The PolyMet project is located in northeastern Minnesota, immediately south of the northeastern end of the famed Mesabi Iron Range. The Range is a major mining district and, as a result, there is significant established infrastructure including road and rail networks, equipment suppliers and skilled labour.

The project comprises the NorthMet ore body - which contains copper, nickel, cobalt, platinum, palladium and gold with traces of zinc and silver - and the Erie Plant, located six miles to the west and connected by private railroad to NorthMet.

The NorthMet ore body is in the center of a trend of known polymetallic non-ferrous metal deposits on the northwestern contact of the Duluth Complex, an arc-shaped intrusive complex believed to have been emplaced along a system of northeast-trending faults associated with the Mid-continent Rift System that underlies Lake Superior. The Iron Range lies on the southern flank of the Archean Greenstones that form the Canadian Shield, and its eastern end is immediately north of the Duluth complex contact.

The polymetallic deposits of the Duluth Complex are generally believed to comprise one of the three largest known concentrations of nickel in the world, after the established and well-explored districts of Norilsk in Siberia and the Sudbury Basin in Ontario, Canada.

Mining in Minnesota

Iron ore mined in Minnesota has been the backbone of the domestic US steel industry, and thus of the US industrial economy, since the 19th century. Until the 1950's, mining focused on hematite, which is high grade "red" or natural ore that could be shipped directly to blast furnaces. With pressure on production during and immediately after World War II, much of the high grade was exhausted and production moved to lower grade taconite that needed beneficiation before it could be shipped to blast furnaces. This material required large processing plants in order to benefit from economies of scale. During the 1950's, 60's and 70's, six large taconite plants were built along the range with a seventh at Silver Bay on the shore of Lake Superior.

In the 1940's, prospectors discovered some outcrops of non-ferrous mineralization near Ely, northeast of the NorthMet ore body. Subsequently, several major mining companies explored the area for copper and nickel between the mid-1950's and the early 1970's. In the late 1960's, U.S. Steel discovered NorthMet, initially targeting high grade mineralization at depth before moving "up dip" into lower grade material that outcropped. However, prior to the auto catalyst market and significant industrial demand for platinum group metals, the only metals of relevance were copper and nickel and nickel contamination of copper concentrate made the economics of 1950's technology flotation unattractive. Having drilled out NorthMet on wide spacing, U.S. Steel put the project on hold and ultimately sold an automatically renewable 20-year lease to PolyMet in 1989.

The NorthMet-Erie Property

After U.S. Steel's work, there have been three major developments that have transformed PolyMet's project.

The first transformation occurred in the 1980's when an assay program sponsored by the Minnesota Department of Natural Resources identified commercial grades of Platinum Group Metals ("PGM's"). By this time, auto catalysts used to remove pollutants, especially carbon monoxide and nitrous oxides from car exhaust emissions had established a significant market for PGM's and improvements in PGM assay techniques had made it possible to detect the sort of grades found in the Duluth Complex. Following the recognition of the PGM potential as the third leg to the project, PolyMet acquired leasehold rights in 1989.

The second transformation occurred in the 1990's as hydrometallurgical recovery of metals from primary, sulfidic ores became commercially established. In the late 1990's, ore from NorthMet was tested using this environmentally-friendly, energy-saving technology. As a result, a new management team took control and successfully completed a pre-feasibility study contemplating construction of an all new, stand alone project to produce copper, nickel, cobalt, PGM's, and gold at site. However, due to the worldwide downturn in the mining industry, the Company was unable to advance the project.

The third transformation was the transfer of management control to the current management team, the team that recognized the potential to use the nearby Erie Plant to crush and grind the ore from NorthMet. The Erie Plant substantially reduces the initial capital cost, simplifies the permitting process, provides the majority of the heavy equipment needed to start production, and shortens the construction period significantly. The new management team, which took control in March 2003, optioned the Erie Plant later that year and subsequently exercised the option in November 2005.

In parallel with securing ownership of the Erie Plant and extensive associated infrastructure, PolyMet completed a Definitive Feasibility Study ("DFS"), which confirmed the Technical and Economic viability of the project.

