UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 40-F

REGISTRATION STATEMENT PURSUANT TO SECTION 12 OF THE SECURITIES EXCHANGE ACT OF 1934

OR

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

For the fiscal year ended December 31, 2018  
Commission file number 001-32929

POLYMET MINING CORP.
(Exact name of Registrant as specified in its charter)

British Columbia, Canada
(Province or other jurisdiction of incorporation or organization)

1000
(Primary Standard Industrial Classification Code)

84-1461363
(I.R.S. Employer Identification No.)

Suite 5700 – 100 King Street West,
Toronto, Ontario, Canada M5X 1C7
416-915-4149
(Address and telephone number of Registrant’s principal executive offices)

Patrick Keenan
c/o Poly Met Mining, Inc.
444 Cedar Street, Suite 2060
St Paul, Minnesota 55101
651-389-4100
(Name, address (including zip code), and telephone number
(including area code) of agent for service in the United States )

Securities registered or to be registered pursuant to Section 12(b) of the Act:

Title of each class
Name of each exchange on which registered
Common Shares, without par value
NYSE American and TSX
 
 

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

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

For annual reports, indicate by check mark the information filed with this form.
Annual Information Form
Audited Annual Financial Statements


Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the annual report.   321,190,069

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes       No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Date File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  
Yes       No
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 12b-2 of the Exchange Act.
            Emerging growth company

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  


EXPLANATORY NOTE

PolyMet Mining Corp. (the “Company” or “PolyMet”) is a Canadian issuer eligible to file its Annual Report pursuant to Section 13 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), on Form 40-F pursuant to the multi-jurisdictional disclosure system of the Exchange Act. The Company is a “foreign private issuer” as defined in Rule 3b-4 under the Exchange Act. Equity securities of the Company are accordingly exempt from Sections 14(a), 14(b), 14(c), 14(f) and 16 of the Exchange Act pursuant to Rule 3a12-3.


FORWARD-LOOKING STATEMENTS

This Annual Report on Form 40-F (this “Annual Report”) contains statements that constitute "forward-looking statements" within the meaning of Section 27A of the Securities Exchange Act of 1934 and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements appear in a number of different places in this Annual Report and can be identified by words such as "expects", “anticipates”, "believes", "intends", "estimates", “potential”, “possible”, "projects", "plans", and similar expressions, or statements that events, conditions or results “will”, “may”, “could”, or “should” occur or be achieved or their negatives or other comparable words.  Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements that may be expressed or implied by such forward-looking statements. The statements are inherently subject to a variety of risks and uncertainties that could cause actual results, performance or achievements to differ significantly. Forward-looking statements include statements regarding the outlook for our future operations, plans and timing for our exploration and development programs, statements about future market conditions, supply and demand conditions, forecasts of future costs and expenditures, the outcome of legal proceedings, and other expectations, intentions and plans that are not historical fact.  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:

-
ability to obtain and maintain permits;
-
ability to raise the funds necessary to develop the NorthMet Project and continue operations;
-
ability to execute prospective business plans;
-
ability to comply with applicable government regulations and standards;
-
changes in the general economic and business conditions, including changes in interest rates and exchange rates;
-
changes in the resources market, including prices of natural resources, costs associated with mineral exploration and development, and other economic conditions;
-
natural phenomena;
-
actions by government authorities, including changes in government regulation;
-
uncertainties associated with legal proceedings; and
-
other factors, many of which are beyond the Company’s control.

All forward-looking statements included in this Annual Report are based on information available to us on the date of this Annual Report.  We expressly disclaim any obligation to update publicly or otherwise these statements, whether as a result of new information, future events or otherwise except to the extent required by law, rule or regulation.  You should not place undue reliance on forward-looking statements. You should carefully review the cautionary statements and risk factors contained in this and other documents that we file from time to time with the United States Securities and Exchange Commission (the “SEC”).
2


NOTE TO UNITED STATES READERS REGARDING  
DIFFERENCES IN UNITED STATES AND CANADIAN REPORTING PRACTICES
 
The Company is permitted, under the multi-jurisdictional disclosure system adopted by the SEC, to prepare this Annual Report on Form 40-F in accordance with Canadian disclosure requirements, which differ from those of the United States. The Company has prepared its financial statements, which are filed as Exhibit 99.2 to this Annual Report on Form 40-F, in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). The Company’s financial statements may not be comparable to financial statements of other United States companies. Since the Company has prepared its financial statements in accordance with IFRS as issued by the IASB, it is not required to provide a reconciliation to United States generally accepted accounting principles.
 

NOTE TO UNITED STATES READERS REGARDING
RESOURCE AND RESERVE ESTIMATES
 
The Company’s Annual Information Form for the year ended December 31, 2018 filed as Exhibit 99.1 to this Annual Report on Form 40-F and management’s discussion and analysis for the year ended December 31, 2018 filed as Exhibit 99.3 to this Annual Report on Form 40-F have been prepared in accordance with the requirements of the securities laws in effect in Canada, which differ from the requirements of United States securities laws. The terms “mineral reserve”, “proven mineral reserve” and “probable mineral reserve” are Canadian mining terms as defined in accordance with Canadian National Instrument 43-101 – Standards of Disclosure for Mineral Projects (“NI 43-101”) and the Canadian Institute of Mining, Metallurgy and Petroleum (the “CIM”) - CIM Definition Standards on Mineral Resources and Mineral Reserves , adopted by the CIM Council, as amended. These definitions differ materially from the definitions in SEC Industry Guide 7 under the United States Securities Act of 1933, as amended. Under SEC Industry Guide 7 standards, mineralization cannot be classified as a “reserve” unless the determination has been made that the mineralization could be economically and legally extracted at the time the reserve determination is made. As applied under SEC Industry Guide 7 standards, a “final” or “bankable” feasibility study is required to report reserves, the three-year historical average price is used in any reserve or cash flow analysis to designate reserves, and the primary environmental analysis or report must be filed with the appropriate governmental authority.
 
In addition, the terms “mineral resource”, “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 are normally not permitted to be used in reports and registration statements filed with the SEC. Investors are cautioned not to assume that all or any part of a mineral deposit in these categories will ever be converted into SEC Industry Guide 7 reserves. “Inferred mineral resources” have a great amount of uncertainty as to their existence, and great uncertainty as to their 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, except in rare cases. Investors are cautioned not to assume that all or any part of an inferred mineral resource exists or is economically or legally mineable. Disclosure of “contained ounces” in a resource is permitted disclosure under Canadian regulations; however, the SEC normally only permits issuers to report mineralization that does not constitute “reserves” by SEC Industry Guide 7 standards as in place tonnage and grade without reference to unit measures.
 
Accordingly, information contained in this Annual Report on Form 40-F and the documents incorporated by reference herein that contain descriptions of the Company’s mineral deposits may not be comparable to similar information made by public United States companies subject to the reporting and disclosure requirements under the United States federal securities laws and the rules and regulations thereunder.
3


ANNUAL INFORMATION FORM
 
The Company’s Annual Information Form for the year ended December 31, 2018 is filed as Exhibit 99.1 to this Annual Report on Form 40-F and is incorporated by reference herein.
 

AUDITED ANNUAL FINANCIAL STATEMENTS
 
The audited consolidated financial statements of the Company as at December 31, 2018 and December 31, 2017, and for the twelve months ended December 31, 2018 and the eleven months ended December 31, 2017, including the report of the Company’s independent registered public accounting firm with respect thereto, are filed as Exhibit 99.2 to this Annual Report on Form 40-F and incorporated by reference herein.

 
MANAGEMENT’S DISCUSSION AND ANALYSIS
 
The Company’s management’s discussion and analysis as at December 31, 2018 and December 31, 2017, and for the twelve months ended December 31, 2018 and the eleven months ended December 31, 2017, is filed as Exhibit 99.3 to this Annual Report on Form 40-F and incorporated by reference herein.

 
TAX MATTERS
 
Purchasing, holding, or disposing of securities of the Company may have tax consequences under the laws of the United States and Canada that are not described in this Annual Report on Form 40-F. Holders of the Company’s common shares should consult their own tax advisors regarding the tax consequences of purchasing, holding or disposing of securities of the Company.
 

CONTROLS AND PROCEDURES
 
Evaluation of Disclosure Controls and Procedures

The Company's Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) have evaluated the effectiveness of the Company's disclosure controls and procedures (as such term is defined in Rules 13(a)-15(e) and 15(d)-15(e) under the Exchange Act as of the end of the period covered by this Annual Report (the "Evaluation Date"). Based on such evaluation, such officers have concluded that, as of the Evaluation Date, the Company's disclosure controls and procedures are effective. Such disclosure controls and procedures are designed to ensure that the information required to be disclosed by the Company in reports that it files or submits to the SEC under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in applicable rules and forms, and includes controls and procedures designed to ensure information relating to the Company required to be included in reports filed or submitted under the Exchange Act is accumulated and communicated to the Company’s management to allow timely decision regarding disclosure.

Management's Annual Report on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting.  Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Consolidated Financial Statements for external reporting purposes in accordance with IFRS as issued by IASB.

Internal control over financial reporting, no matter how well designed, has inherent limitations.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
4


Management has assessed the effectiveness of internal controls over financial reporting as at December 31, 2018.  In making its assessment, management has used the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) to evaluate internal controls over financial reporting.  Based on this assessment, management has concluded that the Company’s internal controls over financial reporting was effective as at that date.

Attestation Report of the Registered Public Accounting Firm

The effectiveness of the Company's internal control over financial reporting as at December 31, 2018, has been audited by PricewaterhouseCoopers LLP, the Company’s independent registered public accounting firm, as stated in their report included in Exhibit 99.2 to this Annual Report on Form 40-F.

Changes in Internal Controls

There have been no changes in the Company’s internal control over financial reporting during the period covered by this Annual Report that have materially affected, or is reasonably likely to material affect, the Company’s internal control over financial reporting.


CORPORATE GOVERNANCE
 
The Company is listed on the Toronto Stock Exchange (“TSX”) and is required to describe its practices and policies with regards to corporate governance with specific reference to TSX guidelines by way of an annual corporate governance statement in the Company’s annual report or information circular filed with the appropriate securities regulators in Canada.

The Company is also listed on the NYSE American and additionally complies as necessary with the rules and guidelines of the NYSE American and SEC.

The Company reviews its governance practices on an ongoing basis to ensure it is in compliance with all applicable requirements.
 
The Company’s Board of Directors is responsible for the Company’s Corporate Governance policies and has determined that all the members of the Audit, Compensation, and Nominating & Corporate Governance Committees are independent, based on the criteria for independence and un-relatedness prescribed by the TSX and Section 803A of the NYSE American Company Guide.
 
Compensation Committee
 
Compensation of the Company’s CEO and all other officers is recommended to the Board of Directors for determination by the Compensation Committee. The Compensation Committee develops, reviews and monitors director and executive officer compensation and policies. The Compensation Committee is also responsible for annually reviewing the adequacy of compensation to directors, officers, and other consultants and the composition of compensation packages. The Company’s CEO cannot be present during deliberations or voting on the CEO’s compensation.
 
The Compensation Committee is composed of Alan R. Hodnik, W. Ian L. Forrest, and Dennis Bartlett, each of whom, in the opinion of the Board of Directors, is independent under the rules of the TSX and pursuant to Sections 803A and 805(c)(1) of the NYSE American Company Guide. Stephen Rowland is a non-voting participant.  The Company’s Compensation Committee Charter is available on the Company’s website at www.polymetmining.com.
5

 
Nominating & Corporate Governance Committee
 
Nominees for the election to the Company’s Board of Directors are recommended by the Nominating & Corporate Governance Committee. The Company has adopted a formal written board resolution addressing the nomination process and such related matters as may be required under the rules of the TSX and the NYSE American and any applicable securities laws.
 
The Nominating & Corporate Governance Committee is composed of W. Ian L. Forrest, Dr. David Dreisinger, and Michael M. Sill, each of whom, in the opinion of the Board of Directors, is independent under the rules of the TSX and the NYSE American. Stephen Rowland and Helen Harper are non-voting participants.  The Company’s Nominating and Corporate Governance Committee Charter is available on the Company’s website at www.polymetmining.com.


AUDIT COMMITTEE
 
Composition and Responsibilities
 
The Company’s Board of Directors has a separately designated standing Audit Committee established in accordance with Section 3(a)(58)(A) of the Exchange Act and Section 803B of the NYSE American Company Guide. During the  year ended December 31, 2018, the Company’s Audit Committee was composed of Michael M. Sill, Dr. David Dreisinger, and W. Ian L. Forrest, each of whom, in the opinion of the Company’s Board of Directors, is independent as determined under the rules of the TSX and Rule 10A-3 of the Exchange Act, Section 803A of the NYSE American Company Guide and each of whom is financially literate.  Helen Harper is a non-voting participant. The Audit Committee meets the composition requirements set forth by Section 803B(2) of NYSE American Company Guide.
 
The members of the Audit Committee do not have fixed terms and are appointed and replaced from time to time by the Board of Directors.
 
The Audit Committee meets four times a year, at a minimum, and has access to all officers, management and employees of the Company and may engage advisors or counsel as deemed necessary to perform its duties and responsibilities as a committee.

The Audit Committee meets with the Company’s President and CEO, the Company’s CFO, and the Company’s independent auditors to review and inquire into matters affecting financial reporting, the system of internal accounting and financial controls, and the Company’s audit procedures and audit plans. The Audit Committee also recommends to the Board of Directors the independent auditors to be appointed for each year. In addition, the Audit Committee reviews and recommends to the Board of Directors for approval the annual and quarterly financial statements and management’s discussion and analysis. Finally, the Audit Committee undertakes other activities as required by the rules and regulations of the TSX and the NYSE American and other governing regulatory authorities.
 
The full text of the Audit Committee Charter is set forth in the Company’s Annual Information Form incorporated by reference in this Annual Report on Form 40-F.
 
Audit Committee Financial Expert
 
During the fiscal year ended December 31, 2018, the Board of Directors determined that W. Ian L. Forrest qualified as the Audit Committee’s “financial expert,” as defined in Item 407(d)(5)(ii) of Regulation S-K under the Exchange Act and was “financially sophisticated” as determined under Section 803(B)(2)(iii) of the NYSE American Company Guide.
6

 
Mr. Forrest qualifies as a financial expert and is financially sophisticated, in that he has an understanding of generally accepted accounting principles and financial statements; is able to assess the general application of accounting principles in connection with the accounting for estimates, accruals and reserves; has experience analyzing or evaluating financial statements that entail accounting issues of equal complexity to the Company's financial statements (or actively supervising another person who did so); and has a general understanding of internal controls and procedures for financial reporting and an understanding of audit committee functions.
 

PRINCIPAL ACCOUNTING FEES AND SERVICES – INDEPENDENT AUDITORS
 
The required disclosure is included under the heading “Audit Committee – External Auditor Service Fees” in the Company’s Annual Information Form incorporated by reference in this Annual Report on Form 40-F.


PRE-APPROVAL POLICIES AND PROCEDURES

The required disclosure is included under the heading “Audit Committee – Pre-Approval Policies and Procedures” in the Company’s Annual Information Form incorporated by reference in this Annual Report on Form 40-F.

OFF-BALANCE SHEET TRANSACTIONS

The Company does not have any off-balance sheet financing arrangements or relationships with unconsolidated special purpose entities.

CODE OF ETHICS

The Company has adopted a Code of Ethics, effective April 5, 2006, which applies to all employees, including directors and executive officers, including principal executive, financial and accounting officers, and persons performing similar functions.  The Code of Ethics covers areas of professional and business conduct, and is intended to promote honest and ethical behavior, including fair dealing and the ethical handling of conflicts of interest, support full, fair, accurate, and timely disclosure in reports and documents filed with, or submitted to, the SEC and other governmental authorities, and in its other public communications; deter wrongdoing; encourage compliance with applicable laws, rules, and regulations; and to ensure the protection of legitimate business interests.  The Company also encourages directors, officers, employees and consultants to promptly report any violations of the Code of Ethics.  All amendments to the Code of Ethics, and all waivers of the Code of Ethics with respect to any of the employees, officers or directors covered by it, will be posted on the Company’s website, submitted on Form 6-K and provided in print to any shareholder who requests them. A copy of the Code of Ethics is available on the Company’s website, www.polymetmining.com . A copy of the Code of Ethics is also available to shareholders by contacting the Corporate Secretary at PolyMet Mining Corp., First Canadian Place, 100 King Street West, Suite 5700, Toronto, Ontario M5X 1C7 or by e-mail at info@polymetmining.com .
7


CONTRACTUAL OBLIGATIONS

The following table lists information as at December 31, 2018 with respect to known contractual obligations and environmental rehabilitation provision:

Contractual Obligations
(in 000’s)
 
Carrying
Value
   
Contractual
Cash Flows
   
Less than 1
year
   
1 – 3 years
   
3 – 5 years
   
More than 5
years
 
Accounts payable and accruals
 
$
4,013
   
$
4,013
   
$
4,013
   
$
-
   
$
-
   
$
-
 
Convertible debt
   
56,984
     
58,077
     
58,077
     
-
     
-
     
-
 
Non-convertible debt
   
178,483
     
184,698
     
184,698
     
-
     
-
     
-
 
Environmental rehabilitation provision
   
61,107
     
97,992
     
1,693
     
14,315
     
9,733
     
72,251
 
Firm Commitments
   
-
     
16,413
     
388
     
25
     
4,000
     
12,000
 
    Total
 
$
300,587
   
$
361,193
   
$
248,869
   
$
14,340
   
$
13,733
   
$
84,251
 

As discussed more fully in the exhibits, the convertible debt and non-convertible debt were both extended to provide the Company time to prepare for and complete a fully backstopped rights offering by June 30, 2019 to raise sufficient funds to repay all outstanding debt.


NOTICES PURSUANT TO REGULATION BTR
 
There were no notices required by Rule 104 of Regulation BTR that the Registrant sent during the fiscal year ended December 31, 2018 concerning any equity security subject to a blackout period under Rule 101 of Regulation BTR.

NYSE AMERICAN CORPORATE GOVERNANCE
The Company’s common shares are listed on the NYSE American under the trading symbol “PLM”. Section 110 of the NYSE American Company Guide permits the NYSE American to consider the laws, customs and practices of foreign issuers in relaxing certain NYSE American listing criteria, and to grant exemptions from NYSE American listing criteria based on these considerations .   A description of the significant ways in which the Corporation’s governance practices differ from those followed by domestic companies pursuant to NYSE American standards is as follows:
Shareholder Approval Requirements: NYSE American requires a listed company to obtain the approval of its shareholders for certain types of securities issuances, including the issuance of common shares of the Company to directors of the Company in a private placement transaction at a price per Unit that is less than the market value of the common shares of the Company on the date of the definitive agreement of the offering. The Company sought and received a waiver from NYSE American ’s shareholder approval requirements in circumstances where the securities issuance does not trigger such a requirement under the rules of the TSX.
In addition, the Company may from time-to-time seek relief from NYSE American corporate governance requirements on specific transactions under Section 110 of the NYSE American Company Guide by providing written certification from independent local counsel that the non-complying practice is not prohibited by the Company’s home-country law, in which case, the Company shall make the disclosure of such transactions available on its website at www.polymetmining.com. Information contained on the website of the Company is not part of this Annual Report on Form 40-F.
8


MINE SAFETY DISCLOSURE

Pursuant to Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank Act”), issuers that are operators, or that have a subsidiary that is an operator, of a coal or other mine in the United States are required to disclose in their periodic reports filed with the SEC information regarding specified health and safety violations, orders and citations, related assessments and legal actions, and mining-related fatalities under the regulation of the Federal Mine Safety and Health Administration (“MSHA”) under the Federal Mine Safety and Health Act of 1977 (“Mine Act”). This required information is filed as Exhibit 99.4 to this Annual Report filed on Form 40-F.


DISCLOSURE PURSUANT TO SECTION 219 OF THE IRAN THREAT
REDUCTION & SYRIA HUMAN RIGHTS ACT
Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012 (“ITRA”), effective August 10, 2012, added a new subsection (r) to Section 13 of the Exchange Act, which requires issuers that file periodic reports with the SEC to disclose in their annual and quarterly reports whether, during the reporting period, they or any of their “affiliates” (as defined in Rule 12b-2 under the Exchange Act) have knowingly engaged in specified activities or transactions relating to Iran, including activities not prohibited by U.S. law and conducted outside the U.S. by non-U.S. affiliates in compliance with applicable laws.   Issuers must also file a notice with the SEC if any disclosable activity under ITRA has been included in an annual or quarterly report.
Because the SEC defines the term “affiliate” broadly, our largest shareholder may be considered an affiliate of the Company despite the fact that the Company has no control over its largest shareholder’s actions or the actions of its affiliates.  As such, pursuant to Section 13(r)(1)(D)(iii) of the Exchange Act, the Company hereby discloses the following information provided by our largest shareholder regarding transactions or dealings with entities controlled by the Government of Iran (“the GOI”):
During January 1, 2018 until December 31, 2018, a non-U.S. affiliate of the largest shareholder of the Company (“the non-U.S. Shareholder Affiliate”) entered into sales and purchase contracts for agricultural products, metals, minerals and energy products with, or for delivery to or from Iranian entities wholly or majority owned by the GOI.  The non-U.S. Shareholder Affiliate performed its obligations under the contracts in compliance with applicable sanctions laws and, where required, with the necessary prior approvals by the relevant governmental authorities.
  
The gross revenue of the non-U.S Shareholder Affiliate related to these contracts did not exceed the value of USD $1.049 billion for the twelve months ended December 31, 2018.

The non-U.S. Shareholder Affiliate does not allocate net profit on a country-by-country or activity-by-activity basis, but estimates that the net profit attributable to the contracts would not exceed a small fraction of the gross revenue from such contracts. It is not possible to determine accurately the precise net profit attributable to such contracts.

The contracts disclosed above do not violate applicable sanctions laws administered by the U.S. Department of the Treasury, Office of Foreign Assets Control, and are not the subject of any enforcement action under Iran sanction laws.

In response to the re-imposition of certain US secondary sanctions, the non-U.S. Shareholder Affiliate wound down such activities to the extent necessary to avoid any sanctionable activity after such sanctions took effect.

Neither the Company nor any of its subsidiaries (i) engaged in any transactions or activities requiring disclosure under ITRA nor (ii) were involved in the transactions described in this section. As of the date of this report, the Company is not aware of any other activity, transaction or dealing by us or any of its affiliates during the fiscal year ended December 31, 2018 that requires disclosure in this report under Section 13(r) of the Exchange Act.
9


UNDERTAKING
 
The Company undertakes to make available, in person or by telephone, representatives to respond to inquiries made by the Commission staff, and to furnish promptly, when requested to do so by the Commission staff, information relating to: the securities registered pursuant to Form 40-F; the securities in relation to which the obligation to file an Annual Report on Form 40-F arises; or transactions in said securities.
 

CONSENT TO SERVICE OF PROCESS
 
The Registrant has filed a Form F-X with respect to the class of securities in relation to which the obligation to file this Annual Report on Form 40-F arises. Any change to the name or address of the agent for service of process of the Registrant will be communicated promptly to the SEC by amendment to Form F-X referencing the file number of the Registrant.
 

WEBSITE INFORMATION

Notwithstanding any reference to PolyMet’s website or other websites in the documents attached as Exhibits hereto, the information contained in PolyMet’s website or any other site in the documents attached as Exhibits hereto, or referred to in PolyMet’s website, is not a part of this Annual Report on Form 40-F and, therefore, is not filed with the SEC.
10


EXHIBIT INDEX

The following exhibits have been filed as part of this Annual Report on Form 40-F:

EXHIBITS
99.1
99.2
99.3
99.4

CERTIFICATIONS
99.5
99.6
99.7

CONSENTS
99.8
99.9
99.10
99.11
99.12
99.13
99.14
99.15
99.16
99.17 Consent of Technical Report Author – Jeff S. Ubl
 

11


SIGNATURES

Pursuant to the requirements of the Exchange Act, the Registrant certifies that it meets all of the requirements for filing on Form 40-F and has duly caused this Annual Report to be signed on its behalf by the undersigned, thereto duly authorized.

Dated: March 28, 2019

 
POLYMET MINING CORP.
 
 
 
 
/s/ Jonathan Cherry
 
Name:
Jonathan Cherry
 
Title:
Chief Executive Officer


12
Exhibit 99.1











ANNUAL INFORMATION FORM

FOR THE YEAR ENDED DECEMBER 31, 2018

of

POLYMET MINING CORP.
(the “Company” or “PolyMet”)

March 28, 2019



Suite 5700 – 100 King Street West,
Toronto, Ontario
M5X 1C7
Tel: 416-915-4149
Fax: 416-915-4189
Website:  www.polymetmining.com




TABLE OF CONTENTS
1.
INTRODUCTORY NOTES
 1
2.
CORPORATE STRUCTURE
 3
3.
GENERAL DEVELOPMENT OF THE BUSINESS
 3
4.
DESCRIPTION OF THE BUSINESS
 6
5.
RISK FACTORS
 38
6.
DIVIDENDS
 45
7.
CAPITAL STRUCTURE
 45
8.
MARKET FOR SECURITIES
 46
9.
SECURITIES NOT LISTED OR QUOTED
 46
10.
DIRECTORS AND OFFICERS
 47
11.
LEGAL PROCEEDINGS AND REGULATORY ACTIONS
 48
12.
INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS
 49
13.
TRANSFER AGENT AND REGISTRAR
 49
14.
MATERIAL CONTRACTS
 49
15.
INTEREST OF EXPERTS
 49
16.
AUDIT COMMITTEE
 50
17.
ADDITIONAL INFORMATION
 52
SCHEDULE A.  AUDIT COMMITTEE CHARTER
 53





1.
Introductory Notes

In this Annual Information Form (“AIF”) “PolyMet” or the “Company” refers to PolyMet Mining Corp. and its subsidiaries (unless the context otherwise dictates).  All information contained herein is as at March 28, 2019 unless otherwise indicated, other than certain financial information which is as at December 31, 2018, being the date of the Company’s most recently audited financial year end.  All dollar amounts in this AIF are expressed in United States (“U.S.”) dollars, the functional and reporting currency of the Company, unless otherwise indicated.

On December 7, 2017, the Board of Directors approved a resolution to change the year end from January 31 to December 31.

Additional information related to the Company is available for view on the System for Electronic Document Analysis and Retrieval (“SEDAR”) and EDGAR at www.sedar.com and at www.sec.gov, respectively, and on the Company’s website www.polymetmining.com.


Cautionary Statement Regarding Forward-Looking Statements

This AIF contains “forward-looking statements”.  Within the meaning of applicable Canadian securities legislation and Section 27A of the United States Securities Act of 1933 and Section 21E of the United States Securities Exchange Act of 1934, forward-looking statements are not, and cannot be, a guarantee of future results or events. Forward looking statements are based on, among other things, opinions, assumptions, estimates and analyses that are subject to significant risks, uncertainties, contingencies and other factors that may cause actual results and events to be materially different from those expressed or implied by the forward-looking statement. All statements in this AIF that address events or developments that PolyMet expects to occur in the future are forward-looking statements and are generally, although not always, identified by words such as “expect”, “plan”, “anticipate”, “project”, “target”, “potential”, “schedule”, “forecast”, “budget”, “estimate”, “intend” or “believe” and similar expressions or their negative connotations, or that events or conditions “will”, “would”, “may”, “could”, “should” or “might” occur. These forward-looking statements include, but are not limited to, PolyMet’s objectives, strategies, intentions, expectations, production, costs, capital and exploration expenditures, including an estimated economics of future financial and operating performance and prospects for the possible expansion of the operation based on a PEA-level study and a ramp-up evaluation representing production growth and improved margins mine, life projections, recovery rate and concentrate grade projections, ability to obtain all necessary environmental and government approvals to completion and if undertaking an expansion case, ability to obtain at all, the viability and all information with respect to the ability to develop the Project to additional potential by mining additional resources beyond the permit design at a higher production rate. Prior to any decision to apply for permits to develop the project further, PolyMet would need to complete preliminary and definitive feasibility studies, as well as an analysis of the environmental impact and alternatives of any proposal.  In addition, any future proposal would be subject to environmental review and permits, public notice and comment, and approval by appropriate federal and state agencies. All forward-looking statements in this AIF are qualified by this cautionary note.

The material factors or assumptions that PolyMet has identified and were applied by PolyMet in drawing the conclusions or making forecasts or projections set in the forward-looking statements include, but are not limited to:

various economic assumptions, in particular, metal price estimates, set out in this AIF and elsewhere;
certain operational assumptions set out in the AIF, including mill recovery, operating scenarios;
construction schedules and timing issues; and
assumptions concerning timing and certainty regarding the environmental review and permitting process.

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The risks, uncertainties, contingencies and other factors that may cause actual results and events to differ materially from those expressed or implied by the forward-looking statement may include, but are not limited to, risks generally associated with the mining industry, such as: economic factors (including future commodity prices, currency fluctuations, inflation rates, energy prices and general cost escalation); uncertainties related to the development of the NorthMet Project; dependence on key personnel and employee relations; risks relating to political and social unrest or change, operational risk and hazards, including unanticipated environmental, industrial and geological events and developments and the inability to insure against all risks; failure of plant, equipment, processes, transposition and other infrastructure to operate as anticipated; compliance with governmental and environmental regulations, including permitting requirements; etc., as well as other factors identified and as described in more detail under the heading “Risk Factors” in Item 5. The list is not exhaustive of the factors that may affect the forward-looking statements. There can be no assurance that such statements will prove to be accurate, and actual results, performance or achievements could differ materially from those expressed in, or implied by, these forward-looking statements. Accordingly, no assurance can be given that any events anticipated by the forward-looking statements will transpire or occur, or if any of them do, what benefits or liabilities PolyMet will derive therefrom. The forward-looking statements reflect the current expectations regarding future events and operating performance and speak only as of the date hereof and PolyMet does not assume any obligation to update the forward-looking statements if circumstances or management’s beliefs, expectations or opinions should change other than as required by applicable law. For the reasons set forth above, undue reliance should not be placed on forward-looking statements .


Cautionary Note to U.S. Investors – Information Concerning Preparation of Resource Estimates

This AIF has been prepared in accordance with the requirements of the securities laws in effect in Canada, which differ from the requirements of United States securities laws.  The terms “mineral reserve”, “proven mineral reserve” and “probable mineral reserve” are Canadian mining terms as defined in accordance with Canadian National Instrument 43-101 – Standards of Disclosure for Mineral Projects (“NI  43-101”) and the Canadian Institute of Mining, Metallurgy and Petroleum (“CIM”) – CIM Definition Standards on Mineral Resources and Mineral Reserves, adopted by the CIM Council, as amended. These definitions differ materially from the definitions in the United States Securities and Exchange Commission’s (“SEC”) Industry Guide 7 under the United States Securities Act of 1933, as amended. Under SEC Industry Guide 7 standards, mineralization cannot be classified as a “reserve” unless the determination has been made that the mineralization could be economically and legally extracted at the time the reserve determination is made. As applied under SEC Industry Guide 7, a “final” or “bankable” feasibility study is required to report reserves, the three-year historical average price is used in any reserve or cash flow analysis to designate reserves, and the primary environmental analysis or report must be filed with the appropriate governmental authority.

In addition, the terms “mineral resource”, “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 are normally not permitted to be used in reports and registration statements filed with the SEC. Investors are cautioned not to assume that all or any part of a mineral deposit in these categories will ever be converted into SEC Industry Guide 7 reserves. “Inferred mineral resources” have a great amount of uncertainty as to their existence, and great uncertainty as to their 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, except in rare cases. Investors are cautioned not to assume that all or any part of an inferred mineral resource exists or is economically or legally mineable. Disclosure of “contained metal” in a resource is permitted disclosure under Canadian regulations; however, the SEC normally only permits issuers to report mineralization that does not constitute “reserves” by SEC Industry Guide 7 standards as in place tonnage and grade without reference to unit measures.

Accordingly, information concerning mineral deposits contained in this AIF may not be comparable to similar information made by public U.S. companies subject to the reporting and disclosure requirements under the United States federal securities laws and the rules and regulations thereunder.

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Qualified Persons Under NI 43-101
Except where specifically indicated otherwise, the disclosure in this AIF of scientific and technical information regarding PolyMet’s mineral properties has been reviewed and approved by the following persons who are Qualified Persons as defined by NI 43-101:

Zachary J. Black, SME-RM, of Hard Rock Consulting, of Lakewood, CO;
Jennifer J. Brown, P.G., of Hard Rock Consulting, of Lakewood, CO;
Nicholas Dempers, Pr. Eng., SAIMM, of Senet, of South Africa;
Thomas L. Drielick, P.E., of M3 Engineering, of Tucson, AZ;
Art S. Ibrado, P.E., of M3 Engineering., of Tucson, AZ;
Erin L. Patterson, P.E., of M3 Engineering., of Tucson, AZ;
Thomas J. Radue, P.E., of Barr Engineering, of Minneapolis, MN;
Jeff S. Ubl, P.E., of Barr Engineering, of Minneapolis, MN; and
Herbert E. Welhener, SME-RM, Independent Mining Consultants, of Tucson, AZ.


2.
Corporate Structure

PolyMet Mining Corp. was incorporated under the Business Corporations Act (British Columbia) on March 4, 1981 under the name Fleck Resources Ltd. and changed its name to PolyMet Mining Corp. on June 10, 1998.  Through its 100%-owned subsidiary, Poly Met Mining, Inc. (“PolyMet US” and, together with PolyMet Mining Corp., “PolyMet” or the “Company”) the Company is engaged in the exploration and development of natural resource properties.  PolyMet US was incorporated in Minnesota, United States on February 16, 1989.

The Company’s corporate office is located at 100 King Street West, Suite 5700, Toronto, ON M5X 1C7, Canada.  The principal executive office is located at 444 Cedar Street, Suite 2060, St. Paul, MN  55101, USA.  The registered and records office is located at 2500 – 700 West Georgia Street, Vancouver, B.C. V7Y 1B3, Canada.  The operational headquarters are located at 6500 County Road 666, Hoyt Lakes, MN 55750-0475, USA.


3.
General Development of the Business

Significant History of the Company

PolyMet’s primary mineral property and principal focus is the commercial development of its NorthMet Project (“NorthMet” or “Project”), a polymetallic project in northeastern Minnesota, United States of America, which hosts copper, nickel, cobalt, gold, silver, and platinum group metal mineralization.

The NorthMet ore body is at the western end of a series of known copper-nickel-precious metals deposits in the Duluth Complex.  An updated technical report and feasibility study published in March 2018 confirmed the technical and economic viability, positioning NorthMet as the most advanced of the four main deposits in the Duluth Complex: namely, from west to east, NorthMet, Mesaba, Serpentine and Maturi.

Asset Acquisition
PolyMet acquired the Erie Plant, associated infrastructure, and approximately 12,400 acres (19 square miles) of surface rights from Cliffs Erie LLC, a subsidiary of Cleveland-Cliffs Inc. (together “Cliffs”).  The plant is located about six miles west of the NorthMet ore body and comprises a 100,000 ton-per-day crushing and milling facility, a railroad and railroad access rights connecting the Erie Plant to the NorthMet ore body, tailings storage facilities, 120 railcars, locomotive fueling and maintenance facilities, water rights and pipelines, administrative offices on site, and approximately 6,000 acres of land to the east and west of the existing tailings storage facilities.

Upon completion of the land exchange on June 28, 2018, PolyMet now controls surface rights to approximately 19,050 acres or 30 square miles of contiguous surface rights stretching from west of the Erie Plant to east of the proposed East Pit at NorthMet.

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Permitting
In November 2015, the Minnesota Department of Natural Resources (“MDNR”), the U.S. Army Corps of Engineers (“USACE”), and the United States Forest Service (“USFS”) published the NorthMet Final Environmental Impact Statement (“EIS”) as required under the Minnesota Environmental Policy Act (“MEPA”) and the National Environmental Policy Act (“NEPA”).  The U.S. Environmental Protection Agency (“EPA”) was a Cooperating Agency in preparation of the EIS.  As part of the decade-long MEPA and NEPA processes there were several extensive periods for public review and comment prior to publication of the Final EIS.  The EIS included a proposed land exchange between the USFS and the Company.

In November 2018, the Company received all final MDNR permits for NorthMet for which the Company had applied, including the Permit to Mine, dam safety, water appropriations, endangered and threatened species takings, and public waters work permits, along with Wetland Conservation Act approval.

In December 2018, the Company received all final MPCA permits for NorthMet for which the Company had applied, including the water quality permit, air emission quality permit, and Section 401 Certification.

Legal challenges were filed in the Minnesota Court of Appeals during 2018 and through the date of this report contesting various aspects of the MDNR and MPCA decisions.  PolyMet is a co-respondent in all suits.

In March 2019, the Company received the federal Record of Decision and wetlands permit from the USACE, which is the last key permit or approval needed to construct and operate the NorthMet Project.

Land Exchange
In January 2017, the USFS issued its Final ROD authorizing the land exchange which stated the land exchange eliminates a fundamental conflict between the rights that PolyMet has as a result of control of the mineral rights and the USFS position on those rights which otherwise could result in litigation that has no certain outcome and could set a judicial precedent regarding other lands acquired in the same deed under the Weeks Act.

Four legal challenges, which have since been consolidated into one proceeding, were filed during 2017 contesting various aspects of the land exchange Final ROD.  PolyMet is a co-defendant with the USFS in this proceeding.  Motions were filed by PolyMet to dismiss each of these suits for lack of standing.  In August 2017, the U.S. District Court for the District of Minnesota denied WaterLegacy’s motion for a preliminary injunction to stop the land exchange from proceeding while the WaterLegacy suit was pending.

In June 2018, the Company and the USFS exchanged titles to federal and private lands, completing the land exchange giving the Company control over both surface and mineral rights in and around the NorthMet ore body and consolidating the Superior National Forest’s land holdings in northeast Minnesota.

Financing
In 2008, PolyMet and Glencore AG, a wholly owned subsidiary of Glencore plc (together “Glencore”), entered into a strategic alliance in which Glencore will market PolyMet’s products, provides technical and commercial support, and owns 28.9% of PolyMet’s issued shares, holds $25 million initial principal senior secured convertible debentures and holds $140 million initial principal senior secured non-convertible debentures as at December 31, 2018.  In March 2019, the Company entered into an agreement with Glencore to fully backstop a rights offering to raise sufficient funds to repay all outstanding debt.

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Three Year History

The Company’s focus over the last three years has been on completion of the environmental review process by state and federal agencies, preparation and submission of permit applications, support of the agencies during review of permit application, issuance of draft permits and approvals, and issuance of final permits and approvals.

Major highlights and recent events include:

March 2016 – MDNR determined that the Final EIS addresses the objectives defined in the EIS scoping review, meets procedural requirements and responds appropriately to public comments demonstrating the NorthMet Project can be constructed and operated in compliance with state and federal standards.  The 30-day period allowed by law to challenge the state’s decision passed without any legal challenge being filed;
July 2016 – the Company submitted applications for water-related permits required to construct and operate NorthMet.  The Eastern Region Regional Office of the USFS issued its response to comments on the Draft ROD for the land exchange and instructed the Superior National Forest to proceed with completing the Final ROD;
October 2016 – the Company closed the initial tranche of a private placement of 25,963,167 units for gross proceeds of $19.5 million and a second tranche of a private placement of 14,111,251 units for gross proceeds of $10.6 million pursuant to Glencore’s right to maintain its pro rata ownership;
January 2017 – the USFS issued its Final ROD authorizing a land exchange to transfer title to the surface rights over and around the NorthMet mineral rights to PolyMet in exchange for certain other lands owned by PolyMet;
August and September 2017 - the MDNR released six draft water appropriation permits and two draft dam safety permits;
January 2018 - the MDNR released its draft Permit to Mine and the MPCA released its draft water quality permit, draft section 401 certification, and draft air emissions permit;
March 2018 - the Company and Glencore agreed to extend the term of outstanding debentures until March 31, 2019, reduce the interest rate on the outstanding debentures, and make available $80 million in additional debentures;
March 2018 - the Company issued an updated Technical Report under NI 43-101 incorporating process improvements, project improvements, and environmental controls described in the Final EIS and draft permits.  The update also included detailed capital costs, operating costs, and economic valuation for the mine plan being permitted as well as an assessment of potential future opportunities;
June 2018 - the Company and USFS   completed the land exchange for approximately 6700 acres giving the Company control over both surface and mineral rights in and around the NorthMet ore body and consolidating the Superior National Forest’s land holdings in northeast Minnesota;
November 2018 - the Company received all MDNR permits for NorthMet for which the Company had applied, including the Permit to Mine, dam safety, water appropriations, endangered and threatened species takings, and public waters work permits, along with Wetland Conservation Act approval;
December 2018 - the Company received all MCPA permits for NorthMet for which the Company had applied, including the MPCA water quality (NPDES/SDS) and air quality permits and the Clean Water Act Section 401 quality certification;
March 2019 - the Company received the federal Record of Decision and wetlands permit from the USACE.  This was the last key permit or approval needed to construct and operate the NorthMet Project; and
March 2019 - the Company and Glencore agreed to extend the term of outstanding debentures to provide the Company time to prepare for and complete a rights offering by June 30, 2019, fully backstopped by Glencore, to raise sufficient funds to repay all outstanding debt.

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Goals and Objectives for the Next Twelve Months

PolyMet’s objectives include:

Maintain political, social and regulatory support for the Project;
Finalize Project optimization plan;
Finalize Project implementation plan;
Strengthen balance sheet through restructuring or repaying outstanding debt; and
Execution of construction finance, subject to typical conditions precedent.

The Company is in discussions with commercial banks and other sources of debt and equity finance sufficient to fund construction of the Project.  Construction and ramp-up to commercial production is anticipated to take approximately twenty-four to thirty months from receipt of construction funding.

