dreisinger is co-inventor of the PLATSOLTM process which management sees as the major discriminator in the technical success of the NorthMet project. Dr. Dreisinger will be responsible for guiding process related matters as the Company advances through feasibility study and operations.

ITEM 16B. CODE OF ETHICS

During the Company’s current fiscal year the Board of Directors adopted it Corporate Governance Policy with included the Corporate Governance Mandate, Audit Committee Mandate, Compensation Committee Mandate and a Code of Ethics, in accordance with the requirements of this Annual Report.

The Company recently created a new and more informative website and is in the process of updating it to include its Corporate Governance Policy, Mandates and Code of Ethics on such site.


ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES 

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

 January 31 January 31 
 2004 2003 
   
Audit Fees 15,500 15,500 
Audit Related Fees 
Tax Fees 3,500 3,500 
All Other Fees 


PART III

ITEM 17. FINANCIAL STATEMENTS

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

The following financial statements and notes thereto required under ITEM #17 are attached hereto and found immediately preceding the signature page of this Form 20-F Annual Report.

Audited Financial Statements for Fiscal 2004/2003/2002 ended January 31st.

ITEM 18. FINANCIAL STATEMENTS

Not Applicable

ITEM 19. EXHIBITS

 1.Certificate of Incorporation and Articles/By-Laws -- Incorporated by Reference to Form 20-FR, Form 20-F Annual Reports, and Form 6-K's
   
 2.Instruments defining the rights of holders of equity or debt securities being registered. -- Refer to Exhibit No. 1
   
 3.Material Contracts: -- Incorporated by Reference to Form 20-FR, Form 20-F Annual Reports, and Form 6-K's
   
 4.Foreign Patents: Not Applicable
   
 5.Diagram of Parent and Subsidiaries -- Incorporated by Reference to Form 20-FR, Form 20-F Annual Reports, and Form 6-K's
   
 6.Code of Ethics
   
 7.Other Exhibits: -- Incorporated by Reference to Form 20-FR, Form 20-F Annual Reports, and Form 6-K's
   
 12.1Section 302 Certification of CEO
   
 12.2Section 302 Certification of CFO
   
 13.1Section 906 Certification of CEO
   
 13.2Section 906 Certification of CFO


POLYMET MINING CORP.

CONSOLIDATED FINANCIAL STATEMENTS

31 JANUARY 2004

U.S. Funds


AUDITORS’ REPORT

 

To the Shareholders of PolyMet Mining Corp.:

We have audited the consolidated balance sheets of PolyMet Mining Corp. as at 31 January 2004 and 2003 and the consolidated statements of shareholders’ equity, loss and cash flows for the years ended 31 January 2004, 2003 and 2002. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

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

In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at 31 January 2004 and 2003 and the results of its operations and cash flows for the years ended 31 January 2004, 2003 and 2002 in accordance with Canadian generally accepted accounting principles.

Vancouver, B.C. STALEY, OKADA & PARTNERS 
30 March 2004 CHARTERED ACCOUNTANTS 
  

COMMENTS BY AUDITORS FOR U.S. READER

ON CANADA - U.S. REPORTING CONFLICT

In the United States, reporting standards for auditors require the addition of an explanatory paragraph (following the opinion paragraph) when financial statements are affected by future events, the outcome of which is indeterminable. As discussed in Note 1, the Company’s continued existence as a going concern is dependent upon the future economic success of its exploration and development activities, the Company’s ability to continue to secure adequate financing and the Company achieving a positive cash flow and profitable operations. Our report to the shareholders dated 30 March 2004, is expressed in accordance with Canadian reporting standards, which do not require a reference to such going concern considerations in the auditors’ report when the situation is adequately disclosed in the financial statements.

Vancouver, B.C. STALEY, OKADA & PARTNERS 
30 March 2004 CHARTERED ACCOUNTANTS 



PolyMet Mining Corp.
Consolidated Balance Sheet
As at 31 January
U.S. Funds

Statement 1

ASSETS     2004  2003 
Current        
       Cash    $495,551 $3,187 
       Miscellaneous receivables     21,881  6,216 
       Prepaid expenses     5,466  - 
     522,898  9,403 
Investments(Note 4)     253  253 
Other Assets(Note 5b)     500,000  - 
Property, Plant and Equipment(Note 6)     1,786  41,971 
    $1,024,937 $51,627 
          
          
LIABILITIES        
Current        
       Accounts payable    $99,372 $82,628 
          
Continued Operations(Note 1)        
          