A key aspect of advancing the project is environmental review and permitting. Starting with publication of an Environmental Assessment Worksheet in 2005, the Company is now in the draft Environmental Impact Statement ("EIS") phase of environmental review. The State of Minnesota Department of Natural Resources ("MDNR") is acting as the lead agency for both State and Federal Environmental review.

The Erie Plant

The Erie Plant and associated infrastructure was built by a consortium of steel companies in the mid-1950's for approximately $350 million (dollars of the day). It was one of the largest capital projects ever undertaken in the US at that time. The plant was built to process low-grade iron ore (taconite) and was subsequently acquired by LTV Steel and operated by Cleveland Cliffs, Inc. ("Cliffs"). It operated continuously until January 2001, processing approximately 100,000 tons of taconite per day. With LTV's second bankruptcy, the plant was shut down in January 2001 and ownership was ultimately transferred to Cliffs. Cliffs sought a new use for the plant but, by late 2003, would have been faced with having to start demolition. PolyMet's acquisition of an exclusive option to buy key parts of the plant, subsequently expanded, enabled Cliffs to defer site reclamation.

PolyMet initially planned to operate the plant at 27,500 short tons per day, although its permit application allowed for expansion to 32,000 tons per day. In early 2006, PolyMet decided to complete its DFS on the basis of a 32,000 ton per day initial production rate. Even at this rate, PolyMet will only be using less than one-third of the historic plant capacity. The acquisition of the Erie Plant reduces the amount of investment and time required to build a similar facility. This acquisition provides most of the heavy equipment required for production.

Project Description

Cautionary note to U.S. investors: the terms "measured and indicated resource", "mineral resource", and "inferred mineral resource" are Canadian geological and mining terms as defined in accordance with National Instrument 43-101, Standards of Disclosure for Mineral Projects ("NI 43-101") under the guidelines set out in the Canadian Institute of Mining, Metallurgy and Petroleum (the "CIM") Standards on Mineral Resources and Mineral Reserves. We advise U.S. investors that while such terms are recognized and required under Canadian regulations, the United States Securities & Exchange Commission ("SEC") does not recognize these terms. Mineral Resources do not have demonstrated economic viability.

It cannot be assumed that all or any part of a Mineral Resource will ever be upgraded to Reserves. Under Canadian rules, estimates of inferred mineral resources may not form the basis of or be included in feasibility or other studies. U.S. investors are cautioned not to assume that any part of an inferred mineral resource exists, or is economically or legally mineable.

U.S. investors are urged to consider closely the disclosure in our Form 20-F which you can review and obtain a copy of these filings from the SEC's website at: www.sec.gov/sedgar.shtml

PolyMet holds a 100% leasehold interest in the NorthMet property, which it leases from a private real estate company, RGGS by making annual advance royalty payments of $150,000 per annum or a sliding scale royalty of 3% on the net revenues from the sale of metals and metal products.

A total of 286,000 feet of drilling has been conducted on the NorthMet Project. The NorthMet deposit is one of the largest known, undeveloped non-ferrous metal projects in the world. It is a polymetallic magmatic sulfide deposit containing primarily copper, nickel and PGM's, hosted near the base of the Duluth Mafic Complex.

With publication of the DFS in September 2006, summarized in a Technical Report under NI 43-101, PolyMet established SEC-standard mineral reserves. Proven and probable mineral reserves were estimated at 181.7 million short tons grading 0.31% copper, 0.09% nickel, and 0.01 ounces per ton ("opt") of precious metals. In September 2007, PolyMet reported an expansion in these proven and probable mineral reserves to 274.7 million short tons grading 0.28% copper, 0.08% nickel, and 0.01 opt of precious metals (palladium, platinum and gold).

These reserves, which represent only 43% of the measured and indicated mineral resources, are based on copper at $1.25 per pound, nickel at $5.60 per pound, and precious metal prices of $210, $800, and $400 per ounce respectively for palladium, platinum and gold. These assumptions are much lower than the U.S. Securities and Exchange Commission's ("SEC") standard for reserve estimation, which are, in turn, much lower than recent metal prices.