4.
Description of the Business

The following disclosure relating to the Company’s NorthMet Project is based, in part, on information derived from the 2018 Technical Report prepared by the qualified persons set out in Section 1 of this AIF. Portions of the following information are based on assumptions, qualifications and procedures which are not fully described herein. Reference should be made to the full text of the 2018 Technical Report which has been filed with certain Canadian securities regulatory authorities pursuant to NI 43-101 and is available on SEDAR at www.sedar.com and on EDGAR at www.sec.gov.
Property Description and Location
Project Location
The NorthMet Project comprises two key elements: the NorthMet deposit (or Mine Site) and the Erie Plant. The NorthMet deposit is situated on mineral leases located in St. Louis County in northeastern Minnesota at Latitude 47° 36’ north, Longitude 91° 58’ west, about 70 miles north of the City of Duluth and 6.5 miles south of the town of Babbitt. The Erie Plant is approximately six miles west of the NorthMet deposit.
The NorthMet deposit site totals approximately 4,300 acres and the Erie Plant site, including the existing tailings basin, covers approximately 12,400 acres.  In June 2018, the Company acquired surface rights over the NorthMet deposit through a land exchange with the USFS using land the Company previously owned.  With the exchange, PolyMet has total surface rights, including ownership and other use and occupancy rights, to approximately 19,050 contiguous acres (30 square miles) of land including the land at the mine and processing sites, the transportation corridor connecting those sites, and buffer lands.
The NorthMet Project is located immediately south of the eastern end of the historic Mesabi Iron Range and is in proximity to a number of existing iron ore mines including the Peter Mitchell open pit mine located approximately two miles to the north of the NorthMet deposit. NorthMet is one of several known mineral deposits that have been identified within the 30-mile length of the Duluth Complex, a well-known geological formation containing copper, nickel, cobalt, platinum group metals, silver, gold and titanium.
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The NorthMet deposit is connected to the Erie Plant by a transportation and utility corridor that is comprised of an existing private railroad that will primarily be used to transport ore, a segment of the existing private Dunka Road that will be upgraded to provide vehicle access, and new water pipelines and electrical power network for the NorthMet Mine Site.
Project Ownership
The Company owns 100% of PolyMet US. For the sake of simplicity this summary will for the most part refer to both entities as PolyMet, except when specific differentiation is required for legal clarity.
Mineral rights in and around the NorthMet orebody are held through two mineral leases with RGGS Land & Minerals Ltd., L.P. (“RGGS”) and LMC Minerals ("LMC").  The RGGS lease covers 5,123 acres. Provided the Company continues to make annual lease payments, the lease period continues until June 12, 2048 with an option to extend the lease for up to five additional ten-year periods on the same terms and further extend as long as there are commercial mining operations. The LMC lease covers 120 acres that are encircled by the RGGS property. Provided the Company continues to make annual lease payments, the lease period continues until December 1, 2028 with an option to extend the lease for up to four additional five-year periods on the same terms.  Lease payments to both lessors are considered advance royalty payments and will be deducted from future production royalties payable to the lessor, which range from 3% to 5% based on the net smelter return per ton received by the Company.
PolyMet US owns or holds various rights of ownership and use, and other property rights that currently give it control of 100% of the Erie Plant, associated infrastructure, and surface rights which covers approximately 19,050 acres, or 30 square miles .
 
Surface Rights
Surface rights of the NorthMet deposit were held by the USFS until June 2018. The United States acquired the surface rights from U.S. Steel in 1938 under provisions of the Weeks Act of 1922. U.S. Steel retained certain mining rights, which PolyMet secured under the U.S. Steel Lease, along with the mineral rights.
PolyMet and the USFS proposed and completed a land exchange in June 2018 to consolidate their respective land ownerships and giving the Company control over both surface and mineral rights in and around the NorthMet ore body and consolidating the Superior National Forest’s land holdings in northeast Minnesota. In this land exchange, the USFS acquired 6,690 acres of private land in four separate tracts currently held by PolyMet, to become part of the Superior National Forest and managed under the laws relating to the National Forest System. Already located within the Superior National Forest boundaries, these lands have multiple uses including recreation, research and conservation. The USFS conveyed 6,650 acres of federally-owned surface land to PolyMet, which included the surface rights overlying and surrounding the NorthMet deposit. These lands are located near an area heavily used for mining and mine infrastructure, are consistent with regional land uses, and will generate economic benefits to the region through employment and tax revenues.
Royalties and Encumbrances
The NorthMet deposit mineral rights carry variable royalties of 3% to 5% based on the NSR per ton of ore mined. For an NMV of under $30 per ton, the royalty is 3%, for $30-35 per ton it is 4%, and above $35 per ton it is 5%. Both the U.S. Steel Lease (RGGS) and the LMC Lease carry advance royalties, which can be recouped from future royalty payments, subject to minimum payments in any year.  The US Steel leases were transferred through sale to RGGS although the underlying agreement terms remain the same.
Environmental Liabilities
Federal, state and local laws and regulations concerning environmental protection affect the PolyMet operation.  As part of the consideration for the purchase of the Erie Plant and associated infrastructure, the Company indemnified Cleveland-Cliffs Inc. (Cliffs) for reclamation and remediation obligations of the acquired property.
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The Company’s estimate of the environmental rehabilitation provision under International Financial Reporting Standards (IFRS) on December 31, 2018 was $61.107 million based on estimated cash flows required to settle this obligation in present day costs of $71.146 million, a projected inflation rate of 2.00%, a market risk-free interest rate of 3.13% and expenditures expected to occur over a period of approximately 30 years.  This estimate includes but is not limited to water treatment and infrastructure closure and removals, with costs estimated by PolyMet and its consultants and construction contractors. This estimate has been reviewed and accepted by auditors for PolyMet’s financial statements.
Permits
PolyMet has received all key permits and approvals from the state and federal agencies required to construct and operate the NorthMet Project. These are discussed in greater detail above and below.
Accessibility, Climate, Local Resources, Infrastructure and Physiography
Accessibility and Climate
Access to the NorthMet Project is by a combination of good quality asphalt and gravel roads via the Erie Plant site. The nearest center of population is the town of Hoyt Lakes, which has a population of about 2,500 people. There are a number of similarly sized communities in the vicinity, all of which are well serviced, provide ready accommodations, and have been, or still are, directly associated with the region’s extensive taconite mining industry. The road network in the area is well developed, though not heavily trafficked, and there is an extensive railroad network, which serves the taconite mining industry across the entire Range. There is access to ocean shipping via the ports at Taconite Harbor and Duluth/Superior (on the western end of Lake Superior) and the St. Lawrence Seaway.
Climate is continental and characterized by wide temperature variations and significant precipitation.
Local Resources and Infrastructure
The area has been economically dependent on the mining industry for many years and while there is an abundance of skilled labor and local mining expertise, the closure in 2001 of the LTVSMC open pit mines and taconite processing facility has had a significant negative impact on the local economy and population growth. There are, however, several other operating mines in other parts of the Iron Range. Because of this, the mining support industries and industrial infrastructure remains well developed and of a high standard.
The Erie Plant site is connected to the electrical power supply grid and a main HV electrical power line (138 kV) runs parallel to the road and railroad that traverse the southern part of the mining lease area.  PolyMet has a long-term power contract with Minnesota Power.
There are plentiful local sources of fresh water, and electrical power and water are available nearby.  Previous operations at the site processed 100,000 STPD with adequate water supply, which is more than three times the plan for PolyMet.
Physiography
The Mesabi Iron Range forms an extensive and prominent regional topographic feature. The NorthMet Project site is located on the southern flank of the eastern Range where the surrounding countryside is characterized as being gently undulating. Elevation at the NorthMet Project site is about 1,600 ft asl (1,000 ft above Lake Superior). Much of the region is poorly drained and the predominant vegetation comprises wetlands and boreal forest.
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History
The NorthMet deposit was formally discovered in 1969 during exploration carried out by U.S. Steel. Between 1969 and 1974, U.S. Steel drilled 112 holes for a total of 113,716 ft, producing 9,475 assay intervals, which are included in the modern-day NorthMet Project database. Assay data from U.S. Steel core samples was not necessarily collected at the time of the original drilling.
A number of historic mineral resource estimates were completed (U.S. Steel, Fleck Resources, NERCO) prior to PolyMet’s acquisition of the NorthMet Project.  These resource estimates predate current NI 43-101 reporting standards and the associated resource models, electronic or otherwise, are not available for verification.
There is no historical production data to report for the NorthMet Project.
Geological Setting and Mineralization
Regional Geology
The NorthMet deposit is situated on the western edge of the Duluth Complex in northeastern Minnesota. The Duluth Complex is a series of distinct intrusions of mafic to felsic tholeiitic magmas that intermittently intruded at the base of a comagmatic volcanic edifice during the formation of the Midcontinental rift system between 1108 and 1098 Ma. The intrusives of the Duluth Complex represent a relatively continuous mass that extends in an arcuate fashion from Duluth to the northeastern border between Minnesota and Canada near the town of Grand Portage.  Footwall rocks are predominantly comprised of Paleoproterozoic and Archean rocks, the hanging wall rocks are made up of mafic volcanic rocks and hypabyssal intrusions, and internally scattered bodies of strongly granoblastic mafic volcanic and sedimentary hornfels can be found.
Local and Property Geology
The NorthMet deposit is situated within the Partridge River Intrusion (“PRI”). The PRI has been mapped, drilled, and studied in detail because of its importance as a host for copper-nickel (“Cu-Ni”) and iron-titanium (“Fe-Ti”) deposits. The PRI consists of varied troctolitic and (minor) gabbroic rock types that are exposed in an arcuate shape that extends from the Water Hen (Fe-Ti) deposit in the south to the Babbitt (Cu-Ni) deposit in the North. The PRI is bound on the west by the Paleoproterozoic Virginia Formation (slate and graywacke), and to a lessor extent, the Biwabik Iron Formation (“BIF”). The upper portion of the PRI forms a complex contact an assemblage of anorthositic, gabbroic, and hornfelsic rocks. This assemblage is also found as large inclusions within the interior of the PRI. The inclusions are thought to represent earlier roof zone screens that were overplated by later emplacement of Partridge River intrusion magmas.
Mineralization
The metals of interest at NorthMet are copper, nickel, cobalt, platinum, palladium, silver, and gold.  Minor amounts of rhodium and ruthenium are present though these are considered to have no economic significance.  In general, except for cobalt and gold, the metals are positively correlated with copper mineralization.  Cobalt is well correlated with nickel. Most of the metals are concentrated in, or associated with, four sulfide minerals: chalcopyrite, cubanite, pentlandite, and pyrrhotite, with platinum, palladium and gold also found as elements and in bismuthides, tellurides, and alloys.
Mineralization occurs in four broadly defined horizons or zones throughout the NorthMet property.  Three of these horizons are within basal Unit 1, though they likely will not be discriminated in mining.  The upper horizon locally extends upward into the base of Unit 2.  The thickness of each of the three Unit 1 enriched horizons varies from 5 ft to more than 200 ft.  Unit 1 mineralization is found throughout the base of the NorthMet deposit.  A less extensive mineralized zone (the copper-rich, sulfur-poor Magenta Zone) is found in Units 4, 5 and 6 in the western part of the NorthMet deposit.
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Deposit Types
The NorthMet deposit is considered a magmatic Copper - Nickel ± platinum group element (PGE) deposit. These are a broad group of deposits containing nickel, copper and PGEs occurring as sulfide concentrations associated with a variety of mafic and ultramafic magmatic rocks. Magmatic Cu-Ni sulfide deposits with or without PGEs account for approximately 60 percent of the world’s nickel production. Magmatic Ni-Cu±PGE sulfide deposits are spatially and genetically related to bodies of mafic and/or ultramafic rocks. The sulfide deposits form when the mantle-derived magmas become sulfide-saturated and segregate immiscible sulfide liquid, commonly following interaction with continental crustal rocks.
The NorthMet deposit is a large-tonnage, disseminated accumulation of sulfide in mafic rocks, with rare massive sulfides. Copper to nickel ratios generally range from 3:1 to 4:1. Primary mineralization is probably magmatic, though the possibility of structurally controlled re-mobilization of the mineralization (especially PGE) has not been excluded.  The sulfur source is both local and magmatic.  Extensive detailed logging has shown no definitive relation between specific rock type and the quantity or grade quality of sulfide mineralization in the Unit 1 mineralized zone or in other units, though local noritic to gabbronoritic rocks (related to footwall assimilation) tend to be of poorer PGE grade and higher in sulfur.
Exploration
U.S. Steel commenced mapping and ground surveys of the NorthMet Project in 1967 and initiated drilling exploration in 1968. Drilling has been the primary method of exploration at the NorthMet Project; however, 240 geophysical soundings, numerous test pits, and down-hole geophysical testing have been completed to better understand the depth to bedrock and the lithologic contacts.
Drilling
Prior to PolyMet’s involvement in the NorthMet Project, 116 core holes were drilled in the main project area by U.S. Steel and NERCO (see Table 10-1 of the 2018 Technical Report).
PolyMet completed 290 drill holes on the NorthMet Project between 1998 and 2010 totaling 171,332 ft. Some drilling was resumed in 2018 following the land exchange and final results are pending.  Of the 290 holes drilled by PolyMet between 1998 and 2010, 52 were drilled using reverse circulation, and 238 are diamond core holes.
From 1998 to 2000, PolyMet drilled 52 vertical reverse circulation (RC) holes to supply material for a bulk sample.  A portion of these drill-holes twinned U.S. Steel holes, and others served as in-fill over the extent of the NorthMet deposit. The RC holes averaged 474 ft, with a minimum of 65 ft and a maximum depth of 745 ft.
The first PolyMet core drilling program was carried out during the later parts of the RC program, with three holes drilled late in 1999 and the remainder in early 2000.  There were seventeen BTW (1.65 inch) and fifteen NTW (2.2 inch) diameter holes all of which were vertical.  Three RC holes were re-entered and deepened with AQ core. Core holes averaged 692 ft in depth, with a minimum of 229 ft and a maximum depth of 1,192 ft. (not including RC holes extended with AQ core). These holes were assayed from top to bottom (with minimal exception) on 5-foot intervals.  Samples were split into half core at the PolyMet field office in Aurora, Minnesota.
PolyMet’s 2005 drilling program had four distinct goals: collection of metallurgical samples, continued in-fill drilling for resource estimation, resource expansion, and collection of oriented core for geotechnical data.  The program included 109 holes totaling 77,165 ft, including:
15 one-inch diameter holes for metallurgical samples (6,974 ft) drilled by Boart-Longyear of Salt Lake City (February - March 2005).
PQ sized holes (core diameter 3.3 inches) totaling 6,897 ft, to collect bulk sample material, and to improve the confidence in the known resource area (February - March 2005).
52 NTW sized holes (2.2 inches) totaling 41,403 ft for resource definition.
30 NQ2 sized holes (2.0 inches) totaling 21,892 ft for resource definition and geotechnical purposes.  The NTW and NQ2 size core was drilled in the spring (February-March) and fall (September-December) of 2005.

10

Roughly 11,650 multi-element assays were collected from the 2005 drilling program.  Another 1,790 assays were performed on previously drilled U.S. Steel and PolyMet core during, as well. Of the 109 holes drilled in 2005, 93 were drilled at an angle. The angled holes were aligned on a grid oriented N34W with dips ranging from -60° to -75°.  Sixteen NQ2 sized holes were drilled and marked for oriented core at varying dips, for geotechnical assessment across the NorthMet Project.
In 2007, PolyMet conducted two drilling programs, a winter program of 47 holes totaling 19,102 ft and a summer program of 14 holes totaling 5,437 ft.  The initial 16 winter holes were NTW sized, the remaining drill holes from both programs were NQ2 core.  Most of these holes were angled to north-northwest (azimuth 326°). The 2007 holes averaged 402 ft in depth, with a minimum of 148 ft and maximum of 768.5 ft.
In 2010, PolyMet conducted a winter drilling program with two objectives:
Collect detailed geostatistical data across a grid in the initial mining area, and
Develop a geologic and assay framework around the west margin of the deposit.
Secondary to these purposes was the gathering of approximately ten tons of potential bulk sample material.
The grid area in the planned east pit encompassed 8,720 ft of drilling with 1,664 multi-element assays and the western drilling totaled 11,401 ft with 1,345 samples taken. Grid drilling was sampled by elevations representing bench levels. Data from this was used to establish appropriate sampling protocols during mining.
Assay results in the grid area were consistent with expectations from previous block models. In the west, Unit 1 and Magenta Zone ore grade mineralization continue well outside the planned pit boundaries with the furthest hole in this program 2,600 feet to the west of the planned pit edge.
The drilling exploration conducted by PolyMet is summarized in Table 10-1 of the 2018 Technical Report, and drill hole distribution is shown on Figure 10-1 of the 2018 Technical Report.
Core recovery is reported by PolyMet to be upwards of 99% (see table below) with rare zones of poor recovery.  Rock quality designation (RQD) is also very high, averaging 85% for all units, excluding the Iron formation.  Experience in the Duluth Complex indicates that core drilling has no difficulty in producing samples that are representative of the rock mass.  Rock is fresh and competent and the types of alteration (when observed: sausserization, uralization, serpentinization and chloritization) do not affect recovery.
Summary of Core Recoveries and RQD Measurements (includes all drilling through 2010 )
Unit
Recovery
Count
Recovery Percentage
(%)
RQD
Count
RQD
Percent
1
8,906
99.9
4,194
91.8
2
1,879
99.5
968
90.3
3
4,374
100
2,632
93.5
4
2,160
100
1,063
96.4
5
1,901
100
838
94.3
6
2,262
100
1,041
94.7
7
951
99.3
396
87.4
Virginia Formation
2,095
99.7
1,069
87.6
Inclusions
62
98.1
57
86.6
Biwabik Iron Formation
381
100
60
79.8
Duluth Complex Average
 
99.96
 
92.82

11

Sample Preparation, Analyses and Security
There are multiple generations of sample analyses that contribute to the overall NorthMet Project assay database:
Original U.S. Steel core sampling, by U.S. Steel, 1969-1974
Re-analysis of U.S. Steel pulps and rejects, selection by Fleck and NRRI, 1989-1991
Analysis of previously un-sampled U.S. Steel core, sample selection by Fleck and NRRI in 1989-1991, and 1999-2001
Analysis of 2 of the 4 NERCO drill-holes, 1991
PolyMet RC cuttings, 1998-2000
PolyMet core, 2000, 2005, 2007, and 2010

The laboratories utilized by U.S. Steel were not independent of the Company, and no information regarding accreditation is available. All the labs that have provided analytical testing for PolyMet were or currently are fully accredited, independent, commercial labs that are not related to any of the exploration companies or any of its directors or management.
PolyMet's drill hole and assay database is administered by the Company’s geologic staff from the operational headquarters in Hoyt Lakes. PolyMet uses Excel and Gemcom GEMS to manage the geologic data. Paper logs are available at the operational headquarters.
There is no documentation indicating sample handling protocols at drill sites, and only limited documentation of sample handling between the drill site and assay laboratory for programs conducted by U.S. Steel and NERCO.
Employees of PolyMet (or its predecessor, Fleck Resources) have been either directly or indirectly involved in all sample selection since the original U.S. Steel sampling.  Sample cutting and preparation of core for shipping has been done by PolyMet employees or contract employees.  Reverse circulation sampling at the rig was done by, or in cooperation with, PolyMet employees and the drilling contractor.
The diamond drillers remove the drill core samples from the rods and place them into covered core boxes. PolyMet representatives collect the trays and transport them to the core storage facility located near the processing plant each day where the core is inventoried prior to processing. Once the geologist is ready to log the hole, the core trays are laid out on core logging tables where all logging takes place prior to sampling.
Drill core samples are placed into plastic sample bags, sealed, and placed into a cardboard box. The cardboard box is sealed shut with tape and couriered to the laboratory. Once the laboratory has accepted delivery of the samples they remain under the control of the laboratory.
The RC holes were assayed on 5-ft intervals.  Six-inch RC drill-holes produced about 135 lb to 150 lb of sample for every 5 feet of drilling.  This material was split using a riffle splitter into two samples and placed in plastic bags and stored underwater in five-gallon plastic buckets.  A 1/16th sample was taken by rotary splitter from each 5-ft interval of chip sample for assay.  The assay values were used to develop a composite pilot plant sample from bucket samples.  Actual compositing was completed after samples had been shipped to Lakefield.  A second 1/16th sample was sent to the Minnesota Department of Natural Resources for their archive.
There are 5,216 analyses from the RC drilling in the current PolyMet database. RC sample collection involved a 1/16 sample representing each five-foot run. These were sent to Lerch for preparation, and then sent to ACME or Chemex for analysis.
12

Chip samples were collected and logged at the PolyMet office and are currently retained at the PolyMet warehouse.  While the chip sample logging is less precise than logging of core samples, the major silicate and sulfide minerals are identifiable, and the location of marker horizons can be derived based on the composition of the individual samples.  The underlying metasedimentary rocks (Virginia Formation) are readily recognized in chip sample, and the base of the NorthMet deposit is relatively easy to define.  Where rock recognition is difficult, the higher zinc content of the footwall rocks is used to help define the contact.
PolyMet geologists log all drill cores at the core storage facility located near the processing plant. The geologists record information for each drillhole including the hole number, azimuth, total depth, coordinate datum, drilling company, hole logger, start and end of drilling dates, rock codes, and a written description of stratigraphy, alteration, texture, mineralogy, structure, grain size, ground conditions, and any notable geologic features. The rock quality designation (RQD) and recovery percentage are also recorded.
Sample intervals are determined by the geologist with respect to stratigraphy, mineralization, and sulfide content, otherwise a standard 10-ft interval is sampled. Zones of increased sulfide mineralization >2.5 ft are sampled down to 5-ft intervals. Core within Unit 1 is sampled on 5-ft intervals. Core samples are cut to ¼ or 1/8 of the total core with a diamond bladed saw by trained personnel following written procedures. Each sample is placed in a numbered plastic sample bag with the corresponding sample number tag and placed in a cardboard box for transport to the laboratory. All QA/QC samples are inserted into the sample stream prior to shipment.
Sample Preparation
Samples were prepared for analysis at Lerch, Acme, or Chemex facilities. In general, all the facilities followed a similar preparation procedure. Samples were crushed to an approximate -10 mesh, prior to being reduced to a 250-gram split for pulverization (149 to 106 µm range).  Pulps were split again to separate a sample for the following analyses:
Base metals (Cu, Co, Mo, Ni and Zn) - Four-acid digestion with ICP-AES finish;
Base metals (Ag, Cu, Co, Mo, Ni and Zn) – Aqua Regia digestion with ICP-AES finish;
PGEs (Au, Pt and Pd) – 30 gm fire assay with ICP-AES finish; and
Total Sulphur by LECO furnace.

Select core samples were crushed to -1/2 inch and placed in a poly bottle, purged with nitrogen, and capped and sealed for special metallurgical and environmental analysis.
Quality Assurance/Quality Control Procedures
QA/QC samples used by PolyMet include blanks, standards and field duplicates. PolyMet inserts QA/QC samples into the sample stream at the following frequencies:
Insertion of coarse blank every 40 samples;
Insertion of Standard Reference Material (SRM) every 40 samples; and
Submission of duplicate 1/4 or 1/8 of the drill core every 40 samples.

Core Storage and Sample Security
The U.S. Steel core has been stored, either at the original U.S. Steel warehouse in Virginia, Minnesota during drilling, or more recently at the CMRL (now a part of the University of Minnesota).  Core has been secured in locked buildings within a fenced area that is locked at night where a key must be checked out.  The NERCO BQ size core is also stored at this facility.
The PolyMet core and RC reference samples were stored in a PolyMet leased warehouse in Aurora, Minnesota during drilling and pre-feasibility.  Core and samples were then moved in 2002 to a warehouse in Mountain Iron, Minnesota where they remained until 2004.  They were then moved to a warehouse at the Erie Plant site in Hoyt Lakes.  Access to this warehouse is limited to PolyMet employees.
13

Opinion on Adequacy
Hard Rock Consulting (“HRC”), an independent consulting firm retained by PolyMet, concluded that the sample preparation, security and analytical procedures are correct and adequate for the purpose of the 2018 Technical Report.  The sample methods and density were appropriate, and the samples were of sufficient quality to comprise a representative, unbiased database.
Data Verification
The NorthMet mineral resource estimate is based on the exploration drill-hole database available as of April 17, 2014. Drill hole data including collar coordinates, down-hole surveys, sample assay intervals, and geologic logs were provided by PolyMet in Microsoft Excel spreadsheets. The database was reviewed and validated by HRC prior to estimating mineral resources. The NorthMet database includes 114 (116) historic drill holes, 323 PolyMet drill holes, 240 vertical sounding holes, 15 depths to bedrock test pits, and 47 geologic holes from the surrounding area. Of the 739 drill holes, only 437 drill holes were used in the estimation, although many of the 437 holes include only select analytical information. The database was validated using Leapfrog Geo 3D® Version 2.0.0 software. Validation checks performed prior to loading the database into Datamine’s Studio 3 Version 3.24.25.0 mining software included:
No overlapping intervals;
Down-hole surveys at drill-hole collar;
Consistent drill-hole depths for all data tables; and
Gaps in the “from – to” data tables.

The analytical information used for the resource estimate includes copper, nickel, platinum, palladium, gold, silver, cobalt and sulfur.  All assay values Below Detection Limits (BDL) were assigned a value of one half of the detection limit, and missing or non-sampled intervals were assigned a value of zero (0).
HRC reviewed PolyMet’s check assay programs and considers the programs to provide adequate confidence in the data.  Samples that are associated with QA/QC failures were reviewed and reanalyzed as necessary.
Exploration drilling, sampling, security, and analysis procedures were conducted in a manner that meets or exceeds industry standard practice. All drill cores and cuttings from PolyMet’s drilling have been photographed. Drill logs have been digitally entered into an exploration database organized and maintained in Gemcom. The split core and cutting trays have been securely stored and are available for further checks.
Mineral Processing and Metallurgical Testing
The NorthMet deposit is hosted in the Duluth Complex in northeastern Minnesota. A significant amount of metallurgical test work has been conducted on the Duluth Complex; therefore, the general metallurgy of the complex is fairly well understood.
Orway Mineral Consultants (“OMC”) in 2014 studied SAG Mill based comminution circuits for the NorthMet Project. This was done to assess if a SAG Mill based circuit would be practical for the NorthMet Project and capable of rationalizing the existing 4-stage crushing circuit (total of 11 crushers) and 12 lines of Rod Mill + Ball Mill grinding circuits in the existing Erie concentrator.  Comminution test work results from SGS were interpreted by OMC and used to scope out a SAG mill based comminution circuit to process 32,000 STPD.  Further comminution test work was conducted by Hazen Research (Golden, Co.) in 2015 to confirm the comminution parameters.
14

The development of the current NorthMet flotation process flowsheet was based on test work (SGS, 2015) and includes the following:
Flotation Test work conducted by SGS Lakefield (“SGS”) between 1998 and 2014, and
Supplementary flotation test work conducted by SGS in 2015 and interpreted by Eurus Mineral Consultants (“EMC”) for circuit modeling and flotation plant design.

SGS conducted extensive flotation test work up until 2010. The work covered by SGS included significant amounts of batch and rate flotation test work on a number of samples provided by PolyMet. A flotation process block flow diagram was developed from the results and observations of the initial batch test work conducted by SGS. The process block flow diagram shown in Figure 13-1 in the 2018 Technical Report can be summarized into three main circuits as follows:
The Bulk Copper-Nickel Flotation circuit
The Copper-Nickel Separation Circuit
The Pyrrhotite Flotation Circuit

Pilot scale test work was conducted by SGS to demonstrate the flowsheet developed for the NorthMet process. The results of the pilot test work are also included in the SGS report.
Additional flotation test work was requested of SGS in 2015 to fill in gaps in the flotation test work.  EMC conducted a flotation circuit simulation of the process flow based on the results obtained from both SGS's batch and pilot scale test work. The work that EMC conducted was initially targeted at simulating the pilot plant, and then to producing full production scale results. EMC's simulations were based on a throughput of 32,000 STPD. The results of the simulations were used to review the previous design and update the current process plant design basis and criteria.
A second pilot plant program was carried out by SGS in 2009 to investigate hydrometallurgical processes.
Mineral Resource Estimates
Zachary J. Black, RM-SME, of Hard Rock Consulting, LLC (“HRC”) is a Qualified Person as defined by NI 43-101 for mineral resource estimation and classification. HRC estimated the mineral resource for the NorthMet Project from drill-hole data constrained by geologic boundaries using an Ordinary Kriging (“OK”) algorithm.

The NorthMet deposit was divided into eight units for geological modeling: the Biwabik Iron Formation including banded iron formation, sedimentary marine rocks of the Virginia Formation that overlie the Biwabik Formation, and five distinct units within the Duluth Complex and overburden.

The Magenta Zone, a smaller mineralized zone that cuts through Units 3 through 7 but resides primarily within Units 5 and 6, was modeled from select intercepts provided by PolyMet US.  Grades that were estimated include copper, nickel, cobalt, platinum, palladium, gold, silver and total sulfur.

HRC created a rotated three-dimensional block model in Datamine Studio 3® mining software. The block resource model was estimated using the lithologic boundaries of the Duluth Complex as the basis for an estimation domain. Units 1, 3, 5, 6, 7, the Magenta Zone, and Virginia Formation were all estimated using only samples that resided inside of the defined boundaries. Grades were estimated from 10-foot (ft) down-hole composites using Ordinary Kriging. Composites were coded according to their domain. Each metal was estimated using variogram parameters established by AGP Mining Consultants Inc. (“AGP”) in 2013, which were re-evaluated by HRC and deemed acceptable for use in the current mineral resource estimation.

The mineral resources reported herein are classified as Measured, Indicated and Inferred in accordance with standards defined by the Canadian Institute of Mining, Metallurgy and Petroleum (“CIM”) and prepared by the CIM Standing Committee on Reserve Definitions and adopted by CIM Council on May 10, 2014. Each individual mineral resource classification reflects an associated relative confidence of the grade estimates.
15


The mineral resources estimated for the NorthMet Project includes 649.3 million tons of Measured and Indicated resources and 508.9 million tons Inferred resources. The resource has been limited to the material that resides above the optimized pit shell. All mineralization below the optimized pit shell has been excluded from any resource classification and is not considered to be part of the mineral resource.

The mineral resource estimate for the NorthMet Project is summarized in the below table. This mineral resource estimate includes all drill data obtained as of January 31, 2016 and has been independently verified by HRC. The Measured and Indicated mineral resources are inclusive of the mineral reserves. Inferred mineral resources are, by definition, always additional to mineral reserves.

Class
    
Tonnage
(Mt)
   
       
Grades (Undiluted)
    Copper     Nickel     Platinum     Palladium     Gold     Cobalt     Silver     NSR     Cu-Eq  
    (%)     (%)     (ppb)     (ppb)     (ppb)     (ppm)     (ppm)     $/ton     (%)  
Measured
   
237.2
     
0.270
     
0.080
     
69
     
241
     
35
     
72
     
0.97
     
19.67
     
0.541
 
Indicated
   
412.2
     
0.230
     
0.070
     
63
     
210
     
32
     
70
     
0.87
     
16.95
     
0.470
 
M&I
   
649.3
     
0.245
     
0.074
     
65
     
221
     
33
     
71
     
0.91
     
17.94
     
0.496
 
Inferred
   
508.9
     
0.240
     
0.070
     
72
     
234
     
37
     
66
     
0.93
     
17.66
     
0.489
 
Source: Hard Rock Consulting, LLC, January 2018
*Notes:
1.
Mineral resources are not mineral reserves and do not have demonstrated economic viability.
2.
All resources are stated above a $7.35 NSR cut-off.  Cut-off is based on estimated processing and G&A costs. Metal Prices and metallurgical recoveries used for the development of cut-off grade are presented in Table 14-33 of the 2018 Technical Report.
3.
Mineral resource tonnage and contained metal have been rounded to reflect the accuracy of the estimate, and numbers may not add due to rounding.
4.
Cu-Eq (copper equivalent grade) is based on the mill recovery to concentrates and metal prices (see Table 14-33 of the 2018 Technical Report).
5.
Copper Equivalent (Cu Eq) = ((Cu head grade x recovery x Cu Price)) + (Ni head grade x recovery x Ni Price) + (Pt head grade x recovery x Pt Price) + (Pd head grade x recovery x Pd Price) +(Au head grade x recovery x Au Price) + (Co head grade x recovery x Co Price) + (Ag head grade x recovery x Ag Price)) / (Cu recovery x Cu Price).


Mineral Reserve Estimates

Proven and Probable Mineral Reserves of 254.7   million tons are reported for the NorthMet Project within the final pit design used for the mine production schedule and shown in the below table. All inferred material was classified as waste and scheduled to the appropriate waste stockpile.  The final mineral reserves are reported using a $7.98   NSR cut-off inside the pit design using the diluted grades. Both the mineral resource and mineral reserve estimates take into consideration metallurgical recoveries, concentrate grades, transportation costs, smelter treatment charges and royalties in determining NSR values. The below table also shows the mineral reserves by classification category and grade. The Qualified Person responsible for the Mineral Reserve estimate is Herb Welhener, Vice President of IMC.
16



Class    
Tonnage
(x 1,000)
 
Grades (Diluted)
 
 
Copper
 
Nickel
 
Platinum
 
Palladium
 
Gold
 
Cobalt
 
Silver
 
NSR
 
Cu-Eq
 
(%)
 
(%)
 
(ppb)
 
(ppb)
 
(ppb)
 
(ppm)
 
(ppm)
 
$/ton
 
(%)
Proven
   
121,849
     
0.308
     
0.087
     
82
     
282
     
41
     
74.81
     
1.11
     
19.87
     
0.612
 
Probable
   
132,820
     
0.281
     
0.081
     
78
     
256
     
37
     
74.06
     
1.02
     
18.02
     
0.559
 
Total
   
254,669
     
0.294
     
0.084
     
80
     
268
     
39
     
74.42
     
1.06
     
18.90
     
0.584
 
*Notes:
1.
Mineral reserve tonnage and contained metal have been rounded to reflect the accuracy of the estimate, and numbers may not add due to rounding.
2.
All reserves are stated above a $7.98 NSR cutoff and bound within the final pit design.
3.
Tonnage and grade estimates are in Imperial units.
4.
Total Tonnage within the pit is 628,499 ktons; average waste: ore ratio = 1.47
5.
Cu-Eq values are based on the metal prices in Table 15-2 of the 2018 Technical Repot and total mill recoveries in Table 15-3 of the 2018 Technical Report and diluted mill feed.
6.
Copper Equivalent (CuEq) = ((Cu head grade x recovery x Cu Price) + (Ni head grade x recovery x Ni Price) + (Pt head grade x recovery x Pt Price) + (Pd head grade x recovery x Pd Price) + (Au head grade x recovery x Au Price) + (Co head grade x recovery x Co Price) + (Ag head grade x recovery x Ag Price)) / (Cu head grade x recovery x Cu Price).
7.
NSR values include post property concentrate transportation, smelting and refining costs and payable metal calculations .
Mining Methods
Open Pit Mine Plan
The NorthMet Project contains mineralization at or near the surface that is ideal for open pit mining methods.
Mining is planned on a 7 day per week schedule, with two 12-hour shifts per day.  There will be four crews planned to cover the rotating schedule. The mine plan includes 225 million tons of ore at an overall strip ratio of 1.6:1. Mining is planned in three pits: The East Pit, the Central Pit, and the West Pit. As mining of the Central Pit commences, it will extend into the East Pit, thereby joining the pits. The combined pit will be referred to as the East Pit.
The method of material transport evaluated for the 2018 Technical Report is open pit mining using two 36.6-yd3 hydraulic front shovels as the main loading units with a 22.5-yd3 front end loader as a backup loading unit. The material will be loaded into 240-ton haul trucks and the ore will be hauled to the rail transfer hopper for rail haulage to the mill or ore surge pile (OSP) areas, and the waste rock to waste stockpiles or pit backfills.
During the first half of the operation, the more reactive waste rock mined will be placed in two temporary stockpiles (one west of the East Pit referred to as the Category 4 Stockpile, and one south of the East Pit referred to as the Category 2/3 Stockpile), and the least reactive waste rock will be placed in a permanent stockpile north of the West Pit (referred to as the Category 1 Stockpile).  Once mining is completed in the East Pit, the more reactive waste rock mined will be placed directly in the East Pit as backfill. The more reactive waste rock in the Category 4 Stockpile (in the location of the future Central Pit) will then be relocated as backfill into the East Pit, thus clearing the area for mining of the Central Pit.  the Category 2/3 Stockpile will then be moved into the East Pit as backfill. Once mining is completed in the Central Pit, waste rock will be backfilled into that pit, too. By the end of the mine life, all of the more reactive waste rock will be placed as backfill in the pits. As the least reactive waste rock is mined, it will be placed in the permanent Category 1 Stockpile or in the East and Central Pits as backfill. The three mine pits will flood with water after mining and backfilling are completed, which results in the more reactive waste rock being permanently disposed of subaqueously. The general Mine Site layout, including pits, waste rock stockpiles, ore surge pile, rail transfer facility, and overburden storage and laydown area are shown on Figure 16 1 in the 2018 Technical Report.
17

Pre-production Development
The pre-production mine development will be carried out by contractors until bedrock has been uncovered.  Clearing, grubbing and harvesting of marketable timber and biomass will be completed as part of Mine Site development and mining. The surface overburden consists of glacial till and peat. Final pre-stripping overburden bank slopes will be maintained at a slope that is not steeper than 2.5H:1V.  Excavated peat will be stockpiled in the OSLA or near construction footprints until it can be reused for construction and other on-site reclamation.  The remaining glacial till fraction of the overburden will also be removed from the pit footprints and, where necessary, within the stockpile liner footprints, separated based on being saturated or unsaturated, and hauled to the appropriate construction or disposal areas.
Pre-production mine development will utilize on-site construction materials, where possible, including overburden materials and Category 1 waste rock, once available. Additional construction materials will be obtained, as approved by the MDNR. Potential construction materials include waste rock from the state-owned waste rock stockpile located approximately 5 miles west of the Mine Site along Dunka Road, and possibly waste rock and overburden from the inactive LTVSMC Area 5 Mine Site to the north and east of the FTB.
Before mining operations can begin, the Mine Site infrastructure, facilities and water management systems must be developed. Mine Site development will take 18-24 months.
Production Schedule
The production schedule for the NorthMet Project is driven by the nominal ore rate of 32,000 STPD equivalent to 11.6 million tons per annum (average of 362.5 days per year, or 99% availability) with a 20-year mill life.  Mining is planned on a 7 day per week schedule, with two 12-hour shifts per day. The mine plan includes 225 million tons of ore and an overall strip ratio of 1.6:1.  The production schedule has been calculated on an annual basis for the life of the mine.
The cutoff grade used for the mine schedule is based on the NSR values assigned to the block model described in Section 15.1.3 of the 2018 Technical Report. The NSR value is based on the diluted metal grades and the dilution approach is described in Section 15.1.2 of the 2018 Technical Report. An elevated cutoff is used in the early mining years to achieve a higher metal content in the mill feed tonnage.  Material below mill cutoff is temporarily stockpiled for processing later in the mill schedule.  The cutoff to the OSP is $8.50/t NSR and includes the tonnage between the mill cutoff NSR used in a particular year and the $8.50/t NSR stockpile cutoff value.  The NSR cutoff ranges between $14.00/t to $10.00/t during years 1 through 10 and then is $7.98/t for years 11 through 18. The cutoffs for the mill ore are shown in the below table as part of the annual production schedule.  The $7.98/t NSR cutoff covers the cost of processing, site G&A and waste water treatment on a per ton of ore basis.
The Life of Mine (LOM) schedule was developed on an annual basis for all years. Milling of the mined ore begins in month four of Year 1 and ramps up to full production; a total of 7.250 Mt are milled during Year 1, approximately 63% of a full year’s production rate.  The yearly mine production schedule showing ore and waste tonnages is presented in the below table.
18

Yearly Mine Production Schedule
 
 
Total
Year -1
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
Year 8
Year 9
Year 10
Year 11
Year 12
Year 13
Year 14
Year 15
Year 16
Year 17
Year 18
Year 19
Year 20
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ore Mined
NSR cutoff -->
 
 
14.00
14.00
14.00
13.00
11.00
11.00
12.00
11.00
9.00
9.00
7.98
7.98
7.98
7.98
7.98
7.98
7.98
7.98
 
 
ktons
 
198,867
 
7,250
11,600
11,600
11,600
11,600
11,600
11,600
11,600
11,600
11,600
11,600
11,600
11,600
11,600
11,600
11,600
11,600
6,017
 
 
DCu, %
 
0.311
 
0.348
0.358
0.355
0.334
0.334
0.333
0.334
0.314
0.300
0.280
0.273
0.268
0.274
0.275
0.287
0.292
0.322
0.345
 
 
DNi, %
 
0.088
 
0.103
0.105
0.095
0.087
0.086
0.089
0.097
0.093
0.085
0.083
0.082
0.083
0.083
0.081
0.080
0.081
0.088
0.094
 
 
Cu-Eq Mill, %
 
0.617
 
0.688
0.712
0.716
0.674
0.662
0.664
0.664
0.619
0.597
0.555
0.559
0.562
0.548
0.540
0.563
0.564
0.613
0.650
 
 
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ore to Stockpile (8.50/t NSR cutoff)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ktons
 
26,133
 
2,364
4,487
5,254
3,882
1,512
1,799
3,170
2,805
383
477
 
 
 
 
 
 
 
 
 
 
DCu, %
 
0.171
 
0.182
0.184
0.182
0.171
0.153
0.160
0.164
0.157
0.137
0.137
 
 
 
 
 
 
 
 
 
 
DNi, %
 
0.058
 
0.064
0.062
0.057
0.055
0.052
0.054
0.059
0.058
0.052
0.053
 
 
 
 
 
 
 
 
 
 
CuEq Mill, %
 
0.348
 
0.364
0.364
0.370
0.355
0.324
0.324
0.335
0.322
0.293
0.292
 
 
 
 
 
 
 
 
 
 
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ore from Stockpile
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   
ktons
 
26,133
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
5,583
11,600
8,950
DCu, %
 
0.171
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
0.171
0.171
0.171
DNi, %
 
0.058
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
0.058
0.058
0.058
Cu-Eq Mill, %
 
0.348
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
0.348
0.348
0.348
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mill Feed
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ktons
 
225,000
 
7,250
11,600
11,600
11,600
11,600
11,600
11,600
11,600
11,600
11,600
11,600
11,600
11,600
11,600
11,600
11,600
11,600
11,600
11,600
8,950
DCu, %
 
0.295
 
0.348
0.358
0.355
0.334
0.334
0.333
0.334
0.314
0.300
0.280
0.273
0.268
0.274
0.275
0.287
0.292
0.322
0.261
0.171
0.171
DNi, %
 
0.085
 
0.103
0.105
0.095
0.087
0.086
0.089
0.097
0.093
0.085
0.083
0.082
0.083
0.083
0.081
0.080
0.081
0.088
0.077
0.058
0.058
CuEq Mill, %
 
0.586
 
0.688
0.712
0.716
0.674
0.662
0.664
0.664
0.619
0.597
0.555
0.559
0.562
0.548
0.540
0.563
0.564
0.613
0.505
0.348
0.348
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Waste, ktons
Total
348,823
 
25,868
23,913
20,204
24,518
26,888
26,601
17,142
16,743
18,379
19,923
20,400
17,280
15,509
16,440
15,085
16,433
18,030
9,467
0
 
Cat 1
 
212,065
 
16,686
13,409
13,462
18,810
20,864
20,088
10,802
7,235
10,477
11,283
12,180
10,462
8,637
8,939
7,730
8,177
9,222
3,602
 
 
Cat 2
 
95,980
 
4,029
5,191
4,814
4,740
4,830
4,978
4,792
7,307
5,571
5,740
5,637
4,591
4,601
5,425
6,104
6,838
6,895
3,897
 
 
Cat 3
 
23,490
 
1,200
1,713
821
810
979
1,166
1,094
1,435
1,710
2,020
2,023
1,623
1,576
1,351
954
1,143
851
1,021
 
 
Cat 4
 
17,288
 
3,953
3,600
1,107
158
215
369
454
766
621
880
560
604
695
725
297
275
1,062
947
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total ktons mined
573,823
 
 
35,482
40,000
37,058
40,000
40,000
40,000
31,912
31,148
30,362
32,000
32,000
28,880
27,109
28,040
26,685
28,033
29,630
15,484
0
0
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Re-handle, ktons
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Stockpiled ore to mill
26,133
 
 
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
5,583
11,600
8,950
Waste rock to pit backfill
60,521
 
 
0
0
0
0
0
0
0
0
7,384
7,385
2,000
2,000
2,000
1,000
3,021
2,812
1,000
10,000
18,270
3,649
       
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total ktons moved
660,477
 
 
35,482
40,000
37,058
40,000
40,000
40,000
31,912
31,148
37,746
39,385
34,000
30,880
29,109
29,040
29,706
30,845
30,630
31,067
29,870
12,599
 
 
 
Year -1
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
Year 8
Year 9
Year 10
Year 11
Year 12
Year 13
Year 14
Year 15
Year 16
Year 17
Year 18
Year 19
Year 20

19

Water Management System
Water at the NorthMet Mine Site will be segregated as mine water and stormwater. Mine water is defined for the NorthMet Project as water that has contacted surfaces disturbed by mining activities, such as drainage collected on stockpile liners, pit dewatering water, saturated overburden dewatering water, and runoff contacting ore, waste rock, and Mine Site haul road surfaces. Mine water is collected by mine water management systems at the Mine Site. Mine water runoff from the overburden storage and laydown area or saturated overburden will be routed to the FTB or used to backfill the East Pit during later years of the operation. The rest of the mine water would go through treatment by chemical precipitation or membrane separation treatment prior to discharge to the FTB or, after closure, to the Mine Site.
Water at the Plant Site will also be segregated into process water and stormwater.  Water collected in the FTB seepage capture systems will be routed to the FTB or WWTS for treatment by membrane separation prior to discharge to wetlands downstream of the FTB seepage capture systems.
Stormwater includes runoff that has not been exposed to active mining activities and includes non-contact, industrial, and construction storm water. These include runoff from natural, stabilized, or reclaimed surfaces, or construction areas consisting primarily of unsaturated overburden or peat. Once areas are reclaimed, runoff is considered stormwater. Stormwater is routed to sedimentation ponds prior to discharge off-site to tributaries to the Partridge River.
A diagram of the Process Plant Water Balance is included in Figure 16-4 in the 2018 Technical Report.
Railroad
PolyMet will utilize existing, private railroad infrastructure to transport ore from the Mine Site to the Coarse Crusher at the Plant Site, receive incoming process consumables and supplies and to stage outgoing railcars containing the final products on common carrier Canadian National (“CN”) track for shipping.  The existing private railroad infrastructure was constructed by the original operator, Erie Mining Company, and consisted of two railroads; one for hauling run-of-mine ore from the operating pits to the Coarse Crusher and the second for hauling the product, taconite pellets, to Taconite Harbor on Lake Superior.  To insure consistent operations, it was critical to the previous site operators that the two railroads were reliable, therefore the railroad infrastructure was well maintained. The track to be used by PolyMet for ore haulage between the Mine Site and the Plant Site is 136-pound per yard and 140-pound per yard rail, with much of the 140-pound per yard rail being welded.  In 1999 a major railroad tie replacement program took place.  PolyMet has agreements in place with Cliffs Erie as part of its contract for deed arrangements with Cliffs Erie to utilize the existing railroad lines that will continue to be owned by Cleveland Cliffs.
Two new segments of railroad tracks will be constructed and an ore storage and loading pocket, also known as the rail transfer hopper, will be re-constructed at the Mine Site.  The rail transfer hopper is the transfer point where the run-of-mine ore is placed into the side dump rail cars for hauling to the Coarse Crusher.
In addition to the railroads and the loading pocket, infrastructure such as fueling stations, sand towers and maintenance facilities, are in place and will be refurbished and returned to service by PolyMet.
Recovery Methods
Plant Design
The NorthMet Project plant design is based on utilizing as much of the existing infrastructure as feasible, while ensuring a safe and cost effective operating philosophy by incorporating the latest technology.