SHAREHOLDERS’ EQUITY (DEFICIENCY)        
Share Capital- Statement 2 (Note 7)        
       Authorized:        
              1,000,000,000 common shares without par value      
       Issued and fully paid:        
 2004 2003      
       For cash 44,089,554 31,755,026 shares  15,177,765  14,129,447 
       For property 902,500 902,500 shares  54,003  54,003 
       For stock-based        
       compensation - Shares  55,048  - 
 44,992,054 32,657,526 shares  15,286,816  14,183,450 
Deficit-Statement 2     (14,361,251)  (14,214,451
     925,565  (31,001
    $1,024,937 $51,627 

ON BEHALF OF THE BOARD:  
  
“William Murray” , Director 
  
“David Dreisinger” , Director 

- See Accompanying Notes -



PolyMet Mining Corp.
Consolidated Statement of Shareholders’Equity 
U.S. Funds

Statement 2

 Common Shares      
 Authorized  Issued and Fully Paid     
 Shares  Shares   Amount  Deficit  Total 
Balance - 31 January 2001 1,000,000,000  29,228,603  $13,905,737 $(12,587,010$1,318,727 
       Loss for the year           
              -Statement 3    -  (1,155,762 (1,155,762
       Shares issued for cash:           
              Private placements  3,428,923   286,405  -  286,405 
              Less: Issuance costs    (8,692 -  (8,692
Balance - 31 January 2002 1,000,000,000  32,657,526   14,183,450  (13,742,772 440,678 
       Loss for the year           
              -Statement 3    -  (471,679 (471,679
Balance - 31 January 2003 1,000,000,000  32,657,526   14,183,450  (14,214,451 (31,001
       Loss for the year    -  (146,800 (146,800
       Shares issued for cash:           
              Private placements  11,648,318   1,035,071  -  1,035,071 
              Less: Issuance costs    (42,946 -  (42,946
              Exercise of warrants  486,610   40,808  -  40,808 
              Exercise of options  89,600   5,210  -  5,210 
       Shares issued to settle           
              debt  50,000   3,634  -  3,634 
       Shares issued for finders’           
              fee  60,000   6,541  -  6,541 
       Stock-based           
              compensation    55,048  -  55,048 
Balance - 31 January 2004 1,000,000,000  44,992,054  $15,286,816 $(14,361,251$925,565 

- See Accompanying Notes -



PolyMet Mining Corp.
Consolidated Statement of Loss 
For the Years Ended 31 January 
U.S. Funds

Statement 3

  2004  2003  2002 
General and Administrative       
       Administration fees and wages $84,508 $143,146 $259,606 
       Professional fees  58,806  27,358  59,330 
       Stock-based compensation expense  55,048  -  - 
       Travel and automotive  25,278  10,074  33,987 
       Consulting fees  21,278  27,267  47,226 
       Transfer agent and filing fees  20,221  7,205  6,510 
       Office and telephone  9,106  51,942  51,685 
       Rent  8,767  26,158  30,376 
       Shareholders’ information  5,032  14,880  72,120 
       Interest expense (income),net  380  589  (20,781
       Amortization  275  5,606  20,517 
       Licenses, dues and taxes  -  1,882  3,072 
       Investor relations and financing  -  955  36,175 
       Conventions  -  -  445 
       Property search  -  -  - 
       Bad debts  -  -  - 
Loss Before the Undernoted  288,699  317,062  600,268 
          
Other Expenses (Income)       
       Pre-feasibility exploration costs       
              -Schedule 1  91,616  112,318  606,162 
       Loss (gain) on disposal of investments  -  5,717  (45,476
       Write down of investments to market value  -  -  - 
       Loss (Gain) on foreign exchange conversion  (22,230)  14,824  (5,192
       Loss (gain) on sale of resource properties  (219,925)  -  - 
       Loss (gain) on sale of property, plant and equipment  8,640  21,758  - 
  (141,899)  154,617  555,494 
Loss for the Year $146,800 $471,679 $1,155,762 
          
          
Loss per Share $(0.00)$(0.01$(0.04
          
          
Weighted Average Number of Shares  35,452,26  32,657,52  31,943,55 

- See Accompanying Notes -



PolyMet Mining Corp.
Consolidated Statement of Cash Flows 
For the Years Ended 31 January 
U.S. Funds

Statement 4

  2004  2003  2002 
Operating Activities       
       Loss for the year $(146,800) $(471,679$(1,155,762)
       Adjustments to reconcile loss to net cash       
              Amortization  275  6,321  22,233 
              Stock-based compensation expense  55,048  -  - 
              Loss (gain) on disposal of investments  -  5,717  (45,476
              Write-down of investments to market value  -  -  - 
              Loss (gain) on sale of resource properties  (219,925)  -  - 
              Loss (gain) on sale of property, plant and equipment  8,640  21,758  - 
       Changes in current assets and liabilities       
              Miscellaneous receivables  (15,665)  16,021  (9,540
              Prepaid expenses  (5,466)  18,649  2,619 
              Accounts payable  20,378  19,583  (359,203
        