The reserves lie within measured and indicated mineral resources that were expanded to 638.2 million tons grading 0.27% copper, 0.08% nickel and 0.01 opt of precious metals (palladium, platinum and gold). In addition, inferred mineral resources total of 251.6 million tons grading 0.28% copper, 0.08% nickel, and 0.01 opt of precious metals. Mineral resources are not reserves and do not have demonstrated economic viability.

The final operational mine plan will be completed in parallel with the final stages of the permitting process. This plan will include the results from a highly selective drill campaign focused on converting resources into proven and probable reserves as well as completion of pit optimization that is expected to reduce the amount of waste material to be mined within the 20-year permit, reduce the unit costs per ton of rock mined, and may enhance the grade to be mined.

Environmental Review

PolyMet has already spent $15 million on permitting and environmental work. The Minnesota Department of Natural Resources is the lead state agency involved in all aspects of mine-related permitting while the Federal government's role in the EIS preparation is lead by the U.S. Army Corps of Engineers. The State of Minnesota has engaged Environmental Resource Management and Knight Piesold to assist in the completion of the EIS.

The MDNR is on track to complete the draft EIS by the end of June 2008, after which it will be formally published in the Federal Register and State EQB Monitor. Completion of the draft EIS will be the culmination of a multi-year effort involving PolyMet, PolyMet's consultants, multiple governmental agencies and an independent EIS contractor. In addition to providing a detailed project description, PolyMet has submitted more than 100 detailed technical reports to assist those preparing the EIS to assess the environmental impacts of the Project and to explore and evaluate the environmental impact of alternative approaches.

Once the draft EIS is published, non-government organizations, government agencies, and the public will have an opportunity to comment during a 30-day state and parallel 45-day federal public comment period. The final EIS will incorporate analysis and appropriate responses to comments, a process that can take several months. Once the EIS receives a declaration of "adequacy" from the State and a "record of decision" from the Federal government, the various permits required for construction and operation can be issued. It should be noted that the government agencies that are involved in preparing the EIS are the same agencies that will be responsible for preparing the permits that PolyMet will need before the Company can commence construction.

DFS Update

On May 20, 2008 PolyMet reported revised plans and cost estimates for construction and operating costs. The revised plan includes:

• the sale of concentrate during the construction and commissioning of new metallurgical facilities resulting in a shorter pre-production construction period (under twelve months) and reduced capital costs prior to first revenues ($312 million versus $380 million);
• higher metal prices more than offset higher capital and operating costs, which include substantial additional environmental protection measures, and
• mine plans (based on copper at $1.25 per pound) reflect the increase in reserves and decrease in stripping ratio reported on September 26, 2007, the use of 240-ton trucks, and owner versus contract mine operations.

On May 20, 2008, PolyMet updated its DFS capital and operating cost estimates, reporting that on a like-for-like basis, the total capital cost had increased by 36% to $516.8 million. The increase reflects both cost inflation and design scope changes since the DFS, including facilities needed to ship concentrate during the construction and commissioning of the new hydrometallurigcal plant.

In addition to this $516.8 million, the Company is anticipating $85.1 million of expenditures on measures to protect the environment, over and above the measures contemplated in the DFS. $76.6 million for mining equipment that was assumed to be provided by a mining contract in the DFS has been incorporated as an operating lease in updated operating costs.

The decision to sell concentrate during the construction and commissioning of new metallurgical facilities shortens the initial construction period, makes the project less sensitive to the delivery schedule for long lead time equipment such as autoclave vessels, and means that PolyMet can commence operations of the mine, the existing crushing and milling plant, the existing tailings disposal facilities, and the new flotation circuit, before starting the new hydrometallurgical plant.

As a result of the staged approach, the total capital required prior to initial production and sales declines to $312.3 million, which includes $64.7 million of additional environmental safeguards for this level of activity.

The economic mine model also includes a total working capital requirement of approximately $40 million.

Base Case Assumptions

Economic modeling assumes prices of $2.90/lb for copper, $12.20/lb for nickel and $320, $1,230, and $635 per ounce respectively for palladium, platinum and gold. These prices are the three-year trailing average price at the end of April, 2008.

These prices are significantly lower than recent prices (average in the first quarter of 2009) of $3.52/lb for copper, $13.09/lb for nickel, and $441, $1,867 and $925 per ounce respectively for palladium, platinum, and gold.