The original plan for refurbishing the existing Erie Plant comminution circuit was reviewed and the following was taken into consideration:
 
20

The existing circuit design and equipment is more than 50 years old;
The plant has been idle for more than 15 years;
The complex’s operational and maintenance requirements associated with running a tertiary and quaternary crushing circuit as well as 12 milling streams; and
The large number of transfer points associated with the above.
Based on this, the viability of replacing the existing milling circuit with larger, modern mills capable of handling the throughput requirements through a single stream was investigated. A single stream SAG and ball mill circuit with a pebble crusher would mean significant changes to the layout within the concentrator building, but has the following benefits:
Tertiary and quaternary crushing would no longer be required. This eliminates a large portion of the current circuit which is highly maintenance intensive, and also requires significant dust control measures and building heating requirements;
The ore storage bin operating and discharge methodology would be changed to allow a greater volume of the bin to be used, while also reducing the number of operating transfer points. This would significantly reduce the dust emissions within the concentrator building;
The new milling circuit would have variable speed control on both mills allowing for greater process control and adaptability to cater to any potential variability in the upstream and downstream process characteristics;
New larger mills have greater operating efficiencies and less maintenance requirements, therefore reducing operating costs; and
Simplified milling control system as a result of reduced service requirements to the mills. These include process water addition points, lubrication systems monitoring, discharge density and grind size control and ore feed.

Based on all of the above, the decision to change the milling philosophy to incorporate a new semi autogenous ball-mill-crushing (“SABC”), circuit was made. The concentrator building was modelled to accommodate the new equipment, while ensuring that the building structure remained as per the original design. The new circuit also allowed for the existing electrical rooms, cranes and process water tanks to be utilized.
Existing equipment was analysed to determine its suitability to the new process. Generally, existing equipment that was found to be compatible with the new process design would require refurbishment. Where possible, the original equipment manufacturers (“OEMs”) were utilised to determine the refurbishment requirements and costs.
Detailed plant models were developed to identify existing infrastructure and to determine the space available for the new process equipment. Figure 17-1 in the 2018 Technical Report illustrates the main buildings that would be utilised in the new plant design.
Process Plant Flowsheet Development
The overall plant process flows for the NorthMet Project are shown in Figure 17-5 in the 2018 Technical Report.
Hydrometallurgical Processing
PolyMet’s previous hydrometallurgical recovery process design included two autoclaves and a copper solvent extraction/electrowinning (“SX-EW”) circuit to produce copper metal.  In addition, the process included the precipitation processes of nickel-cobalt hydroxide and precious metals as value-added by-products.
21

PolyMet has now simplified this metallurgical process to recover base metals, gold and PGMs. PolyMet intends to construct the plant in two phases:
Phase I: The Beneficiation Plant consisting of crushing, grinding, flotation, concentrate thickening and concentrate filtration.  The Beneficiation Plant will produce and market concentrates containing copper, nickel, cobalt and precious metals; and
Phase II: In mine year 2, a hydrometallurgical plant is expected to be commissioned to process nickel sulfide and pyrrhotite concentrates, with processing starting in mine year 3. This concentrate stream will be processed through a single autoclave to recover high-grade copper concentrate and recover nickel-cobalt hydroxide and precious metals precipitates as by-products.

The advantages of the phased approach to building the complete plant is to delay capital expenditure by deferring the hydrometallurgical plant. This deferral of costs reduces capital-at-risk in the initial years of production of the NorthMet deposit.
Water Management
Water will be consumed at the NorthMet Plant Site in both the Beneficiation Plant and the Hydrometallurgical Plant.  For the most part, water operations within these two plants would be independent of each other.  The only exceptions would be the transfer of flotation concentrates from the Beneficiation Plant to the Hydrometallurgical Plant and the combining of filtered copper concentrate and solution from Au/PGM Recovery in the Copper Concentrate Enrichment process step.
All water that enters the Hydrometallurgical Plant will be recycled at each step of the process. The average annual water demand for the Hydrometallurgical Plant is estimated at 240 gpm, but may vary from 114 to 406 gpm monthly as operating and climatological variations occur.  To the extent possible, water used to transport residue to the tailing facility would be returned to the Hydrometallurgical Plant; however, losses may occur via evaporation and storage within the pores of the deposited residue. In addition, spilled fluids will be returned to the appropriate process streams.
Project Infrastructure
The NorthMet Project has a large amount of existing infrastructure that is well established but requires modifications and refurbishment to support the process application. The existing usable infrastructure includes the following:
138 kV incoming HV power supply from the Minnesota Power grid
Power distribution to the existing facilities
Process plant buildings complete with distribution services
Administration and site offices
Site and mine access roads
Rail network including locomotive services and re-fueling facilities
Natural gas supply
FTB with return water barge and pumps
Mining and plant workshops

A description of the existing and new infrastructure required for the NorthMet Project, along with details of the work required to bring these facilities into operation, is described in detail in Section 18 of the 2018 Technical Report.
Market Studies and Contracts
Saleable products from the NorthMet Project will initially be copper and nickel concentrates under the Phase I scenario.  These products will be sold to smelting and refining complexes capable of recovering a number of metals contained in these products.  It is estimated copper will contribute 61% of net revenues, nickel 18%, PGMs 18%, cobalt 2%, gold and silver 1%.
22

Phase II of the NorthMet Project includes construction of a hydrometallurgical facility that will result in upgrading the nickel concentrates into a higher purity nickel-cobalt hydroxide and a precious metals precipitate. Including copper concentrate sales, it is estimated net revenues will comprise copper 54%, nickel 20%, PGMs 22%, cobalt 2% and gold and silver 2%.
PolyMet has entered into a long-term marketing agreement with Glencore AG (“Glencore”) whereby Glencore will purchase all products (metals, concentrates or intermediate products) on independent commercial terms at the time of sale. Glencore will take possession of the products at site and be responsible for transportation and ultimate sale.  Pricing is based on London Metal Exchange with market terms for processing.  In the case of copper concentrates, the benchmark is annual Japanese smelter contracts.
Environmental Studies and Social or Community Impact
The NorthMet Project has undergone extensive state and federal environmental review culminating in publication of the Final Environmental Impact Statement (“FEIS”) in November 2015. The FEIS concluded that the NorthMet Project could be constructed and operated in a manner that meets both federal and state environmental standards and is protective of human health and the environment. The FEIS provides a detailed description of the NorthMet Project, the potential impacts to the environment, and the associated design and mitigating measures. PolyMet made numerous refinements during the environmental review process to incorporate avoidance or mitigation measures that will produce substantial environmental benefits and other advantages to the NorthMet Project.
Environmental Review and Permitting
The Co-Lead Agencies (USFS, USACE, and MDNR) published the FEIS in November 2015. In March 2016, the MDNR issued a Record of Decision (“ROD”) concluding that the FEIS addresses the objectives defined in the EIS scoping review, meets procedural requirements, and responds appropriately to public comments. The 30-day period allowed by state law to challenge the ROD passed without any legal challenge being filed.

In January 2017, the USFS issued its Final ROD authorizing the land exchange which stated the land exchange eliminates a fundamental conflict between the rights that PolyMet has as a result of control of the mineral rights and the USFS position on those rights which otherwise could result in litigation that has no certain outcome and could set a judicial precedent regarding other lands acquired in the same deed under the Weeks Act.
On June 28, 2018, the Company and USFS exchanged titles to federal and private lands, completing the land exchange giving the Company control over both surface and mineral rights in and around the NorthMet ore body and consolidating the Superior National Forest’s land holdings in northeast Minnesota.
In November 2018, the Company received all final MDNR permits for NorthMet for which the Company had applied, including the Permit to Mine, dam safety, water appropriations, endangered and threatened species takings, and public waters work permits, along with Wetland Conservation Act approval.

In December 2018, the Company received all final MPCA permits for NorthMet for which the Company had applied, including the water quality permit, air emission quality permit, and Section 401 Certification.

In March 2019, the Company received the federal Record of Decision and wetlands permit from the USACE, which is the last key permit or approval needed to construct and operate the NorthMet Project. At this point, the NorthMet Project is fully permitted.
23

Baseline Studies
Extensive baseline studies were completed for the NorthMet Project and are described in Section 4 (Affected Environment) of the FEIS.  These studies include extensive data on local lakes and rivers, including: meteorological conditions, ground and surface water, wetlands, hydrology, geotechnical stability, waste characterization, air quality, vegetation (types, invasive non-native plants, and threatened and endangered species), wildlife (listed species and species of special concern, species of greatest conservation need and regionally sensitive species), aquatic species (surface water habitat, special status fish and macroinvertebrates), noise, socioeconomics, recreational and visual resources, and wilderness and other special designation areas.  Receipt of all permits necessary to construct and operate the NorthMet Project confirms that the design can meet applicable federal and state standards.
Environmental Considerations
There are no known environmental issues for the NorthMet Project that cannot be successfully mitigated through implementation of the various management plans that have been developed based on accepted scientific and engineering practices. Adaptive management will be employed at the NorthMet Project by using flexible engineering controls that can be adjusted to continue achieving compliance with applicable water quality standards and permit conditions when site-specific conditions vary.   Receipt of all permits necessary to construct and operate the NorthMet Project confirms that the design can meet applicable federal and state standards.
Waste Management
PolyMet plans to re-use an existing taconite tailings basin for storage of NorthMet’s Flotation Tailings. The stability and design of the FTB have been investigated and reviewed by numerous geotechnical consultants, including Barr Engineering, Knight Piésold, Scott Olson (geotechnical professor at the University of Illinois), and Dirk Van Zyl (University of British Columbia). The results and recommendations of these third-party peer reviews have been incorporated into the design and operating plans for the FTB, which is fully permitted following review by applicable regulatory agencies and their independent experts.
The results of PolyMet’s waste characterization program were used for multiple purposes in support of the design, environmental review, and permitting of the NorthMet Project. At early stages of Project design, results from the waste characterization program were used to form the conceptual models for metal leaching and potential acid generation from Project materials. The characterization data on mineralogy, petrology, chemistry (including dissolved solids release), acid-base accounting, and static leach tests on Project materials were used to identify the minerals with potential to release metals or acidity during weathering, and the NorthMet Project-specific mechanisms that are expected to consume acidity. Results from the waste characterization program were used to identify the sulfur criteria thresholds used to classify waste rock as part of the NorthMet Project’s waste rock management program.
Custom test work on tailings deposition, conducted by Saint Anthony Falls Laboratory, University of Minnesota, informed decisions on management of the Flotation Tailings. Additional custom test work on potential interactions between Flotation Tailings and LTVSMC tailings was used to identify potential chemical interaction, or lack thereof, that would need to be incorporated into predictions of the chemistry of the FTB seepage. In the case of the hydrometallurgical residue, waste characterization results were used to compare leachate chemistry with criteria values for classification of hazardous waste.
In addition to the testing listed above, results from the waste characterization program were used to define input parameters for PolyMet’s probabilistic water models developed to predict water quantity and quality at the Mine Site and the Plant Site used for environmental review and permitting. Input parameters from PolyMet’s waste characterization program included constituent release rates, concentration caps, constituent flushing loads, time lag to formation of acidic conditions, and parameters that are used to model residual saturation of Flotation Tailings.
 
Receipt of all permits necessary to construct and operate the NorthMet Project confirms that the design can meet applicable federal and state standards.
 
24

Water Management
The overall NorthMet Project water management strategy includes reusing water from the Mine Site at the Plant Site, as well as reusing water within various Plant Site facilities, to maximize water recycling and minimize discharges to the environment. Water will be treated using chemical precipitation and/or membrane separation treatment. Treated water discharge will be used to augment streamflow, where needed, in watersheds around the FTB. The NorthMet Project design includes systems for managing and monitoring water to comply with applicable surface water and groundwater quality standards at appropriate compliance points. PolyMet designed the water management systems to achieve compliance based on modeling of expected water quantity and quality (See Section 16-8 in the 2018 Technical Report). The key treatment technologies include membrane filtration and high-density sludge chemical precipitation.  Additionally, PolyMet has created adaptive management and contingency mitigation procedures for water management that it will utilize as necessary to maintain regulatory compliance.
Air Management
PolyMet will use air pollution control techniques common to mining and other industrial operations. These control techniques include fabric filters, venturi and packed-bed scrubbers, and fugitive dust control procedures at various facilities, locations, and phases within the NorthMet Project to provide levels of emission control that will protect human health and the environment.

The MPCA, pursuant to its authority under state law and under the federal CAA as delegated by the USEPA, is responsible for the air permitting for the NorthMet Project. PolyMet’s air permit contains achievable terms and conditions to protect human health and the environment as applicable to air quality management.

Land Management
PolyMet has control of the mineral rights necessary for the NorthMet Project. Control of the surface rights at the Mine Site were the subject of the land exchange with the USFS. As noted above, the USFS issued its ROD on January 9, 2017 and on June 28, 2018, the Company acquired surface rights over the NorthMet deposit through a land exchange with the USFS using land the Company previously owned.  With the exchange, PolyMet has total surface rights, including ownership and other use and occupancy rights, to approximately 19,050 contiguous acres (29.8 square miles) of land including the land at the mine and processing sites, the transportation corridor connecting those sites, and buffer lands.

Treaties and Indigenous Groups
The NorthMet Project area is located within the territory ceded by the Chippewa of Lake Superior to the United States in 1854. The Chippewa hunt, fish, and gather on lands in the 1854 Ceded Territory. Harvest levels and other activities are governed by either individual tribal entities (in the case of the Fond du Lac Band) or the 1854 General Codes and subsequent Amendments under the 1854 Treaty Authority (in the case of the Grand Portage and Bois Forte bands).  Pursuant to Section 106 of the National Historic Preservation Act, the federal Co-lead Agencies identified several historic properties in consultation with the State Historic Preservation Office (“SHPO”), Bands, and PolyMet. A Memorandum of Agreement under Section 106 was signed by PolyMet, USFS, USACE, and SHPO in December 2016.
25

Closure Plan and Financial Assurance
PolyMet plans to build and operate the NorthMet Project in a manner that will facilitate concurrent reclamation, in order to minimize the portion of the NorthMet Project that will need to be reclaimed at closure.
The overall objectives of the Closure Plan are to meet the following criteria:
The closed Mining Area or portion is safe, secure, and free of hazards;
It is in an environmentally stable condition; and
It minimizes hydrologic impacts and the release of hazardous substances that adversely affect natural resources; and it is maintenance free.

As a condition of receiving the Permit to Mine, financial assurance instruments covering the estimated cost of reclamation, should the mine be required to close in the upcoming year, were submitted and approved by the MDNR.  Minnesota Rules require PolyMet to annually update its financial assurance.  This process acknowledges possible future changes to the financial assurance, including possible changes based on any revisions to applicable law or to the mine plan. These costs have been accounted for in the overall project economics. For purposes of the 2018 Technical Report, PolyMet has assumed that the Minnesota water quality standards governing sulfate in wild rice water will be revised, as required by law, after the NorthMet Project is in operations.
Capital and Operating Costs
Capital and operating costs for the NorthMet Project were developed and estimated based on feasibility-level design and engineering performed by Senet, Barr, IMC, Krech Ojard (KO) and M3.  Site inspections were conducted (with vendors where possible) to evaluate the condition of the plant, the mine and the equipment.
Capital Cost Estimates
The capital cost estimate is divided into the following major sections:
Mine CAPEX which includes cost estimates for mine site development and major mining equipment costs;
Mine ore loadout and mine and plant railroad refurbishment costs;
Comminution, processing, utilities and plant refurbishment costs;
Costs to build out the existing tailings basin; and
Costs for water treatment and water management.

The capital cost estimate is based on the following assumptions:
The NorthMet Project utilizes a 20-year LOM plan.
It isn’t anticipated that final operating permits will result in any material changes to mine or plant design.
Most of the process equipment would be procured and fabricated in the US and is transportable to site by road or rail.

26


The below table depicts the initial direct capital requirement for the development of the NorthMet Project.  This estimate includes capital costs compiled by the firms associated with numerous scopes of work for the mine, mine equipment and refurbishing the Erie Plant (Phase I) which have been escalated to reflect Q4 2017 pricing.
Phase I Direct Costs
Description
PHASE I
($000)
***DIRECT COST***
MINE CAPEX
 
Mine Site
65,395
Construction Material Testing
1,490
Mine Equipment
99,710
RAILROAD AND ORE DELIVERY
20,200
COMMINUTION
135,013
COPPER & NICKEL CONCENTRATION
120,609
CONCENTRATES LOADOUT FACILITIES
49,895
WATER MANAGEMENT
62,651
PLANT CONTROL SYSTEM (PCS)
1,919
FLOTATION TAILINGS BASIN
39,684
PLANT INFRASTRUCTURE
10,879
PLANT UTILITIES
99,245
Subtotal DIRECT COST (MINE & CONCENTRATOR)
706,690

The capital costs for the Phase II Hydrometallurgical Plant, as set out in the below table, were developed by M3 and were based on the following:
Recent quotations (Q4 2016 and Q1 2017) were obtained for new mechanical equipment based on detailed enquiries including specifications and equipment duty sheets. The mechanical equipment was sized based on test work results, system modelling and in certain cases equipment sizing was dictated by physical layout/foot print constraints.
Preliminary designs for new structures, bins and chutes.
Preliminary civil and earthworks designs associated with the new structures, equipment and operational requirements including access and spillage containment.
Priced piping and valve MTOs developed from preliminary PFDs and General Arrangement drawings.
Quotations for electrical and instrumentation equipment based on recent enquiries, including installation on similar projects.
A complete instrument index including a comprehensive BOM was developed and issued for pricing.
Man-hour estimations for the installation of new equipment, electrical, instrumentation, structures and associated civil works. These were based on industry standards.

27


Phase II Direct Costs (Hydrometallurgical Plant)
***DIRECT COST***
PHASE II
($000)
HYDROMET
 
Site General
24,152
Ni-Cu Concentrate Oxidative Leaching
68,880
Au/PGM Recovery
3,780
Cu Concentrate
3,743
Cu Sulfide Precipitation
1,621
Iron/Acid Removal
5,808
Mixed Hydroxide Precipitation
3,486
Magnesium Removal
736
Hydromet Tailings
840
Hydrometallurgical Residue Facility
43,903
Reagent Storage and Mixing
15,671
Plant Scrubber
1,591
Hydromet Raw Water
1,647
Hydromet Process Water
1,241
Steam Systems
1,085
Gas Systems
784
Subtotal DIRECT COST (PHASE II)
178,966

The following table depicts the estimated direct and indirect capital costs for the development of the NorthMet Project for Phases I and II.
Direct and Indirect Costs (Phase I & II)
 
 
 
 
PHASE I
($000)
PHASE II
($000)
TOTAL DIRECT COST (Excluding Mine Equipment)
   
606,980
178,966
FREIGHT - LOGISTICS
   
19,393
7,017
MOBILIZATION, TEMPORARY FACILITIES AND POWER
     
4,523
TOTAL CONSTRUCTED COST
   
626,373
$190,506
EPCM
     
90,999
32,196
COMMISSIONING
   
7,790
1,394
CAPITAL SPARES
 
 
 
 
929
TOTAL CONTRACTED COST
   
725,162
225,025
CONTINGENCY
 
 
 
71,597
33,754
AVERAGE CONTINGENCY
   
9.9%
15% 
ADDED OWNER'S COST (including initial fills & reagents)
   
24,489
 
TOTAL CONTRACTED AND OWNER'S COST
 
821,248
258,779
Owner's Cost Mine Equipment (Initial Capital)
 
99,710
 
Haul Truck Tire Adjustment
 
(900)
 
EIP Credits
 
25,065
 
TOTAL EVALUATED PROJECT COST
 
945,124
258,779
COMBINED TOTALS
 
1,203,903

28

Operating Cost Estimates
The following table is a summary of the mine operating costs for the NorthMet Project by the major categories of labor, consumables and repair parts.
Mine Operating Costs by Process
 
 
% of Total
CATEGORY
($000)
Mining Cost
Drilling
50,662
5.6
Blasting
97,144
10.7
Loading
99,297
11.0
Hauling
257,502
28.5
Auxiliary
147,737
16.3
General Mine
32,512
3.6
General Maintenance
33,888
3.7
Mine G&A
98,338
10.9
Locomotive
79,884
8.8
Other
1,587
0.2
Analytical Lab Contract
6,000
0.7
TOTAL MINING COST
904,553
100

The following table is a summary of the operating cost estimates for PolyMet’s Erie Process Plant and assay.
Phase I Operating Cost Estimate Summary
 
 
32,000 STPD
 
OPEX Parameter
Units
Value
Fraction (%)
Tonnage Processed
tpa
11,600,000
 
Labor
USD/t
1.04
15.9
Power
USD/t
2.11
32.2
Natural Gas
USD/t
0.27
4.1
Consumables/Water Treatment
USD/t
2.44
37.3
Maintenance Supplies & Plant Vehicles
USD/t
0.66
10.1
Assay Costs
USD/t
0.02
0.3
Phase I Plant Costs
USD/t
6.55
100

M3 developed the on-site operating costs associated with the hydrometallurgical plant (or Phase II) which are summarized by cost element of labor, electric power, reagents, maintenance parts and supplies and services in the below table.
Phase II Operating Cost Estimate Summary
 
 
32,000 STPD
 
OPEX Parameter
Units
Value
Fraction (%)
Tonnage Processed
tpa
11,600,000
 
Labor
USD/t
0.21
9.9
Power
USD/t
0.11
5.2
Consumables and Reagents
USD/t
1.17
55.2
Maintenance
USD/t
0.57
26.9
Supplies & Services
USD/t
0.06
2.8
Phase II Plant Costs
USD/t
2.12
100

29

Additional detail concerning operating costs for the NorthMet Project are set out in Section 21 of the 2018 Technical Report.
Economic Analysis
The following economic analysis of the NorthMet Project was prepared on the basis of processing 225 million tons of ore at a mining rate of 32,000 STPD (11.6 million tons per annum) for 20 years. Financial analysis was performed to determine the Net Present Value (“NPV”), payback period (time in years to recapture the initial capital investment), and the Internal Rate of Return (“IRR”) for the NorthMet Project. Annual cash flow projections were estimated over the anticipated life of the mine (20 years) based on estimates of capital expenditures, production cost and sales revenue. The sales revenue is based on the estimated production of copper and nickel concentrates containing PGMs, cobalt, and precious metals. The economic analysis uses the estimated capital expenditure and site production costs developed for the NorthMet Project and presented in Section 21 of the 2018 Technical Report.  Financial projections have not been audited by PricewaterhouseCoopers LLP, the Company’s independent registered public accounting firm.
The following economic analysis reflects PolyMet’s plan to build the NorthMet Project in two phases (with Phase II being the addition of a Hydrometallurgical Plant):
Phase I: produce and market concentrates containing copper, nickel, PGMs, cobalt and precious metals.
Phase II: once processed via Phase I, continue processing the nickel concentrate through a single autoclave, resulting in production and sale of high grade copper concentrate, value added nickel-cobalt hydroxide, and precious metals precipitate products.

Life of mine, and the first five years at full production (years 2-6), economic assumptions and highlights for Phase I and Phase I & II combined are shown in the below table.
LOM Operating Cost Highlights – Phase I and Phase I & II Combined

Cost Category
UOM
Phase I
Phase I & II
Capital Costs
     
  Initial Capital
$ millions
945.1
1,203.9
  LOM Sustaining Capital
$ millions
220.6
220.6 (1)
Operating Costs
 
LOM
 Mining & Delivery to Plant
$/st processed
4.02
4.02
 Processing
$/st processed
6.55
8.66
 G&A
$/st processed
0.48
0.48
Total
$/st processed
11.05
13.16
LOM Average Annual Payable Metal in Cons Produced
     
 Copper
000 lbs
54,792
57,754
 Nickel
000 lbs
6,646
8,711
 Cobalt
000 lbs
281
311
 Platinum
koz
8
14
 Palladium
koz
42
59
 Gold
koz
2
4
 Silver
koz
48
48
Average Annual Payable Metal in Cons Produced (Yrs 2-6)
     
Copper
000 lbs
66,748
69,384
Nickel
000 lbs
7,867
9,647
Cobalt
000 lbs
333
352
Platinum
koz
12
19
Palladium
koz
58
73
Gold
koz
3
6
Silver
koz
68
68
(1)
Sustaining capex for Phase II is included as an OPEX cost for replacement parts piping liners etc for Hydromet plant

30


Base Case metal price assumptions, process plant recoveries and key operating data for the average over the life of mine are presented in the below table.
32,000 STPD Base Case (Phase I) Price and Operating Assumptions and Key Production Numbers
 
Base Case
($/lb or
$/oz)
Metal
Recovery
to Conc.
(%)
Production
(million lbs
or oz)
Contribution
to net
revenue (%)
Cash Cost
per lb Cu Eq
Cash Cost
per lb Cu
Cu Eq$/lb or
$/oz
by-product
$/lb or $/oz
Assumptions
LOM
Phase I
Copper (lb)
3.22
91.8
1,096
60.5
1.91
1.06
Nickel (lb)
7.95
63.5
133
18.1
   
Cobalt (lb)
20.68
35.9
5.6
2.0
   
Platinum (oz)
1,128
73.4
170
3.3
   
Palladium (oz)
973
78.1
836
13.9
   
Gold (oz)
1,308
58.9
45
1.0
   
Silver (oz)
18.92
56.9
958
0.3
   
Low-grade Nickel PGM (Ktonne)
55.00
N/A
912
0.9
   

During years 2 through 6 of full-scale production for Phase I, 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 $1.71/lb for copper.
Base Case (Phase I & II) Price and Operating Assumptions and Key Production Numbers
 
Base Case
($/lb or
$/oz)
Metal
Recovery
to Conc.
(%)
Production
(million lbs
or oz)
Contribution
to net
revenue (%)
Cash Cost
per lb Cu Eq
Cash Cost
per lb Cu
Cu Eq$/lb or
$/oz
by-product
$/lb or $/oz
Assumptions
LOM
Phase I & II
Copper (lb)
3.22
91.8
1,155
54.3
1.79
0.59
Nickel (lb)
7.95
63.5
174
20.2
   
Cobalt (lb)
20.68
35.9
6.2
1.9
   
Platinum (oz)
1,128
73.4
286
4.7
   
Palladium (oz)
973
78.1
1,189
16.9
   
Gold (oz)
1,308
58.9
86
1.6
   
Silver (oz)
18.92
56.9
958
0.3
   
Low-grade Nickel PGM (Ktonne)
55.00
N/A
175
0.1
   

31

The key estimated financial results for Phase I and combined Phase I and II for the NorthMet Project are presented in the below table.
Financial Summary – 32,000 STPD
 
 
Phase I
 
Phase I & II
 
Units
First 5 Yrs 1
LOM
 
LOM 2
Life of Mine
Yrs
 
20
 
20
Material Mined
Mt
197
574
 
574
Ore Mined
Mt
58
225
 
225
Waste: Ore Ratio
 
2.4
1.6
 
1.6
Ore Grade
         
Copper
%
0.343
0.295
 
0.295
Nickel
%
0.092
0.085
 
0.085
Cobalt
ppm
76
75
 
75
Palladium
ppm
0.327
0.269
 
0.269
Platinum
ppm
0.099
0.079
 
0.079
Gold
ppm
0.048
0.039
 
0.039
Annual Payable Metal Produced
         
Copper
mlb
66.7
54.8
 
57.8
Nickel
mlb
7.9
6.6
 
8.7
Cobalt
mlb
0.33
0.28
 
0.31
Palladium
koz
57.6
41.8
 
59.4
Platinum
koz
12.4
8.5
 
14.3
Gold
koz
3.4
2.2
 
4.3
Copper Equivalent 3
mlb
112.4
90.6
 
106.4
 
         
Cash Costs: by-product
$/lb Cu
0.67
1.06
 
0.59
Cash Costs: Cu equivalent
$/lb CuEq
1.71
1.91
 
1.79
 
         
Development Capital
$M
945
945
 
1,204
Sustaining Capital
$M
99
221
 
221
 
         
Annual Revenue
$M
362
292
 
343
Annual EBITDA
$M
170
118
 
152
NPV 7 (After Taxes)
$M
 
173
 
271
IRR (After Taxes)
%
 
9.6
 
10.3
Payback (after taxes, from first production)
Years
 
7.3
 
7.5
1 Represents first five years at full concentrator production.
2 Phase II production is projected to commence in Year 3 of operations.
3 Cu Eq recovered payable metal, is based on prices shown in Table 1-4 of the 2018 Technical Report, mill recovery assumptions shown in Table 15-3 of the 2018 Technical Report and Hydromet Phase II recoveries shown in Table 13-14 of the 2018 Technical Report.
Key estimated Phase I results include a pre-tax IRR of 10.2%, a pre-tax NPV@7% of $217 million, an after-tax IRR of 9.6%, an after-tax NPV@7% of $173 million and an after-tax payback period of 7.3 years.
Key estimated Phase I and II combined results include a pre-tax IRR of 10.9%, a pre-tax NPV@7% of $322 million, an after-tax IRR of 10.3%, an after-tax NPV@7% of $271 million and an after-tax payback period of 7.5 years.
32

Adjacent Properties
There are no adjacent properties that PolyMet is proposing to explore or drill as part of any drilling program or other evaluation. There are several other deposits in the Duluth Complex, including the Mesaba project owned by Teck Resources Limited, Serpentine owned by Encampment Resources, and the Maturi project owned by Twin Metals Minnesota, a wholly owned subsidiary of Antofagasta plc.
Other Relevant Data and Information
Project Implementation
The proposed execution of the NorthMet Project assumes a seamless transition between critical project phases, minimal project interruptions and a reduction in potential risks.
The NorthMet Project implementation would consist of the following phases:
Engineering – Basic and Detailed
Demolition
Construction

It is anticipated that the stages may somewhat overlap depending on receipt of final permits.
This approach assumes that all work associated with asset preservation has been accomplished prior to demolition.  Asset preservation includes the removal of all asbestos, mold, and lead paint as well as some basic infrastructure repairs such as repair of the fire water loop and pumping system.
Potential Opportunities
PolyMet has considered opportunities to improve annual operating costs and LOM strategies at the NorthMet Project using the existing block resource model tons and grades as a basis for alternate economic scenarios. The scenarios presented in this section should not be misconstrued as proposals or detailed plans or strategies.  PolyMet would need to prepare preliminary and definitive feasibility studies, as well as to conduct an analysis of the environmental impact and alternatives and budget and cost decisions prior to any decision to apply for permits to pursue these opportunities. Any such opportunities would be subject to various regulatory requirements and would require significant capital investment. Because the steps in this process have not been undertaken by PolyMet, the results presented in this section should be considered speculative.
In addition, any future project proposal would be subject to additional environmental review and permitting requirements and or public notice and comment, and approval by appropriate federal and state agencies. The NorthMet FEIS evaluates the reasonably foreseeable environmental effects of the NorthMet Project based in part on a mine plan that identified an average production rate of 32,000 STPD (approximately 225 million short tons over the 20-year life of the mine).  PolyMet’s focus and intention is to put into operation the 32,000 STPD plan detailed in the 2018 Technical Report as soon as possible.
A preliminary investigation was undertaken to evaluate the potential of developing the NorthMet deposit to achieve higher throughputs than the current 32,000 STPD mine plan. In particular, and subject to the caveats above, the following two additional scenarios were evaluated at a PEA-level for the NorthMet deposit: (i) increase the daily mill feed rate to 59,000 STPD and mine to the completion of the West Pit design; and (ii) increase the daily mill feed rate to 118,000 STPD by expanding the pit limits outside the current permit limits. It is important to note that both the 59,000 STPD and 118,000 STPD scenarios include materials classified as inferred in addition to measured and indicated material. Inferred material is considered too poorly defined to include in most mine planning exercises except at the PEA level and are too speculative geologically to have the economic considerations applied to them that would enable them to be categorized as Mineral Reserves.  Hence, the results predicted for the 59,000 STPD and 118,000 STPD throughput are speculative and may not be realized.
33

PEA-level initial and sustaining capital estimates were developed for the 59,000 and 118,000 STPD scenarios, as were operating costs for each scenario.  For the 118,000 STPD scenario, M3 developed an estimate from current 2017 budgetary quotes and quotes from recently constructed projects of similar size.  In some cases, costs were scaled from the original estimate using the “0.6 power rule” formula:


Examples of scaled costs from the 32,000 STPD CAPEX include revised civil/site work estimates, reagent & clear service pumps, HVAC, material quantity take-offs for structural steel and concrete, as well as piping and electrical allowances.  For 59,000 STPD, cost estimates for the 32,000 STPD case were escalated to reflect current fourth quarter 2017 pricing using an ENR factor and then scaled using the 0.6 power rule to meet the new tonnage.  In a few cases, the modifications/additions in plant equipment and process needs listed above were estimated separately and added to escalated totals. Capital costs for the 59,000 & 118,000 scenarios are presented in the below table.
LOM Operating Highlights for 59,000 STPD & 118,000 STPD
Operating Plan
Unit of Measure
59,000 STPD
118,000 STPD
   
Phase I
Phase I & II
Phase I
Phase I & II
Mineralized Material Processed
Million st
293
293
730
730
Operating Life
years
15
15
19
19
LOM Strip Ratio
 
1.5
1.5
2.2
2.2
Capital Costs
         
Initial Capital
$ millions
1,095
1,354
1,614
1,872
LOM Sustaining Capital
$ millions
249
249
900
900
Operating Costs
         
Mining & Delivery to Plant
$/st processed
3.16
3.16
3.36
3.36
Processing
$/st processed
5.32
6.94
5.36
6.34
G&A
$/st processed
0.78
0.78
0.28
0.28
Subtotal Operating Costs
$/st processed
9.26
10.88
9.00
9.98
Selling Costs
$/st processed
3.23
2.55
2.94
2.34
Total Operating Costs
$/st processed
12.49
13.43
11.94
12.32
Note: 118,000 STPD case mining and delivery costs to plant include G&A costs.

For the 59,000 STPD scenario (Phase I and II), operating cost over the LOM is estimated to be $13.43 per ton of mineralized material processed. For the 118,000 STPD scenario (Phase I and II), operating cost over the LOM is estimated to be $12.32 per ton of mineralized material processed. This represents a cost savings per ton processed for $2.28 and $3.40 for the 59,000 STPD and the 118,000 STPD scenarios, respectively, over the 32,000 STPD case.
34


The preliminary estimate developed for a throughput of 59,000 STPD (using total Phase I and II) amounted to an additional $150 million dollars in initial capital over the 32,000 STPD base case (Phase I and II) and $28 million US dollars in additional sustaining capital.  Estimated financial indicators for the 59,000 STPD case improved over the 32,000 STPD throughput to $963 million US dollars NPV@ 7% and 18.5% IRR for Phase I and II. The economic summary reflects processing 293 million tons of mineralized material grading at 0.576% Cu-Eq over a 15-year mine life, at an average of 59,000 STPD.
59,000 STPD Economic Highlights
 
 
Phase I
 
Phase I & II
 
Units
First 5 Yrs 1
LOM
 
LOM 2
Life of Mine
Yrs
 
15 4
 
15
Material Mined
Mt
294
724
 
724
Mill Feed Mined
Mt
106
293
 
293
Waste: Mill Feed Ratio
 
1.8
1.5
 
1.5
Mill Feed Grade
         
Copper
%
0.313
0.290
 
0.290
Nickel
%
0.087
0.083
 
0.083
Cobalt
ppm
75
74
 
74
Palladium
ppm
0.293
0.264
 
0.264
Platinum
ppm
0.087
0.079
 
0.079
Gold
ppm
0.043
0.039
 
0.039
Annual Payable Metal Produced
         
Copper
mlb
110.5
93.6
 
98.2
Nickel
mlb
13.2
11.3
 
14.5
Cobalt
mlb
0.56
0.48
 
0.52
Palladium
koz
90.5
71.4
 
99.2
Platinum
koz
19.1
14.8
 
24.1
Gold
koz
5.0
3.9
 
7.3
Copper Equivalent 3
mlb
184.7
154.7
 
179.7
 
         
Cash Costs: by-product
$/lb Cu
0.45
0.72
 
0.23
Cash Costs: Cu equivalent
$/lb CuEq
1.56
1.71
 
1.59
 
         
Development Capital
$M
1,095
1,095
 
1,354
Sustaining Capital
$M
128
249
 
249
 
         
Annual Revenue
$M
595
498
 
579
Annual EBITDA
$M
307
234
 
294
NPV 7
$M
 
751
 
963
IRR
%
 
17.5
 
18.5
Payback (from first production)
Years
 
4.6
 
4.8
1 Represents first five years at full concentrator production.
2 Phase II production is projected to commence in Year 3 of operations.
3 Cu Eq recovered payable metal, is based on prices shown in Table 1-4 of the 2018 Technical Report, mill recovery assumptions shown in Table 15-3 of the 2018 Technical Report and HydroMet Phase II recoveries shown in Table 13-14 of the 2018 Technical Report.
4 The 15 th year is not a full year of production.