       Net cash used in operating activities  (303,515)  (383,630 (1,545,129
          
Financing Activities       
       Share capital - for cash  1,044,684  -  277,713 
       Net cash provided by financing activities  1,044,684  -  277,713 
          
Investing Activities       
       Option payment  (500,000)  -  - 
       Purchase of property, plant and equipment  (2,061)  -  (2,456
       Proceeds on disposal of property, plant and equipment  33,331  48,301  - 
       Proceeds on disposal of investments  -  15,908  51,540 
       Proceeds on sale of resource property  219,925  -  - 
       Purchase of investments  -  -  - 
       Net cash used in investing activities  (248,805)  64,209  49,084 
          
        
Net Increase (Decrease) in Cash  492,364  (319,421 (1,218,332
       Cash Position - Beginning of year  3,187  322,608  1,540,940 
Cash Position - End of Year $495,551 $3,187 $322,608 

Schedule of Non-Cash Investing and Financing Activities         
          
Share capital issued for debt settlement $3,634  $- $ 
Share capital issued for resource property $-  $- $ 
Investments received on sale of resource properties $-  $- $ 

- See Accompanying Notes -



PolyMet Mining Corp.
Consolidated Schedule of Pre-FeasibilityExploration Costs 
For the Years Ended 31 January 
U.S. Funds

Schedule 1 

                 Cumulative 
                 From 
                 Inception 
                 (4 March 
                 1981) 
  NorthMet   Marathon            Through 
  Minnesota   Ontario            31 January 
  U.S.A.   Canada   2004   2003   2002   2004 
                  
Direct                  
       Amortization $ $ $-  $715  $1,716  $10,408 
       Camp and general  4,750     4,750   6,745   64,569   795,176 
       Cost recovery      -       (295,607
       Drilling      -   20,726   80,123   2,125,352 
       Environmental      -     2,172   394,144 
       Field transportation      -   3,963   2,300   573,658 
       Geological and geophysical      -     49,310   1,783,331 
       Government grants      -       (111,961
       Land lease, taxes and licenses    1,154   1,154   1,851   2,884   387,503 
       Metallurgical  10,712     10,712   1,545   81,195   1,741,214 
       Mine planning      -       203,720 
       Staking and periodic option                  
              payments                  
              - Cash  75,000     75,000   76,773   95,361   1,075,404 
              - Shares      -       54,003 
       Roadwork      -       112,975 
       Sampling, survey and studies      -     226,532   1,145,059 
                   
Total Costs for the Year  90,462   1,154   91,616   112,318   606,162   9,994,379 
                   
Option Payments and Sales                  
       Proceeds      -       (973,837
                   
Net Costs for the Year $90,462  $1,154  $91,616  $112,318  $606,162  $9,020,542 

- See Accompanying Notes -



PolyMet Mining Corp.
Notes to Consolidated Financial Statements
31 January 2004
U.S. Funds

 

  
1.     
Continued Operations
 
 These consolidated financial statements have been prepared on the basis of accounting principles applicable to a “going concern”, which assumes that the Company will continue in operation for the foreseeable future and will be able to realize its assets and discharge its liabilities in the normal course of operations.
 
 

The Company has incurred significant operating losses over the past several fiscal years, has cumulative net losses since inception of $14,361,251, has significant expenditure requirements to continue its exploration and development activities on the NorthMet property and has significant cash requirements to complete its option agreement on the Cleveland Cliffs property, plant and equipment.

These consolidated financial statements do not reflect adjustments that would be necessary if the going concern assumption were not appropriate because management believes that the actions already taken or planned, will mitigate the adverse conditions and events which raise doubts about the validity of the going concern assumption used in preparing these consolidated financial statements.

 
 If the going concern assumption were not appropriate for these consolidated financial statements, then adjustments would be necessary to the carrying value of the assets and liabilities, the reported revenue and expenses and the balance sheet classifications used.
 
 
2.     
Significant Accounting Policies
 
 a)     
Consolidation
 
  These consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, PolyMet Mining, Inc. and Fleck Minerals, Inc. The purchase method of accounting is used to consolidate these subsidiaries.
 
  
PolyMet Mining, Inc. was incorporated in Minnesota, U.S.A. to hold the NorthMet Lease(Note 5a).
 
 b)     
Mineral Operations
 
  The Company is in the process of exploring its mineral properties and has not yet determined whether these properties contain ore reserves that are economically recoverable.
 