Operating Costs

During the first five years of full-scale production, cash costs of production (excluding amortization of capital) on a co-product basis (allocating costs to each metal according to its contribution to revenue) are projected at $1.05/lb for copper, $4.57/lb for nickel, and $158, $632, and $316 per ounce respectively for palladium, platinum, and gold.

Alternatively, using the by-product method whereby revenues from other metals are offset against costs of a primary metal, the five-year average cash cost of copper would be minus $0.25/lb.

Looked at another way, the operating margin is expected to be in excess of 60% on the Base Case.

Robust Economics

The mine model is constrained to a twenty-year project life processing 32,000 tons of ore per day. This is the scale of project reviewed in the environmental assessments and forms the basis of PolyMet's permit applications. It is possible that the Company may seek permits to expand operations at some point in the future - the Erie plant has capacity in excess of 32,000 tons per day and the proven and probable mineral reserves exceed the amount of material planned to be mined.

After state and federal taxes, the Base Case rate of return is 30.6% and the present value of the future cash flow discounted at 7.5% per annum is $649.4 million. During the first five years of full-scale operation, annual EBITDA ("Earnings Before Interest, Taxation, Depreciation, and Amortization", or operating cash flow) is projected to average $217.3 million.

A 20% change in the copper or nickel price would increase or decrease average annual EBITDA during the first five years of full-scale operation by $18.6 million and $13.3 million respectively and a 10% change in all of the precious metal prices (palladium, platinum, and gold) would increase or decrease the five-year average annual EBITDA by $3.7 million.

Toward Construction

With completion of the DFS, PolyMet commenced planning for construction subject to receipt of operating permits.

PolyMet has already transitioned into the detailed engineering and procurement planning phase in preparation for the start of construction. This includes detailed planning for the construction phase, commencement of detailed design work, and scheduling long lead-time equipment.

The DFS environmental and operational review is being incorporated into the EIS. The draft EIS is anticipated to be published around the end of the 2nd quarter 2008, with a 30-day state and parallel 45-day federal public comment period to follow. Publication of the final EIS is anticipated in teh 4th quarter of 2008 with operating permits expected shortly thereafter.

Offtake Contracts

PolyMet is in advanced discussions with prospective buyers of its concentrates and the nickel and cobalt-hydroxides and the precious metals precipitate.

Construction Schedule and Start-Up

PolyMet plans to construct the project in two stages:

• building the mine, upgrading the existing plant facilities and constructing new flotation facilities in order to be able to produce concentrates, and
• construction and commissioning of a new hydrometallurgical plant.

Production Financing

PolyMet engaged BNP Paribas in November 2006 as lead financial advisor to assist it in securing production financing in the least dilutive manner.

Key Data and Economic Analysis

		Update May-08	DFS Sep-06
Operating plan
Proven and probable reserves	million t	274.7	181.7
Ore mined - life of operation	million t	224.0	181.7
Overburden removed (capitalized under site preparation)	million t	18.5	-
Waste	million t	285.3	302.3
Operating costs per ton processed
Mining and delivery to plant	$/t	4.31	3.80
Processing	$/t	8.07	6.75
G&A	$/t	0.94	0.46
Total	$/t	13.33	11.02
Metal price assumptions (SEC-standard)
Copper	$/lb	2.90	2.25
Nickel	$/lb	12.20	7.80
Cobalt	$/lb	23.50	16.34
Palladium	$/oz	320	274
Platinum	$/oz	1,230	1,040
Gold	$/oz	635	540
Economic summary
Annual earnings before interest, tax, deprecation and amortization
(EBITDA) - average first five years	$ million	18.6	15.7
Net present value of future after tax cash flow discounted at 7.5%	$ million	649.4	595.4
Internal rate of return (after tax)		30.6%	26.7%
Sensitivity: 10%± price = $? million in EBITDA
Copper	$ million	18.6	15.7
Nickel	$ million	13.3	9.3
Cobalt	$ million	0.9	0.9
Palladium	$ million	1.7	2.0
Platinum	$ million	1.7	2.1
Gold	$ million	0.3	0.5
Copper costs
cash - co-product method	$/lb	1.05	0.81
cash - by-product method	$/lb	(0.28)	0.06