35

The 118,000 STPD case (Phase I and II) improved economics over the 32,000 STPD case. The post-tax NPV@7% is approximately $2,243 million with an IRR of 23.6% and a payback period of 4.1 years for Phase I and II, as summarized in the below table. The economic summary reflects processing 730 million tons of mineralized material grading at 0.530% Cu-Eq (recovered) over a nineteen-year life, at an average of 118,000 STPD.
118,000 STPD Economic Highlights
 
 
Phase I
 
Phase I & II
 
Units
First 5 Yrs 1
LOM
 
LOM 2
Life of Mine
Yrs
5
19 4
 
19 4
Material Mined
Mt
767
2,366
 
2,366
Mill Feed Mined
Mt
212
730
 
730
Waste: Mill Feed Ratio
 
2.6
2.2
 
2.2
Mill Feed Grade
         
Copper
%
0.292
0.268
 
0.268
Nickel
%
0.084
0.076
 
0.076
Cobalt
ppm
74
70
 
70
Palladium
ppm
0.281
0.247
 
0.247
Platinum
ppm
0.074
0.073
 
0.073
Gold
ppm
0.038
0.037
 
0.037
Annual Payable Metal Produced
         
Copper
mlb
203.5
167.8
 
172.4
Nickel
mlb
23.8
19.0
 
23.3
Cobalt
mlb
1.01
0.80
 
0.83
Palladium
koz
163.5
129.7
 
170.9
Platinum
koz
28.0
26.0
 
38.5
Gold
koz
7.8
7.6
 
11.6
Copper Equivalent 3
mlb
336.9
275.6
 
309.5
 
         
Cash Costs: by-product
$/lb Cu
0.56
0.85
 
0.39
Cash Costs: Cu equivalent
$/lb CuEq
1.61
1.78
 
1.64
 
         
Development Capital
$M
1,614
1,614
 
1,872
Sustaining Capital
$M
226
900
 
900
 
         
Annual Revenue
$M
1085
887
 
997
Annual EBITDA
$M
542
397
 
488
NPV 7
$M
 
1737
 
2243
IRR
%
 
21.9
 
23.6
Payback (from first production)
Years
 
4.1
 
4.1
1 Represents first five years at full concentrator production.
2 Phase II production is projected to commence in Year 3 of operations.
3 Cu Eq recovered payable metal, is based on prices shown in Table 1-4 of the 2018 Technical Report, mill recovery assumptions shown in Table 15-3 of the 2018 Technical Report and HydroMet Phase II recoveries shown in Table 13-14 of the 2018 Technical Report.
4 The 20 th year is not a full year of production.

The foregoing economic analyses of the 59,000 STPD and 118,000 STPD scenarios are of a preliminary economic assessment level, is preliminary in nature and includes mineral resources that are considered too speculative geologically to have economic considerations applied to them that would enable them to be categorized as mineral reserves, and there is no certainty the preliminary economic assessment would be realized.
36

Conclusions and Recommendations
M3 recommended that PolyMet should proceed with final design engineering and initiate asset preservation and demolition activities of the Erie Plant as soon as permitting allows.
Prior to construction of the NorthMet Project, PolyMet should:
Review and update the scope of the NorthMet Project design to reflect changes resulting from the permitting process, if any, and other Project enhancements.
Select a water treatment plant design and supply provider once the final permits are in place.
Complete basic engineering on all designs and initiate detailed design.
Establish construction contracts formats.
Establish documents that will be used for all equipment purchases.
Finalize permitting activities.

Other recommendations for further work resulting from this and the scoping-level expansion study include the potential for expansion and increasing mine mineralized material production.
The NorthMet resource base and the geometry of the deposits could allow for an increase in mineralized material tonnage. Section 24 details these resources and possible expansion and ramp-up scenarios.  The following are recommendations to pursue expansion of the mine and maximize throughput and economic value.
Commence a NI-43-101 pre-feasibility study to increase the level of accuracy of the capital and operating estimates presented in Section 24.2 of the 2018 Technical Report.
Design general arrangement drawings of the plant area to develop more accurate material take-offs for both the maximum and ramp-up throughput capital cost estimates.
Update the financial model based on any changes to the current capital and operating cost estimates and to reflect current metal prices.  Metal prices and terms for mine planning purposes may not be reflective of the prices presented in the 2018 Technical Report at the commencement of mining.
M3 recommends reviewing the design of the WWTS with respect to the building costs and construction schedule.
Design an infill drilling program on inferred resources in an attempt to move inferred into the measured and indicated classification.

The cost of performing this work to a pre-feasibility level is estimated to be approximately $500,000.
37

5.
Risk Factors

The following are major risk factors management has identified which relate to the Company’s business activities. Such risk factors could materially affect the Company's future financial results and could cause events to differ materially from those described in forward-looking statements relating to the Company.  Although the following are major risk factors identified by management, they do not comprise a definitive list of all risk factors related to the Company's business and operations. Other specific risk factors are discussed elsewhere in this AIF, as well as in the Company’s consolidated financial statements (under the headings “Nature of Business”, “Basis of Presentation”, and “Financial Instruments and Risk Management” and elsewhere within that document) and in management’s discussion and analysis (under the headings “Critical Accounting Estimates and Judgments”, “Financial Instruments and Risk Management”, and “Risk and Uncertainties” and elsewhere within that document) for its most recently completed fiscal year ended December 31, 2018, and its other disclosure documents, all as filed on SEDAR and EDGAR.

Dependence on a single mineral project.

The NorthMet Project accounts for all of the mineral resources and mineral reserves and exclusively represents the current potential for the future generation of revenue. Mineral exploration and development involves a high degree of risk that even a combination of careful evaluation, experience and knowledge cannot eliminate and few properties that are explored are ultimately developed into producing mines. Any adverse development affecting the NorthMet Project may have a material adverse effect on PolyMet’s business, prospects, financial position, results of operations and cash flows.

The Company may experience delays, higher than expected costs, difficulties in obtaining environmental permits and other obstacles when implementing current and future development plans and opportunities.
PolyMet is investing heavily in various facets of the NorthMet Project, which is subject to a number of risks that may make it less successful than anticipated, including:
delays in the issuance of permits;
delays or higher than expected costs in obtaining the necessary equipment or services to build and operate the Project; and
adverse mining conditions may delay and hamper PolyMet’s ability to produce the expected quantities of minerals.

Future activities could be subject to environmental laws and regulations, which may have a materially adverse effect on future operations, in which case operations could be suspended or terminated.
 
PolyMet, like other companies doing business in Canada and the United States, is subject to a variety of federal, provincial, state and local statutes, rules and regulations designed to, among other things:
protect the environment, including the quality of the air and water in the vicinity of exploration, development, and mining operations;
remediate the environmental impacts of those exploration, development, and mining operations;
protect and preserve wetlands and endangered species; and
mitigate negative impacts on certain archaeological and cultural sites.

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

Moreover, governmental authorities and private parties may bring lawsuits based upon damage to property and injury to persons resulting from the environmental, health and safety impacts of prior and current operations. These lawsuits could lead to the imposition of substantial fines, remediation costs, penalties and other civil and criminal sanctions. Substantial costs and liabilities, including for restoring the environment after the closure of mines, are inherent in the Company’s operations.  PolyMet cannot assure that any such law, regulation, enforcement or private claim would not have a material adverse effect on its financial condition, results of operations or cash flows.
38

Land reclamation requirements for the NorthMet Project may be burdensome.

Land reclamation requirements are generally imposed on mineral exploration companies (as well as companies with mining operations) in order to minimize long-term effects of land disturbance.  In order to carry out reclamation obligations imposed on the Company in connection with exploration, potential development and production activities, PolyMet must allocate financial resources that might otherwise be spent on further exploration and development programs. In addition, regulatory changes could increase the Company’s obligations to perform reclamation and mine closing activities.  If PolyMet is required to carry out unanticipated reclamation work, the Company’s financial position could be adversely affected.

PolyMet is subject to significant governmental regulations and related costs and delays may negatively affect business.

Mining activities are subject to extensive federal, state, local and foreign laws and regulations governing environmental protection, natural resources, prospecting, development, production, post-closure reclamation, taxes, labor standards and occupational health and safety laws and regulations, including mine safety, toxic substances and other matters. The costs associated with compliance with such laws and regulations are substantial. Possible future laws and regulations, or more restrictive interpretations of current laws and regulations by governmental authorities, could cause additional expense, capital expenditures, restrictions on or suspensions of operations and delays in the development of new properties.

PolyMet is required to obtain various governmental permits to conduct exploration, development, construction and mining activities at its properties. Obtaining the necessary governmental permits is often a complex and time-consuming process involving numerous United States or Canadian federal, provincial, state, and local agencies. The duration and success of each permitting effort is contingent upon many variables not within the Company’s control. In the context of obtaining permits or approvals, PolyMet must comply with known standards, existing laws, and regulations that may entail greater or lesser costs and delays depending on the nature of the activity to be permitted and the interpretation of the laws and regulations implemented by the permitting authority. The failure to obtain certain permits or the adoption of more stringent permitting requirements could have a material adverse effect on business, operations, and properties and the Company may be unable to proceed with current or future exploration and development programs.
 
Federal legislation and implementing regulations adopted and administered by the United States Environmental Protection Agency, Army Corp of Engineers, Forest Service, Fish and Wildlife Service, Mine Safety and Health Administration, and other federal agencies, and legislation such as the Federal Clean Water Act, Clean Air Act, National Environmental Policy Act, Endangered Species Act, and Comprehensive Environmental Response, Compensation, and Liability Act, have a direct bearing on exploration, development and mining operations United States. Due to the uncertainties inherent in the permitting process, the Company cannot be certain that it will be able to obtain required approvals for current or future proposed activities in a timely manner, or that PolyMet’s current or future proposed activities will be allowed at all.
 
Failure to comply with applicable laws, regulations and permitting requirements may result in enforcement actions, including orders issued by regulatory or judicial authorities causing operations to cease or be curtailed, which may require corrective measures including capital expenditures, installation of additional equipment or remedial actions. Parties engaged in mining operations or in the exploration or development of mineral properties may be required to compensate those suffering loss or damage by reason of the mining activities and may be subject to civil or criminal fines or penalties imposed for violations of applicable laws or regulations. Any such penalties, fines, sanctions or shutdowns could have a material adverse effect on business and results of operations.
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Because the price of metals fluctuate, if the prices of metals in PolyMet’s ore body decrease below a specified level, it may no longer be profitable to develop the NorthMet Project for those metals and PolyMet could cease operations.
Prices of metals are determined by some of the following factors:
global and regional supply and demand;
political and economic conditions and production costs in major metal producing regions;
the strength of the United States dollar; and
expectations for inflation.

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

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

In addition, PolyMet anticipates that if the NorthMet Project goes into production, PolyMet will experience significant growth in operations. PolyMet expects this growth to create new positions and responsibilities for management and technical personnel and will increase demands on operating and financial systems. There can be no assurance that PolyMet will successfully meet these demands and effectively attract and retain additional qualified personnel to manage anticipated growth. The failure to attract such qualified personnel to manage growth would have a material adverse effect on business, financial position, results of operations and cash flows.

The Company may not be able to raise the funds necessary to develop the NorthMet Project.   If PolyMet is unable to raise such additional funds, the Company will have to suspend or cease operations.
PolyMet will need to seek additional financing to complete the development and construction of the NorthMet Project, in addition to the funding required to repay its current indebtedness.  Sources of such external financing may include future equity and debt offerings, advance payments by potential customers to secure long-term supply contracts, grants and low-cost debt from certain state financial institutions, and commercial debt secured by the NorthMet Project.  There is no guarantee that any such financing will be available to the Company. If the Company cannot raise the money necessary to continue to explore, develop and construct the NorthMet Project, PolyMet may have to suspend or cease operations.
PolyMet’s metals exploration and development efforts are highly speculative in nature and may be unsuccessful.

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

The development of mineral deposits involves uncertainties, which careful evaluation, experience, and knowledge cannot eliminate.   Few properties explored are ultimately developed into producing mines. It is impossible to ensure that the current development program the Company has planned will result in a profitable commercial mining operation.
40


PolyMet is subject to all the risks inherent to the mining industry, which may have an adverse affect on business operations.

PolyMet is subject to all of the risks inherent in the mining industry, including, without limitation, the following:
Success in discovering and developing commercially viable quantities of minerals is the result of a number of factors, including the quality of management, the interpretation of geological data, the level of geological and technical expertise and the quality of land available for exploration;
Operations are subject to a variety of existing laws and regulations relating to exploration and development, permitting procedures, safety precautions, property reclamation, employee health and safety, air and water quality standards, pollution and other environmental protection controls, all of which are subject to change and are becoming more stringent and costly to comply with;
A large number of factors beyond PolyMet’s control, including fluctuations in metal prices and production costs, inflation, the proximity and liquidity of precious metals and energy fuels markets and processing equipment, government regulations, including regulations relating to prices, taxes, royalties, land tenure, land use, importing and exporting of minerals and environmental protection, and other economic conditions, will affect the economic feasibility of mining;
Substantial expenditures are required to construct mining and processing facilities;
Title to mining properties may be subject to other claims; and
In the development stage of a mining operation, PolyMet’s mining activities could be subject to substantial operating risks and hazards, including metal bullion losses, environmental hazards, industrial accidents, labor disputes, encountering unusual or unexpected geologic formations or other geological or grade problems, encountering unanticipated ground or water conditions, cave-ins, pit-wall failures, flooding, rock falls, periodic interruptions due to inclement weather conditions or other unfavorable operating conditions and other acts of God. Some of these risks and hazards are not insurable or may be subject to exclusion or limitation in any coverage, which the Company obtains or may not be insured due to economic considerations.

Actual mineral reserves and mineral resources may not conform to the Company’s established estimates.

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

The estimating of mineral reserves and mineral resources is a subjective process that relies on the judgment of the persons preparing the estimates.  Estimates of mineral resources are, to a large extent, based on the interpretation of geological data obtained from drill holes and other sampling techniques. This information is used to calculate estimates of the configuration of the mineral resource, expected recovery rates, anticipated environmental conditions and other factors. As a result, mineral resource estimates for the NorthMet Project may require adjustments or downward revisions based upon further exploration or development work or upon actual production experience, thereby adversely impacting the economics of the NorthMet Project. Any material reductions in estimates of mineralization, or of the Company's ability to extract this mineralization, could have a material adverse effect on the Company's results of operations or financial condition.

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

Item 4 of this AIF discusses mineral resources in accordance with NI 43-101.  Resources are classified as “measured resources”, “indicated resources” and “inferred resources” under NI 43-101.  However, U.S. investors are cautioned that the SEC does not recognize these resource classifications. There is no assurance that any of the Company’s mineral resources, not currently classified as mineral reserves, will be converted into mineral reserves under the disclosure standards of the SEC.
41

 
The Company has had no production history and does not know if it will generate revenues in the future.
 
While the Company was incorporated in 1981, it has no history of producing minerals. The Company has not developed or operated any mines and has no operating history upon which an evaluation of future success or failure can be made. PolyMet currently has no mining operations of any kind.  The Company’s ability to achieve and maintain profitable mining operations is dependent upon a number of factors, including its ability to successfully build and operate mines, processing plants and related infrastructure.  PolyMet may not successfully establish mining operations or profitably produce metals at any of its properties.  As such, the Company does not know if it will ever generate revenues.

PolyMet has a history of losses, which it expects will continue for the future. If the Company does not begin to generate revenues, it may either have to suspend or cease operations.
 
As a development stage company with negative cash flows and no holdings in any producing mines, PolyMet continues to incur losses and expects to incur losses in the immediate future. As at December 31, 2018, the Company had an accumulated deficit of $149 million. PolyMet may not be able to achieve or sustain profitability in the future. If the Company does not begin to generate revenues, it may either have to suspend or cease operations.
While in the past the Company has been successful in closing financing agreements, there can be no assurance it will be able to do so again.  Factors that could affect the availability of financing include the state of debt and equity markets, investor perceptions and expectations, and the metals markets.  

The Company has incurred significant indebtedness and there is no guarantee that the Company will be able to repay or refinance such indebtedness.
There is no assurance that any indebtedness of the Company will be extended, repaid, refinanced or restructured, or that additional financing on commercially reasonable terms will be available. Failure to repay indebtedness and satisfy the conditions of such indebtedness could ultimately result in loss of substantially all of the Company’s assets. In addition, repayment of such indebtedness could require the issuance by the Company of a significant number of common shares and thereby result in dilution to existing shareholders of the Company. The issuance of such a large number of common shares to the Company’s secured lender, which already holds approximately 28.9% of the Company’s issued and outstanding common shares (and 39.8% on a partially-diluted basis), in connection with the repayment of the outstanding debt could result in such shareholder obtaining majority control of the Company’s issued and outstanding common shares.
Repayment of the indebtedness may adversely affect the Company’s future cash flow, which may adversely affect the Company’s future ability to operate effectively and, therefore, require the Corporation to refinance or restructure the Company’s consolidated indebtedness.

The Company may not be able to raise the funds necessary to develop the NorthMet Project.   If PolyMet is unable to raise such additional funds, the Company may have to suspend or cease operations.
 
PolyMet will need to seek additional financing to complete the development and construction of the NorthMet Project, in addition to the funding required to repay its current indebtedness.  Sources of such external financing may include future equity and debt offerings, advance payments by potential customers to secure long-term supply contracts, grants and low-cost debt from certain state financial institutions, and commercial debt secured by the NorthMet Project.  There is no guarantee that any such financing will be available to the Company. If the Company cannot raise the money necessary to continue to explore, develop and construct the NorthMet Project, PolyMet may have to suspend or cease operations.

The Company may not have adequate, if any, insurance coverage for some business risks that could lead to economically harmful consequences to PolyMet.
The Company’s business is generally subject to a number of risks and hazards, including:
industrial accidents;
railroad accidents;
labor disputes;
environmental hazards;
electricity stoppages;
equipment failures; and
severe weather and other natural phenomena.

These occurrences could result in damage to, or destruction of, mineral properties, production facilities, transportation facilities, or equipment. They could also result in personal injury or death, environmental damage, waste of resources or intermediate products, delays or interruption in mining, production or transportation activities, monetary losses and possible legal liability. The insurance the Company maintains against risks that are typical in the business may not provide adequate coverage. Insurance against some risks (including liabilities for environmental pollution or certain hazards or interruption of certain business activities) may not be available at a reasonable cost or at all. As a result, accidents or other negative developments involving mining, production or transportation facilities could have a material adverse effect on operations.
42


PolyMet may be subject to future litigation and regulatory proceedings which may have an adverse effect on business operations.

PolyMet may be subject to civil claims (including class action claims) based on allegations of negligence, breach of statutory duty, public nuisance or private nuisance or otherwise in connection with its operations or investigations relating thereto. While the Company is presently unable to quantify its potential liability under any of the above, such liability may be material to the Company and may have a material adverse effect on its ability to continue in operation.

In addition, the Company may be subject to actions or related investigations by governmental or regulatory authorities. Such actions may include civil or criminal prosecution for breach of relevant statues, regulations or rules or failure to comply with the terms of PolyMet’s licenses and permits and may result in liability for pollution, other fines or penalties, revocation of consents, permits, approvals or licenses or similar action, which could be material and may affect the Company's results of operations. Exposures to fines and penalties generally are uninsurable as a matter of public policy.

The mining industry is an intensely competitive industry and the Company may have difficulty effectively competing with other mining companies in the future.
The Company faces intense competition from other mining and producing companies.  In recent years, the mining industry has experienced significant consolidation among some of the Company’s competitors.  PolyMet cannot assure you that the result of current or further consolidation in the industry will not adversely affect the Company.
 
In addition, because mines have limited lives, PolyMet must periodically seek to replace and expand its reserves by acquiring new properties. Significant competition exists to acquire properties producing, or capable of producing, copper, nickel and other metals.

If PolyMet is unable to successfully manage these risks, its growth prospects and profitability may suffer.

The Company is dependent on information technology and its systems and infrastructure face certain risks, including cyber security risks and data leakage risks.

PolyMet utilizes a variety of information technology systems and infrastructure. Any significant breakdown, invasion, destruction or interruption of these systems by employees, others with authorized access to the systems, or unauthorized persons could negatively impact operations. There is also a risk that the Company could experience a business interruption, theft of information, or reputational damage as a result of a cyber-attack, such as a data leakage of confidential information either internally or by third-party providers. While the Company has invested in the protection of its data and information technology to reduce these risks and periodically test the security of its information systems network, there can be no assurance that these efforts will prevent breakdowns or breaches in PolyMet’s systems that could adversely affect the business.

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

Market events and conditions in recent years, including disruptions in the international credit markets and other financial systems and the deterioration of global economic conditions could impede the Company’s access to capital or increase the cost of capital. These disruptions in the credit and financial markets have had a significant material adverse impact on a number of financial institutions and have limited access to capital and credit for many companies, including PolyMet.  These disruptions could, among other things, make it more difficult for the Company to obtain, or increase its cost of obtaining capital and financing for operations.
43


RISKS RELATED TO THE OWNERSHIP OF POLYMET COMMON SHARES
PolyMet may experience volatility in its share price.
PolyMet’s common shares are listed for trading on the TSX and on the NYSE American.  Shareholders may be unable to sell significant quantities of the common shares into the public trading markets without a significant reduction in the price of the Company’s shares, if at all. The market price of the common shares may be affected significantly by factors such as changes in operating results, the availability of funds, fluctuations in the price of metals, the interest of investors, traders and others in development stage public companies such as PolyMet 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 development companies similar to PolyMet, have experienced wide fluctuations, which have not necessarily been related to the operating performances, underlying asset values, or the future prospects of such companies.  There can be no assurance that future fluctuations in the price of PolyMet’s shares will not occur.

A large number of shares will be eligible for future sale and may depress PolyMet’s share price.
Shares that are eligible for future sale may have an adverse effect on the price of the Company’s common shares.  As at December 31, 2018 there were 321,190,069   common shares outstanding.  The average trading volume for the three months prior to December 31, 2018 was approximately 10,000 shares per day on the TSX and 430,000 shares per day on the NYSE American.  Sales of substantial amounts of the Company’s common shares, or a perception that such sales could occur, and the existence of options or warrants to purchase common shares and debt convertible into common shares at prices that may be below the then current market price of the common shares, could adversely affect the market price of common shares and could impair the Company’s ability to raise capital through the sale of equity securities.

Ownership interest, voting power and the market price of common shares may decrease because the Company has issued, and may continue to issue, a substantial number of securities convertible or exercisable into common shares.
PolyMet has issued common shares, options, restricted shares, restricted share units, convertible debt and warrants to purchase its common shares to satisfy its obligations and fund operations.  Since the Company currently does not have a source of revenue, it will likely issue additional common shares, or other securities exercisable for or convertible into common shares to raise money for continued operations or as non-cash incentives to the Company’s directors, officers, and key employees.  If conversions of securities exercisable into common shares or additional sales of equity occur, ownership interest and voting power in PolyMet will be diluted and the market price of common shares may decrease.

Under the Company’s 2007 Omnibus Share Compensation Plan, as amended and restated (“Omnibus Plan”), the aggregate number of share options, restricted shares, restricted share units, and other share-based awards is restricted to 10% of the issued and outstanding common shares on the grant date, excluding 2,500,000 common shares pursuant to an exemption approved by the Toronto Stock Exchange.

Because PolyMet believes that it will be classified as a passive foreign investment company, or “PFIC”, United States holders of common shares may be subject to United States federal income tax consequences that are worse than those that would apply if PolyMet were not a PFIC.
Because PolyMet believes that it will be classified as a PFIC, United States holders of common shares may be subject to United States federal income tax consequences that are worse than those that would apply if the Company were not a PFIC, such as ordinary income treatment plus a charge in lieu of interest upon a sale or disposition of common shares even if the shares were held as a capital asset.
44

6.
Dividends

Since its incorporation, PolyMet has not declared or paid, and has no present intention to declare or to pay, any cash dividends with respect to its common shares.  Earnings will be retained to finance further growth and development of the Company’s business. However, if the board of directors were to declare a dividend, all common shares would participate equally.


7.
Capital Structure

The Company’s authorized capital consists of an unlimited number of common shares, without par value of which 321,190,069 common shares were issued and outstanding as fully paid and non-assessable as of December 31, 2018.

Shareholders are entitled to one vote per common share at all meetings of Shareholders except meetings at which only holders of another specified class or series of shares of the Company are entitled to vote separately as a class or series.  The holders of common shares are entitled to receive dividends as and when declared by the Board, and to receive a pro rata share of the remaining property and assets of the Company in the event of liquidation, dissolution or winding up of the Company. The common shares carry no pre-emptive, redemption, purchase or conversion rights. Pursuant to the terms of prior financings, Glencore has certain anti-dilution rights that permit it to acquire additional securities so as to maintain its proportional equity interest in the Company. Neither the Business Corporations Act (British Columbia) (“BCBCA”) nor the constating documents of the Company impose restrictions on the transfer of common shares on the register of the Company, provided that the Company receives the certificate representing the common shares to be transferred together with a duly endorsed instrument of transfer and payment of any fees and taxes which may be prescribed by the Board from time to time. There are no sinking fund provisions in relation to the common shares and they are not liable to further calls or to assessment by the Company. The BCBCA provides that the rights and provisions attached to any class of shares may not be modified, amended or varied unless consented to by special resolution passed by a majority of not less than two-thirds of the votes cast in person or by proxy holders of the common shares.
45


8.
Market for Securities

PolyMet’s common shares are listed and posted for trading on the TSX under the symbol “POM”, and on the NYSE American under the symbol “PLM”. The following table sets forth the market price range and trading volumes of the Company’s common shares on each of the TSX and NYSE American for the periods indicated.

 
TSX
NYSE American
Month
High
(C$)
Low
(C$)
Volume
High
(US$)
Low
(US$)
Volume
January 2018
1.60
1.10
2,843,800
1.32
0.88
21,629,600
February 2018
1.59
1.43
1,185,700
1.25
1.15
12,207,500
March 2018
1.56
1.12
589,900
1.22
0.87
9,847,500
April 2018
1.14
1.00
395,800
0.90
0.79
6,904,900
May 2018
1.08
0.98
136,200
0.85
0.78
3,150,700
June 2018
1.42
0.99
808,400
1.07
0.77
13,043,600
July 2018
1.25
1.03
99,500
1.00
0.79
4,681,000
August 2018
1.16
1.02
64,900
0.88
0.79
3,969,500
September 2018
1.33
1.08
124,200
1.02
0.83
5,169,500
October 2018
1.26
1.17
88,700
1.00
0.88
4,299,300
November 2018
1.48
1.06
479,000
1.13
0.80
14,628,600
December 2018
1.12
1.07
70,400
0.83
0.80
8,147,900


9.
Securities Not Listed or Quoted

The only classes of securities of the Company that are not listed or quoted on a marketplace are stock options, restricted shares units (“RSU’s”), deferred share units (“DSU’s”) and share purchase warrants.

The following stock options were issued during the year ended December 31, 2018 :

Date of Issuance
Number of Stock Options Issued
Exercise Price (US$)
March 2, 2018
250,000
1.22
March 30, 2018
2,253,000
0.87

The following RSU’s were issued during the year ended December 31, 2018 :

Date of Issuance
Number of Restricted Share Units Issued
Exercise Price (US$)
March 30, 2018
888,972
N/A

During the year ended December 31, 2018, 6,458,001 share purchase warrants were issued at $0.8231 per share exercisable at any time until March 31, 2019 and subject to mandatory exercise if the 20-day volume weighted average price (“VWAP”) of PolyMet common shares is equal to or greater than 150% of the exercise price and PolyMet has received permits and construction finance is available (“Exercise Triggering Event”).

As at December 31, 2018, the Company had the following outstanding securities held in escrow:

 
Designation of Class
Number of Securities
held in Escrow
 
Percentage of Class
Common shares (1)
191,000
0.01%
(1)
Common shares are held by Farris, Vaughan, Wills & Murphy LLP and were issued as restricted shares to certain United States employees.  Contractual restrictions on transfer ends on receipt of permits to commence construction (95,500 common shares) and commencement of commercial production (95,500 common shares).

46


10.
Directors and Officers

Name, Occupation and Security Holding

The name, province or state, country of residence, position or office held with the Company and principal occupation during the past five years of each director and executive officer of the Company as at December 31, 2018 and as at the date hereof are described as follows:


Name & Residence
Position(s) with the
Company
Principal Occupation during
past five years
Director since
Dennis Bartlett (1,4,5)
Arizona, United States
Director
Chief Executive Officer & Director, Cupric Canyon Capital
July 19, 2017
Jonathan Cherry (4,5)
Minnesota, United States
Director, President & Chief Executive Officer
Same
July 16, 2012
Mike Ciricillo (4,5)
Arizona, United States
Director
Head of Copper Smelting and Refining, Glencore
July 19, 2017
David Dreisinger (2,3,4,5)
British Columbia, Canada
Director
Professor and Chairholder of the Industrial Research and Chair in Hydrometallurgy, University British Columbia
October 3, 2003
W. Ian L. Forrest (1,2,3)
Vaud, Switzerland
 
Director, Chairman
Chartered Accountant
October 3, 2003
Helen Harper (2,3,4,5)
Ontario, Canada
Director
Asset Manager for North America Copper Operations, Glencore
July 13, 2016
Alan R. Hodnik (1,4)
Minnesota, United States
 
Director
Chairman, President and Chief Executive Officer, Allete Inc.
March 9, 2011
Stephen Rowland (1,3)
Connecticut, United States
 
Director
Executive, Glencore
October 30, 2008
Michael M. Sill (2, 3)
Minnesota, United States
 
Director
Chief Executive Officer, Road Machinery & Supplies Co.
March 9, 2011
Patrick Keenan
Minnesota, United States
 
Chief Financial Officer
Same, and previously Senior Vice President - Finance, Newmont Mining Corporation, and previously Chief Financial Officer, Rio Tinto Energy
N/A
Bradley Moore
Minnesota, United States
Executive Vice President, Environmental & Governmental Affairs
Same
N/A


Notes: (1)
Member of the Compensation Committee.  Stephen Rowland is a non-voting participant.
    (2) Member of the Audit Committee.  Helen Harper is a non-voting participant.
    (3)
Member of the Nominating and Corporate Governance Committee.  Helen Harper and Stephen Rowland are non-voting participants.
    (4)
Member of the Health, Safety, Environment and Communities Committee.
    (5)
Member of the Technical Steering Committee.

 
As at the date of this AIF, PolyMet’s directors and executive officers, as a group, beneficially owned, directly or indirectly, or exercised control or direction over 5,896,924 common shares, representing 1.8 percent of the total number of common shares outstanding before giving effect to the exercise of options or warrants to purchase common shares held by such directors and executive officers. The statement as to the number of common shares beneficially owned, directly or indirectly, or over which control or direction is exercised by the Company’s directors and executive officers as a group is based upon information furnished by the directors and executive officers.
47


Each Director serves until the next annual general meeting of shareholders or until his/her successor is duly elected, unless his/her office is vacated in accordance with the Articles of Incorporation.  Vacancies on the Board of Directors are filled by election from nominees chosen by the remaining Directors and the persons filling those vacancies will hold office until the next annual general meeting of shareholders, at which time they may be re-elected or replaced.

Indebtedness

No director or executive officer, nor any of their respective associates or affiliates is or has been at any time since the beginning of the last completed fiscal year indebted to PolyMet.

Cease Trade Orders, Bankruptcies, Penalties or Sanctions

To the knowledge of PolyMet’s management and as of the date of this AIF, except for Mr. Forrest’s directorships as noted below, no directors: (i) are, at the date hereof, or have been, during the 10 years prior to the date hereof, a director or executive officer of any company that, while that person was acting in that capacity or within a year of that person ceasing to act in that capacity became bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency, or became subject to or instituted any proceedings, arrangement or compromise with creditors, or had a receiver, receiver-manager or trustee appointed to hold assets of the director; or (ii) have, within the 10 years before the date hereof, become bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency, or become subject to or instituted any proceedings, arrangements or compromises with creditors, or had a receiver, receiver manager or trustee appointed to hold assets of the director. Viatrade plc, an investment company of which Mr. Forrest was a director, went into administration in August 2009.  Georex SA, an oil services company of which Mr. Forrest was a director, filed for administration in France in June 2017 on account of its business model no longer being sustainable.  Poros SAS, an associated company of Georex SA of which Mr. Forrest was also a director, has ceased to be active in March 2016 since France banned oil shale fracking.

Conflicts of Interest

Directors and officers may become in a position of conflict.  Directors and officers must disclose the nature and extent of the conflict and abstain from voting on the approval of the proposed contract or transaction, unless all of the directors have a disclosable interest, in which case the director may vote on such resolution and may be liable to account to the Company for any profit that accrued under such transaction.  To the knowledge of PolyMet’s management and as of the date of this AIF, there are no known existing conflicts of interest between the Company and any of PolyMet’s directors or officers as a result of such individual’s outside business interests.

11.
Legal Proceedings and Regulatory Actions

To the knowledge of Company’s management, there are no material legal proceedings or regulatory actions outstanding to which PolyMet is a party, or to which any of its property is subject to and no such proceedings or regulatory actions are known to the Company to be threatened or pending, as of the date hereof, with the exception of challenges to regulatory permit and approval decisions by the MDNR, MPCA, and USFS as discussed in Item 3 above.
48


12.
Interest of Management and Others in Material Transactions

Other than as disclosed in this AIF, PolyMet is not aware of any material interest, direct or indirect, involving any director or executive officer or any shareholder who holds more than 10% of the outstanding voting securities, or any associate or affiliate of any of the foregoing, which has been entered into since the commencement of the last completed fiscal year or in any proposed transaction which, in either case, has materially affected or will materially affect PolyMet or any of PolyMet’s subsidiaries.


13.
Transfer Agent and Registrar

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


14.
Material Contracts

The following is a summary of each material contract to which the Company is a party, other than contracts entered into in the ordinary course of business, for the last fiscal year or before the last fiscal year that is still in effect.

Acquisition of the mineral rights, see Item 4 for additional information;
Acquisition of the Erie Plant and associated infrastructure acquired in the Asset Purchase Agreements I and II, see Item 4 for additional information; and
Financing agreements entered into with Glencore, see Items 3 and 4 for additional information.

15.
Interest of Experts

PricewaterhouseCoopers LLP has served as PolyMet’s auditor since April 2006 and is located at 250 Howe Street, Suite 1400, Vancouver, British Columbia, Canada V6C 3S7.  PricewaterhouseCoopers LLP report that they are independent of the Company in accordance with the code of professional conduct of the Chartered Professional Accountants of British Columbia and the rules of the Public Company Accounting Oversight Board and the Securities and Exchange Commission.

PolyMet has relied on the work of the qualified persons listed in the section of this AIF titled “Introductory Notes - Qualified Persons Under NI 43-101” in connection with the scientific and technical information presented in this AIF in respect of its mineral property, NorthMet, which is based upon the NI 43-101 Technical Report filed on SEDAR and EDGAR.

None of the qualified persons listed in the section of this AIF titled “Introductory Notes - Qualified Persons Under NI 43-101”, nor any of the companies listed therein that employ those individuals, received or has received a direct or indirect interest in the property of the Company or of any associate or affiliate of the Company in connection with the preparation of reports relating to the Company’s mineral properties. As of the date hereof, the aforementioned persons and companies beneficially own, directly or indirectly, less than 1% of the Company’s outstanding securities of any class and less than 1% of the outstanding securities of any class of PolyMet’s associates or affiliates.
49


16.
Audit Committee

PolyMet is subject to National Instrument 52-110 - Audit Committees , which has been adopted in various Canadian provinces and territories and which prescribes certain requirements in relation to audit committees and defines the meaning of independence with respect to directors. These reflect current regulatory guidelines of the CSA as well as certain U.S. initiatives under the Sarbanes-Oxley Act of 2002 and adopted corporate governance rules of the NYSE American.  A copy of the Company’s Audit Committee’s charter is attached as Schedule A to this AIF.

The Company’s Audit Committee was composed of Michael M. Sill, Dr. David Dreisinger, and W. Ian L. Forrest, each of whom, in the opinion of the Company’s Board of Directors, is independent as determined under the rules of the TSX and NYSE American and each of whom is financially literate. The Audit Committee meets the composition requirements set forth by TSX and NYSE American rules.

Michael M. Sill has served as a member of PolyMet’s board of directors since March 2011. He serves as the Chair on the Audit committee and also serves on the Nominating and Corporate Governance committee.  Since 1994, Mr. Sill has served as President and CEO of Road Machinery & Supplies Co., a distributor of construction, mining and forestry equipment.  Educated at Dartmouth College and J.L. Kellogg Graduate School of Management, Mr. Sill started his career as a financial analyst and commercial lending officer with The Northern Trust Company.  He serves on the board of Reviva Corporation and Dunwoody College of Technology, and has previously served on the Twin Cities Regional Board of US Bank and numerous industry association boards.

Dr. David Dreisinger has served as a member of PolyMet’s board of directors since October 2003.  He serves as the Chair of the Technical Steering committee and also serves on the Health, Safety, Environment and Communities, Audit, and on the Nominating and Corporate Governance committees.  Since 1988, Dr. Dreisinger has been a member of the faculty at the University of British Columbia in the Department of Materials Engineering and is currently Professor and Chairholder of the Industrial Research and Chair in Hydrometallurgy.  He has published over 300 papers and has been extensively involved as a process consultant in industrial research programs with metallurgical companies. Dr. Dreisinger has participated in 21 U.S. patents for work in areas such as pressure leaching, ion exchange removal of impurities from process solutions, use of thiosulfate as an alternative to cyanide in gold leaching, and leach-electrolysis treatment of copper recovery from sulfide ores, and the Sepon Copper Process for copper recovery from sulfidic-clayey ores.   Dr. Dreisinger serves as a director of Euro Manganese Inc., Search Minerals, Inc. and LeadFX Inc., and as Vice President – Metallurgy for each of Camrova Resources, Inc., and Search Minerals Inc.

W. Ian L. Forrest has served as a member of PolyMet’s board of directors since October 2003 and as its Chairman since July 2012.  Mr. Forrest previously served as Chairman of the board from May 2004 to February 2008 and Co-Chairman from January 2011 to July 2012.  He serves as the Chair on the Nominating and Corporate Governance committees and also serves on the Audit and Compensation committees. Mr. Forrest played an important role in the Company’s revival in 2003.  Mr. Forrest is a member of the Institute of Chartered Accountants of Scotland.  Mr. Forrest has more than 40 years of experience with public companies in the resource sector.  His experience encompasses the areas of promotion, financing, exploration, production and company management.  He has also participated in several notable projects including Gulfstream's North Dome gas discovery, Qatar, Reunion Mining's Scorpion zinc, Namibia, which was subsequently developed by Anglo American, and Ocean Diamond Mining, which pioneered the independent diamond dredging industry off the west coast of southern Africa.  He also served as a director of Tanager Energy Inc. (formerly MGold Resources Inc.) until October 2011 and Belmore Resources (Holdings) plc until July 2011 when it was acquired by Lundin Mining Ltd.   Mr. Forrest was a director of Viatrade plc Georex SA, and Poros SAS.  See further discussion surrounding these directorships in Item 10 above.

During the year ended December 31, 2018, the Board of Directors determined that W. Ian L. Forrest qualified as the Audit Committee’s “financial expert,” as defined under the rules of the TSX and NYSE American and was “financially sophisticated” as defined under the rules of the TSX and NYSE American.
50


Mr. Forrest qualifies as a financial expert and is financially sophisticated, in that he has an understanding of generally accepted accounting principles and financial statements; is able to assess the general application of accounting principles in connection with the accounting for estimates, accruals and reserves; has experience analyzing or evaluating financial statements that entail accounting issues of equal complexity to the Company's financial statements (or actively supervising another person who did so); and has a general understanding of internal controls and procedures for financial reporting and an understanding of audit committee functions.

The members of the Audit Committee do not have fixed terms and are appointed and replaced from time to time by resolution of the Board of Directors.

The Audit Committee meets four times a year, at a minimum, and has access to all officers, management and employees of the Company and may engage advisors or counsel as deemed necessary to perform its duties and responsibilities as a committee.

The Audit Committee also meets with the Company’s President and CEO, the Company’s CFO, and the Company’s independent auditors to review and inquire into matters affecting financial reporting, the system of internal accounting and financial controls, and the Company’s audit procedures and audit plans. The Audit Committee also recommends to the Board of Directors the independent auditors to be appointed for each year. In addition, the Audit Committee reviews and recommends to the Board of Directors for approval the annual and quarterly financial statements and management’s discussion and analysis. Finally, the Audit Committee undertakes other activities as required by the rules and regulations of the TSX and the NYSE American and other governing regulatory authorities.

Pre-Approval Policies and Procedures

All fees paid to the external auditors, PricewaterhouseCoopers LLP, were pre-approved by the Audit Committee.  This pre-approval involved a submission by the auditors to the Audit Committee of a scope of work to complete the audit and prepare tax returns, an estimate of the time involved, and a proposal for the fees to be charged for the audit.  The Audit Committee reviewed this proposal with management and after discussion with the auditors, pre-approved the scope of work and fees.

External Auditor Service Fees

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

Fiscal Year Ending
Audit Fees
Audit Related Fees
Tax Fees
All Other Fees
December 31, 2018
CDN $245,000
CDN $69,500
CDN $27,633
CDN $Nil
December 31, 2017
CDN $139,000
CDN $54,000
CDN $35,451
CDN $Nil

"Audit Fees" are the aggregate fees billed by PricewaterhouseCoopers LLP for the audit of the Company's consolidated annual financial statements.

"Audit-Related Fees" are fees billed by PricewaterhouseCoopers LLP for services reasonably related to the performance of the audit or interim review and services associated with registration statements and prospectuses.

"Tax Fees" are fees for professional services rendered by PricewaterhouseCoopers LLP for tax compliance, tax advice on actual or contemplated transactions.
51


17.
Additional Information

All documents referred to in this AIF are available for inspection at the Company’s registered and records office, listed below, during normal office hours.

Farris, Vaughan, Wills & Murphy LLP
2500 - 700 W Georgia St
Vancouver BC
Canada V7Y 1B3

In Canada, the Company will file reports and other information with the Canadian Securities Administrators.  These materials include additional financial information provided in the Company’s financial statements and MD&A for its most recently completed fiscal year.  These materials also include directors’ and officers’ remuneration and indebtedness, principal holders of the Company’s securities and securities authorized for issuance under equity compensation plans, as contained in the Management Information Circular for the most recent annual meeting of security holders that involves the election of directors.  Additional reports, registration statements, and other information relating to PolyMet may be found on SEDAR at www.sedar.com .