  Exploration expenses incurred prior to determination of the feasibility of mining operation, periodic option payments and administrative expenses are expenses are expended as incurred. Mineral property acquisition costs and exploration and development expenditures incurred subsequent to the determination of the feasibility of mining operation are deferred until the property is placed into production, sold, allowed to lapse or abandoned. Acquisition costs include cash and fair market value of common shares. These capitalized costs will be amortized over the estimated life of the property following commencement of commercial production or written off if the property is sold, allowed to lapse or abandoned or when an impairment of values has occurred.
 
  Ownership in mineral interests involves certain inherent risks due to the difficulties of determining the validity of certain claims as well as the potential for problems arising from the frequently ambiguous conveyance history characteristic of many mineral interests. The Company has investigated ownership of its mineral interests and, to the best of its knowledge, ownership of its interests are in good standing.



PolyMet Mining Corp.
Notes to Consolidated Financial Statements
31 January 2004
U.S. Funds

 
  

2.     
Significant Accounting Policies-Continued
 
 c)     
Amortization
 
  

The Company provides for amortization of its property, plant and equipment as follows:

Furniture and equipment - Straight-line over 5 - 10 years
Computers - Straight-line over 5 years

 
 d)     
Investments
 
  The Company carries its long-term portfolio investments at cost. Investments are written down to net realizable value when there has been a loss in value of the investment, which is other than a temporary decline.
 
 e)     
Loss Per Share
 
  Basic earnings (loss) per share is computed by dividing income (loss) available to common shareholders by the weighted average number of common shares outstanding during the year. The computation of diluted earnings per share assumes the conversion, exercise or issuance would have a dilutive effect on earnings per share. The dilutive effect of convertible securities is reflected in diluted earnings per share by application of the “if converted” method. The dilutive effect of outstanding options and warrants and their equivalents is reflected in diluted earnings per share by application of the treasury stock method.
 
 f)     
Conversion of Foreign Currency
 
  The accounts of the Company are prepared in U.S. funds and the company’s Canadian operations are translated into U.S. dollars as follows:

  Monetary assets and liabilities at year-end rates,
  All other assets and liabilities at historical rates, and
  Revenue and expense items at the average rate of exchange prevailing during the year.
    
  Exchange gains and losses arising from these transactions are reflected in income or expense in the year.

 g)     
Environmental Expenditures
 
  The operations of the Company may in the future be affected from time to time in varying degrees by changes in environmental regulations, including those for future removal and site restoration costs. Both the likelihood of new regulations and their overall effect upon the Company vary greatly and are not predictable. The Company’s policy is to meet or, if possible, surpass standards set by relevant legislation, by application of technically proven and economically feasible measures.
 
  Environmental expenditures that relate to ongoing environmental and reclamation programs are charged against earnings as incurred or capitalized and amortized depending on their future economic benefits. Estimated future removal and site restoration costs, when the ultimate liability is reasonably determinable, are charged against earnings over the estimated remaining life of the related business operation, net of expected recoveries.



PolyMet Mining Corp.
Notes to Consolidated Financial Statements
31 January 2004
U.S. Funds

 
  

2.     
Significant Accounting Policies-Continued
 
 h)     
Management’s Estimates
 
  The preparation of financial statements in conformity with Canadian generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reported periods. Actual results could differ from those estimates.
 
 i)     
Share Capital
 
  i)     The proceeds from the exercise of stock options, warrants and escrow shares are recorded as share capital in the amount for which the option, warrant or escrow share enabled the holder to purchase a share in the Company.
 
  ii)     Share capital issued for non-monetary consideration is recorded at an amount based on fair market value reduced by an estimate of transaction costs normally incurred when issuing shares for cash, as determined by the board of directors of the Company.
 
 j)     
Income Taxes
 
  Income taxes are calculated using the asset and liability method. Temporary differences arising from the difference between the tax basis of an asset or liability and its carrying amount on the balance sheet are used to calculate future income tax liabilities or assets. Future income tax liabilities or assets are calculated using tax rates anticipated to apply in the periods that the temporary differences are expected to reverse. Temporary differences arising on acquisitions result in future income tax liabilities or assets. The benefits of losses available for carry-forward to future years for tax purposes are recognized to the extent that realization of such benefits is more likely than not.
 
 k)     
Stock-Based Compensation – Change in Accounting Policy
 
  The Company adopted the recommendations of CICA Handbook Section 3870, Stock-Based Compensation and Other Stock-Based Payments, effective for all awards granted on or after 1 February 2003. This established standards for the recognition, measurement and disclosure of stock-based compensation and other stock-based payments made in exchange for goods and services.
 
  As encouraged by CICA Handbook Section 3870, the Company has enacted prospectively early adoption of the fair value based method of accounting for awards issued to employees for the fiscal year beginning 1 February 2003.
 
  The new standard requires that all stock-based awards made to employees and non-employees be measured and recognized using a fair value based method. In prior years, stock-based compensation expense was only recognized when stock-based compensation awards were made to non-employees, while pro-forma disclosure was acceptable for awards made to employees.



PolyMet Mining Corp.
Notes to Consolidated Financial Statements
31 January 2004
U.S. Funds

 
  

2.
Significant Accounting Policies-Continued 
   
 l)
Cash and Cash Equivalents 
  
 For purposes of reporting cash flows, the Company considers cash and cash equivalents to include amounts held in banks and highly liquid debt investments with remaining maturities at point of purchase of three months or less. The Company places its cash and cash investments with institutions of high credit worthiness. At times, such investments may be in excess of federal insurance limits.
 
   
3.
Fair Value of Financial Instruments 
  
The carrying value of cash, accounts receivable, accounts payable and investments(Note 4) approximates the fair value of these financial instruments due to their short-term maturity or capacity of prompt liquidation.
 
   
4.
Investments 
   
Details are as follows: 

   Market Value   2004   2003  
 American Platinum Inc. $ $1  $ 
 Aloak Corp.  25   252   252  
  $25  $253  $253  

 These investments represent minority interests of less than 10% in the respective companies.
 

5.     Resource Property Agreements
 
 The Company’s material resource property agreements are as follows:
 
 a)     NorthMet, Minnesota, U.S.A. - Lease
 
  By an agreement dated 4 January 1989 and a subsequent amendment, the Company entered into a lease agreement with USX Corporation (“USX”) on certain lands in St. Louis County, Minnesota. The term of the lease is 20 years and calls for total annual lease payments of $1,475,000. All lease payments have been paid or accrued to 31 January 2004. The lessor has indicated that the Company does not have the required appropriate insurance coverage pursuant to the terms of the agreement. The Company intends to acquire appropriate insurance coverage as it re-activates field programs and feasibility study work in the 2005 fiscal year. The agreement requires future annual lease payments of $75,000 by 4 January 2005 and $150,000 from 4 January 2006 to 2009.



PolyMet Mining Corp.
Notes to Consolidated Financial Statements
31 January 2004
U.S. Funds

 
  

5.     
Resource Property Agreements-Continued
 
 a)     
NorthMet, Minnesota, U.S.A. – Lease, continued
 
  

The Company can, at its option, terminate the lease at any time by giving written notice to the lessor not less than 90 days prior to the effective termination date or can extend the 20-year term by continuing to make $75,000 annual lease payments on each successive anniversary date.

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

 
  Subsequent to the year, USX assigned the lease to RGGS Land & Minerals Ltd., L.P.
 
 b)     
Cleveland Cliffs Option, Minnesota, U.S.A.
 
  By a Memorandum of Understanding dated 5 December 2003, the Company has obtained an option to acquire certain equipment from Cleveland Cliffs of Cleveland, Ohio (“Cliffs”) located near the Company’s NorthMet projects as well as certain other infrastructure facilities. Under the terms of the agreement Cliffs will maintain available designated elements of the facility while the Company develops its feasibility study on the NorthMet project (Note 5a).
 
  As consideration for the exclusive option, the Company has agreed to a cash payment of $500,000 by 31 January 2004 (paid) and the issuance to Cliffs of 1,000,000 common shares (issued 30 March 2004) to maintain the exclusive rights until 30 June 2006.
 
  Within six months of completion of a bankable feasibility study for the NorthMet project the Company shall complete the acquisition for agreed upon consideration.
 
  In due course, the Company will assume all environmental liabilities and obligations relating to those facilities and lands, with a view to Cliffs being released therefrom by the State of Minnesota. The Memorandum of Understanding is subject to approval by the Board of Directors of the Company (obtained) and by Canadian regulatory authorities (obtained). The parties are currently drafting a formal option agreement (signed 16 February 2004).
 
  Either party may terminate the agreement if the property transfers have not occurred by 30 June 2006 unless a written extension has been agreed upon. Such extension may not be unreasonably refused.



PolyMet Mining Corp.
Notes to Consolidated Financial Statements
31 January 2004
U.S. Funds

 
  

5.     Resource Property Agreements-Continued
 
 c)     Other properties - Marathon, Ontario, Canada
 
  By an agreement dated 6 November 2000, the Company granted a third party the option to acquire a 50% working interest in certain leased mineral properties located in Ontario, Canada referred to as the Marathon property. During the year ended 31 January 2004, the Company received termination notification from the optionee.
 