In the United States, the Company will file reports and other information with the SEC in accordance with the requirements of the Exchange Act.  These materials, including this AIF and exhibits and the Company’s financial statements and MD&A for its most recently completed fiscal year, may be inspected and copied at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549 and at the SEC’s regional office at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.   Copies of the materials may be obtained from the Public Reference Room of the Commission at 100 F. Street, N.E., Washington, D.C. 20549 at prescribed rates. The public may obtain information on the operation of the Commission’s Public Reference Room by calling the Commission in the United States at 1-800-SEC-0330.  Additional reports, registration statements and other information relating to PolyMet can also be inspected on EDGAR available on the SEC’s website at www.sec.gov .
52


SCHEDULE A
AUDIT COMMITTEE CHARTER

1.   PURPOSE
The purpose of the Audit Committee (in this charter, the “Committee") is to oversee the accounting and financial reporting processes of PolyMet Mining Corp.  (the “Company”), the audits of the Company's financial statements, the qualifications of the public accounting firm engaged as the Company's independent auditor to prepare or issue an audit report on the financial statements of the Company and internal control over financial reporting, and the performance of the Company's internal audit function and independent auditor. The Committee reviews and assesses the qualitative aspects of the Company’s financial reporting to shareholders, the Company’s financial risk assessment and management, and the Company’s ethics and compliance programs. The Committee is directly responsible for the appointment (subject to shareholder ratification), compensation, retention, and oversight of the independent auditor. The Committee also reviews and assesses the Company’s processes to manage and control risk, except for risks assigned to other committees of the Board or retained by the Board.
2.   STRUCTURE AND OPERATIONS
The Committee shall be composed of not less than three (3) directors.  Members of the Committee shall be independent and each shall be “financially literate” and will be appointed or reappointed at the meeting of the Board, immediately following the annual general meeting of the shareholders of the Company (the “AGM”), and in the normal course of business will serve a minimum of three (3) years. At least one member of the Committee shall in the judgment of the Board be an "audit committee financial expert" as defined by the rules and regulations of the Canadian Securities Administrators and the Securities and Exchange Commission. Each member shall continue to be a member of the Committee until a successor is appointed, unless the member resigns, is removed or ceases to be a director. The Board may fill a vacancy that occurs in the Committee at any time. Generally, no member of the Committee may serve on more than three audit committees of publicly traded companies (including the Audit Committee of the Company) at the same time.
“Financially Literate” means the ability to read and understand a set of financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of the issues that can reasonably be expected to be raised by the Company’s financial statements.
The Board or, in the event of its failure to do so, the members of the Committee, shall appoint or reappoint, at the meeting of the Board immediately following the AGM, a chairman from among their number. The chairman shall not be a former officer of the Company and shall serve as a liaison between the Committee and members of the Company’s management team (“Management”).
Meetings of the Committee shall be held at least four times annually, provided that due notice is given and a quorum of a majority of the members is present. Where a meeting is not possible, resolutions in writing which are signed by all members of the Committee are as valid as if they had been passed at a duly held meeting. The frequency and nature of the meeting agendas are dependent upon business matters and affairs which the Company faces from time to time.
The Committee shall report to the Board on its activities after each of its meetings. In addition, it shall review and assess the adequacy of this charter annually and, where necessary, recommend changes to the Board for approval.  The Committee shall undertake and review with the Board an annual performance evaluation of the Committee.
3.   RESOURCES AND AUTHORITY
The Committee shall have the resources and authority appropriate to discharge its responsibilities, including the authority to use internal personnel and to obtain advice and assistance from internal or external legal, accounting or other advisors and the funding for compensating any such external advisors. In addition, the Committee shall have sole authority to retain and terminate any such firms and to approve the fees and other retention terms related to the appointment such firms.
53

4.   RESPONSIBILITIES
The responsibilities of the Committee are:

1.
To assist the Board of Directors in fulfilling its fiduciary responsibilities’ relating to the Company's quality and integrity of accounting, auditing, and reporting practices and the integrity of the Company's internal accounting controls and management information systems;

2.
To review with the auditors, internal accountants and management of the Company:

a.
any audited financial statement of the Company, including any such statement that is to be presented to an annual general meeting or provided to shareholders or filed with regulatory authorities and including any audited financial statement contained in a prospectus, registration statement or other similar document, and

b.
the financial disclosure in each Annual Report and Management Discussion and Analysis of the Company which accompanies such audited financial statement and in each such filing, prospectus, registration statement or other similar document;

3.
To review with the internal accountants and management of the Company:

a.
any unaudited financial statement of the Company, including any such statement that is to be presented to an annual general meeting or provided to shareholders or filed with regulatory authorities and including any unaudited financial statement contained in a prospectus, registration statement, Quarterly Report or other similar document,

b.
the financial disclosure in each Quarterly Report and when applicable, Management Discussion and Analysis of the Company accompanying such unaudited financial statement and in each such filing, prospectus, registration statement or other similar document which accompanies such unaudited financial statement, and

c.
in connection with the annual reports of the Company, review (i) Management's disclosure to the Committee and the independent auditor under Section 302 of the Sarbanes-Oxley Act, including identified changes in internal control over financial reporting; and (ii) the contents of the Chief Executive Officer and the Chief Financial Officer certificates to be filed under Sections 302 and 906 of the Sarbanes-Oxley Act and the process conducted to support the certifications;

4.
To otherwise review as required and report to the Board of Directors with respect to the adequacy of internal accounting and audit procedures and the adequacy of the Company’s management information systems;

5.
To otherwise ensure that no restrictions are placed by Management on the scope of the auditors review and examination of the Company’s accounts;

6.
To appoint or replace the independent auditor and approve the terms on which the independent auditor is engaged for the ensuing fiscal year;

7.
At least annually, evaluate the independent auditor's qualifications, performance, and independence, including that of the lead partner. The evaluation will include obtaining a written report from the independent auditor describing the firm's internal quality control procedures; any material issues raised by the most recent Public Company Accounting Oversight Board inspection, internal quality control review, or PCAOB review, of the firm or by any inquiry or investigation by governmental or professional authorities within the past five years, concerning an independent audit or audits carried out by the firm, and any steps taken to deal with those issues; and all relationships between the independent auditor and the Company;

8.
Resolve any disagreements between Management and the independent auditor about financial reporting;

9.
Establish and oversee a policy designating permissible services that the independent auditor may perform for the Company, providing for preapproval of those services by the Committee subject to the de minimis exceptions permitted under applicable rules, and quarterly review of any services approved by the designated member under the policy and the firm's non-audit services and related fees;

54



10.
Ensure receipt from the independent auditor of a formal written statement delineating all relationships between the auditor and the Company, consistent with applicable requirements of the PCAOB regarding the independent auditor’s communications with the Committee concerning independence, actively engage in a dialogue with the auditor about any disclosed relationships or services that may impact the objectivity and independence of the auditor, and take appropriate action to oversee the independence of the independent auditor;

11.
Advise the Board about the Committee's determination whether the Committee consists of three or more members who are Financially Literate, including at least one member who has financial sophistication and is a financial expert;

12.
Inquire of Management and the independent auditor about significant risks or exposures, review the Company's policies for risk assessment and risk management, and assess the steps Management has taken to control such risk to the Company, except as to those risks for which oversight has been assigned to other committees of the Board or retained by the Board;

13.
Review with Management and the independent auditor:

a.
The Company's annual assessment of the effectiveness of its internal controls and the independent auditor's attestation,

b.
The adequacy of the Company's internal controls, including computerized information system controls and security,

c.
Any "material weakness" or "significant deficiency" in the design or operation of internal control over financial reporting, and any steps taken to resolve the issue, and

d.
Any related significant findings and recommendations of the independent auditor and internal audit together with Management's responses;

14.
Develop, review, and oversee procedures for (i) receipt, retention, and treatment of complaints received by the Company regarding accounting, internal accounting controls, and auditing matters and (ii) the confidential, anonymous submission of employee concerns regarding accounting or auditing matters;

15.
Review policies and procedures with respect to transactions between the Company and officers and directors, or affiliates of officers or directors, or transactions that are not a normal part of the Company’s business, and review and approve those related-party transactions that would be disclosed pursuant to International Financial Reporting Standards, IAS 24 and SEC Regulation S-K, Item 404;

16.
Review with Management and the independent auditor at least annually the Company's critical accounting policies and significant judgments and estimates, including any significant changes in the Company's selection or application of accounting principles and the effect of regulatory and accounting initiatives on the financial statements of the Company;

17.
To ensure that the Company disseminates information concerning its financial position and results of operations to the public in a timely fashion;

18.
Complete an annual evaluation of the Committee’s performance;

19.
Include a copy of the Committee charter as an appendix to the proxy statement at least once every three years, or disclose annually in the proxy statement where the charter can be found on the Company's website;

20.
Set clear hiring policies for the Company's hiring of employees or former employees of the independent auditor who were engaged in the Company's account, and ensure the policies comply with any regulations applicable to the Company; and

21.
Review with Management the Company’s policies and processes for tax planning and compliance.

55

5.0   COMMUNICATIONS
The independent auditor reports directly to the Committee. The Committee is expected to maintain free and open communication with the independent auditor, the internal auditors, and Management. This communication will include periodic private executive sessions with each of these parties.
6.0   EDUCATION
The Company is responsible for providing new members with appropriate orientation briefings and educational opportunities, and the full Committee with educational resources related to accounting principles and procedures, current accounting topics pertinent to the Company, and other matters as may be requested by the Committee. The Company will assist the Committee in maintaining appropriate financial literacy.
56
Exhibit 99.2













POLYMET MINING CORP.


CONSOLIDATED FINANCIAL STATEMENTS

As at December 31, 2018 and 2017
And for the twelve months ended December 31, 2018
and eleven months ended December 31, 2017





Management’s Responsibility for Consolidated Financial Statements

The accompanying Consolidated Financial Statements of PolyMet Mining Corp. (the “Company) are the responsibility of management.  The Consolidated Financial Statements have been prepared by management in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and include certain estimates that reflect management’s best judgments.

The Company’s Board of Directors has approved the information contained in the Consolidated Financial Statements.  The Board of Directors fulfills its responsibilities regarding the Consolidated Financial Statements mainly through its Audit Committee, which has a written mandate that complies with current requirements of Canadian securities legislation, United States securities legislation, and the United States Sarbanes-Oxley Act of 2002.  The Audit Committee meets at least on a quarterly basis.

Management’s Annual Report on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting.  Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Consolidated Financial Statements for external reporting purposes in accordance with IFRS as issued by the IASB.

Internal control over financial reporting, no matter how well designed, has inherent limitations.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management has assessed the effectiveness of the Company’s internal control over financial reporting as at December 31, 2018.  In making its assessment, management has used the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) to evaluate the Company’s internal control over financial reporting.  Based on this assessment, management has concluded that the Company’s internal control over financial reporting was effective as at that date.

The effectiveness of the Company’s internal control over financial reporting as at December 31, 2018 has been audited by PricewaterhouseCoopers LLP, the Company’s independent registered public accounting firm, as stated in their report, which appears herein.


/s/ Jonathan Cherry
 
/s/ Patrick Keenan
 
Jonathan Cherry
 
Patrick Keenan
 
President and Chief Executive Officer
 
Chief Financial Officer
 




 
 
Report of Independent Registered Public Accounting Firm
 
To the Shareholders and Board of Directors of PolyMet Mining Corp .
 
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of PolyMet Mining Corp . and its subsidiaries (the “Company”) as of December 31, 2 0 18 and 2017 , and the related consolidated statements of loss and comprehensive loss , changes in shareholders’ equity and cash flows for the year ended December 31 , 2 0 18 and the eleven month period ended December 31 , 2 0 17 , including the related notes (collectively referred to as the “consolidated financial statements”) . We also have audited the Company's internal control over financial reporting as of December 31 , 2018 , based on criteria established in Internal Control - Integrated Framework (2 0 13) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects , the financial position of the Company as of December 31 , 2 0 18 and 2 0 17 , and their financial performance and their cash flows for the year ended December 31 , 2018 and the eleven month period ended December 31 , 2 0 17 in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board (IFRS) . Also in our opinion, the Company maintained , in all material respects, effective
internal control over financial reporting as of December 31 , 2 0 18 , based on criteria established in Internal Control – Integrated Framework (2 0 13) issued by the COSO .

Change in Accounting Principles
As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for financial instruments and leases in 2 0 18 .

Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting , and for its assessment of the effectiveness of internal control over financial reporting , included in the accompanying Management's Annual Report on Internal Control Over Financial Reporting . Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U . S . federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB .

We conducted our audits in accordance with the standards of the PCAOB . Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement , whether due to error or fraud , and whether effective internal control over financial reporting was maintained in all material respects.
 



 
PricewaterhouseCoopers LLP
PricewaterhouseCoopers Place, 250 Howe Street, Suite 14 0 0, Vancouver , British Columbia, Canada V6C 3S7
T: +1 6 0 4 806 7 000 , F: +1 6 0 4 806 7806

“PwC” refers to PricewaterhouseCoopers LLP , an Ontario limited liability partnership.



Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud , and performing procedures that respond to those risks. Such procedures included examining, on a test basis , evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management , as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk . Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting
  A company’s internal control over financial reporting is a process designed 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 . A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that , in reasonable detail , accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) 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 company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use , or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations , internal control over financial reporting may not prevent or detect misstatements. Also , projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.


/s/PricewaterhouseCoopers LLP

 
Chartered Professional Accountants
 
Vancouver , Canada
March 28 , 2 0 19

We have served as the Company's auditor since 2006.



PolyMet Mining Corp.
Consolidated Balance Sheets
All figures in thousands of U.S. Dollars

   
December 31,
2018
   
December 31,
2017
 
ASSETS
           
             
Current
           
     Cash
 
$
13,857
   
$
6,931
 
     Amounts receivable (Note 5)
   
796
     
432
 
     Prepaid expenses
   
1,161
     
811
 
     
15,814
     
8,174
 
Non-Current
               
     Restricted cash deposits (Note 6)
   
10,286
     
-
 
     Amounts receivable (Note 5)
   
1,796
     
2,533
 
     Mineral Property, Plant and Equipment (Notes 3 and 4)
   
433,548
     
395,205
 
     Intangible (Note 5)
   
24,185
     
3,130
 
Total Assets
   
485,629
     
409,042
 
                 
LIABILITIES
               
                 
Current
               
     Accounts payable and accruals
   
4,013
     
3,630
 
     Convertible debt (Notes 7 and 8)
   
56,984
     
49,067
 
     Non-convertible debt (Notes 7 and 9)
   
178,483
     
92,268
 
     Environmental rehabilitation provision (Note 6)
   
1,693
     
1,266
 
     
241,173
     
146,231
 
Non-Current
               
     Environmental rehabilitation provision (Note 6)
   
59,414
     
64,136
 
Total Liabilities
   
300,587
     
210,367
 
                 
SHAREHOLDERS’ EQUITY
               
                 
Share Capital (Note 10)
   
271,269
     
269,516
 
Share Premium
   
1,151
     
1,151
 
Equity Reserves
   
62,111
     
60,505
 
Deficit
   
(149,489
)
   
(132,497
)
Total Shareholders’ Equity
   
185,042
     
198,675
 
Total Liabilities and Shareholders’ Equity
 
$
485,629
   
$
409,042
 
                 
Nature of Business and Liquidity (Note 1)
Commitments and Contingencies   (Note 14)
Subsequent Events   (Note 16)

ON BEHALF OF THE BOARD OF DIRECTORS:

/s/ Jonathan Cherry
, Director 
/s/ Dr. David Dreisinger
, Director



- See Accompanying Notes –


PolyMet Mining Corp.
Consolidated Statements of Loss and Comprehensive Loss
All figures in thousands of U.S. Dollars, except for shares and per share amounts

       
   
Twelve months
ended
December 31,
2018
   
Eleven months
ended
December 31,
2017
 
General and Administrative Expenses
           
Salaries, directors’ fees and related benefits
 
$
2,547
   
$
2,209
 
Share-based compensation (Note 10)
   
1,742
     
1,318
 
Professional fees
   
634
     
784
 
Regulatory fees
   
197
     
137
 
Investor and public relations
   
1,174
     
1,036
 
Office and administration
   
646
     
637
 
Depreciation
   
130
     
4
 
Total General and Administration Expenses
   
7,070
     
6,125
 
                 
Other Expenses (Income)
               
Finance costs - net (Note 11)
   
2,381
     
2,233
 
(Gain) / loss on foreign exchange
   
(3
)
   
6
 
Loss on modification of debentures (Notes 7, 8 and 9)
   
4,109
     
-
 
Loss on land exchange (Note 4)
   
553
     
-
 
Gain on disposal of financial instrument (Note 5)
   
-
     
(36
)
Loss on disposal of intangible (Note 5)
   
-
     
1,324
 
Loss on disposal of lands (Note 5)
   
-
     
469
 
Loss on financial instrument fair value (Note 5)
   
971
     
-
 
Other income
   
(38
)
   
(23
)
Total Other Expenses
   
7,973
     
3,973
 
                 
Loss for the Period
   
15,043
     
10,098
 
                 
Other Comprehensive Loss
               
 Reclass on disposal of financial instrument (Note 5)
   
-
     
36
 
Items that may be subsequently reclassified to profit or loss:
               
 Unrealized loss on financial instrument (Note 5)
   
-
     
166
 
Other Comprehensive Loss for the Period
   
-
     
202
 
                 
Total Comprehensive Loss for the Period – Net of Tax
 
$
15,043
   
$
10,300
 
                 
                 
Basic and Diluted Loss per Share
 
$
(0.05
)
 
$
(0.03
)
                 
Weighted Average Number of Shares – basis and diluted
   
320,495,981
     
318,891,961
 


- See Accompanying Notes -


PolyMet Mining Corp.
Consolidated Statements of Changes in Shareholders’ Equity
All figures in thousands of U.S. Dollars, except for shares

   
Share Capital (authorized = unlimited)
   
Equity Reserves
             
                           
Accumulated
               
Total
 
   
Issued
   
Share
   
Share
   
Contributed
   
Other Comp
   
Equity
         
Shareholders'
 
   
Shares
   
Capital
   
Premium
   
Surplus
   
Inc / (Loss)
   
Reserves
   
Deficit
   
Equity
 
Balance - January 31, 2017
   
318,545,519
   
$
268,895
   
$
1,151
   
$
59,270
   
$
412
   
$
59,682
   
$
(122,399
)
 
$
207,329
 
Total comprehensive loss for the period
   
-
     
-
     
-
     
-
     
(202
)
   
(202
)
   
(10,098
)
   
(10,300
)
Payment of land purchase options (Note 10)
   
396,616
     
256
     
-
     
-
     
-
     
-
     
-
     
256
 
Vesting of restricted shares and RSU’s (Note 10)
   
360,963
     
365
     
-
     
(365
)
   
-
     
(365
)
   
-
     
-
 
Share-based compensation (Note 10)
   
-
     
-
     
-
     
1,111
     
-
     
1,111
     
-
     
1,111
 
Bonus share cost amortization (Note 10)
   
-
     
-
     
-
     
279
     
-
     
279
     
-
     
279
 
Balance – December 31, 2017
   
319,303,098
     
269,516
     
1,151
     
60,295
     
210
     
60,505
     
(132,497
)
   
198,675
 
Change in Accounting Policy (Note 2)
   
-
     
-
     
-
     
-
     
(210
)
   
(210
)
   
(1,949
)
   
(2,159
)
Balance – January 1, 2018
   
319,303,098
     
269,516
     
1,151
     
60,295
     
-
     
60,295
     
(134,446
)
   
196,516
 
Total comprehensive loss for the period
   
-
     
-
     
-
     
-
     
-
     
-
     
(15,043
)
   
(15,043
)
Debenture refinancing warrants (Note 7)
   
-
     
-
     
-
     
2,331
     
-
     
2,331
     
-
     
2,331
 
Payment of land purchase options (Note 10)
   
128,750
     
123
     
-
     
-
     
-
     
-
     
-
     
123
 
Exercise of share options (Note 10)
   
225,000
     
218
     
-
     
(67
)
   
-
     
(67
)
   
-
     
151
 
Exercise of warrants (Note 10)
   
590,500
     
683
     
-
     
(92
)
   
-
     
(92
)
   
-
     
591
 
Vesting of restricted shares and RSU’s (Note 10)
   
843,413
     
624
     
-
     
(624
)
   
-
     
(624
)
   
-
     
-
 
Share-based compensation (Note 10)
   
99,308
     
105
     
-
     
1,787
     
-
     
1,787
     
-
     
1,892
 
Bonus share cost amortization (forfeiture) (Note 10)
   
-
     
-
     
-
     
(1,519
)
   
-
     
(1,519
)
   
-
     
(1,519
)
Balance – December 31, 2018
   
321,190,069
   
$
271,269
   
$
1,151
   
$
62,111
   
$
-
   
$
62,111
   
$
(149,489
)
 
$
185,042
 


- See Accompanying Notes -


PolyMet Mining Corp.
Consolidated Statements of Cash Flows
All figures in thousands of U.S. Dollars

       
   
Twelve months
ended
December 31,
2018
   
Eleven months
ended
December 31,
2017
 
Operating Activities
           
Loss for the period
 
$
(15,043
)
 
$
(10,098
)
Items not involving cash:
               
Depreciation
   
130
     
4
 
Environmental rehabilitation provision accretion (Note 6)
   
1,796
     
1,776
 
Share-based compensation (Note 10)
   
1,742
     
1,318
 
Unrealized loss on foreign exchange
   
7
     
1
 
Loss on modification of debentures (Notes 7, 8 and 9)
   
4,109
     
-
 
Loss on land exchange (Note 4)
   
553
     
-
 
Loss on disposal of intangible (Note 5)
   
-
     
1,324
 
Loss on disposal of lands (Note 5)
   
-
     
469
 
Gain on disposal of financial instrument (Note 5)
   
-
     
(36
)
Loss on financial instrument fair value (Note 5)
   
971
     
-
 
Changes in non-cash working capital:
               
Amounts receivable
   
(384
)
   
23
 
Prepaid expenses
   
(350
)
   
2
 
Accounts payable and accruals
   
667
     
227
 
Net cash used in operating activities
   
(5,802
)
   
(4,990
)
                 
Financing Activities
               
Share issuance proceeds, net of costs (Note 10)
   
742
     
-
 
Debenture funding, net of costs (Notes 7 and 9)
   
69,723
     
14,917
 
RSU’s settled for cash (Note 10)
   
(377
)
   
-
 
Net cash provided by financing activities
   
70,088
     
14,917
 
                 
Investing Activities
               
Property, plant and equipment purchases (Note 4)
   
(26,437
)
   
(21,030
)
Intangible purchases (Note 5)
   
(21,055
)
   
(810
)
Financial instrument disposal proceeds   (Note 5)
   
-
     
171
 
Land disposal proceeds (Note 4)
   
425
     
-
 
Restricted cash deposits (Note 6)
   
(10,286
)
   
-
 
Net cash used in investing activities
   
(57,353
)
   
(21,669
)
                 
Net Increase (Decrease) in Cash
   
6,933
     
(11,742
)
Effect of foreign exchange on Cash
   
(7
)
   
(1
)
Cash - Beginning of period
   
6,931
     
18,674
 
Cash - End of period
 
$
13,857
   
$
6,931
 
 
Supplemental information – non-cash investing and financing
               
  Accounts payable and accruals
 
$
(390
)
 
$
(60
)
  Transfer from PP&E to Intangible (Note 5)
   
-
     
2,320
 
  Debt accretion and capitalized interest (Notes 7, 8 and 9)
   
20,560
     
18,512
 
  Share-based compensation (Note 10)
   
460
     
232
 
  Bonus share amortization and forfeiture (Note 10)
   
(1,519
)
   
279
 
  Fair value of shares issued for land options (Note 10)
 
$
123
   
$
256
 

- See Accompanying Notes -

PolyMet Mining Corp.
Notes to Consolidated Financial Statements
As at December 31, 2018 and December 31, 2017 and for the twelve and eleven months then ended
Tabular amounts in thousands of U.S. Dollars, except for shares and per share amounts

1.
Nature of Business and Liquidity

PolyMet Mining Corp. was incorporated in British Columbia, Canada on March 4, 1981 under the name Fleck Resources Ltd. and changed its name to PolyMet Mining Corp. on June 10, 1998.  Through its 100%-owned subsidiary, Poly Met Mining, Inc. (“PolyMet US” and, together with PolyMet Mining Corp., “PolyMet” or the “Company”), the Company is engaged in the exploration and development of natural resource properties.  The Company’s primary mineral property is the NorthMet Project (“NorthMet” or “Project”), a polymetallic project in northeastern Minnesota, United States of America, which comprises the NorthMet copper-nickel-precious metals ore body and the Erie Plant, a processing facility located approximately six miles from the ore body.  The realization of the Company’s investment in NorthMet and other assets is dependent upon various factors, including the existence of economically recoverable mineral reserves, the ability to obtain and maintain permits necessary to construct and operate NorthMet, the ability to obtain financing necessary to complete the development of NorthMet, and generate future profitable operations or alternatively, disposal of the investment on an advantageous basis.

The corporate address and records office of the Company are located at 100 King Street West, Suite 5700, Toronto, Ontario, Canada M5X 1C7, and 700 West Georgia, 25 th Floor, Vancouver, British Columbia, Canada, V7Y 1B3, respectively.  The executive office of PolyMet US is located at 444 Cedar Street, Suite 2060, St. Paul, Minnesota, United States of America, 55101 .

On December 7, 2017, the Board of Directors approved a resolution to change the year-end from January 31 to December 31.  Accordingly, the comparative period in these consolidated financial statements is at and for the eleven months ended December 31, 2017.

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

Liquidity risk is the risk the Company will not be able to meet its financial obligations as they become due and arises through the excess of financial obligations over financial assets due at any point in time.  As at December 31, 2018, the Company had cash of $13.857 million and a working capital deficiency of $225.359 million primarily due to $56.984 million secured convertible debt and $178.483 million secured non-convertible debt owed to Glencore AG, a wholly owned subsidiary of Glencore plc (together “Glencore”) being classified as a current liability. Subsequent to year end, the Company entered into an agreement with Glencore to extend the maturity date of the secured convertible and non-convertible debt to provide the Company time to prepare for and complete a rights offering by June 30, 2019, fully backstopped by Glencore, to raise sufficient funds to repay all outstanding debt (see Note 16).

Management believes, based upon the underlying value of the NorthMet Project, the receipt of all permits necessary to construct and operate the NorthMet Project (see Note 16), the history of support from its shareholders and ongoing discussions with potential financiers , that financing will be available to allow the Company to complete the development of NorthMet and generate future profitable operations.  While in the past the Company has been successful in closing financing agreements, there can be no assurance it will be able to do so again.  Factors that could affect the availability of financing include the state of debt, equity, and environmental bonding markets, investor perceptions and expectations and the market for metals expected to be produced from the NorthMet Project.
1

PolyMet Mining Corp.
Notes to Consolidated Financial Statements
As at December 31, 2018 and December 31, 2017 and for the twelve and eleven months then ended
Tabular amounts in thousands of U.S. Dollars, except for shares and per share amounts

2.
Basis of Presentation

a) Statement of Compliance
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).  The financial statements were approved by the Board of Directors on March 28, 2019.

b) Basis of Consolidation and Presentation
The consolidated financial statements include the accounts of the Company and its wholly‑owned subsidiary. Intercompany balances and transactions have been eliminated on consolidation.

The consolidated financial statements have been prepared under the historical cost convention. All dollar amounts presented are in United States (“U.S.”) dollars unless otherwise specified.

c) Change in Accounting Policies
On January 1, 2018, the Company adopted the following new accounting standards that were previously issued by the IASB. Certain other new standards and interpretations have been issued and were effective as of January 1, 2018 but did not have a material impact on the Company’s financial statements and are therefore not discussed below.

The accounting policies discussed below reflect the Company’s adoption of IFRS 9 - Financial Instruments, effective January 1, 2018, and IFRS 16 - Leases, which had an effective date of January 1, 2019 but for which the company early adopted as of January 1, 2018. For the eleven months ended December 31, 2017, the Company applied policies based on IAS 39 and IAS 17 and the effects of the transition from IAS 39 to IFRS 9 and from IAS 17 to IFRS 16 are described below.

IFRS 9 – Financial Instruments

IFRS 9 addresses the classification, measurement and recognition of financial assets and financial liabilities. This standard replaces parts of IAS 39 - Financial Instruments: Recognition and Measurement.  The Company adopted IFRS 9 effective January 1, 2018 on a retrospective basis without restating prior period comparatives.

IFRS 9 requires financial assets to be classified into the following measurement categories: fair value through profit and loss, fair value through other comprehensive income, and those measured at amortized cost. The determination is made at initial recognition.  On transition, the EIP receivable (see Note 5) previously classified as available-for-sale and measured at fair value through other comprehensive income was re-classified as fair value through profit or loss with changes in fair value recognized in the statement of loss instead of through other comprehensive loss. Adoption resulted in re-classification of $0.210 million to the opening deficit from accumulated other comprehensive loss for cumulative gains on the EIP receivable.  The following table shows the original measurement categories under IAS 39 and the new measurement categories under IFRS 9 for the Company’s financial assets as at January 1, 2018:

Financial assets
2017 classification
under IAS 39
2018 classification
under IFRS 9
Cash
Loans and receivable
Amortized cost
Amounts receivable
Loans and receivable
Amortized cost
Amounts receivable
Available-for-sale
Fair value through profit or loss

2

PolyMet Mining Corp.
Notes to Consolidated Financial Statements
As at December 31, 2018 and December 31, 2017 and for the twelve and eleven months then ended
Tabular amounts in thousands of U.S. Dollars, except for shares and per share amounts

2.   Basis of Presentation - Continued

For financial liabilities, the standard retains most of the IAS 39 requirements, except as it relates to modifications of liabilities. Under IAS 39, when an entity modified a financial liability, it would decide whether this modification was significant enough to constitute an extinguishment. If the modification was considered an extinguishment of the initial debt, the new modified debt was recorded at fair value and a gain/loss recognized in the statement of loss for the difference between the carrying amount of the old debt and the fair value of the new debt. This extinguishment accounting remains the same under IFRS 9.  However, accounting differs where the change was not significant enough to be an extinguishment. Under IAS 39, modifications would not lead to an immediate income charge, whereas, under IFRS 9, the cash flows under the modified debt are discounted using the original effective interest rate of the instrument with an immediate income charge.  Adoption resulted in a $2.159 million adjustment to increase the opening deficit as at January 1, 2018 and increase the carrying value of the convertible and non-convertible debt.  This reflects accounting for prior year modifications to the outstanding debentures under the new standard (see Notes 8 and 9).

IFRS 16 – Leases

IFRS 16 replaces IAS 17 – Leases.  The new standard requires capitalization of certain leases by the leasee and results in accounting treatment similar to finance leases under IAS 17 - Leases. Exemptions for leases of very low value or short duration leases are applicable. The new standard results in an increase in lease assets and liabilities for the lessee. Under the new standard the treatment of all lease expenses is aligned in the statement of earnings with depreciation, and an interest expense component recognized for each lease, in line with finance lease accounting under IAS 17 - Leases.

The Company early adopted IFRS 16 effective January 1, 2018 on a modified retrospective basis without restating prior period comparatives.  As a result, the Company recorded a $0.211 million lease asset and corresponding lease liability for the one qualifying office lease that has been recognized over the remaining term.  The Company’s other leases (see Note 3) are leases to explore mining rights, which are excluded from IFRS 16’s scope.

The following table summarizes the impact of adopting IFRS 9 - Financial Instruments and IFRS 16 - Leases:

Consolidated Balance Sheet Impact
 
Dec 31, 2017
   
IFRS 9
   
IFRS 16
   
Jan 1, 2018
 
Mineral Property, Plant and Equipment
 
$
395,205
   
$
-
   
$
211
   
$
395,416
 
Accounts Payable and Accruals
   
3,630
     
-
     
211
     
3,841
 
Convertible Debt
   
49,067
     
1,346
     
-
     
50,413
 
Non-Convertible Debt
   
92,268
     
813
     
-
     
93,081
 
Equity Reserves
   
60,505
     
(210
)
   
-
     
60,295
 
Deficit
 
$
(132,497
)
 
$
(1,949
)
 
$
-
   
$
(134,446
)


d) Critical Accounting Estimates
The preparation of consolidated financial statements in conformity with IFRS requires the use of certain critical accounting estimates.  These critical accounting estimates require management to make estimates that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as at the date of the financial statements.

Critical accounting estimates used in the preparation of the consolidated financial statements are as follows:
3

PolyMet Mining Corp.
Notes to Consolidated Financial Statements
As at December 31, 2018 and December 31, 2017 and for the twelve and eleven months then ended
Tabular amounts in thousands of U.S. Dollars, except for shares and per share amounts

2.   Basis of Presentation - Continued

Determination of mineral reserves

Reserves are estimates of the amount of product that can be economically and legally extracted from the Company’s property. In order to estimate reserves, estimates are required about a range of geological, technical and economic factors, including quantities, production techniques, production costs, capital costs, transport costs, demand, prices and exchange rates. Estimating the quantity of reserves requires the size, shape and depth of deposits to be determined by analyzing geological data. This process may require complex and difficult geological judgments to interpret the data. In addition, management will form a view of forecast sales prices, based on current and long-term historical average price trends. Changes in the proven and probable reserves estimates may impact the carrying value of property, plant and equipment, rehabilitation provisions, recognition of deferred tax amounts and depreciation, depletion and amortization.

Provision for Environmental Rehabilitation Costs

Provisions for environmental rehabilitation costs associated with mineral property, plant and equipment, are recognized when the Company has a present legal or constructive obligation that can be estimated reliably, and it is probable an outflow of economic benefits will be required to settle the obligation.  Provisions are determined by discounting the expected future cash flows at a pre-tax risk-free rate that reflects current market assessments of the time value of money.

The Company’s estimates of its ultimate environmental rehabilitation liabilities could be affected by changes in regulations, changes in the extent of environmental rehabilitation required, changes in the means of rehabilitation, changes in the extent of responsibility for the financial liability, changes in operating plans, or changes in cost estimates.  The operations of the Company may in the future be affected from time to time in varying degrees by changes in environmental regulations, including those for future removal and site restoration costs.  Both the likelihood of new regulations and their overall effect upon the Company may vary greatly and are not predictable.

The Company’s provision for environmental rehabilitation cost obligations represents management’s best estimate of the present value of the future cash outflows required to settle the liability. See additional discussion in Note 6.

e) Critical Accounting Judgments
The preparation of consolidated financial statements in conformity with IFRS requires the use of certain critical accounting judgments.  These critical accounting judgments require management to make judgments that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as at the date of the financial statements.

Critical accounting judgments used in the preparation of the consolidated financial statements are as follows:

Impairment of non-financial assets

The carrying amounts of the Company’s non-financial assets, including mineral property, plant and equipment, and intangible are reviewed at each reporting date or when events or changes in circumstances occur that indicate the asset may not be recoverable to determine whether there is any indication of impairment.  If any such indication exists, the asset’s recoverable amount is estimated at the greater of its value in use and its fair value less costs of disposal.  In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that
4

PolyMet Mining Corp.
Notes to Consolidated Financial Statements
As at December 31, 2018 and December 31, 2017 and for the twelve and eleven months then ended
Tabular amounts in thousands of U.S. Dollars, except for shares and per share amounts

2.   Basis of Presentation - Continued

reflects current market assessments of the time value of money and the risks specific to the asset.  An impairment loss is recognized if the carrying amount of an asset exceeds its estimated recoverable amount.  An impairment loss previously recorded is reversed if there has been a change in the estimates used to determine the recoverable amount resulting in an increase in the estimated service potential of an asset.

The Company considers both external and internal sources of information in assessing whether there are any indications of impairment. External sources of information the Company considers include changes in the market, economic, and legal environment in which the Company operates that are not within its control and affect the recoverable amount. Internal sources of information the Company considers include indications of economic performance of the asset.

The carrying value of mineral property, plant, and equipment, and intangible at the balance sheet date are described in Notes 4 and 5, respectively. No impairment indicators were identified on the mineral property, plant and equipment or intangible for the twelve months ended December 31, 2018 or eleven months ended December 31, 2017.

Going concern assumptions

The Company must assess its ability to continue as a going concern and prepare financial statements on a going concern basis unless it either intends to liquidate or cease trading or has no realistic alternative but to do so.  In assessing whether the going concern assumption is appropriate, the Company takes into account all available information about the future, which is at least, but is not limited to, twelve months from the end of the reporting period.

f)
Summary of Significant Accounting Policies

Cash and Cash Equivalents and Restricted Cash Deposits
The Company considers cash and cash equivalents to include amounts held in banks and highly liquid investments with original maturities of three months or less.  Restricted Cash Deposits are held in a trust account and invested in highly liquid investments with a major financial institution as security and collateral for reclamation activities.

Financial Assets
All financial assets are initially recorded at fair value and designated upon inception as one of the following categories: amortized cost or fair value through profit or loss (“FVTPL”).  Financial assets classified as FVTPL are measured at fair value with gains and losses recognized through profit and loss.  Financial assets classified as amortized cost are measured at amortized cost using the effective interest method less any allowance for impairment.  The effective interest method is a method of calculating the amortized cost of a financial asset and of allocating interest income over the relevant period.  The effective interest rate is the rate that discounts estimated future cash receipts through the expected life of the financial asset, or, where appropriate, a shorter period.  The Company recognizes loss allowances for Expected Credit Losses (“ECL”) for amounts receivable not measured at FVTPL.  Loss allowances for amounts receivable are measured at an amount equal to lifetime ECL.  ECL is a probability-weighted estimate and measured as at the present value of all cash shortfalls including the impact of forward looking information.  The loss allowance is presented as a deduction to amounts receivable.  Transaction costs associated with FVTPL financial assets are expensed as incurred, while transaction costs associated with amortized cost financial assets are included in the initial carrying amount of the asset.  See additional discussion in Note 15.
5

PolyMet Mining Corp.
Notes to Consolidated Financial Statements
As at December 31, 2018 and December 31, 2017 and for the twelve and eleven months then ended
Tabular amounts in thousands of U.S. Dollars, except for shares and per share amounts

2.   Basis of Presentation - Continued

Mineral Property
Exploration and evaluation costs incurred prior to a Definitive Feasibility Study (“DFS”) are expensed as incurred.  Development costs incurred subsequent to a DFS and mineral property acquisition costs are capitalized until the property is placed into production, sold, allowed to lapse or abandoned. As a result of the DFS, NorthMet entered the development stage effective October 1, 2006.  The Company has capitalized development expenditures related to NorthMet from that date.

Upon commencement of production, related property acquisition and development costs are amortized on a unit of production basis over the estimated proven and probable mineral reserves not to exceed the assets’ useful lives.

Plant and Equipment
Plant and equipment are recorded at historical cost less accumulated depreciation and if applicable, accumulated impairment losses.  Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, if it is probable that the future economic benefits of the expenditure will flow to the Company and its cost can be measured reliably.  The carrying amount of a replaced part is derecognized.  All other repairs and maintenance are charged to the statement of loss and comprehensive loss during the period in which they are incurred.

Depreciation of plant and equipment is calculated using the cost of the asset, less its residual value, over the estimated useful life of the asset on a unit of production or straight-line basis, as appropriate.

Leases
The Company recognizes a right-of-use asset and a lease liability at the lease commencement date.   The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentives received. The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term.  The lease liability is initially measured at the present value of the lease payments, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Company’s incremental borrowing rate. Generally, the Company uses its incremental borrowing rate as the discount rate.

Intangible
Intangible costs and related acquisition costs are capitalized until the wetland credits are used, sold, or abandoned.  Wetland credits are used to offset and mitigate wetlands disturbed during construction
and operation of NorthMet.  As such, costs will be transferred to Mineral Property, Plant and Equipment once placed into service and amortized on a unit of production basis over the estimated proven and probable mineral reserves not to exceed the assets’ useful lives.  See additional discussion in Note 5.

Financial Liabilities
All financial liabilities are initially recorded at fair value and designated upon inception as FVTPL or other financial liabilities.  Financial liabilities classified as FVTPL are initially recognized at fair value with directly attributable transaction costs expensed as incurred.  At the end of each reporting period, financial liabilities at FVTPL are measured at fair value, with changes in fair value recognized directly in profit or loss in the period in which they arise.  Financial liabilities classified as other financial liabilities are initially recognized at fair value less directly attributable transaction costs and
6

PolyMet Mining Corp.
Notes to Consolidated Financial Statements
As at December 31, 2018 and December 31, 2017 and for the twelve and eleven months then ended
Tabular amounts in thousands of U.S. Dollars, except for shares and per share amounts

2.   Basis of Presentation - Continued

subsequently measured at amortized cost using the effective interest method which calculates the amortized cost of a financial liability and allocates interest expense over the expected life of the financial liability.

Exchanges of instruments and modifications to debt are assessed using quantitative and qualitative factors to consider whether the exchange or modification constitutes an extinguishment of the original financial liability and establishment of a new financial liability. In the case of extinguishment, any fees or costs incurred are recognized in profit or loss in the period in which they arise.  Where the terms in an exchange or modification are not assessed to be substantially different, a modification gain or loss is recognized at an amount equal to the difference between the modified cash flows discounted at the original effective interest rate and the carrying value of the debt. The carrying value of the debt is adjusted for this modification gain or loss, directly attributable transaction costs, and any cash paid to or received from the debt holder.  See additional discussion in Note 15.

Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset are capitalized as part of the cost of that asset until such time as the asset is substantially complete and ready for its intended use or sale.   Where funds have been borrowed specifically to finance an asset, the amount capitalized is the actual borrowing costs incurred. Where the funds used to finance an asset form part of general borrowings, the amount capitalized is calculated using a weighted average of rates applicable to relevant borrowings of the Company during the period. Other borrowing costs not directly attributable to a qualifying asset are expensed in the year incurred.  Classification in the cash flow statement is in accordance with the classification of the underlying asset to which those payments were capitalized.

Share‑Based Compensation
All share-based compensation awards made to directors, employees and non-employees are measured and recognized using a fair value based method.  For directors and employees, or those providing services similar to employees, the fair value of options is determined using the Black-Scholes pricing model.  The fair value of the bonus shares, restricted shares, and restricted share units expected to be settled in shares are calculated using the intrinsic value of the shares at issuance and is amortised over the vesting period.  For awards expected to be settled in cash, the change in market value and corresponding liability is adjusted to fair value at each reporting period.

The award is accrued and charged over the vesting period either to operations or mineral property plant and equipment, with the offsetting credit to equity reserves for equity settled awards or liabilities for cash settled awards.  If and when share options are ultimately exercised or bonus shares, restricted shares, and restricted share units vest, the applicable amounts are transferred to share capital or removed from liabilities.

Certain awards vest upon achievement of non-market performance conditions.  On a quarterly basis, management assesses the probability of achieving those performance conditions using the best available information and estimates the appropriate vesting period.

When the Company amends the terms of share options, the incremental change in the fair value of the options due to the amendment, as determined using the Black-Scholes pricing model, is recognized over the vesting period in the statement of loss or capitalized as appropriate.
7

PolyMet Mining Corp.
Notes to Consolidated Financial Statements
As at December 31, 2018 and December 31, 2017 and for the twelve and eleven months then ended
Tabular amounts in thousands of U.S. Dollars, except for shares and per share amounts

2.   Basis of Presentation - Continued

Share Purchase Warrants
The Company issues share purchase warrants in connection with certain financing transactions.  The fair value of the warrants, as determined using the Black-Scholes pricing model or fair value of goods or services received, is credited to equity reserves.  The recorded value of share purchase warrants is transferred to share capital upon exercise.

Foreign Currency Translation
The U.S. dollar is the functional currency of the Company and its wholly-owned subsidiary.  Amounts in the consolidated financial statements are expressed in U.S. dollars unless otherwise stated. Transactions in foreign currencies are translated into the functional currency at the exchange rates at the date of the transactions.  Monetary assets and liabilities of the Company’s operations denominated in a currency other than the U.S. dollar are translated using exchange rates prevailing at the balance sheet date.  Revenue and expense items are translated at the exchange rates in effect at the date of the underlying transaction.  Exchange differences are recognized in net loss in the year in which they arise.

Loss Per Share
Loss per share is computed by dividing the loss for the year by the weighted average number of common shares outstanding during the year.  Basic and diluted loss per share for each year presented are the same due to the effect of potential issuances of shares under warrant or share option agreements being, in total, anti-dilutive.

Income Taxes and Deferred Taxes
The income tax expense or benefit for the year consists of two components: current and deferred.

Current tax is the expected tax payable or receivable on the taxable profit or loss for the year. Current tax is calculated using tax rates and laws that were enacted or substantively enacted at the balance sheet date in each of the jurisdictions and include any adjustments for taxes payable or recovery in respect of prior periods.

Taxable profit or loss differs from profit or loss as reported in the Consolidated Statements of Loss and Comprehensive Loss because of items of income or expense that are taxable or deductible in other years, and items that are never taxable or deductible.

Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax basis used in the computation of taxable profit. Deferred tax liabilities are generally recognized for all taxable temporary differences not eligible for offset. Deferred tax assets are generally recognized for all deductible temporary differences, loss carry forwards and tax credit carry forwards to the extent that it is probable that taxable profits will be available against which they can be utilized. To the extent that the Company does not consider it to be probable that taxable profits will be available against which deductible temporary differences, loss carry forwards, and tax credit carry forwards can be utilized, a deferred tax asset is not recognized.
8

PolyMet Mining Corp.
Notes to Consolidated Financial Statements
As at December 31, 2018 and December 31, 2017 and for the twelve and eleven months then ended
Tabular amounts in thousands of U.S. Dollars, except for shares and per share amounts

3.
Mineral Property Agreements

NorthMet, Minnesota, U.S.A.
Pursuant to an agreement dated January 4, 1989, subsequently amended and assigned, the Company leases certain mineral property rights in St. Louis County, Minnesota from RGGS Land & Minerals Ltd., L.P.  Provided the Company continues to make annual lease payments, the lease period continues until June 12, 2048 with an option to extend the lease for up to five additional ten-year periods on the same terms and further extend as long as there are commercial mining operations.  All lease payments have been paid to date with the next annual payment of $0.175 million due in January 2020.

Pursuant to an agreement dated December 1, 2008, the Company leases certain mineral property rights in St. Louis County, Minnesota from LMC Minerals.  Provided the Company continues to make annual lease payments, the lease period continues until December 1, 2028 with an option to extend the lease for up to four additional five-year periods on the same terms.  All lease payments have been paid to date with the next annual payment of $0.030 million due in November 2019.

The lease payments are considered advance royalty payments and will be deducted from future production royalties payable to the lessor, which range from 3% to 5% based on the net smelter return per ton received by the Company.  The Company’s recovery of $3.000 million in advance royalty payments to RGGS Land & Minerals Ltd., L.P. is subject to the lessor receiving an amount not less than the amount of the annual lease payment due for that year.  The Company’s recovery of $0.219 million in advance royalty payments to LMC Minerals is subject to the lessor receiving an amount not less than the amount of the annual lease payment due for that year.


4.
Mineral Property, Plant and Equipment

Details of the Mineral Property, Plant, and Equipment are as follows:
Net Book Value
 
NorthMet
   
Other fixed
assets
   
Total
 
Balance at January 31, 2017
 
$
364,793
   
$
120
   
$
364,913
 
Additions
   
39,474
     
32
     
39,506
 
Disposals (Note 5)
   
(2,789
)
   
-
     
(2,789
)
Changes to rehabilitation provision (Note 6)
   
(6,363
)
   
-
     
(6,363
)
Amortization
   
-
     
(62
)
   
(62
)
Balance at December 31, 2017
   
395,115
     
90
     
395,205
 
Adoption of IFRS 16 (Note 2)
   
-
     
211
     
211
 
Balance at January 1, 2018
   
395,115
     
301
     
395,416
 
Additions
   
41,710
     
87
     
41,797
 
Changes to environmental rehabilitation provision (Note 6)
   
(3,478
)
   
-
     
(3,478
)
Amortization and Depreciation
   
-
     
(187
)
   
(187
)
Balance at December 31, 2018
 
$
433,347
   
$
201
   
$
433,548
 

9

PolyMet Mining Corp.
Notes to Consolidated Financial Statements
As at December 31, 2018 and December 31, 2017 and for the twelve and eleven months then ended
Tabular amounts in thousands of U.S. Dollars, except for shares and per share amounts

4.  Mineral Property, Plant and Equipment Continued

NorthMet
 
December 31,
2018
   
December 31,
2017
 
Mineral property acquisition and interest costs
 
$
112,002
   
$
86,863
 
Mine plan and development
   
48,383
     
50,250
 
Environmental
   
133,638
     
122,396
 
Consulting and wages
   
55,076
     
52,965
 
Reclamation and remediation (Note 6)
   
56,811
     
60,289
 
Site activities
   
26,488
     
21,403
 
Mine equipment
   
949
     
949
 
Total
 
$
433,347
   
$
395,115
 

Erie Plant, Minnesota, U.S.A.
In November 2005, the Company acquired from Cliffs Erie LLC, a subsidiary of Cleveland Cliffs Inc. (together “Cliffs”) large parts of the Erie Plant, a processing facility located approximately six miles from the ore body.

In December 2006, the Company acquired from Cliffs additional property and associated rights sufficient to provide it with a railroad connection linking the mine development site and the Erie Plant.  The transaction also included a railcar fleet, locomotive fueling and maintenance facilities, water rights and pipelines, administrative offices on site and an additional 6,000 acres of land to the east and west of the existing tailings storage facilities.

The consideration paid for the Erie Plant and associated infrastructure was $18.9 million in cash and 9,200,547 shares at a fair market value of $13.953 million. As part of the consideration, the Company indemnified Cliffs for reclamation and remediation obligations of the acquired property (see Note 6).

During the twelve months ended December 31, 2018, the Company capitalized 100% of the borrowing costs on the convertible debt (see Note 8) and non-convertible debt (see Note 9) in the amount of $20.560 million (eleven months ended December 31, 2017 - $18.512 million) as part of the cost of NorthMet assets.  Costs to acquire the surface rights over the mineral rights were reclassed from mine plan and development to mineral property acquisition following the land exchange closing in June 2018 which resulted in cash proceeds of $0.425 million and a non-cash loss of $0.553 million based on independent valuation appraisals of the lands exchanged. As NorthMet assets are not in use or capable of operating in a manner intended by management, no depreciation or amortization of these assets has been recorded to December 31, 2018.
10

PolyMet Mining Corp.
Notes to Consolidated Financial Statements
As at December 31, 2018 and December 31, 2017 and for the twelve and eleven months then ended
Tabular amounts in thousands of U.S. Dollars, except for shares and per share amounts

5.
Intangible and EIP Receivable

Details of the Intangible are as follows:
   
Twelve months ended
December 31, 2018
   
Eleven months ended
December 31, 2017
 
Intangible – beginning of period
 
$
3,130
   
$
1,888
 
Purchases
   
21,055
     
810
 
Other Additions
   
-
     
2,320
 
Disposals
   
-
     
(1,888
)
Intangible – end of period
 
$
24,185
   
$
3,130
 

Details of the EIP receivable are as follows:

   
Twelve months ended
December 31, 2018
   
Eleven months ended
December 31, 2017
 
EIP Receivable – beginning of period
 
$
2,883
   
$
2,656
 
Initial recognition
   
-
     
564
 
Collections
   
-
     
(171
)
Loss on re-measurement
   
(971
)
   
(166
)
EIP Receivable – end of period
   
1,912
     
2,883
 
Less current portion
   
(116
)
   
(350
)
Non-current portion
 
$
1,796
   
$
2,533
 

In April 2015, the Company entered into an agreement with EIP Minnesota, LLC (“EIP”) whereby EIP will seek to sell wetland credits the Company is unable to use for the NorthMet Project to third parties and, over time, reimburse the Company for its costs.  In February 2017, additional wetland credits the Company is unable to use were added to the receivable under the same terms as the April 2015 agreement.  The timing of EIP’s sale to third parties and reimbursement of the Company is uncertain and volatile.   The Company initially recognized the February 2017 receivable at fair value calculated using a 9.75% discount rate and 15-year term resulting in a receivable of $0.564 million and a non-cash loss of $1.324 million.  The EIP receivable is recorded at fair value at each reporting period, based on management’s best estimate of cash flows expected from future sales by EIP.  Fair value changes were accounted for through other comprehensive income or loss prior to adoption of IFRS 9 after which changes are accounted for through income or loss.

In October 2017, the Company entered into an agreement with EIP Credit Co., LLC to reserve wetland bank credits the Company can use for the NorthMet Project for a minimum of five years in exchange for an initial down payment applicable to the purchase price, contractual transfer of certain lands, and annual option payments not applicable to the purchase price.  The initial consideration paid was $0.810 million in cash and $2.320 million in lands valued using Level 3 measurements (see Note 15) and resulted in a non-cash charge of $0.469 million.  Annual option payments of $0.250 million are expensed as incurred whereas option exercise payments will be recorded to Intangible and transferred to Mineral Property, Plant and Equipment once placed into service.  During the twelve months ended December 31, 2018, the Company exercised part of its rights and purchased wetland bank credits, which resulted in a $21.055 million addition to Intangible.
11

PolyMet Mining Corp.
Notes to Consolidated Financial Statements
As at December 31, 2018 and December 31, 2017 and for the twelve and eleven months then ended
Tabular amounts in thousands of U.S. Dollars, except for shares and per share amounts

6.
Environmental Rehabilitation Provision

Details of the Environmental Rehabilitation Provision are as follows:

       
   
Twelve months ended
December 31, 2018
   
Eleven months ended
December 31, 2017
 
Environmental Rehabilitation Provision – beginning of period
 
$
65,402
   
$
70,626
 
Change in estimate
   
(3,478
)
   
(6,363
)
Liabilities discharged
   
(2,613
)
   
(637
)
Accretion expense
   
1,796
     
1,776
 
Environmental Rehabilitation Provision – end of period
   
61,107
     
65,402
 
Less current portion
   
(1,693
)
   
(1,266
)
Non-current portion
 
$
59,414
   
$
64,136
 

Federal, state and local laws and regulations concerning environmental protection affect the Company’s assets.  As part of the consideration for the asset acquisitions from Cliffs (see Note 4), the Company indemnified Cliffs for reclamation and remediation obligations of the acquired property.  The Company’s provisions are based upon existing laws and regulations.  It is not currently possible to estimate the impact on operating results, if any, of future legislative or regulatory developments.

In April 2010, Cliffs entered into a consent decree with the Minnesota Pollution Control Agency (“MPCA”) relating to alleged violations on the Cliffs Erie Property.  This consent decree required both short-term and long-term mitigation.  Field studies were completed in 2010 and 2011 and short-term mitigations approved by the MPCA were initiated in 2011.  In April 2012, long-term mitigation plans were submitted to the MPCA and, in October 2012, the MPCA approved plans for pilot tests of various treatment options to determine the best course of action.  Although there is substantial uncertainty related to applicable water quality standards and engineering scope, the October 2012 response from the MPCA, subsequent communications amongst the MPCA, Cliffs and the Company, and closure plans reflected in the Permit to Mine support the long-term mitigation plans included in the Company’s environmental rehabilitation provision.

The Company’s best estimate of the environmental rehabilitation provision as at December 31, 2018 was $61.107 million (December 31, 2017 - $65.402 million) based on estimated cash flows required to settle this obligation in present day costs of $71.146 million (December 31, 2017 - $73.301 million), a projected inflation rate of 2.00% (December 31, 2017 – 2.00%), a market risk-free interest rate of 3.13% (December 31, 2017 – 2.58%) and expenditures expected to occur over a period of approximately 30 years.  The decrease during the twelve months ended December 31, 2018 was primarily due to revisions to estimated cash flows as a result of changes in the market risk-free interest rate and liabilities discharged for rehabilitation work completed in the processing plant.  The decrease during the eleven months ended December 31, 2017 was primarily due to revisions to estimated cash flows as a result of closure plans reflected in the Permit to Mine application.

On November 1, 2018, the Company received the Permit to Mine for NorthMet and certain other permits from the Minnesota Department of Natural Resources (“MDNR”) which included a schedule for financial assurance obligations , including required cash contributions to a trust fund.  The Company has satisfied its current financial assurance obligations primarily by establishing and contributing $10 million in restricted cash deposits to a trust fund and providing $65 million in surety bonds and letters of credit, with the MDNR as the beneficiary in each case.  Financial assurance obligations must be reviewed annually based on the Company’s planned reclamation activities, with the total assurance and related financial instruments adjusted accordingly if the underlying estimated reclamation costs are revised.  The Company may terminate these financial instruments , partially or in full, only upon meeting site reclamation requirements and securing approval from the MDNR .   Future required cash contributions to the trust fund are $2.0 million per year beginning in the first year of mining operations and continue until the eighth year after which annual contributions will be prorated based on the expected reclamation obligation at the end of mining .  In addition, the Company provided Cliffs with a $13.4 million letter of credit to satisfy requirements under the asset acquisition agreements and related obligations.
 


12

PolyMet Mining Corp.
Notes to Consolidated Financial Statements
As at December 31, 2018 and December 31, 2017 and for the twelve and eleven months then ended
Tabular amounts in thousands of U.S. Dollars, except for shares and per share amounts

7.
Glencore Financing

Since October 2008, the Company and Glencore have entered into a series of financing agreements comprising:

Equity – five separate agreements comprising $25.0 million placement of PolyMet common shares in calendar 2009 in two tranches; a $30.0 million placement of PolyMet common shares in calendar 2010 in three tranches; a $20.0 million placement of PolyMet common shares in calendar 2011 in one tranche; a $20.960 million purchase of PolyMet common shares in the 2013 Rights Offering; and a $10.583 million purchase of PolyMet common shares in the 2016 Private Placement;
Convertible debt (“Glencore Convertible Debt”) – agreement comprising $25.0 million initial principal secured convertible debentures drawn in four tranches (see Notes 8 and 16); and
Non-convertible debt (“Glencore Non-Convertible Debt”) – five separate agreements comprising $30.0 million initial principal secured debentures in calendar 2015 drawn in four tranches; an $11.0 million initial principal secured debenture in calendar 2016 drawn in one tranche; $14.0 million initial principal secured debentures in calendar 2016 drawn in four tranches; $20.0 million initial principal secured debentures in calendar 2017 drawn in two tranches; and $80.0 million initial principal secured debenture in calendar 2018 drawn in four tranches with the fifth tranche in the amount of $15.0 million cancelled subsequent to year end (see Notes 9 and 16).

As a result of these financing transactions and the purchase by Glencore of PolyMet common shares previously owned by Cliffs, Glencore's ownership and ownership rights of PolyMet as at December 31, 2018 comprises:

92,836,072 shares representing 28.9% of PolyMet's issued shares (December 31, 2017 - 92,836,072 shares);
Glencore Convertible Debt exchangeable through the exercise of an exchange warrant (“Exchange Warrant”) at $1.2696 per share into 44,303,743 common shares of PolyMet (including capitalized and accrued interest as at December 31, 2018), and where the exercise price and the number of shares issuable are subject to conventional anti-dilution provisions (see Notes 8 and 16);
Warrants to purchase 6,458,001 common shares at $0.8231 per share at any time until March 31, 2019, subject to mandatory exercise if the 20-day volume weighted average price (“VWAP”) of PolyMet common shares is equal to or greater than 150% of the exercise price and PolyMet has received permits and construction finance is available (“Exercise Triggering Event”), and where the exercise price and the number of warrants are subject to conventional anti-dilution provisions.  See 2018 Agreement below for additional details;
13


PolyMet Mining Corp.
Notes to Consolidated Financial Statements
As at December 31, 2018 and December 31, 2017 and for the twelve and eleven months then ended
Tabular amounts in thousands of U.S. Dollars, except for shares and per share amounts

7.  Glencore Financing Continued

Warrants to purchase 7,055,626 common shares at $1.00 per share at any time until October 28, 2021, subject to acceleration at the Company’s option provided all permits necessary to construct NorthMet have been received (“Acceleration Triggering Event”), and where the exercise price and the number of warrants are subject to conventional anti-dilution provisions; and
Warrants to purchase 625,000 common shares at $0.7797 per share at any time until October 28, 2021, and where the exercise price and the number of warrants are subject to conventional anti-dilution provisions.

If Glencore were to exercise all of its rights and obligations under these agreements, it would own 151,278,442 common shares of PolyMet, representing 39.8% on a partially diluted basis, that is, if no other options or warrants were exercised or 36.1% on a fully diluted basis, if all other options and warrants were exercised as at December 31, 2018.

2017 Agreements
In September 2017, the Company agreed to issue to Glencore secured debentures with a total principal amount of $20.0 million.  The debentures bear interest at twelve month US dollar LIBOR plus 15.0% and are due on the earlier of (i) March 31, 2018 or (ii) the availability of at least $100 million of debt or equity financing or (iii) when it is prudent for PolyMet to repay the debt, on which date all principal and interest accrued to such date will be due and payable.  The Tranche N Debenture in the amount of $15.0 million was issued on September 18, 2017.  The Tranche O Debenture in the amount of $5.0 million was issued on January 18, 2018.  Transaction costs for the financing were $0.083 million. The maturity date of these debentures was extended to March 31, 2019 as noted below.

2018 Agreement
On March 23, 2018, the Company amended its financing arrangement with Glencore.  The maturity date of the Convertible Debt and the Non-Convertible Debt was extended to the earlier of (i) March 31, 2019 or (ii) the availability of at least $100 million of debt or equity financing or (iii) when the Company elects to repay the debt early and demonstrates that such repayment is prudent.   The interest rate was reduced from twelve month US dollar LIBOR plus 15.0% to twelve month US dollar LIBOR plus 10.0% effective April 1, 2018.  The convertibility of the Convertible Debt was extended to March 31, 2019 and 6,458,001 purchase warrants were reissued with an expiration date of March 31, 2019 and an exercise price of $0.8231 per share, both of which were approved by the NYSE American and TSX.  All other terms of both the debentures and the warrants described above remain unchanged.

In addition, the Company agreed to issue to Glencore secured debentures with a total principal amount of up to $80 million at the Company’s option.  The debentures bear interest at twelve month US dollar LIBOR plus 10.0% and if issued, are due on the earlier of (i) March 31, 2019 or (ii) the availability of at least $100 million of debt or equity financing or (iii) when the Company elects to repay the debt early and demonstrates that such repayment is prudent, on which date all principal and interest accrued to such date will be due and payable.  The Tranche P Debenture in the amount of $20.0 million was issued on May 7, 2018.  The Tranche Q Debenture in the amount of $15.0 million and Tranche T Debenture in the amount of $10 million were issued on October 25, 2018.  The Tranche S Debenture in the amount of $20.0 million was issued on December 18, 2018.  Under the extension agreement and repayment plan agreed to subsequent to December 31, 2018, the commitment to issue Tranche R in the amount of $15.0 million was cancelled.  See additional discussion in Note 16.

The transaction has been accounted for as a modification of the existing debentures with a $4.109 million modification loss recognized during the twelve month period ending December 31, 2018, consisting of the following:

$3.142 million to increase the convertible debt carrying value to the revised cash flows discounted using the original effective interest rate of 6.7%;
$1.452 million to reduce the non-convertible debt carrying value to the revised cash flows discounted using the original effective interest rate of 14.9%;
$2.331 million to recognize fair value of the purchase warrants issued; and
$0.088 million to recognize transaction costs which were allocated on a pro rata basis to the Glencore Non-Convertible Debt and Glencore Convertible Debt.

14

PolyMet Mining Corp.
Notes to Consolidated Financial Statements
As at December 31, 2018 and December 31, 2017 and for the twelve and eleven months then ended
Tabular amounts in thousands of U.S. Dollars, except for shares and per share amounts

8.
Convertible Debt

Details of the Convertible Debt are as follows:
   
Twelve months ended
December 31, 2018
   
Eleven months ended
December 31, 2017
 
Convertible Debt – beginning of period
 
$
49,067
   
$
42,154
 
     Transition to IFRS 9 (Note 2)
   
1,346
     
-
 
Convertible Debt – adjusted beginning of period
   
50,413
     
42,154
 
     Change due to modification (Note 7)
   
3,142
     
-
 
     Accretion and capitalized interest
   
3,429
     
6,913
 
Convertible Debt – end of period
   
56,984
     
49,067
 
     Less current portion
   
(56,984
)
   
(49,067
)
Non-current portion
 
$
-
   
$
-
 

Since October 2008, the Company has issued $25.0 million of secured convertible debentures to Glencore.  The Company has provided security on these debentures covering all of the assets of PolyMet.
These debentures bear interest at twelve month U.S. dollar LIBOR plus 4.0% through July 31, 2015, twelve month U.S. dollar LIBOR plus 8.0% through December 31, 2015, twelve month U.S. dollar LIBOR plus 15.0% beginning January 1, 2016, and twelve month U.S. dollar LIBOR plus 10.0% beginning April 1, 2018.  Interest is compounded quarterly and payable in cash or by increasing the principal amount of the debentures, at Glencore’s option.  Since inception, $31.248 million of interest has been capitalized to the principal amount of the debenture.  All borrowing costs were eligible for capitalization and 100% of these costs were capitalized during the twelve months ended December 31, 2018.
The due date of these debentures was the earlier of (i) March 31, 2019 or (ii) the availability of at least $100 million of debt or equity financing or (iii) when the Company elects to repay the debt early and demonstrates that such repayment is prudent, on which date all principal and interest accrued to such date will be due and payable.  Upon receipt of ten days notice of PolyMet’s intention to repay the debentures, Glencore can exercise the Exchange Warrant and exchange the initial principal and capitalized interest into common shares of PolyMet at $1.2696 per share.  Glencore has the right to exchange some or all of the debentures at any time under the same conversion terms.  The Company has the right to require exchange of all of the debentures upon receipt of permits required to commence construction of NorthMet and construction finance acceptable to Glencore under the same conversion terms.
Subsequent to December 31, 2018, PolyMet and Glencore agreed to extend the maturity date of the secured convertible debt to provide the Company time to prepare for and complete a rights offering by June 30, 2019, fully backstopped by Glencore, to raise sufficient funds to repay the secured convertible debt.  See additional discussion in Note 16.
15

PolyMet Mining Corp.
Notes to Consolidated Financial Statements
As at December 31, 2018 and December 31, 2017 and for the twelve and eleven months then ended
Tabular amounts in thousands of U.S. Dollars, except for shares and per share amounts

9.
Non-Convertible Debt

Details of the Non-Convertible Debt are as follows:
   
Twelve months ended
December 31, 2018
   
Eleven months ended
December 31, 2017
 
Non-Convertible Debt – beginning of period
 
$
92,268
   
$
65,752
 
Transition to IFRS 9 (Note 2)
   
813
     
-
 
Non-Convertible Debt – adjusted beginning of period
   
93,081
     
65,752
 
Change due to modification (Note 7)
   
(1,452
)
   
-
 
    Accretion and capitalized interest
   
17,131
     
11,599
 
    Funding, net of costs
   
69,723
     
14,917
 
   Total Non-Convertible Debt
   
178,483
     
92,268
 
       Less current portion
   
(178,483
)
   
(92,268
)
   Non-current portion
 
$
-
   
$
-
 


Since January 2015, the Company has issued $140.0 million of secured non-convertible debentures to Glencore, including $70.0 million during the twelve months ended December 31, 2018. The Company has provided security on these debentures covering all of the assets of PolyMet.
These debentures bear interest at twelve month U.S. dollar LIBOR plus 8.0% through December 31, 2015, twelve month U.S. dollar LIBOR plus 15.0% beginning January 1, 2016, and twelve month U.S. dollar LIBOR plus 10.0% beginning April 1, 2018.  Interest is compounded quarterly and payable in cash or by increasing the principal amount of the debentures, at Glencore’s option.  Since inception, $38.882 million of interest has been capitalized to the principal amount of the debenture.  All borrowing costs were eligible for capitalization and 100% of these costs were capitalized during the twelve months ended December 31, 2018.
The due date of these debentures was the earlier of (i) March 31, 2019 or (ii) the availability of at least $100 million of debt or equity financing or (iii) when the Company elects to repay the debt early and demonstrates that such repayment is prudent, on which date all principal and interest accrued to such date will be due and payable.
Subsequent to December 31, 2018, PolyMet and Glencore agreed to extend the maturity date of the secured non-convertible debt to provide the Company time to prepare for and complete a rights offering by June 30, 2019, fully backstopped by Glencore, to raise sufficient funds to repay the secured non-convertible debt.  See additional discussion in Note 16.
16

PolyMet Mining Corp.
Notes to Consolidated Financial Statements
As at December 31, 2018 and December 31, 2017 and for the twelve and eleven months then ended
Tabular amounts in thousands of U.S. Dollars, except for shares and per share amounts

10.    Share Capital

a)
Issuances for Cash and Land Acquisition

During the twelve months ended December 31, 2018 the Company issued 815,500 shares (December 31, 2017 – nil) pursuant to the exercise of share options and warrants for proceeds of $0.742 million (December 31, 2017 - $nil).

During the twelve months ended December 31, 2018 the Company issued 128,750 shares (December 31, 2017 – 396,616 shares) to maintain land purchase options with the shares valued at $0.123 million (December 31, 2017 - $0.256 million).


b)
Share-Based Compensation

The Omnibus Share Compensation Plan (“Omnibus Plan”) was created to align the interests of the Company’s employees, directors, officers and consultants with those of shareholders.  Effective May 25, 2007, the Company adopted the Omnibus Plan, which was approved by the Company’s shareholders on June 27, 2007, modified and further ratified and reconfirmed by the Company’s shareholders most recently on June 27, 2018.  The Omnibus Plan restricts the award of share options, restricted shares, restricted share units, and other share-based awards to 10% of the common shares issued and outstanding on the grant date, excluding 2,500,000 common shares underlying options pursuant to an exemption approved by the Toronto Stock Exchange.

During the twelve months ended December 31, 2018, the Company recorded $2.202 million for share-based compensation (December 31, 2017 - $1.550 million) with $1.742 million expensed to share-based compensation (December 31, 2017 - $1.318 million) and $0.460 million capitalized to mineral property, plant and equipment (December 31, 2017 - $0.232 million). The offsetting entries were to equity reserves for $1.787 million (December 31, 2017 - $1.111 million), share capital for $0.105 million (December 31, 2017 - $nil) and payables for $0.310 million (December 31, 2017 - $0.439).  Total share-based compensation for the twelve months ended December 31, 2018 comprised $0.803 million for share options (December 31, 2017 - $0.368 million), $1.294 million for restricted shares and restricted share units (December 31, 2017 - $1.182 million), and $0.105 million for issuance of unrestricted shares (December 31, 2017 - $nil).  Exercise of share options and warrants and vesting of restricted share units during the twelve months ended December 31, 2018 resulted in $0.783 million being transferred from equity reserves to share capital (December 31, 2017 - $0.365 million).


c)
Share Options

Share options granted may not exceed a term of ten years and are forfeited if the grantee ceases to be an eligible person under the Omnibus Plan.  Details of the share options are as follows:

   
Twelve months ended
December 31, 2018


Eleven months ended
December 31, 2017
 
   
Number of
Options
   
Weighted
Average
Exercise
Price
   
Number of
Options
   
Weighted
Average
Exercise
Price
 
Outstanding – beginning of period
   
21,659,002
   
$
0.98
     
20,962,002
   
$
1.10
 
Granted
   
2,503,000
     
0.91
     
2,142,000
     
0.62
 
Exercised
   
(225,000
)
   
0.67
     
-
     
-
 
Expired
   
(1,245,000
)
   
2.06
     
(1,445,000
)
   
2.19
 
Outstanding – end of period
   
22,692,002
   
$
0.91
     
21,659,002
   
$
0.98
 

17

PolyMet Mining Corp.
Notes to Consolidated Financial Statements
As at December 31, 2018 and December 31, 2017 and for the twelve and eleven months then ended
Tabular amounts in thousands of U.S. Dollars, except for shares and per share amounts

10.  Share Capital - Continued

The weighted average share price when share options were exercised during the twelve months ended December 31, 2018 was $1.00.
The fair value of share options granted was estimated at the date of grant using the Black-Scholes pricing model with the following weighted average assumptions:
   
Twelve months ended
December 31, 2018
   
Eleven months ended
December 31, 2017
 
Risk-free interest rate
 
2.33% to 2.58%
   
1.42% to 1.82%
 
Expected dividend yield
   
-
     
-
 
Expected forfeiture rate
   
-
     
-
 
Expected volatility
 
56.07% to 61.80%
   
53.91% to 57.06%
 
Expected life in years
 
2.50 to 5.00
   
2.50 to 5.00
 
Weighted average fair value of each option
 
$
0.34 to $0.61
   
$
0.22 to $0.32
 

The expected volatility reflects the Company’s expectation that historical volatility over a period similar to the life of the option is indicative of future trends, which may or may not necessarily be the actual outcome.

Details of the share options outstanding as at December 31, 2018 are as follows:

Range of Exercise
Prices
 
Number of
options
outstanding
 
Number of
options
exercisable
 
Weighted Average
Exercise Price
 
Weighted Average
Remaining Life
0.61 to 0.80
   
11,529,000
     
10,095,667
   
$
0.73
     
3.16
 
0.80 to 1.00
   
6,092,000
     
5,343,000
     
0.93
     
4.91
 
1.00 to 1.50
   
3,846,002
     
3,846,002
     
1.11
     
2.77
 
1.50 to 2.00
   
1,050,000
     
1,050,000
     
1.80
     
2.41
 
2.00 to 3.07
   
175,000
     
115,000
     
2.57
     
1.12
 
     
22,692,002
     
20,449,669
   
$
0.91
     
3.51
 

As at December 31, 2018 all outstanding share options had vested and were exercisable, with the exception of 2,242,333, which were scheduled to vest upon completion of specific targets (Permits – 883,333; Production – 699,000; Other – 60,000) or dates (June 2019 – 300,000; June 2020 – 300,000).  The outstanding share options have expiry periods between 0.08 and 9.18 years and are expected to be settled in shares upon exercise.

d)   Restricted Shares and Restricted Share Units

Restricted shares and restricted share units granted are forfeited if the grantee ceases to be an eligible person under the Omnibus Plan.  Details of the restricted shares and restricted share units are as follows:
       
   
Twelve months ended
December 31, 2018
   
Eleven months ended
December 31, 2017
 
Outstanding - beginning of period
   
3,281,030
     
2,618,020
 
Issued
   
1,227,004
     
1,077,869
 
Forfeited
   
-
     
(8,896
)
Vested
   
(1,160,127
)
   
(405,963
)
Outstanding - end of period
   
3,347,907
     
3,281,030
 

18

PolyMet Mining Corp.
Notes to Consolidated Financial Statements
As at December 31, 2018 and December 31, 2017 and for the twelve and eleven months then ended
Tabular amounts in thousands of U.S. Dollars, except for shares and per share amounts

10.  Share Capital - Continued

During the twelve months ended December 31, 2018, the Company issued 1,227,004 restricted share units, which had a fair value of $1.135 million to be expensed and capitalized over the vesting periods.

During the twelve months ended December 31, 2018, there were 316,714 restricted share units settled upon vesting with $0.377 million in cash.

As at December 31, 2018, outstanding restricted shares and restricted share units were scheduled to vest upon completion of specific targets (Permits – 134,891; Construction Finance – 750,000; Production – 410,701) or dates (1,529,093 between January 2019 and June 2020).  The remaining 523,222 outstanding restricted shares and restricted share units have vested but share delivery is deferred until retirement, termination, or death.  The Company expects 721,961 outstanding restricted share units will be settled in cash and the remainder will be settled in shares as allowed under the Omnibus Plan.


e)
Bonus Shares

The bonus share incentive plan was established for the Company’s directors and key employees and was approved by the disinterested shareholders at the Company’s shareholders’ meeting held in May 2004.  The Company has authorized 3,640,000 bonus shares for the achievement of Milestone 4 representing commencement of commercial production at NorthMet at a time when the Company has not less than 50% ownership interest in NorthMet.   At the Company’s Annual General Meeting of shareholders held in June 2008, the disinterested shareholders approved issuance of these shares upon achievement of Milestone 4.  Regulatory approval is also required prior to issuance of these shares.  Details of the bonus shares are as follows:

   
Twelve months ended
December 31, 2018
   
Eleven months ended
December 31, 2017
 
   
Allocated
   
Authorized
& Unissued
   
Allocated
   
Authorized
& Unissued
 
Outstanding – beginning of period
   
3,150,000
     
3,640,000
     
3,150,000
     
3,640,000
 
     Forfeited
   
(450,000
)
   
-
                 
Outstanding – end of period
   
2,700,000
     
3,640,000
     
3,150,000
     
3,640,000
 

The fair value of these unissued bonus shares was being amortized until the estimated date of issuance and was fully amortized during 2018.  During the twelve months ended December 31, 2018, the Company recorded $0.025 million for amortization related to Milestone 4 bonus shares (eleven months ended December 31, 2017 – $0.279 million) which was capitalized to Mineral Property, Plant and Equipment.  During the twelve months ended December 31, 2018, the Company also reversed $1.544 million of previously capitalized fair value related to the forfeiture of 450,000 bonus shares by a former director of the Company.
19

PolyMet Mining Corp.
Notes to Consolidated Financial Statements
As at December 31, 2018 and December 31, 2017 and for the twelve and eleven months then ended
Tabular amounts in thousands of U.S. Dollars, except for shares and per share amounts

10.  Share Capital - Continued

f)   Share Purchase Warrants

Details of the share purchase warrants are as follows:

   
Twelve months ended
December 31, 2018
   
Eleven months ended
December 31, 2017
 
   
Number of
Purchase
Warrants
   
Weighted
Average
Exercise
Price
   
Number of
Purchase
Warrants
   
Weighted
Average
Exercise
Price
 
Outstanding – beginning of period
   
21,322,212
   
$
0.99
     
27,780,213
   
$
0.95
 
Issued
   
6,458,001
     
-
     
-
     
-
 
Exercised
   
(590,500
)
   
1.00
     
-
     
-
 
Expiration
   
-
     
-
     
(6,458,001
)
   
(0.82
)
Outstanding – end of period
   
27,189,713
   
$
0.95
     
21,322,212
   
$
0.99
 

The outstanding share purchase warrants have expiry periods between 0.25 years and 2.83 years, subject to acceleration in certain circumstances.

Expirations during the eleven months ended December 31, 2017 and issuances during the twelve months ended December 31, 2018 relate to Glencore financing (see Note 7).
The weighted average share price when warrants were exercised during the twelve months ended December 31, 2018 was $0.99.

The fair value of share purchase warrants granted were estimated at the date of grant using the Black-Scholes pricing model with the following weighted average assumptions:
   
Twelve months ended
December 31, 2018
   
Eleven months ended
December 31, 2017
 
Risk-free interest rate
   
2.05
%
   
-
 
Expected dividend yield
   
-
     
-
 
Expected forfeiture rate
   
-
     
-
 
Expected volatility
   
54.54
%
   
-
 
Expected life in years
   
1.02
     
-
 
Weighted average fair value of each warrant (1)
 
$
0.36
     
-
 

The expected volatility reflects the Company’s expectation that historical volatility over a period similar to the life of the warrant is indicative of future trends, which may or may not necessarily be the actual outcome.
20

PolyMet Mining Corp.
Notes to Consolidated Financial Statements
As at December 31, 2018 and December 31, 2017 and for the twelve and eleven months then ended
Tabular amounts in thousands of U.S. Dollars, except for shares and per share amounts

11.
Finance Costs - Net

Details of net finance costs are as follows:
       
   
Twelve months ended
December 31, 2018
   
Eleven months ended
December 31, 2017
 
Debt accretion and capitalized interest:
   Convertible debt (Note 8)
 
$
3,429
   
$
6,913
 
   Non-convertible debt (Note 9)
   
17,131
     
11,599
 
Environmental rehabilitation accretion (Note 6)
   
1,796
     
1,776
 
Other finance costs
   
858
     
562
 
Less: amounts capitalized on qualifying assets
   
(20,560
)
   
(18,512
)
       Finance costs
   
2,654
     
2,338
 
Interest income:
   Bank deposits
   
(273
)
   
(105
)
       Finance income
   
(273
)
   
(105
)
          Finance costs - net
 
$
2,381
   
$
2,233
 


12.
Related Party Transactions

The Company conducted transactions with senior management, directors and persons or companies related to these individuals, and paid or accrued amounts, as follows:

       
   
Twelve months ended
December 31, 2018
   
Eleven months ended
December 31, 2017
 
Salaries and other short-term benefits
 
$
1,956
   
$
1,898
 
Other long-term benefits
   
44
     
42
 
Share-based payment (1)
   
1,680
     
836
 
    Total
 
$
3,680
   
$
2,776
 

(1)
Share-based payment represents the amount capitalized or expensed during the period (see Note 10).

There are agreements with key employees, including the President and Chief Executive Officer, containing severance provisions for termination without cause or in the event of a change in control. No other PolyMet director has an agreement providing for benefits upon termination.

As a result of Glencore’s ownership of 28.9% it is also a related party.  In addition to the transactions described in Notes 7, 8, 9 and 16, the Company has entered into a Technical Services Agreement with Glencore whereby the Company reimburses Glencore for NorthMet technical support costs requested under an agreed scope of work, primarily in detailed project design and mineral processing.  During the twelve months ended December 31, 2018, the Company recorded $0.070 million (eleven months ended December 31, 2017 - $nil) for services under this agreement.
21

PolyMet Mining Corp.
Notes to Consolidated Financial Statements
As at December 31, 2018 and December 31, 2017 and for the twelve and eleven months then ended
Tabular amounts in thousands of U.S. Dollars, except for shares and per share amounts

13.
Income Taxes

a)     Effective tax rate

The effective tax rate differs from the cumulative Canadian federal and provincial income tax rate due to the following:
   
Twelve months ended
December 31, 2018
   
Eleven months ended
December 31, 2017
 
Loss for the year before taxes
 
$
(15,043
)
 
$
(10,098
)
Canadian statutory tax rate
   
27.0
%
   
27.0
%
Expected tax recovery
   
(4,062
)
   
(2,726
)
Difference in foreign tax rates
   
(91
)
   
(84
)
Non-deductible items
   
1,538
     
356
 
Change in tax rate
   
-
     
5,025
 
Change in unrecognized deferred tax and other items
   
2,615
     
(2,571
)
Income Tax Expense / (Recovery)
 
$
-
   
$
-
 

In December 2017 tax reform was enacted in the United States. The significant changes include a reduction to corporate income tax rates from 35% to 21% effective January 1, 2018, which resulted in a decrease in the Company’s deferred income tax asset by $5.025 million in the prior year period.

b)
Deferred income tax assets and liabilities

Deferred income tax assets and liabilities have been recognized in respect of the following items:

   
Twelve months
ended December
31, 2018
   
Eleven months
ended December
31, 2017
 
Non-capital loss carry forward assets
 
$
29,353
   
$
27,799
 
Mineral property acquisition, exploration and development costs
   
(29,353
)
   
(27,799
)
Net deferred income tax liabilities
 
$
-
   
$
-
 

Deferred income tax assets have not yet been recognized in respect of the following items:

   
Twelve months
ended December
31, 2018
   
Eleven months
ended December
31, 2017
 
Non-capital loss carry forward assets
 
$
25,437
   
$
22,786
 
Capital loss carry forward assets
   
360
     
360
 
Intercompany receivable assets
   
2,109
     
2,109
 
Other assets
   
1,125
     
1,159
 
Unrecognized deferred income tax assets
 
$
29,031
   
$
26,414
 

As of December 31, 2018, the Company has Canadian non-capital loss carry forwards of approximately $47.6 million (December 31, 2017 - $42.8 million) and US non-capital loss carry forwards of approximately $146.7 million (December 31, 2017 - $136.4 million).  The non-capital loss carry forwards are available to reduce future income for tax purposes and expire between 2019 and 2038, except for US state non-capital loss carry forwards which expire between 2019 and 2033.
The Company is not recognizing these deferred tax assets because they relate to entities with a history of losses and there is not convincing evidence that future taxable income will enable timely offset.
22

PolyMet Mining Corp.
Notes to Consolidated Financial Statements
As at December 31, 2018 and December 31, 2017 and for the twelve and eleven months then ended
Tabular amounts in thousands of U.S. Dollars, except for shares and per share amounts

14.
Commitments and Contingencies

In addition to items described elsewhere in these financial statements, as at December 31, 2018, the Company had firm commitments related to financial assurance obligations (see Note 6), compliance, land options, and rent of approximately $16.4 million with approximately $0.4 million due over the next year and the majority due a period of three to ten years.