  By an agreement dated 12 September 2003, which closed on 21 January 2004, the Company sold the Marathon leases and related land for proceeds of $250,000. Details of the related gain (loss) on sale are as follows:

    Marathon   Marathon   
    Leases   Land  Total 
  Proceeds $219,925  $30,075 $250,000 
  Cost    (38,582 (38,582
  Gain (loss) on sale $219,925  $(8,507$211,418 

6.     Property, Plant and Equipment
 
 Details are as follows:

         2004   2003  
      Accumulated  Net Book   Net Book  
   Cost   Amortization  Value   Value  
              
 Land $ $ $-  $38,582  
 Furniture and equipment  2,061   275   1,786   1,017  
 Computers      -   2,372  
  $2,061  $275  $1,786  $41,971  

 
7.     Share Capital
 
 a)     
The share issuances during 2004 included three private placements for a total of 11,648,318 shares at prices ranging from CDN $0.0525 to CDN $0.15 per share for proceeds of $1,035,071. Each of the private placements included share purchase warrants(Note 7d). Share issuance costs in the amount of $42,946 were incurred in respect of these private placements.
 
  No shares were issued during the year ended 31 January 2003.
 
 b)     The Company has a stock option plan that covers its employees and directors. The options are granted for varying terms ranging from two to five years. During the year, the Company increased the maximum number of common shares under the stock option plan to 3,754,574 and granted 2,591,500 (2003 - 550,000) options and re-priced 541,052 options.



PolyMet Mining Corp.
Notes to Consolidated Financial Statements
31 January 2004
U.S. Funds

 
  

7.Share Capital -Continued
   
  Details of stock option activity is as follows:

   2004 2003 
   Options Options 
  Outstanding - Beginning of year 1,851,052 1,858,552 
     Granted 2,591,500 550,000 
     Re-priced and extended expiry 541,052 - 
     Cancelled options for re-pricing and extension (541,052) - 
     Forfeited or expired (810,000) (557,500
     Exercised (89,600) - 
  Outstanding - End of year 3,542,952 1,851,052 

  As at 31 January 2004, the following director, former director and employee share purchase options were outstanding:

   Prior   
   Exercise Price Exercise Price  
  Expiry Date (CDN) (CDN) Number 
  17 March 2007 $ 0.25 $ 0.10 441,052 
  17 March 2007 $ 0.46 $ 0.10 100,000 
  7 January 2008 $ 0.08 410,400 
  18 July 2008 $ 0.10 1,641,500 
  3 October 2008 $ 0.13 950,000 
     3,542,952 

  As at 31 January 2004 all options had vested and were exercisable, except for the 950,000 options granted during the year at CDN $0.13 per share. These options may not be exercised until approved by the shareholders at the next annual general meeting. The weighted average exercise price per option was CDN $0.11 per share and the weighted average remaining contractual life of the options was 4.26 years.
   
 c)     
Stock-Based Compensation
 
  During the year ended 31 January 2004, the Company re-priced 541,052 options to CDN $0.10 and issued 1,641,500 options to directors, officers, and employees with an exercise price of CDN $0.10 per option. The fair value of stock option compensation is $55,048, which has been recorded in the accounts of the Company. The weighted average grant-date fair value of options granted is CDN $0.05. This value is estimated at the date of the grant using the Black-Scholes Option Pricing Model with the following weighted average assumptions:

  Risk-free interest rate 2.68%
  Expected dividend yield Nil
  Expected stock price volatility 103%
  Expected option life in years 4 to 5



PolyMet Mining Corp.
Notes to Consolidated Financial Statements
31 January 2004
U.S. Funds

 
  

7.
Share Capital -Continued
   
  

During the year ended 31 January 2004, the Company also granted an additional 950,000 options at CDN $0.13 per share. These options are not exercisable until shareholder approval is obtained at the next annual general meeting. Accordingly, the related fair value of stock-based compensation of $70,265 will not be recorded until the grant is approved and the options become exercisable.

During the prior year ended 31 January 2003, the Company issued 500,000 options to a director with an exercise price of CDN $0.08 and 50,000 options to an officer with an exercise price of CDN $0.10 per option. Had the fair value based method been used to value these options, the Company’s loss and loss-per-share amounts for the year would have been adjusted to the pro forma amounts as follows:


    2003 
     
  Loss   
  As Reported $471,679 
  Pro forma $489,992 
  Loss Per Share   
  As Reported $0.01 
  Pro forma $0.01 

  The fair value of each option granted was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions:

   2003
    
  Risk-free interest rate 4.08%
  Expected dividend yield NIL
  Expected stock price volatility 93%
  Expected life of options 5 years
    
  The weighted average grant-date fair value of options granted in the prior year was CDN $0.05 per option.
   
 d)Details of stock purchase warrant activity is as follows:

   2003 
   Warrants 
  Outstanding - Beginning of year 3,428,923 
       Issued - April 2003 private placement 
       - July 2003 private placement 
       - January 2004 private placement 
       Exercised - April 2003 private placement 
  Outstanding - End of year 3,428,923 



PolyMet Mining Corp.
Notes to Consolidated Financial Statements
31 January 2004
U.S. Funds

 
  

7. Share Capital-Continued
   
  As at 31 January 2004, the following share purchase warrants were outstanding:

    Per Common   
    Share  Common 
    Exercise Price Warrants Share 
  Expiry Date  (CDN) Outstanding Entitlement 
  16 November 2006 $0.20 3,428,923 3,428,923 
  8 May 2004 $0.10 1,418,150 1,418,150 
  24 September 2005 (i) $0.15 1,373,446 1,373,446 
  2 February 2006 (ii) $0.25 3,498,333 3,498,333 
     9,718,852 9,718,852 

  (i)     The exercise price in the first year to 24 September 2004 at $0.15 per common share and in the second year to 24 September 2005 at $0.17 per common share.
 
  (ii)     The exercise price is $0.25 per share and the expiry date is 2 February 2006, provided that should the Company’s shares trade on the TSX Venture Exchange at over CDN$0.50 per share for over 25 consecutive trading days, the warrants will terminate 30 days thereafter.

 e)     Shareholder Rights Plan
 
  Effective 4 December 2003, the Company adopted a Shareholder Rights Plan (“Rights Plan”), subject to the ratification by the Company's shareholders at a meeting to be held within six months of the date of the Rights Plan. Under the Rights Plan, the Company has issued one right for no consideration in respect of each outstanding common share of the Company to all holders of record of common shares on 4 December 2003. All common shares issued by the Company during the term of the Rights Plan will have one right represented by the certificates representing the common shares of the Company. The term of the Rights Plan is 10 years, unless the rights are earlier redeemed or exchanged. The Rights issued under the Rights Plan become exercisable only if a party acquires 20% or more of the Company's common shares without complying with the Rights Plan or without the approval of the Board of Directors of the Company.
 
  Each Right entitles the registered holder thereof to purchase from the Company on the occurrence of certain events, one common share of the Company at the price of CDN$50 per share, subject to adjustment (the “Exercise Price”). However, if a Flip-in Event (as defined in the Rights Plan) occurs, each Right would then entitle the registered holder to receive, upon payment of the Exercise Price, that number of common shares that have a market value at the date of that occurrence equal to twice the Exercise Price. The Rights are not exercisable until the Separation Time as defined in the Rights Plan.
   



PolyMet Mining Corp.
Notes to Consolidated Financial Statements
31 January 2004
U.S. Funds

 
  

8. Related Party Transactions
   
 In addition to transactions disclosed elsewhere in these financial statements, the Company has conducted transactions with officers, directors and persons or companies related to directors as follows:
   
 b)Paid or accrued amounts as follows:

    2004   2003   2002 
  Administration fees and wages $52,388  $103,288  $188,710 

 b)     As at 31 January 2004, accounts payable included $NIL (2003 - $18,750) owed to a director.
 
 c)     Issued 2,143,906 shares and 1,881,476 warrants to related parties on private placements during the year ended 31 January 2004 for cash in the amount of $99,925.
 

9.     Income Taxes
 
 a)     The Company has approximately CDN $3,769,000 of resource related expenditures in Canada that may be carried forward indefinitely and used to reduce prescribed taxable income in future years. The Company’s U.S. subsidiary has approximately $5,416,000 of resource related expenditures, which may be used to reduce prescribed taxable income in future years. The benefit of these expenditures has not been recorded in the accounts.
 
 b)     The Company and its U.S. subsidiary also have tax losses carried forward available to reduce future taxable income. The benefit of these losses has not been recorded in the accounts and expire as follows:

    Parent Company   U.S. Subsidiary 
  Year  Amount (CDN)   Amount 
  2005 $ $8,700 
  2006    14,500 
  2007  728,700   17,300 
  2008  481,100   20,100 
  2009  296,600   23,100 
  2010  151,300   26,500 
  2011  324,000   27,900 
  2012    30,000 
  2018    217,600 
  2019    392,500 
  2020    496,700 
  2021    414,400 
  2022    367,400 
  2023    247,400 
  2024    124,500 
   $1,981,700  $2,428,600 



PolyMet Mining Corp.
Notes to Consolidated Financial Statements
31 January 2004
U.S. Funds

 
  