The following table lists the known contractual obligations as at December 31, 2018:

 
Contractual Obligations
 
Carrying
Value
   
Contractual
Cash flows
   
Less than
1 year
   
1 – 3
years
   
3 – 5
years
   
More than
5 years
 
Accounts payable and accruals
 
$
4,013
   
$
4,013
   
$
4,013
   
$
-
   
$
-
   
$
-
 
Convertible debt (Note 8)
   
56,984
     
58,077
     
58,077
     
-
     
-
     
-
 
Non-convertible debt (Note 9)
   
178,483
     
184,698
     
184,698
     
-
     
-
     
-
 
Firm commitments
   
-
     
16,413
     
388
     
25
     
4,000
     
12,000
 
    Total
 
$
239,480
   
$
263,201
   
$
247,176
   
$
25
   
$
4,000
   
$
12,000
 


15.
Financial Instruments and Risk Management

The carrying values of each classification of financial instrument as at December 31, 2018 are:
   
Amortized
Cost
   
Fair value
through
profit or loss
   
Total carrying
value
 
Financial assets
                 
   Cash and Restricted Cash Deposits
 
$
24,143
   
$
-
   
$
24,143
 
   Amounts receivable
   
680
     
1,912
     
2,592
 
Total financial assets
   
24,823
     
1,912
     
26,735
 
 
Financial liabilities
                       
   Accounts payable and accruals
   
3,642
     
371
     
4,013
 
   Convertible debt
   
56,984
     
-
     
56,984
 
   Non-convertible debt
   
178,483
     
-
     
178,483
 
Total financial liabilities
 
$
239,109
   
$
371
   
$
239,480
 

The carrying values of each classification of financial instrument as at December 31, 2017 are:
   
Loans and
receivables
   
Available for
sale
   
Other
financial
liabilities
   
Total carrying
value
 
Financial assets
                       
   Cash
 
$
6,931
   
$
-
   
$
-
   
$
6,931
 
   Amounts receivable
   
82
     
2,883
     
-
     
2,965
 
Total financial assets
   
7,013
     
2,883
     
-
     
9,896
 
 
Financial liabilities
                               
   Accounts payable and accruals
   
-
     
-
     
3,630
     
3,630
 
   Convertible debt
   
-
     
-
     
49,067
     
49,067
 
   Non-convertible debt
   
-
     
-
     
92,268
     
92,268
 
Total financial liabilities
 
$
-
   
$
-
   
$
144,965
   
$
144,965
 

23

PolyMet Mining Corp.
Notes to Consolidated Financial Statements
As at December 31, 2018 and December 31, 2017 and for the twelve and eleven months then ended
Tabular amounts in thousands of U.S. Dollars, except for shares and per share amounts

15.  Financial Instruments and Risk Management - Continued

Fair Value Measurements
The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value.  The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).  The three levels of the fair value hierarchy are described below:


Level 1 –
Quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2 –
Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly.

Level 3 –
Inputs for the asset or liability that are not based on observable market data.

The only financial instruments measured at fair value subsequent to recognition is the EIP receivable (see Note 5) which is measured at fair value through profit or loss using Level 3 inputs resulting in a carrying value of $1.912 million (December 31, 2017 - $2.883 million) and an amount classified within accounts payable and accruals representing expected payments to settle restricted share units measured at fair value through profit or loss using Level 2 inputs resulting in a carrying value of $0.371 million (December 31, 2017 - $0.439 million).

The fair values of cash and restricted cash deposits, other current amounts receivable, and accounts payable and accruals approximate their carrying amounts due to their short-term nature.  Convertible debt and non-convertible debt are classified as amortized cost and the carrying amount approximates fair value.  The Company believes this is appropriate as the maturity date is twelve months or less.

Risks Arising from Financial Instruments and Risk Management
The Company’s activities expose it to a variety of financial risks: market risk (including currency and interest rate), credit risk, and liquidity risk.  Reflecting the current stage of development of the Company’s NorthMet Project, the overall risk management program focuses on facilitating the Company’s ability to continue as a going concern and seeks to minimize potential adverse effects on the Company’s ability to execute its business plan.

Risk management is the responsibility of executive management.  Material risks are identified and monitored and are discussed with the Audit Committee and the Board of Directors.

Currency Risk
The Company incurs expenditures in Canada and the United States.  The functional and reporting currency of the Company and its subsidiary is the U.S. dollar.  Foreign exchange risk arises because the amount of Canadian dollar cash, amounts receivable, or accounts payable and accruals will vary in U.S. dollar terms due to changes in exchange rates.

As the majority of the Company’s expenditures are in U.S. dollars, the Company has kept a significant portion of its cash in U.S. dollars.  The Company has not hedged its exposure to currency fluctuations as the exposure to currency risk is currently insignificant.
24

PolyMet Mining Corp.
Notes to Consolidated Financial Statements
As at December 31, 2018 and December 31, 2017 and for the twelve and eleven months then ended
Tabular amounts in thousands of U.S. Dollars, except for shares and per share amounts

15.  Financial Instruments and Risk Management - Continued

Interest Rate Risk
Interest rate risk arises from interest paid on floating rate debt and interest received on cash and liquid short-term deposits.  The Company has not hedged any of its interest rate risk.  The Company currently capitalizes to qualifying assets the majority of interest charges, and therefore the risk exposure is primarily on cash interest payable and net earnings in relation to the subsequent depreciation of capitalized interest charges.

The Company was exposed to interest rate risk through the following assets and liabilities:
   
December 31,
2018
   
December 31,
2017
 
Cash and restricted cash deposits
 
$
24,143
   
$
6,931
 
Convertible debt
   
56,984
     
49,067
 
Non-convertible debt
 
$
178,483
   
$
92,268
 

Based on the above net exposures, as at December 31, 2018, a 1% change interest rates would have impacted the Company’s loss by approximately $0.241 million and carrying value of convertible and non-convertible debt by approximately $2.355 million.

Credit Risk
Credit risk arises on cash and restricted cash deposits held with banks and financial institutions, as well as credit exposure on outstanding amounts receivable.  The maximum exposure to credit risk is equal to the carrying value of the financial assets of $26.735 million.

The Company’s cash and restricted cash deposits are primarily held through large Canadian and United States financial institutions.

Liquidity Risk
Liquidity risk is the risk the Company will not be able to meet its financial obligations as they become due and arises through the excess of financial obligations over available financial assets due at any point in time.  The Company’s objective in managing liquidity risk is to maintain sufficient readily available reserves in order to meet its liquidity requirements at any point in time and is achieved by maintaining sufficient cash and managing convertible and non-convertible debt.  See additional discussion in Note 1.

Capital Management
The Company’s capital management objective is to safeguard the Company’s ability to continue as a going concern in order to pursue the development of its mineral property.  In the management of capital, the Company includes the components of shareholders’ equity, convertible debt and non-convertible debt.  The Company manages the capital structure and makes adjustments to it depending on economic conditions and the rate of anticipated expenditures.  To maintain or adjust the capital structure, the Company may attempt to issue new shares, issue new debt, acquire or dispose of assets. The Company has no externally imposed capital requirements.
25

PolyMet Mining Corp.
Notes to Consolidated Financial Statements
As at December 31, 2018 and December 31, 2017 and for the twelve and eleven months then ended
Tabular amounts in thousands of U.S. Dollars, except for shares and per share amounts

15.  Financial Instruments and Risk Management - Continued

In order to assist in management of its capital requirements, the Company prepares budgets that are updated as necessary depending on various factors.  The budgets are approved by the Company’s Board of Directors.

Although the Company expects to have the necessary resources to carry out its plans and operations through December 31, 2019, it does not currently have sufficient capital to complete the development of NorthMet and generate future profitable operations and is in discussions to arrange sufficient capital to meet these requirements.  During the upcoming fiscal year, the Company’s objective is to identify the source or sources from which it will obtain the capital required to complete the Project.  See additional discussion in Note 1.

16.
Subsequent Events

On March 21, 2019, the United States Army Corps of Engineers issued its Record of Decision and Section 404 wetlands permit for the NorthMet Project.  Along with recently issued state permits, PolyMet now holds all necessary permits to construct and operate the NorthMet Project.

On March 22, 2019, the Company entered into an extension agreement with Glencore with respect to the secured convertible and non-convertible debt set to mature on March 31, 2019.   Glencore agreed to extend the maturity date of the debt initially to May 10, 2019 to provide the Company time to prepare for and launch a rights offering, fully backstopped by Glencore, to raise sufficient funds to repay all outstanding debt.   Provided the Company has achieved certain milestones in respect of the rights offering by that date, Glencore will further extend the maturity date of the debt to June 30, 2019 to provide the Company with additional time to complete and close the offering.   In connection with the extension agreement, the Company has also agreed to issue 6,458,001 additional purchase warrants at current market prices to Glencore and to make certain amendments to the existing exchange warrants held by Glencore, both subject to applicable stock exchange approval.


26
Exhibit 99.3









POLYMET MINING CORP.


MANAGEMENT DISCUSSION AND ANALYSIS

As at December 31, 2018 and 2017
And for the twelve months ended December 31, 2018
and eleven months ended December 31, 2017












PolyMet Mining Corp.
Management Discussion and Analysis
As at December 31, 2018 and December 31, 2017 and for the twelve and eleven months then ended
Tabular amounts in thousands of U.S. Dollars, except for shares and per share amounts

General

The following information, prepared as at March 28, 2019   should be read in conjunction with the audited consolidated financial statements of PolyMet Mining Corp. and its subsidiaries (together “PolyMet” or the “Company”) as at December 31, 2018 and December 31, 2017 and for the twelve months ended December 31, 2018 and eleven months ended December 31, 2017 and related notes attached thereto, which are prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).  All amounts are expressed in United States (“U.S.”) dollars unless otherwise indicated.

Change of the Financial Year End

On December 7, 2017, the Company’s Board of Directors approved a change of the financial year end from January 31 to December 31.  The Company’s transition year consisted of an eleven-month period ended on December 31, 2017.  For additional information see the Notice filed on SEDAR.

Forward Looking Statements

This Management Discussion and Analysis (“MD&A”) contains statements that constitute "forward-looking statements" within the meaning of Section 21E of the United States Securities Exchange Act of 1934, as amended (the “US Exchange Act”). These statements appear in a number of different places in this MD&A and can frequently, but not always, be identified by words such as “expects”, “anticipates”, “believes”, “intends”, “estimates”, “potential”, “possible”, “projects”, “plans” and similar expressions, or statements that events, conditions or results “will”, “may”, “could” or “should” occur or be achieved or their negatives or other comparable words.  Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause PolyMet’s actual results, performance or achievements to be materially different from any future results, performance or achievements that may be expressed or implied by such forward-looking statements.  Forward-looking statements include statements regarding the outlook for the Company’s future operations, plans and timing for PolyMet’s exploration and development programs, statements about future market conditions, supply and demand conditions, forecasts of future costs and expenditures, the outcome of legal proceedings, and other expectations, intentions and plans that are not historical fact.  The Company’s actual results may differ materially from those in the forward-looking statements due to risks facing PolyMet or due to actual facts differing from the assumptions underlying the Company’s predictions.

The forward-looking statements contained in this MD&A are based on assumptions, which include, but are not limited to:
Obtaining and maintaining permits;
Raising the funds necessary to develop the NorthMet Project and continue operations;
Execution of prospective business plans; and
Complying with applicable government regulations and standards.

Such forward-looking statements are subject to risks, uncertainties and other factors, including those listed or incorporated by reference under “Risk Factors” in the Annual Information Form.  These risks, uncertainties and other factors include, but are not limited to:
Changes in general economic and business conditions, including changes in interest rates and exchange rates;
Changes in the resource market including prices of natural resources, costs associated with mineral exploration and development, and other economic conditions;
Natural phenomena;
Actions by governments and authorities including changes in government regulation;
Uncertainties associated with legal proceedings; and
Other factors, many of which are beyond the Company’s control.

All forward-looking statements included in this MD&A are based on information available to the Company on the date of this MD&A.  The Company expressly disclaims any obligation to update publicly, or otherwise, these statements, whether as a result of new information, future events or otherwise except to the extent required by law, rule or regulation.  Readers should not place undue reliance on forward-looking statements.  Readers should carefully review the cautionary statements and risk factors contained in this and all other documents that the Company files from time to time with regulatory authorities.
1

PolyMet Mining Corp.
Management Discussion and Analysis
As at December 31, 2018 and December 31, 2017 and for the twelve and eleven months then ended
Tabular amounts in thousands of U.S. Dollars, except for shares and per share amounts

Cautionary note to U.S. investors: The terms “measured and indicated mineral resource”, “mineral resource”, and “inferred mineral resource” used in this MD&A 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.  U.S. investors are advised that while such terms are recognized and required under Canadian regulations, the 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 be upgraded to Mineral 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.

Summary of Business

PolyMet is a TSX and NYSE American listed Issuer engaged in the exploration and development of natural resource properties.  The Company’s primary mineral property and principal focus is the commercial development of its NorthMet Project (“NorthMet” or “Project”), a polymetallic project in northeastern Minnesota, United States of America, which hosts copper, nickel, cobalt, gold, silver and platinum group metal mineralization.

The NorthMet ore body is at the western end of a series of known copper-nickel-precious metals deposits in the Duluth Complex.  An updated technical report and feasibility study published in March 2018 confirmed the technical and economic viability, positioning NorthMet as the most advanced of the four main deposits in the Duluth Complex: namely, from west to east, NorthMet, Mesaba, Serpentine and Maturi.

The Erie Plant is located about six miles west of the NorthMet ore body and comprises a 100,000 ton-per-day crushing and milling facility, a railroad and railroad access rights connecting the Erie Plant to the NorthMet ore body, tailings storage facilities, 120 railcars, locomotive fueling and maintenance facilities, water rights and pipelines, administrative offices and lands to the east and west of the existing tailings storage facilities.

Upon completion of the land exchange on June 28, 2018, PolyMet now controls surface rights to approximately 19,050 acres or 30 square miles of contiguous surface rights stretching from west of the Erie Plant to east of the proposed East Pit at NorthMet.

PolyMet received its Permit to Mine from the State of Minnesota on November 1, 2018, a crucial permit for construction and operation of the NorthMet Project.  The Minnesota Department of Natural Resources (“MDNR”) also issued all other permits for which the Company had applied including dam safety, water appropriations, takings, and public waters work permits, along with Wetlands Conservation Act approval.

In addition, PolyMet received air and water permits from the Minnesota Pollution Control Agency (“MPCA”) on December 18, 2018.  Further, PolyMet received the federal Record of Decision and wetlands permit from the U.S. Army Corps of Engineers (“USACE”) on March 21, 2019, which is the last key permit or approval needed to construct and operate the NorthMet Project.

See additional discussion below.
2

PolyMet Mining Corp.
Management Discussion and Analysis
As at December 31, 2018 and December 31, 2017 and for the twelve and eleven months then ended
Tabular amounts in thousands of U.S. Dollars, except for shares and per share amounts

Summary of Recent Events and Outlook

Highlights and recent events
PolyMet made significant progress during 2018 and 2019 to date.  Notably the Company received all key permits and approvals required to construct and operate NorthMet and secured title to the surface rights over and around the NorthMet mineral rights.  PolyMet also released an updated technical report which included an assessment of higher potential production scenarios, and secured additional financing to complete permitting, including required wetland credits and financial assurance, and advance final engineering and other activities to facilitate the transition to construction.

More specifically:
In March 2019, the Company received the federal Record of Decision and wetlands permit from the U.S. Army Corps of Engineers (“USACE”), which is the last key permit or approval needed to construct and operate the NorthMet Project;
In March 2019, the Company and Glencore AG, a wholly owned subsidiary of Glencore plc (together “Glencore”) agreed to extend the term of outstanding debentures to provide the Company time to prepare for and complete a rights offering by June 30, 2019, fully backstopped by Glencore, to raise sufficient funds to repay all outstanding debt (see “Financing Activities” section below);
In December 2018, the Company received all MPCA permits for NorthMet for which the Company had applied, including air and water permits;
In November 2018, the Company received all MDNR permits for NorthMet for which the Company had applied, including the Permit to Mine, dam safety, water appropriations and public waters work permits along with Wetland Conservation Act approval;
In June 2018, the Company and U.S. Forest Service (“USFS”) completed the federal land exchange giving PolyMet title and control over both surface and mineral rights in and around the NorthMet ore body;
In March 2018, the Company issued an Updated Technical Report under NI 43-101 incorporating process improvements, project improvements and environmental controls described in the Final Environmental Impact Statement and draft permits.  The update also included detailed capital costs, operating costs, and economic valuations for the mine plan being permitted,  as well as discussion of potential future opportunities; and
In March 2018, the Company and Glencore agreed to extend the term of outstanding debentures until March 31, 2019 or certain events (see “Financing Activities” section below), reduce the interest rate on the outstanding debentures, and make available up to $80 million in additional funding.    Proceeds are being used to complete permitting, purchase wetland credits, advance detailed engineering and perform certain early works to prepare the site for construction.

Net cash used in operating and investing activities during the twelve months ended December 31, 2018 was $63.155 million.  Primary activities during the period were related to permitting the NorthMet Project, including purchase of wetland credits, funding a cash trust, and reimbursement to the state of Minnesota for its internal staff and contractor costs.  Other spending related to engineering and studies, early works to prepare the site for construction, maintaining existing infrastructure, financing, and general corporate purposes.
3

PolyMet Mining Corp.
Management Discussion and Analysis
As at December 31, 2018 and December 31, 2017 and for the twelve and eleven months then ended
Tabular amounts in thousands of U.S. Dollars, except for shares and per share amounts

Goals and Objectives for the Next Twelve Months
PolyMet’s objectives include:

Maintain political, social and regulatory support for the project;
Finalize Project optimization plan;
Finalize of Project implementation plan ;
Strengthen balance sheet through restructuring or repaying outstanding debt; and
Execution of construction finance, subject to typical conditions precedent.

The Company is in discussions with commercial banks and other sources of debt and equity finance sufficient to fund construction of the Project.  Construction and ramp-up to commercial production is anticipated to take approximately twenty-four to thirty months from receipt of construction funding.

See additional discussion in the “Liquidity and Capital Resources” section below.


Detailed Description of Business

Asset Acquisitions
In November 2005, the Company acquired the Erie Plant, which is located approximately six miles west of the NorthMet deposit and includes crushing and milling equipment, comprehensive spare parts, plant site buildings, real estate, tailings storage facilities and mine workshops, as well as access to extensive mining infrastructure including roads, rail, water and power.   The plant was managed by Cliffs Erie LLC, a subsidiary of Cleveland-Cliffs Inc. (together “Cliffs”) for many years and was acquired by Cliffs from LTV Steel Mining Company (“LTV”) after LTV’s bankruptcy, at which time the plant was shut down with a view to a potential restart.

Plans are to refurbish, reactivate and, as appropriate, update the crushing, concentrating and tailings storage facilities at the Erie Plant to produce concentrates containing copper, nickel, cobalt and precious metals – platinum, palladium, gold and silver.  Once commercial operations are established, the Company may install an autoclave to upgrade nickel concentrates to produce a nickel-cobalt hydroxide and a precious metals precipitate.

In December 2006, the Company acquired from Cliffs additional property and associated rights sufficient to provide a railroad connection linking the NorthMet deposit and the Erie Plant.  The transaction also included 120 railcars, locomotive fueling and maintenance facilities, water rights and pipelines, administrative offices and land to the east and west of the existing tailings storage facilities.

PolyMet indemnified Cliffs for reclamation and remediation associated with the property under both transactions.  In April 2010, Cliffs entered into a consent decree with the MPCA regarding short-term and long-term environmental mitigation.  Field studies were completed in 2010 and 2011 and short-term mitigations approved by the MPCA were initiated in 2011.  In April 2012, long-term mitigation plans were submitted to the MPCA and in October 2012, the MPCA approved plans for pilot tests of various treatment options to determine the best course of action.  Although there is substantial uncertainty related to applicable water quality standards and engineering scope, the October 2012 response from the MPCA, subsequent communications amongst the MPCA, Cliffs and the Company, and closure plans reflected in the Permit to Mine support the long-term mitigation plans included in the Company’s environmental rehabilitation provision.

In June 2018, the Company acquired surface rights over the NorthMet deposit through a land exchange with the USFS using land the Company previously owned.  With the exchange, PolyMet has total surface rights, including ownership and other use and occupancy rights, to approximately 19,050 contiguous acres or 30 square miles of land including the land at the mine and processing sites, the transportation corridor connecting those sites, and buffer lands.
4

PolyMet Mining Corp.
Management Discussion and Analysis
As at December 31, 2018 and December 31, 2017 and for the twelve and eleven months then ended
Tabular amounts in thousands of U.S. Dollars, except for shares and per share amounts

Mineral rights in and around the NorthMet orebody are held through two mineral leases with RGGS Land & Minerals Ltd., L.P. (“RGGS”) and LMC Minerals ("LMC").  The RGGS lease covers 5,123 acres. Provided the Company continues to make annual lease payments, the lease period continues until June 12, 2048 with an option to extend the lease for up to five additional ten-year periods on the same terms   and further extend as long as there are commercial mining operations. The LMC lease covers 120 acres that are encircled by the RGGS property. Provided the Company continues to make annual lease payments, the lease period continues until December 1, 2028 with an option to extend the lease for up to four additional five-year periods on the same terms.  Lease payments to both lessors are considered advance royalty payments and will be deducted from future production royalties payable to the lessor, which range from 3% to 5% based on the net smelter return per ton received by the Company.

Feasibility Study, Mineral Resources and Mineral Reserves
PolyMet published an updated Technical Report under NI 43-101 dated March 26, 2018 incorporating process improvements, Project improvements and environmental controls described in the Final EIS and draft permits.  The update also includes detailed capital costs, operating costs and economic valuations for the mine plan being permitted.  Preliminary economic assessments for higher production scenarios were also presented.  Proven and probable mineral reserves are estimated to be 254.7 million short tons grading 0.294% copper, 0.084% nickel, 80 ppb platinum, 268 ppb palladium, 39 ppb gold, 74.42 ppm cobalt, and 1.06 ppm silver.  These mineral reserves lie within measured and indicated mineral resources of an estimated 649.3 million short tons grading 0.245% copper, 0.074% nickel, 65 ppb platinum, 221 ppb palladium, 33 ppb gold, 71 ppm cobalt, and 0.91 ppm silver. The mineral reserve estimates are based on metal prices of $2.93 per pound copper, $6.50 per pound nickel, $13.28 per pound cobalt, $734 per ounce palladium, $1,286 per ounce platinum, $1,263 per ounce gold and $19.06 per ounce silver.   The mineral resource estimates are based on metal prices of $3.30 per pound copper, $8.50 per pound nickel, $13.28 per pound cobalt, $734 per ounce palladium, $1,286 per ounce platinum, $1,263 per ounce gold and $19.06 per ounce silver. Metal recovery factors are applied to each metal based on recovery curves developed. The net smelter return cutoff was set at $7.98 per ton for mineral reserves and $7.35 per ton for mineral resources and include processing, general and administrative, and water treatment costs.  See additional details in the Company’s most recent Annual Information Form or the Company’s NorthMet Project Form NI 43-101F1 Technical Report dated March 26, 2018, both filed on SEDAR and EDGAR.

Environmental Review and Permitting
In November 2015, the MDNR, USACE, and USFS published the Final EIS and in March 2016, the MDNR issued its decision that the Final EIS met the requirements under the Minnesota Environmental Policy Act.

In November 2018, the Company received all final MDNR permits for which the Company had applied, including the Permit to Mine, dam safety, water appropriations, endangered and threatened species takings, and public waters work permits, along with Wetland Conservation Act approval.

In December 2018, the Company received all final MPCA permits for which the Company had applied, including the water quality permit, air emission quality permit, and Section 401 Certification.

Legal challenges were filed in the Minnesota Court of Appeals during 2018 and through March 28, 2019 contesting various aspects of the MDNR and MPCA decisions.  PolyMet is a co-respondent in all suits.

In March 2019, the Company received the federal Record of Decision and wetlands permit from the USACE, which is the last key permit or approval needed to construct and operate the NorthMet Project .

USFS Land Exchange
In January 2017, the USFS issued its Final ROD authorizing the land exchange which stated the land exchange eliminates a fundamental conflict between the rights that PolyMet has as a result of control of the mineral rights and the USFS position on those rights which otherwise could result in litigation that has no certain outcome and could set a judicial precedent regarding other lands acquired in the same deed under the Weeks Act.
5

PolyMet Mining Corp.
Management Discussion and Analysis
As at December 31, 2018 and December 31, 2017 and for the twelve and eleven months then ended
Tabular amounts in thousands of U.S. Dollars, except for shares and per share amounts

Four legal challenges, which have since been consolidated into one proceeding, were filed during 2017 contesting various aspects of the land exchange Final ROD.  PolyMet is a co-defendant with the USFS in this proceeding.  Motions were filed by PolyMet to dismiss each of these suits for lack of standing.  In August 2017, the U.S. District Court for the District of Minnesota denied WaterLegacy’s motion for a preliminary injunction to stop the land exchange from proceeding while the WaterLegacy suit was pending.

In June 2018, the Company and USFS exchanged titles to federal and private lands, completing the land exchange giving the Company control over both surface and mineral rights in and around the NorthMet ore body and consolidating the Superior National Forest’s land holdings in northeast Minnesota.


Financing Activities

Since October 2008, the Company and Glencore have entered into a series of financing agreements comprising:

Equity – five separate agreements comprising $25.0 million placement of PolyMet common shares in calendar 2009 in two tranches; a $30.0 million placement of PolyMet common shares in calendar 2010 in three tranches; a $20.0 million placement of PolyMet common shares in calendar 2011 in one tranche; a $20.960 million purchase of PolyMet common shares in the 2013 Rights Offering; and a $10.583 million purchase of PolyMet common shares in the 2016 Private Placement;
Convertible debt (“Glencore Convertible Debt”) – agreement comprising $25.0 million initial principal secured convertible debentures drawn in four tranches; and
Non-convertible debt (“Glencore Non-Convertible Debt”) – five separate agreements comprising $30.0 million initial principal secured debentures in calendar 2015 drawn in four tranches; an $11.0 million initial principal secured debenture in calendar 2016 drawn in one tranche; $14.0 million initial principal secured debentures in calendar 2016 drawn in four tranches; $20.0 million initial principal secured debentures in calendar 2017 drawn two tranches; and $80.0 million initial principal secured debenture in calendar 2018 drawn in four tranches with the fifth tranche in the amount of $15.0 million cancelled subsequent to year end.  See additional details below.
As a result of these financing transactions and the purchase by Glencore of PolyMet common shares previously owned by Cliffs, Glencore's ownership and ownership rights of PolyMet as at December 31, 2018 comprises:
92,836,072 shares representing 28.9% of PolyMet's issued shares (December 31, 2017 – 92,836,072);
Glencore Convertible Debt exchangeable through the exercise of an exchange warrant (“Exchange Warrant”) at $1.2696 per share into 44,303,743 common shares of PolyMet (including capitalized and accrued interest as at December 31, 2018) and where the exercise price and the number of shares issuable are subject to conventional anti-dilution provisions;
Warrants to purchase 6,458,001 common shares at $0.8231 per share at any time until March 31, 2019, subject to mandatory exercise if the 20-day volume weighted average price (“VWAP”) of PolyMet common shares is equal to or greater than 150% of the exercise price and PolyMet has received permits and construction finance is available (“Exercise Triggering Event”), and where the exercise price and the number of warrants are subject to conventional anti-dilution provisions;
Warrants to purchase 7,055,626 common shares at $1.00 per share at any time until October 28, 2021, subject to acceleration at the Company’s option provided all permits necessary to construct NorthMet have been received (“Acceleration Triggering Event”), and where the exercise price and the number of warrants are subject to conventional anti-dilution provisions; and
Warrants to purchase 625,000 common shares at $0.7797 per share at any time until October 28, 2021, and where the exercise price and the number of warrants are subject to conventional anti-dilution provisions.

6


PolyMet Mining Corp.
Management Discussion and Analysis
As at December 31, 2018 and December 31, 2017 and for the twelve and eleven months then ended
Tabular amounts in thousands of U.S. Dollars, except for shares and per share amounts

If Glencore were to exercise all of its rights and obligations under these agreements, it would own 151,278,442 common shares of PolyMet, representing 39.8% on a partially diluted basis, that is, if no other options or warrants were exercised or 36.1% on a fully diluted basis, if all other options and warrants were exercised as at December 31, 2018.

On March 23, 2018, the Company amended its financing arrangement with Glencore.  The maturity date of the Convertible Debt and the Non-Convertible Debt was extended to the earlier of (i) March 31, 2019 or (ii) the availability of at least $100 million of debt or equity financing or (iii) when the Company elects to repay the debt early and demonstrates that such repayment is prudent.   The interest rate was reduced from 12-month US dollar LIBOR plus 15.0% to 12-month US dollar LIBOR plus 10.0% effective April 1, 2018.  The convertibility of the Convertible Debt was extended to March 31, 2019 and 6,458,001 purchase warrants were reissued with an expiration date of March 31, 2019 and an exercise price of $0.8231 per share, both of which were approved by the NYSE American and TSX.  All other terms of both the debentures and the warrants described above remain unchanged.

In addition, the Company agreed to issue to Glencore secured debentures with a total principal amount of up to $80 million at the Company’s option.  The debentures bear interest at twelve month US dollar LIBOR plus 10.0% and if issued, are due on the earlier of (i) March 31, 2019 or (ii) the availability of at least $100 million of debt or equity financing or (iii) when the Company elects to repay the debt early and demonstrates that such repayment is prudent, on which date all principal and interest accrued to such date will be due and payable.  The Tranche P Debenture in the amount of $20.0 million was issued on May 7, 2018.  The Tranche Q Debenture in the amount of $15.0 million and Tranche T Debenture in the amount of $10 million were issued on October 25, 2018.  The Tranche S Debenture in the amount of $20.0 million was issued on December 18, 2018.  Under the extension agreement and repayment plan agreed subsequent to December 31, 2018 (see below), the commitment to issue Tranche R in the amount of $15.0 million was cancelled.

On March 22, 2019, the Company entered into an extension agreement with Glencore with respect to the secured convertible and non-convertible debt set to mature on March 31, 2019.   Glencore agreed to extend the maturity date of the debt initially to May 10, 2019 to provide the Company time to prepare for and launch a rights offering, fully backstopped by Glencore, to raise sufficient funds to repay all outstanding debt.   Provided the Company has achieved certain milestones in respect of the rights offering by that date, Glencore will further extend the maturity date of the debt to June 30, 2019 to provide the Company with additional time to complete and close the offering.   In connection with the extension agreement, the Company has also agreed to issue 6,458,001 additional purchase warrants at current market prices to Glencore and to make certain amendments to the existing exchange warrants held by Glencore, both subject to applicable stock exchange approval.

Land Financing

During the twelve months ended December 31, 2018 the Company issued 128,750 shares (December 31, 2017 – 396,616 shares) to maintain land purchase options with the shares valued at $0.123 million (December 31, 2017 - $0.256 million).
7

PolyMet Mining Corp.
Management Discussion and Analysis
As at December 31, 2018 and December 31, 2017 and for the twelve and eleven months then ended
Tabular amounts in thousands of U.S. Dollars, except for shares and per share amounts

Summary of Quarterly Results
(All figures in thousands of U.S. dollars except loss per share)

   
Period Ended
 
   
Dec 31,
2018
   
Sep 30,
2018
   
Jun 30,
2018
   
Mar 31,
2018
   
Dec 31,
2017
   
Oct 31,
2017
   
Jul 31,
2017
   
Apr 30,
2017
 
General and Administrative
   
(1,529
)
   
(1,262
)
   
(1,509
)
   
(2,770
)
   
(1,584
)
   
(1,193
)
   
(2,080
)
   
(1,268
)
Other Income (Expenses)
   
(1,380
)
   
(426
)
   
(1,147
)
   
(5,020
)
   
(350
)
   
(1,058
)
   
(608
)
   
(1,957
)
Loss for the Period
   
(2,909
)
   
(1,688
)
   
(2,656
)
   
(7,790
)
   
(1,934
)
   
(2,251
)
   
(2,688
)
   
(3,225
)
Loss per Share (1)
   
(0.01
)
   
(0.01
)
   
(0.01
)
   
(0.02
)
   
(0.01
)
   
(0.01
)
   
(0.01
)
   
(0.01
)
Cash used in operating activities
   
(1,804
)
   
(512
)
   
(1,164
)
   
(2,322
)
   
(748
)
   
(914
)
   
(1,454
)
   
(1,874
)
Cash provided by (used) by financing activities
   
45,500
     
61
     
19,723
     
4,804
     
-
     
14,917
     
-
     
-
 
Cash used in investing activities
   
(36,794
)
   
(10,178
)
   
(5,383
)
   
(4,998
)
   
(3,569
)
   
(6,997
)
   
(6,166
)
   
(4,937
)

(1)
Loss per share amounts may not reconcile due to rounding differences.

The loss for the period includes share-based compensation for the period ended:

 
December 31, 2018 - $0.105 million
December 31, 2017 - $0.223 million
 
September 30, 2018 - $0.182 million
October 31, 2017 - $0.283 million
 
June 30, 2018 - $0.276 million
July 31, 2017 - $0.672 million
 
March 31, 2018 - $1.179 million
April 30, 2017 - $0.140 million
 

Results fluctuate from period to period based on NorthMet development, corporate activities, and non-cash items.   Additional discussion of significant items is included below.

Three months ended December 31, 2018 compared to two months ended December 31, 2017

Focus during the current year period was on permitting the NorthMet Project, maintenance of existing infrastructure, early works to prepare the site for construction, and financing.

a) Loss for the Period:

During the current year period, the Company incurred a loss of $2.909 million ($0.01 loss per share) compared to a loss of $1.934 million ($0.01 loss per share) during the prior year period. The increase in net loss was primarily due to a non-cash loss on revaluation of the EIP receivable in the current year period.

b) Cash Flows for the Period:

Cash used in operating activities during the current year period was $1.804 million compared to cash used during the prior year period of $0.748 million.  The increase was primarily due to legal and financial instrument costs tied to receipt of final state permits.

Cash provided by financing activities during the current year period was $45.500 million compared to cash provided during the prior year period of $nil million.  The increase was due to debenture funding with the remainder reflecting the exercise of warrants and share options.

Cash used in investing activities during the current year period was $36.794 million compared to cash used during the prior year period of $3.569 million.  The increase was primarily due to a $10 million restricted cash contribution to the environmental rehabilitation trust required under the Permit to Mine and a $18 million purchase of wetland credits required by the USACE 404 wetlands permit.
8

PolyMet Mining Corp.
Management Discussion and Analysis
As at December 31, 2018 and December 31, 2017 and for the twelve and eleven months then ended
Tabular amounts in thousands of U.S. Dollars, except for shares and per share amounts

Including the effect of foreign exchange, total cash on hand increased during the current year period by $6.895 million to $13.857 million compared to the prior year period where cash increased $4.317 million to $6.931 million.

c) Capital Expenditures for the Period:

During the current year period the Company capitalized $13.966 million of mineral property, plant, and equipment costs primarily related to the acquisition, development and preservation of the NorthMet Project and other fixed assets as compared to reversing $0.573 million during the prior year period.  The increase in capital expenditures was primarily due to early works to prepare the site for construction and prior year reduction to the environmental rehabilitation provision to reflect closure plans in the Permit to Mine application.  The Company also capitalized $17.950 million of intangibles during the current year period compared to $nil during the prior year period.  The increase was due to purchase of wetland credits required by the USACE 404 wetlands permit.


Selected Annual Financial Information
(All figures in thousands of U.S. dollar except loss per share)

For the Periods Ended
Twelve months ended
December 31, 2018
Eleven months ended
December 31, 2017
Twelve months ended
January 31, 2017
Revenue
-
-
-
Net Loss
(15,043)
(10,098)
(9,229)
Basic and Diluted Loss Per Share
(0.05)
(0.03)
(0.03)
Total Assets
485,629
409,042
389,049
Convertible and Non-Convertible Debt
235,467
141,335
107,906
Total Shareholders’ Equity
185,042
198,675
207,329

The loss for the fiscal year includes share-based compensation expense of:
December 31, 2018 - $1.742 million
December 31, 2017 - $1.318 million
January 31, 2017 - $1.808 million

Twelve months ended December 31, 2018 compared to eleven months ended December 31, 2017

Focus during the current year was on environmental permitting for the NorthMet Project, maintenance of existing infrastructure, early works to prepare site for construction, and financing.

a) Loss for the Year:

During the current year, the Company incurred a loss of $15.043 million ($0.05   loss per share) compared to a loss of $10.098 million ($0.03 loss per share) during the prior year.  The increased net loss was due to a non-cash charge on debenture refinancing in the current year.

b) Cash Flows for the Year:

Cash used in operating activities during the current year was $ 5.802 million compared to cash used during the prior year of $ 4.990 million. The increase was primarily due to legal and financial instrument costs tied to receipt of final state permits.

Cash provided by financing activities during the current year was $70.088 million compared to cash provided during the prior year of $14.917 million. The increase is primarily due to additional non-convertible loan funding in the current year.
9

PolyMet Mining Corp.
Management Discussion and Analysis
As at December 31, 2018 and December 31, 2017 and for the twelve and eleven months then ended
Tabular amounts in thousands of U.S. Dollars, except for shares and per share amounts

Cash used in investing activities during the current year was $57.353 million compared to cash used during the prior year of $21.669 million. The increase was primarily due to a $10 million restricted cash contribution to the environmental rehabilitation trust required under the Permit to Mine and a $21 million purchase of wetland credits required by the USACE 404 wetlands permit.

Including the effect of foreign exchange, total cash on hand increased during the current year by $6.926   million to $13.857   million compared to the prior year where cash decreased $11.741 million to $6.931 million.

c) Capital Expenditures for the Year:

During the current year the Company capitalized $38.343 million (prior year - $ 30.292 million) of mineral property, plant, and equipment costs related to the development and preservation of the NorthMet Project and other fixed assets.  The increase largely reflects a prior year reduction to the environmental rehabilitation provision to reflect closure plans in the Permit to Mine application.  The Company also capitalized $21.055 million of intangibles during the current year compared to $3.130 million during the prior year.  The increase is due to purchase of wetland credits required by the USACE 404 wetlands permit.


Eleven months ended December 31, 2017 compared to twelve months ended January 31, 2017

Focus during the eleven months ended December 31, 2017 was on environmental permitting process for the NorthMet Project, maintenance of existing infrastructure and financing.

a) Loss for the Year:

During the eleven months ended December 31, 2017, the Company incurred a loss of $10.098 million ($0.03   loss per share) compared to a loss of $9.229   million ($0.03 loss per share) during the twelve months ended January 31, 2017.  The increased net loss was due to a non-cash charge on disposal of intangibles and land in the eleven months ended December 31, 2017.

b) Cash Flows for the Year:

Cash used in operating activities during the eleven months ended December 31, 2017 was $ 4.990 million compared to cash used during the twelve months ended January 31, 2017 of $ 5.463 million. The variance in cash is primarily due to the eleven months ended December 31, 2017 being one month shorter.

Cash provided by financing activities during the eleven months ended December 31, 2017 was $14.917 million compared to cash provided during the twelve months ended January 31, 2017 of $37.248 million. The eleven months ended December 31, 2017 includes $14.917 million in net proceeds from funding of the non-convertible loan. The twelve months ended January 31, 2017 includes $28.535 million in share issuance proceeds and $13.943 million in non-convertible loan funding partially offset by $5.111 million debt repayment.

Cash used in investing activities during the eleven months ended December 31, 2017 was $21.669 million compared to cash used during the twelve months ended January 31, 2017 of $23.363 million. The decrease was primarily due to decreased environmental technical support as the permitting process winds down and the eleven months ended December 31, 2017 being one month shorter.

Including the effect of foreign exchange, total cash on hand decreased during the eleven months ended December 31, 2017 by $11.741   million to $6.931   million compared to the twelve months ended January 31, 2017 where cash increased $8.418 million to $18.674 million.
10

PolyMet Mining Corp.
Management Discussion and Analysis
As at December 31, 2018 and December 31, 2017 and for the twelve and eleven months then ended
Tabular amounts in thousands of U.S. Dollars, except for shares and per share amounts

c) Capital Expenditures for the Year:

During the eleven months ended December 31, 2017 the Company capitalized $30.292 million (twelve months ended January 31, 2017 - $ 43.264 million) of mineral property, plant, and equipment costs primarily related to the development and preservation of the NorthMet Project.  The decrease largely reflects a reduction to the environmental rehabilitation provision to reflect closure plans in the Permit to Mine application.


Liquidity and Capital Resources

Liquidity risk is the risk the Company will not be able to meet its financial obligations as they become due and arises through the excess of financial obligations over financial assets due at any point in time.  As at December 31, 2018, PolyMet had cash of $13.857 million and a working capital deficiency of $225.359 million primarily due to the $56.984 million secured convertible debt and $178.483 million secured non-convertible debt due to Glencore being classified as a current liability. Subsequent to year end, the Company entered into an agreement with Glencore to extend the maturity date of the secured convertible and non-convertible debt to provide the Company time to prepare for and complete a rights offering by June 30, 2019, fully backstopped by Glencore, to raise sufficient funds to repay all outstanding debt. See additional details in the “Financing Activities” section above.

Management believes, based upon the underlying value of the NorthMet Project, the receipt of all permits necessary to construct and operate the NorthMet Project, the history of support from its shareholders and the ongoing discussions with investment banks and investorspotential financiers, that financing will continue to be available allowingto allow the Company to complete the development of NorthMet and generate future profitable operations.  While in the past the Company has been successful in closing financing agreements, there can be no assurance it will be able to do so again.  Factors that could affect the availability of financing include the state of debt, equity, and environmental bonding markets, investor perceptions and expectations and the market for metals expected to be produced from the NorthMet Project.
 
The Company is in discussions with commercial banks and other sources of debt and equity finance sufficient to fund construction of the Project.  Construction and ramp up to commercial production is anticipated to take approximately twenty-four to thirty months   from receipt of construction funding.

In addition to items described elsewhere in the financial statements, as at December 31, 2018, the Company had firm commitments related to financial assurance obligations, compliance, land options, and rent of approximately $16.4 million with approximately $0.4 million due over the next year and the majority due a period of three to ten years.

The following table lists the known contractual obligations as at December 31, 2018:

 
Contractual Obligations
 
Carrying
Value
   
Contractual
Cash flows
   
Less than
1 year
   
1 – 3
years
   
3 – 5
years
   
More than
5 years
 
Accounts payable and accruals
 
$
4,013
   
$
4,013
   
$
4,013
   
$
-
   
$
-
   
$
-
 
Convertible debt
   
56,984
     
58,077
     
58,077
     
-
     
-
     
-
 
Non-convertible debt
   
178,483
     
184,698
     
184,698
     
-
     
-
     
-
 
Firm commitments
   
-
     
16,413
     
388
     
25
     
4,000
     
12,000
 
    Total
 
$
239,480
   
$
263,201
   
$
247,176
   
$
25
   
$
4,000
   
$
12,000
 

11

PolyMet Mining Corp.
Management Discussion and Analysis
As at December 31, 2018 and December 31, 2017 and for the twelve and eleven months then ended
Tabular amounts in thousands of U.S. Dollars, except for shares and per share amounts

Financial Instruments and Risk Management

The fair value hierarchy prioritizes inputs to valuation techniques used to measure fair value.  The hierarchy gives highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).  The three levels of the fair value hierarchy are described below:


Level 1 –
Quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2 –
Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly.

Level 3 –
Inputs for the asset or liability that are not based on observable market data.

The only financial instrument measured at fair value subsequent to recognition is the EIP receivable which is measured at fair value through profit or loss using Level 3 inputs resulting in a carrying value of $1.912 million (December 31, 2017 - $2.883 million)   and an amount classified within accounts payable and accruals representing expected payments to settle restricted share units measured at fair value through profit or loss using Level 2 inputs resulting in a carrying value of $0.371 million (December 31, 2017 - $0.439 million).

The fair values of cash and restricted cash deposits, other current amounts receivable, and accounts payable and accruals approximate their carrying amounts due to their short-term nature.  Convertible debt and non-convertible debt are classified at amortized cost, and the carrying amount approximates fair value.  The Company believes this is appropriate as the maturity date is twelve months or less.

Risks Arising from Financial Instruments and Risk Management

The Company’s activities expose it to a variety of financial risks: market risk (including currency and interest rate), credit risk, and liquidity risk.  Reflecting the current stage of development of the Company’s NorthMet Project, the overall risk management program focuses on facilitating the Company’s ability to continue as a going concern and seeks to minimize potential adverse effects on the Company’s ability to execute its business plan.

Risk management is the responsibility of executive management.  Material risks are identified and monitored and are discussed with the Audit Committee and the Board of Directors.

Currency Risk
The Company incurs expenditures in Canada and the United States.  The functional and reporting currency of the Company and its subsidiary is the U.S. dollar.  Foreign exchange risk arises because the amount of Canadian dollar cash, amounts receivable, or accounts payable and accrued liabilities will vary in U.S. dollar terms due to changes in exchange rates.
12

PolyMet Mining Corp.
Management Discussion and Analysis
As at December 31, 2018 and December 31, 2017 and for the twelve and eleven months then ended
Tabular amounts in thousands of U.S. Dollars, except for shares and per share amounts

As the majority of the Company’s expenditures are in U.S. dollars, the Company has kept a significant portion of its cash in U.S. dollars.  The Company has not hedged its exposure to currency fluctuations as the exposure to currency risk is currently insignificant.

Interest Rate Risk
Interest rate risk arises from interest paid on floating rate debt and interest received on cash and liquid short-term deposits.  The Company has not hedged any of its interest rate risk.  The Company currently capitalizes to qualifying assets the majority of interest charges, and therefore the risk exposure is primarily on cash interest payable and net earnings in relation to the subsequent depreciation of capitalized interest charges.

The Company was exposed to interest rate risk through the following assets and liabilities:
   
December 31,
2018
   
December 31,
2017
 
Cash and restricted cash deposits
   
24,143
   
$
6,931
 
Convertible debt
   
56,984
     
49,067
 
Non-convertible debt
   
178,483
   
$
92,268
 

Based on the above net exposures, as at December 31, 2018, a 1% change interest rates would have impacted the Company’s loss by approximately $0.241 million and carrying value of convertible and non-convertible debt by approximately $2.355 million.

Credit Risk
Credit risk arises on cash and restricted cash deposits held with banks and financial institutions, as well as credit exposure on outstanding amounts receivable.  The maximum exposure to credit risk is equal to the carrying value of the financial assets of $26.735 million.

The Company’s cash and restricted cash deposits are primarily held through large Canadian and United States financial institution.

Liquidity Risk
Liquidity risk is the risk the Company will not be able to meet its financial obligations as they become due and arises through the excess of financial obligations over available financial assets due at any point in time.  The Company’s objective in managing liquidity risk is to maintain sufficient readily available reserves in order to meet its liquidity requirements at any point in time and is achieved by maintaining sufficient cash and managing convertible and non-convertible debt.  See additional discussion in the “Liquidity and Capital Resources” section above.

Capital Management
The Company’s capital management objective is to safeguard the Company’s ability to continue as a going concern in order to pursue the development of its mineral property.  In the management of capital, the Company includes the components of shareholders’ equity, convertible debt and non-convertible debt.  The Company manages the capital structure and makes adjustments to it depending on economic conditions and the rate of anticipated expenditures.  To maintain or adjust the capital structure, the Company may attempt to issue new shares, issue new debt, acquire or dispose of assets.  The Company has no externally imposed capital requirements.

In order to assist in management of its capital requirements, the Company prepares budgets that are updated as necessary depending on various factors.  The budgets are approved by the Company’s Board of Directors.
13

PolyMet Mining Corp.
Management Discussion and Analysis
As at December 31, 2018 and December 31, 2017 and for the twelve and eleven months then ended
Tabular amounts in thousands of U.S. Dollars, except for shares and per share amounts

Although the Company expects to have the necessary resources to carry out its plans and operations through December 31, 2019, it does not currently have sufficient capital to complete the development of NorthMet and generate future profitable operations and is in discussions to arrange sufficient capital to meet these requirements.  During the upcoming fiscal year, the Company’s objective is to identify the source or sources from which it will obtain the capital required to complete the Project.  See additional discussion in the “Liquidity and Capital Resources” section above.


Related Party Transactions

The Company conducted transactions with senior management, directors and persons or companies related to these individuals, and paid or accrued amounts as follows:

       
   
Twelve months ended
December 31, 2018 (1)
   
Eleven months ended
December 31, 2017 (1)
 
Salaries and other short-term benefits
   
1,956
   
$
1,898
 
Other long-term benefits
   
44
     
42
 
Share-based payment (3)
   
1,680
     
836
 
    Total
   
3,680
   
$
2,776
 

(1)
Twelve months ended December 31, 2018 includes Directors (Dennis Bartlett, Jonathan Cherry, Mike Ciricillo, David Dreisinger, W. Ian L. Forrest, Helen Harper, Alan Hodnik, Stephen Rowland, and Michael Sill) and senior management (Jonathan Cherry, Patrick Keenan, and Bradley Moore).
(2)
Eleven months ended December 31, 2017 includes Directors (Dennis Bartlett, Jonathan Cherry, Mike Ciricillo, Matthew Daley, David Dreisinger, W. Ian L. Forrest, Helen Harper, Alan Hodnik, Stephen Rowland, and Michael Sill) and senior management (Jonathan Cherry, Patrick Keenan, Douglas Newby, and Bradley Moore).
(3)
Share-based payment represents the amount capitalized or expensed during the period.

There are agreements with senior management (Jonathan Cherry, Patrick Keenan, Bradley Moore) containing severance provisions for termination without cause or in the event of a change in control.  No other PolyMet director has an agreement providing for benefits upon termination.

As a result of Glencore’s 28.9% ownership it is also a related party.  In addition to the transactions described in the “Financing Activities” section above, the Company has also entered into a Technical Services Agreement with Glencore whereby the Company reimburses Glencore for NorthMet technical support costs requested under an agreed scope of work, primarily in detailed project design and mineral processing.  During the year ended December 31, 2018, the Company recorded $0.070 million (December 31, 2017 - $nil) for services under this agreement.


Off Balance-Sheet Arrangements

The Company does not utilize off-balance sheet arrangements.


Proposed Transactions

There are no proposed transactions that will materially affect the performance of the Company.
14

PolyMet Mining Corp.
Management Discussion and Analysis
As at December 31, 2018 and December 31, 2017 and for the twelve and eleven months then ended
Tabular amounts in thousands of U.S. Dollars, except for shares and per share amounts

Critical Accounting Estimates

The preparation of the consolidated financial statements in conformity with IFRS requires the use of certain critical accounting estimates.  These critical accounting estimates require management to make estimates that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as at the date of the financial statements.

Critical accounting estimates used in the preparation of the consolidated financial statements are as follows:

Determination of mineral reserves

Reserves are estimates of the amount of product that can be economically and legally extracted from the Company’s property. In order to estimate reserves, estimates are required about a range of geological, technical and economic factors, including quantities, production techniques, production costs, capital costs, transport costs, demand, prices and exchange rates. Estimating the quantity of reserves requires the size, shape and depth of deposits to be determined by analyzing geological data. This process may require complex and difficult geological judgments to interpret the data. In addition, management will form a view of forecast sales prices, based on current and long-term historical average price trends. Changes in the proven and probable reserves estimates may impact the carrying value of property, plant and equipment, rehabilitation provisions, recognition of deferred tax amounts and depreciation, depletion and amortization.

Provision for Environmental Rehabilitation Costs


Provisions for environmental rehabilitation costs associated with mineral property, plant and equipment, are recognized when the Company has a present legal or constructive obligation that can be estimated reliably, and it is probable an outflow of economic benefits will be required to settle the obligation.  Provisions are determined by discounting the expected future cash flows at a pre-tax risk-free rate that reflects current market assessments of the time value of money.

The Company’s estimates of its ultimate environmental rehabilitation liabilities could be affected by changes in regulations, changes in the extent of environmental rehabilitation required, changes in the means of rehabilitation, changes in the extent of responsibility for the financial liability, changes in operating plans, or changes in cost estimates.  The operations of the Company may in the future be affected from time to time in varying degrees by changes in environmental regulations, including those for future removal and site restoration costs.  Both the likelihood of new regulations and their overall effect upon the Company may vary greatly and are not predictable.

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


Critical Accounting Judgments

The preparation of consolidated financial statements in conformity with IFRS requires the use of certain critical accounting judgments.  These critical accounting judgments require management to make judgments that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as at the date of the financial statements.

Critical accounting judgments used in the preparation of the consolidated financial statements are as follows:
15

PolyMet Mining Corp.
Management Discussion and Analysis
As at December 31, 2018 and December 31, 2017 and for the twelve and eleven months then ended
Tabular amounts in thousands of U.S. Dollars, except for shares and per share amounts

Impairment of non-financial assets

The carrying amounts of the Company’s non-financial assets, including mineral property, plant and equipment, and intangible are reviewed at each reporting date or when events or changes in circumstances occur that indicate the asset may not be recoverable to determine whether there is any indication of impairment.  If any such indication exists, the asset’s recoverable amount is estimated at the greater of its value in use and its fair value less costs of disposal.  In assessing value in use, the estimated future cash flows are  discounted to their  present value using a  pre-tax discount  rate that reflects current market assessments of the time value of money and the risks specific to the asset.  An impairment loss is recognized if the carrying amount of an asset exceeds its estimated recoverable amount.  An impairment loss previously recorded is reversed if there has been a change in the estimates used to determine the recoverable amount resulting in an increase in the estimated service potential of an asset.

The Company considers both external and internal sources of information in assessing whether there are any indications of impairment. External sources of information the Company considers include changes in the market, economic, and legal environment in which the Company operates that are not within its control and affect the recoverable amount. Internal sources of information the Company considers include indications of economic performance of the asset.

No impairment indicators were identified on the mineral property, plant and equipment or intangible for the twelve months ended December 31, 2018 or eleven months ended December 31, 2017.


Going concern assumptions

The Company must assess its ability to continue as a going concern and prepare financial statements on a going concern basis unless it either intends to liquidate or cease trading or has no realistic alternative but to do so.  In assessing whether the going concern assumption is appropriate, the Company takes into account all available information about the future, which is at least, but is not limited to, twelve months from the end of the reporting period .


Change in Accounting Policies

On January 1, 2018, the Company adopted the following new accounting standards that were previously issued by the IASB. Certain other new standards and interpretations have been issued and were effective as of January 1, 2018 but did not have a material impact on the Company’s financial statements and are therefore not discussed below.

The accounting policies discussed below reflect the Company’s adoption of IFRS 9 - Financial Instruments, effective January 1, 2018, and IFRS 16 - Leases, which had an effective date of January 1, 2019 but for which the company early adopted as of January 1, 2018. For the eleven months ended December 31, 2017, the Company applied policies based on IAS 39 and IAS 17 and the effects of the transition from IAS 39 to IFRS 9 and from IAS 17 to IFRS 16 are described below.

IFRS 9 – Financial Instruments

IFRS 9 addresses the classification, measurement and recognition of financial assets and financial liabilities. This standard replaces parts of IAS 39 - Financial Instruments: Recognition and Measurement.  The Company adopted IFRS 9 effective January 1, 2018 on a retrospective basis without restating prior period comparatives.
16

PolyMet Mining Corp.
Management Discussion and Analysis
As at December 31, 2018 and December 31, 2017 and for the twelve and eleven months then ended
Tabular amounts in thousands of U.S. Dollars, except for shares and per share amounts

IFRS 9 requires financial assets to be classified into the following measurement categories: fair value through profit and loss, fair value through other comprehensive income, and those measured at amortized cost. The determination is made at initial recognition.  On transition, the EIP receivable previously classified as available-for-sale and measured at fair value through other comprehensive income was re-classified as fair value through profit or loss with changes in fair value recognized in the statement of loss instead of through other comprehensive loss. Adoption resulted in re-classification of $0.210 million to the opening deficit from accumulated other comprehensive loss for cumulative gains on the EIP receivable.  The following table shows the original measurement categories under IAS 39 and the new measurement categories under IFRS 9 for the Company’s financial assets as at January 1, 2018:

Financial assets
2017 classification
under IAS 39
2018 classification
under IFRS 9
     
   Cash
Loans and receivable
Amortized cost
   Amounts receivable
Loans and receivable
Amortized cost
   Amounts receivable
Available-for-sale
Fair value through profit or loss

For financial liabilities, the standard retains most of the IAS 39 requirements, except as it relates to modifications of liabilities. Under IAS 39, when an entity modified a financial liability, it would decide whether this modification was significant enough to constitute an extinguishment. If the modification was considered an extinguishment of the initial debt, the new modified debt was recorded at fair value and a gain/loss recognized in the statement of loss for the difference between the carrying amount of the old debt and the fair value of the new debt. This extinguishment accounting remains the same under IFRS 9.  However, accounting differs where the change was not significant enough to be an extinguishment. Under IAS 39, modifications would not lead to an immediate income charge, whereas, under IFRS 9, the cash flows under the modified debt are discounted using the original effective interest rate of the instrument with an immediate income charge.  Adoption resulted in a $2.159 million adjustment to increase the opening deficit as at January 1, 2018 and increase the carrying value of the convertible and non-convertible debt.  This reflects accounting for prior year modifications to the outstanding debentures under the new standard.

IFRS 16 – Leases

IFRS 16 replaces IAS 17 – Leases.  The new standard requires capitalization of certain leases by the leasee and results in accounting treatment similar to finance leases under IAS 17 - Leases. Exemptions for leases of very low value or short duration leases are applicable. The new standard results in an increase in lease assets and liabilities for the lessee. Under the new standard the treatment of all lease expenses is aligned in the statement of earnings with depreciation, and an interest expense component recognized for each lease, in line with finance lease accounting under IAS 17 - Leases.

The Company early adopted IFRS 16 effective January 1, 2018 on a modified retrospective basis without restating prior period comparatives.  As a result, the Company recorded a $0.211 million lease asset and corresponding lease liability for the one qualifying office lease that has been recognized over the remaining term.  The Company’s other leases are leases to explore mining rights, which are excluded from IFRS 16’s scope.

The following table summarizes the impact of adopting IFRS 9 - Financial Instruments and IFRS 16 - Leases.

Consolidated Balance Sheet Impact
 
Dec 31, 2017
   
IFRS 9
   
IFRS 16
   
Jan 1, 2018
 
Mineral Property, Plant and Equipment
 
$
395,205
   
$
-
   
$
211
   
$
395,416
 
Accounts Payable and Accruals
   
3,630
     
-
     
211
     
3,841
 
Convertible Debt
   
49,067
     
1,346
     
-
     
50,413
 
Non-Convertible Debt
   
92,268
     
813
     
-
     
93,081
 
Equity Reserves
   
60,505
     
(210
)
   
-
     
60,295
 
Deficit
 
$
(132,497
)
 
$
(1,949
)
 
$
-
   
$
(134,446
)

17


PolyMet Mining Corp.
Management Discussion and Analysis
As at December 31, 2018 and December 31, 2017 and for the twelve and eleven months then ended
Tabular amounts in thousands of U.S. Dollars, except for shares and per share amounts

Other MD&A Requirements

Outstanding Share Data

Authorized Capital:  Unlimited common shares without par value.

The following table summarizes the outstanding share information as at March 22, 2019:

Type of Security
Number
Outstanding
Weighted Average
Exercise Price
Issued and outstanding common shares
322,157,863  
$                    -
Restricted share units
4,091,673  
$                    -
Share options
25,082,002  
$                0.91
Share purchase warrants
27,189,713  
$                0.95
Convertible debt including capitalized interest
44,303,743  
$                1.27

As at December 31, 2018, the Company had obligations to issue up to 3,640,000 shares under the Company’s bonus share incentive plan upon achievement of Milestone 4 representing commencement of commercial production at NorthMet at a time when the Company has not less than 50% ownership interest in NorthMet.  At the Company’s Annual General Meeting of shareholders held in June 2008, the disinterested shareholders approved the bonus shares for Milestone 4.  Regulatory approval is required prior to issuance of these shares.

Risks and Uncertainties

An investment in the Company’s common shares is highly speculative and subject to a number of risks and uncertainties.  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 in PolyMet’s Annual Information Form for the year ended December 31, 2018 and other information filed with both the Canadian and United States securities regulators before investing in the Company’s common shares.  The risks described in PolyMet’s Annual Information Form are not the only ones faced.  Additional risks that the Company currently believes are immaterial may become important factors that affect the Company’s business.  If any of the risks described in PolyMet’s Annual Information Form for the year ended December 31, 2018 occur , the Company’s business, operating results and financial condition could be seriously harmed and investors could lose all of their investment.

Evaluation of Disclosure Controls and Procedures

The Company's Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the Company's disclosure controls and procedures (as such term is defined in Rules 13(a)-15(e) and 15(d)-15(e) under the US Exchange Act and the rules of the Canadian Securities Administrators as at December 31, 2018 (the "Evaluation Date"). Based on such evaluation, such officers have concluded that, as of the Evaluation Date, the Company's disclosure controls and procedures are effective. Such disclosure controls and procedures are designed to ensure that the information required to be disclosed by the Company in reports that it files or submits to the US Securities and Exchange Commission and the Canadian Securities Administrators is recorded, processed, summarized and reported within the time periods specified in applicable rules and forms, and includes controls and procedures designed to ensure information relating to the Company required to be included in reports filed or submitted under Canadian and United States securities legislation is accumulated and communicated to the Company’s management to allow timely decision regarding disclosure.
18

PolyMet Mining Corp.
Management Discussion and Analysis
As at December 31, 2018 and December 31, 2017 and for the twelve and eleven months then ended
Tabular amounts in thousands of U.S. Dollars, except for shares and per share amounts

Management’s Responsibility for Consolidated Financial Statements

The information provided in this report and the accompanying Consolidated Financial Statements of the Company are the responsibility of management.  The Consolidated Financial Statements have been prepared by management in accordance with IFRS as issued by the IASB and include certain estimates that reflect management’s best judgments.

The Company’s Board of Directors has approved the information contained in the Consolidated Financial Statements.  The Board of Directors fulfills its responsibilities regarding the Consolidated Financial Statements mainly through its Audit Committee, which has a written mandate that complies with current requirements of Canadian securities legislation, United States securities legislation, and the United States Sarbanes-Oxley Act of 2002.  The Audit Committee meets at least on a quarterly basis.

Management’s Annual Report on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting.  Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Consolidated Financial Statements for external reporting purposes in accordance with IFRS as issued by the IASB.

Internal control over financial reporting, no matter how well designed, has inherent limitations.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management has assessed the effectiveness of the Company’s internal control over financial reporting as at December 31, 2018.  In making its assessment, management has used the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) to evaluate the Company’s internal control over financial reporting.  Based on this assessment, management has concluded that the Company’s internal control over financial reporting was effective as at that date.

The effectiveness of the Company’s internal control over financial reporting as at December 31, 2018 has been audited by PricewaterhouseCoopers LLP, the Company’s independent registered public accounting firm, as stated in their report, which is included with the Company’s annual consolidated financial statements.

Additional Information

Additional information related to the Company is available on SEDAR and EDGAR, respectively, at www.sedar.com and at www.sec.gov , and on the Company’s website www.polymetmining.com .


19

Exhibit 99.4
Disclosure of Mine Safety and Health Administration (“MSHA”) Safety Data
PolyMet is committed to the health and safety of its employees and in providing an incident free workplace. The Company maintains a comprehensive health and safety program that includes extensive training for all employees and contractors, site inspections, emergency response preparedness, crisis communications training, incident investigation, regulatory compliance training and process auditing.
PolyMet’s U.S. mining operations are subject to MSHA regulation under the U.S. Federal Mine Safety and Health Act of 1977 (the “Mine Act”). MSHA inspects our mining operations on a regular basis and issues various citations and orders when it believes a violation has occurred under the Mine Act. Whenever MSHA issues a citation or order, it also generally proposes a civil penalty, or fine, related to the alleged violation.
The following disclosures are provided pursuant to Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Act”), which requires certain disclosures by companies required to file periodic reports under the Securities Exchange Act of 1934 that operate mines regulated under the Mine Act.
The information in the table below reflects citations and orders MSHA issued to PolyMet during the fiscal year ended December 31, 2018   as reflected in our records. The data in our system may not match or reconcile with the data MSHA maintains on its public website. In evaluating this information, consideration should also be given to factors such as: (i) the number of citations and orders may vary depending on the size and operation of the mine, (ii) the number of citations issued may vary from inspector to inspector and mine to mine, and (iii) citations and orders may be contested and appealed, and in that process, may be reduced in severity and amount, and may be dismissed.

Mine
ID number (1)
 
 
Mine or
Operating
Name
 
Section
104
Significant
and
Substantial
Citations  (2)
 
 
Section
104(b)
Orders  (3)
 
 
Section
104(d)
Citations
and
Orders  (4)
 
 
Section
110(b)(2)
Violations  (5)
 
 
Section
107(a)
Orders  (6)
 
 
Total dollar
value of
MSHA
assessments
proposed (7)
 
 
Total
number
of
Mining
Related
Fatalities
 
 
Received
Notice of
Pattern of
Violations
Under
Section
104(e)
yes/no
 
 
Received
Notice of
Potential
to Have
Pattern
under
section
104(e)
yes/no
 
 
Legal
Actions
Pending
as of
Last
Day of
Period (8)
 
 
Categories
of
Pending
Legal
Actions
(i-vii) (9)
 
 
Legal
Actions
Initiated
During
Period
 
 
Legal
Actions
Resolved
During
Period
 
2103658
 
POLYMET
 
 0
       
0
     
0
     
0
     
0
     
$    118
     
0
     
No
     
No
     
0
     
NA
     
0
     
0
  
 
1
MSHA assigns an identification number to each mine or operation and may or may not assign separate identification number to related facilities. The information provided in this table is presented by mine identification number.
2
Represents the total number of citations issued by MSHA for violation of health or safety standards that could significantly and substantially contribute to a serious injury if left unabated.
3
Represents the total number of orders issued, which represents a failure to abate a citation under section 104(a) within the period prescribed by MSHA. This results in an order of immediate withdrawal from the area of the mine affected by the condition until MSHA determines that the violation has been abated.
4
Represents the total number of citation and orders issued by MSHA for unwarrantable failure to comply with mandatory health or safety standards.
5
Represents the total number of flagrant violations identified.
6
Represents the total number of imminent danger orders issued under section 107(a) of the Mine Act.
7
Amounts represent the total dollar value of proposed assessments received from MSHA.
8
Pending legal actions before the Federal Mine Safety and Health Review Commission (the “Commission”) as required to be reported by Section 1503(a)(3) of the Act.
9
The following provides additional information regarding the types or categories of proceedings that may be brought before the commission:
 
(i)
Contest Proceedings - may be filed with the Commission by an operator to challenge the issuance of a citation or order issued by MSHA;
 
(ii)
Civil Penalty Proceedings - may be filed with the Commission by an operator to challenge a civil penalty MSHA has proposed for a violation contained in a citation or order;
 
(iii)
Discrimination Proceedings - involves a miner’s allegation that he or she has suffered adverse employment action because he or she engaged in activity protected under the Mine Act, such as making a safety complaint;
 
(iv)
Temporary Reinstatement Proceedings - involves cases in which a miner has filed a complaint with MSHA stating that he or she suffered discrimination and the miner lost his or her position;
 
(v)
Compensation Proceedings - may be filed with the Commission by miners entitled to compensation when a mine is closed by certain closure orders issued by MSHA. The purpose of the proceeding is to determine the amount of compensation if any, due to miners idled by the orders;
 
(vi)
Applications for Temporary Relief - applications for temporary relief of any order issued under Section 104; and
 
(vii)
Appeals.
Exhibit 99.5
CERTIFICATION

I, Jonathan Cherry, certify that:

1.
I have reviewed this Annual Report on Form 40-F of PolyMet Mining Corp. (“the Company”);

2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;

4.
The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the Company and have:

(a)   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)   Designed such internal controls over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

(c)   Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)   Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the period covered by the Annual Report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

5.
The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the equivalent functions):

(a)   all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and

(b)   any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.

Date: March 28, 2019
/s/ Jonathan Cherry
 
Name: Jonathan Cherry
 
Title: Chief Executive Officer (Principal Executive Officer)

Exhibit 99.6
CERTIFICATION

I, Patrick Keenan, certify that:

1.
I have reviewed this Annual Report on Form 40-F of PolyMet Mining Corp. (“the Company”);

2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;

4.
The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the Company and have:

(a)   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)   Designed such internal controls over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

 (c)   Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)   Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the Annual Report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

5.
The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the equivalent functions):

(a)   all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and

(b)   any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.

Date: March 28, 2019
/s/ Patrick Keenan
 
Name: Patrick Keenan
 
Title: Chief Financial Officer (Principal Financial Officer)
Exhibit 99.7

CERTIFICATION
Pursuant to 18 United States Code § 1350
As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. Section 1350), as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, each of the undersigned officers hereby certify that the Annual Report on Form 40-F for the fiscal year ended December 31, 2018 of PolyMet Mining Corp. (the “Company”) filed with the Securities and Exchange Commission on the date hereof fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and that the information contained in such report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 


Date: March 28, 2019
/s/ Jonathan Cherry
 
Name: Jonathan Cherry
 
Title: Chief Executive Officer (Principal Executive Officer)
 
 

Date: March 28, 2019
/s/ Patrick Keenan
 
Name: Patrick Keenan
 
Title: Chief Financial Officer (Principal Financial Officer)
Exhibit 99.8

Consent of In d epen d e nt R e g ister e d P u b l ic A cc o u nting F i rm


We h e r e b y c onsent t o t h e i ncor p ora t i on b y r efer e nce i n t hi s A n nu a l R e p ort on F o rm 4 0 -F for t h e year ended D e c em b er 3 1 , 2 0 1 8 o f P olyMet M i n i ng C o r p . of o ur re p ort d a t ed Mar c h 28 , 2 0 1 9, r el at i ng t o t h e c ons o l i d a t ed f i nan c i al s t a t e me n t s, a nd t h e e ffec t i v ene s s o f i n t ernal c on t rol o v er f i nan c i al r e p or t i n g, w h i c h ap p ears in t h e Ex h i b i t i nco r p ora t ed b y refe r ence i n th i s A nnu a l R e p or t .

We a l so c onsent t o t h e i nc o r p ora t i on b y r e fer e nce i n th e R e g i s t ra t i on S t a t e m ent o n F o rm S -8 (N o . 3 3 3 -

1 9 22 0 8 ) of P oly M et M i n i ng C or p . of our r e p ort d a t ed Mar c h 28 , 2 0 1 9 refe r red t o a b o v e . We a l so c onsent t o t h e ref e r ence t o us u n d er t h e h ea d i n g I n t erest of Ex p ert s ”, w hi c h a p p ears i n th e Ann u al I nf o rma t i on Form i nclu d ed i n t h e Ex h i b i t i ncor p o ra t ed b y r efe r ence i n th i s A nnu a l R e p ort on Form 4 0 -F, w h i c h i s i ncor p ora t ed b y r e fer e nce i n s uc h R e gi s t ra t i o n St a t e m en t .

 

/s/ P r i c e w a t e r h ouseCo o p e r s LLP Ch ar t e r ed P rofessional Ac c oun t an t s


V an c ou v e r , B r i t i s h C olu m b i a, C ana d a

Mar c h 28 , 2 0 1 9

Exhibit 99.9
CONSENT OF AUTHOR
(Zachary J. Black, SME Registered Member, of Hard Rock Consulting, LLC, with an office at
7114 W. Jefferson Ave, Suite 308, Lakewood, Colorado 80235)

To:  PolyMet Mining Corp.
United States Securities and Exchange Commission

Re:  PolyMet Mining Corp.’s Incorporation by Reference of the “NorthMet Project Form NI 43-101F1 Technical Report” with effective date March 26, 2018 and inclusion of references to the Technical Report in the Company’s Annual Information Form included as an exhibit to Form 40-F for the fiscal year ended December 31, 2018.
I, Zachary J. Black, consent to the incorporation by reference of extracts of the Technical Report entitled “NorthMet Project Form NI 43-101F1 Technical Report” (the “Technical Report”) with effective date March 26, 2018 and inclusion of references to the Technical Report in the Company’s Annual Information Form included as an exhibit to Form 40-F for the fiscal year ended December 31, 2018.
I consent to extracts from, or a summary of, the Technical Report in Item 4, Description of the Business (the “relevant sections”) of PolyMet Mining Corp.’s Annual Information Form included as an exhibit to the Form 40-F filing with the Securities and Exchange Commission, for the fiscal year ended December 31, 2018.
I confirm that I have read the relevant sections of the Annual Information Form included as an exhibit to the Form 40-F filing for PolyMet Mining Corp. for the fiscal year ended December 31, 2018 and that it fairly and accurately represents the information in the Technical Report that supports the disclosure.
 
Dated this 28 th day of March, 2019.
/s/  Zachary J. Black
 
Name: Zachary J. Black

Exhibit 99.10
CONSENT OF AUTHOR
(Jennifer J. Brown, P.G., of Hard Rock Consulting, LLC, with an office at
7114 W. Jefferson Ave, Suite 308, Lakewood, Colorado 80235)

To:  PolyMet Mining Corp.
United States Securities and Exchange Commission

Re:  PolyMet Mining Corp.’s Incorporation by Reference of the “NorthMet Project Form NI 43-101F1 Technical Report” with effective date March 26, 2018 and inclusion of references to the Technical Report in the Company’s Annual Information Form included as an exhibit to Form 40-F for the fiscal year ended December 31, 2018.
I, Jennifer J. Brown, consent to the incorporation by reference of extracts of the Technical Report entitled “NorthMet Project Form NI 43-101F1 Technical Report” (the “Technical Report”) with effective date March 26, 2018 and inclusion of references to the Technical Report in the Company’s Annual Information Form included as an exhibit to Form 40-F for the fiscal year ended December 31, 2018.
I consent to extracts from, or a summary of, the Technical Report in Item 4, Description of the Business (the “relevant sections”) of PolyMet Mining Corp.’s Annual Information Form included as an exhibit to the Form 40-F filing with the Securities and Exchange Commission, for the fiscal year ended December 31, 2018.
I confirm that I have read the relevant sections of the Annual Information Form included as an exhibit to the Form 40-F filing for PolyMet Mining Corp. for the fiscal year ended December 31, 2018 and that it fairly and accurately represents the information in the Technical Report that supports the disclosure.
 
Dated this 28 th day of March, 2019.
/s/  Jennifer J. Brown
 
Name: Jennifer J. Brown
Exhibit 99.11
CONSENT OF AUTHOR
(Nicholas Dempers, Pr.Eng., SAIMM, of Senet (Pty) Ltd., with an office at
Building 12, Greenstone Hill Office Park, Emerald Boulevard
Greenstone Hill, Greenstone 1609, Modderfontein, Gauteng, South Africa)

To:  PolyMet Mining Corp.
United States Securities and Exchange Commission

Re:  PolyMet Mining Corp.’s Incorporation by Reference of the “NorthMet Project Form NI 43-101F1 Technical Report” with effective date March 26, 2018 and inclusion of references to the Technical Report in the Company’s Annual Information Form included as an exhibit to Form 40-F for the fiscal year ended December 31, 2018.
I, Nicholas Dempers, consent to the incorporation by reference of extracts of the Technical Report entitled “NorthMet Project Form NI 43-101F1 Technical Report” (the “Technical Report”) with effective date March 26, 2018 and inclusion of references to the Technical Report in the Company’s Annual Information Form included as an exhibit to Form 40-F for the fiscal year ended December 31, 2018.
I consent to extracts from, or a summary of, the Technical Report in Item 4, Description of the Business (the “relevant sections”) of PolyMet Mining Corp.’s Annual Information Form included as an exhibit to the Form 40-F filing with the Securities and Exchange Commission, for the fiscal year ended December 31, 2018.
I confirm that I have read the relevant sections of the Annual Information Form included as an exhibit to the Form 40-F filing for PolyMet Mining Corp. for the fiscal year ended December 31, 2018 and that it fairly and accurately represents the information in the Technical Report that supports the disclosure.
 
Dated this 28 th day of March, 2019.
/s/  Nicholas Dempers
 
Name: Nicolas Dempers
Exhibit 99.12
CONSENT OF AUTHOR
(Thomas L. Drielick, P.E., of M3 Engineering & Technology Corporation, with an office at
2051 West Sunset Road, Suite 101, Tucson, AZ, 85704)

To:  PolyMet Mining Corp.
United States Securities and Exchange Commission

Re:  PolyMet Mining Corp.’s Incorporation by Reference of the “NorthMet Project Form NI 43-101F1 Technical Report” with effective date March 26, 2018 and inclusion of references to the Technical Report in the Company’s Annual Information Form included as an exhibit to Form 40-F for the fiscal year ended December 31, 2018.
I, Thomas L. Drielick, consent to the incorporation by reference of extracts of the Technical Report entitled “NorthMet Project Form NI 43-101F1 Technical Report” (the “Technical Report”) with effective date March 26, 2018 and inclusion of references to the Technical Report in the Company’s Annual Information Form included as an exhibit to Form 40-F for the fiscal year ended December 31, 2018.
I consent to extracts from, or a summary of, the Technical Report in Item 4, Description of the Business (the “relevant sections”) of PolyMet Mining Corp.’s Annual Information Form included as an exhibit to the Form 40-F filing with the Securities and Exchange Commission, for the fiscal year ended December 31, 2018.
I confirm that I have read the relevant sections of the Annual Information Form included as an exhibit to the Form 40-F filing for PolyMet Mining Corp. for the fiscal year ended December 31, 2018 and that it fairly and accurately represents the information in the Technical Report that supports the disclosure.
 
Dated this 28 th day of March, 2019.
/s/  Thomas L. Drielick
 
Name: Thomas L. Drielick
Exhibit 99.13
CONSENT OF AUTHOR
(Art S. Ibrado, P.E., of M3 Engineering & Technology Corporation, with an office at
2051 West Sunset Road, Suite 101, Tucson, AZ, 85704)

To:  PolyMet Mining Corp.
United States Securities and Exchange Commission

Re:  PolyMet Mining Corp.’s Incorporation by Reference of the “NorthMet Project Form NI 43-101F1 Technical Report” with effective date March 26, 2018 and inclusion of references to the Technical Report in the Company’s Annual Information Form included as an exhibit to Form 40-F for the fiscal year ended December 31, 2018.
I, Art S. Ibrado, consent to the incorporation by reference of extracts of the Technical Report entitled “NorthMet Project Form NI 43-101F1 Technical Report” (the “Technical Report”) with effective date March 26, 2018 and inclusion of references to the Technical Report in the Company’s Annual Information Form included as an exhibit to Form 40-F for the fiscal year ended December 31, 2018.
I consent to extracts from, or a summary of, the Technical Report in Item 4, Description of the Business (the “relevant sections”) of PolyMet Mining Corp.’s Annual Information Form included as an exhibit to the Form 40-F filing with the Securities and Exchange Commission, for the fiscal year ended December 31, 2018.
I confirm that I have read the relevant sections of the Annual Information Form included as an exhibit to the Form 40-F filing for PolyMet Mining Corp. for the fiscal year ended December 31, 2018 and that it fairly and accurately represents the information in the Technical Report that supports the disclosure.
 
   
   
Dated this 28 th day of March, 2019.
/s/  Art S. Ibrado
 
Name: Art S. Ibrado
Exhibit 99.14
CONSENT OF AUTHOR
(Erin L. Patterson, P.E., of M3 Engineering & Technology Corporation, with an office at
2051 West Sunset Road, Suite 101, Tucson, AZ, 85704)

To:  PolyMet Mining Corp.
United States Securities and Exchange Commission

Re:  PolyMet Mining Corp.’s Incorporation by Reference of the “NorthMet Project Form NI 43-101F1 Technical Report” with effective date March 26, 2018 and inclusion of references to the Technical Report in the Company’s Annual Information Form included as an exhibit to Form 40-F for the fiscal year ended December 31, 2018.
I, Erin L. Patterson, consent to the incorporation by reference of extracts of the Technical Report entitled “NorthMet Project Form NI 43-101F1 Technical Report” (the “Technical Report”) with effective date March 26, 2018 and inclusion of references to the Technical Report in the Company’s Annual Information Form included as an exhibit to Form 40-F for the fiscal year ended December 31, 2018.
I consent to extracts from, or a summary of, the Technical Report in Item 4, Description of the Business (the “relevant sections”) of PolyMet Mining Corp.’s Annual Information Form included as an exhibit to the Form 40-F filing with the Securities and Exchange Commission, for the fiscal year ended December 31, 2018.
I confirm that I have read the relevant sections of the Annual Information Form included as an exhibit to the Form 40-F filing for PolyMet Mining Corp. for the fiscal year ended December 31, 2018 and that it fairly and accurately represents the information in the Technical Report that supports the disclosure.
 
Dated this 28 th day of March, 2019.
/s/  Erin L. Patterson
 
Name: Erin L. Patterson
Exhibit 99.15
CONSENT OF AUTHOR
(Thomas J. Radue, P.E., of Barr Engineering Co., with an office at
4300 MarketPointe Drive, Suite 200, Minneapolis, MN, 55435)

To:  PolyMet Mining Corp.
United States Securities and Exchange Commission

Re:  PolyMet Mining Corp.’s Incorporation by Reference of the “NorthMet Project Form NI 43-101F1 Technical Report” with effective date March 26, 2018 and inclusion of references to the Technical Report in the Company’s Annual Information Form included as an exhibit to Form 40-F for the fiscal year ended December 31, 2018.
I, Thomas J. Radue, consent to the incorporation by reference of extracts of the Technical Report entitled “NorthMet Project Form NI 43-101F1 Technical Report” (the “Technical Report”) with effective date March 26, 2018 and inclusion of references to the Technical Report in the Company’s Annual Information Form included as an exhibit to Form 40-F for the fiscal year ended December 31, 2018.
I consent to extracts from, or a summary of, the Technical Report in Item 4, Description of the Business (the “relevant sections”) of PolyMet Mining Corp.’s Annual Information Form included as an exhibit to the Form 40-F filing with the Securities and Exchange Commission, for the fiscal year ended December 31, 2018.
I confirm that I have read the relevant sections of the Annual Information Form included as an exhibit to the Form 40-F filing for PolyMet Mining Corp. for the fiscal year ended December 31, 2018 and that it fairly and accurately represents the information in the Technical Report that supports the disclosure.
 
Dated this 28 th day of March, 2019.
/s/  Thomas J. Radue
 
Name: Thomas J. Radue
Exhibit 99.16
CONSENT OF AUTHOR
(Herbert E. Welhener, SME Registered Member, of Independent Mining Consultants, Inc.,
with an office at 3560 E. Gas Road, Tucson, Arizona 85714)

To:  PolyMet Mining Corp.
United States Securities and Exchange Commission

Re:  PolyMet Mining Corp.’s Incorporation by Reference of the “NorthMet Project Form NI 43-101F1 Technical Report” with effective date March 26, 2018 and inclusion of references to the Technical Report in the Company’s Annual Information Form included as an exhibit to Form 40-F for the fiscal year ended December 31, 2018.
I, Herbert E. Welhener, consent to the incorporation by reference of extracts of the Technical Report entitled “NorthMet Project Form NI 43-101F1 Technical Report” (the “Technical Report”) with effective date March 26, 2018 and inclusion of references to the Technical Report in the Company’s Annual Information Form included as an exhibit to Form 40-F for the fiscal year ended December 31, 2018.
I consent to extracts from, or a summary of, the Technical Report in Item 4, Description of the Business (the “relevant sections”) of PolyMet Mining Corp.’s Annual Information Form included as an exhibit to the Form 40-F filing with the Securities and Exchange Commission, for the fiscal year ended December 31, 2018.
I confirm that I have read the relevant sections of the Annual Information Form included as an exhibit to the Form 40-F filing for PolyMet Mining Corp. for the fiscal year ended December 31, 2018 and that it fairly and accurately represents the information in the Technical Report that supports the disclosure.
 
Dated this 28 th day of March, 2019.
/s/  Herbert E. Welhener
 
Name: Herbert E. Welhener
Exhibit 99.17
CONSENT OF AUTHOR
(Jeff S. Ubl, P.E., of Barr Engineering Co., with an office at
4300 MarketPointe Drive, Suite 200, Minneapolis, MN, 55435)

To:  PolyMet Mining Corp.
United States Securities and Exchange Commission

Re:  PolyMet Mining Corp.’s Incorporation by Reference of the “NorthMet Project Form NI 43-101F1 Technical Report” with effective date March 26, 2018 and inclusion of references to the Technical Report in the Company’s Annual Information Form included as an exhibit to Form 40-F for the fiscal year ended December 31, 2018.
I, Thomas J. Radue, consent to the incorporation by reference of extracts of the Technical Report entitled “NorthMet Project Form NI 43-101F1 Technical Report” (the “Technical Report”) with effective date March 26, 2018 and inclusion of references to the Technical Report in the Company’s Annual Information Form included as an exhibit to Form 40-F for the fiscal year ended December 31, 2018.
I consent to extracts from, or a summary of, the Technical Report in Item 4, Description of the Business (the “relevant sections”) of PolyMet Mining Corp.’s Annual Information Form included as an exhibit to the Form 40-F filing with the Securities and Exchange Commission, for the fiscal year ended December 31, 2018.
I confirm that I have read the relevant sections of the Annual Information Form included as an exhibit to the Form 40-F filing for PolyMet Mining Corp. for the fiscal year ended December 31, 2018 and that it fairly and accurately represents the information in the Technical Report that supports the disclosure.
 
Dated this 28 th day of March, 2019.
/s/  Jeff S. Ubl
 
Name: Jeff S. Ubl