10.
Differences Between Canadian and United States Generally Accepted Accounting Principles 
   
 These consolidated financial statements are prepared in accordance with accounting principles generally accepted in Canada. The U.S. Securities and Exchange Commission requires that financial statements of foreign companies contain a reconciliation presenting the statements on the basis of accounting principles generally accepted in the U.S. Any differences in accounting principles as they pertain to the accompanying consolidated financial statements are not material except as follows:
   
  a)Under Canadian generally accepted accounting principles, long-term portfolio investments may be reported at a cost that is in excess of market value where it is reasonable to assume that the decline in market value may be of a temporary nature. Under U.S. generally accepted accounting principles, the investments are carried at market value on an individual basis and the adjustment is credited or charged to comprehensive income.
   
 b)
Under Canadian generally accepted accounting principles, mineral properties may be carried at cost and written-off or written-down if the properties are abandoned, sold or if management decides not to pursue the properties. Under U.S. generally accepted accounting principles, the Company would periodically review and obtain independent reports in determining adjustments to the mineral properties and records properties at net realizable value. The Company has not yet obtained an independent report and accordingly for U.S. purposes, the properties have been written off. In the past the Company followed the method described above. During the prior year, the Company changed the accounting policy(Note 2), therefore there are no differences between Canadian and United States generally accepted accounting principles.
   
 The effects of the differences in accounting principles on investments, net loss and comprehensive loss are as follows:

    2004  2003  2002 
  Investments - Canadian basis $253 $253 $21,878 
  Adjustment to market  (228)  (228 (2,545
  Investments - U.S. basis $25 $25 $19,333 
            
    2004  2003  2002 
  Contra-equity account for unrealized gains (losses)       
       on investments       
     - Canadian basis $- $- $- 
  Unrealized holding gain (loss) on investments       
     - Prior years  (228)  (2,545 68,153 
     - Current year  -  2,317  (70,698
  Contra-equity account for unrealized gains (losses)       
       on investments - U.S. basis $(228) $(228$(2,545
            
  Net loss - Canadian and U.S. Basis $146,800 $471,679 $1,155,762 
  Adjustment of portfolio investments to market  -  (2,317 70,698 
  Net loss and comprehensive loss - U.S. basis $146,800 $469,362 $1,226,460 
            



PolyMet Mining Corp.
Notes to Consolidated Financial Statements
31 January 2004
U.S. Funds

 
  

11.

Segmented Information

As at January 31, 2004, the Company operates in one segment, the exploration of the base and precious metals at its NorthMet Project in Minnesota, United States. Other reconciling adjustments comprise general and administrative costs, stock based compensation expense, financing expenses, foreign exchange interest income, assets, purchase of property, plant and equipment and amortization reported by the Canadian head office.


  2004  NorthMet   Other    
    Project in   reconciling    
    U.S.   adjustments   Consolidated 
  Segment operating loss $124,473  $22,327  $146,800 
  Purchase property, plant and         
  equipment $500,000  $2,061  $502,061 
  Proceeds on sale of resource         
  property $—  $219,925  $219,925 
  Proceeds on disposal of property,         
  plant and equipment $33,331  $—  $33,331 
  Identifiable assets $505,500  $519,437  $1,024,937 
           
  2003         
  Segment operating loss $376,462  $95,217  $471,679 
  Purchase property, plant and       $ 
  equipment $—  $—   — 
  Proceeds on disposal of property,         
  plant and equipment $48,301  $—  $48,301 
  Identifiable assets $11,626  $40,001  $51,627 



PolyMet Mining Corp.
Notes to Consolidated Financial Statements
31 January 2004
U.S. Funds

 
  

12.

Subsequent Events 

In addition to items disclosed elsewhere in these financial statements, the Company conducted the following transactions after 31 January 2004:

   
 a)The Company issued 145,400 common shares on exercise of options at CDN $0.08 for proceeds of approximately $8,750. 
   
 b) The Company issued 95,238 common shares on exercise of warrants at CDN $0.10 for proceeds of approximately $7,150. 
   
 c)The Company granted 620,000 options at CDN $0.40 to employees and officers, expiring 3 March 2008. The options are subject to shareholder approval and are not exercisable until approved at the next annual general meeting.
   
 d)Subject to shareholder approval, at the next annual general meeting, the maximum number of shares under the Company’s stock option plan will be revised to a rolling 10% of the Company’s issued and outstanding shares.
   
 e) Subject to shareholder and regulatory approval, the Company has established a bonus share plan for a maximum of 8,580,000 shares over a three-year time frame. The bonus shares are intended as an incentive and compensation for certain critical achievements related to the development of the Company’s NorthMet project.
   


SIGNATURES

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

Dated: July 6, 2005

POLYMET MINING CORP.

/s/ William Murray
Name: William Murray
Title: Chief Executive Officer