There were no environmental reportable accidents or incidents. Safety results continued to improve toward DMC’s goal of ZERO HARM. The 2008 Lost Time Injury Frequency Rate improved to 0.4 per 200,000 person hours from 0.7 in 2007 and the Total Medical Injury Frequency Rate improved to 2.3 from 4.9 in 2007. These are the lowest frequency rates in the history of DMC and its predecessor company. DMC’s Total Medical Injury Frequency Rate is approximately 28% of the average frequency rate for Ontario mines. This performance will be a distinct positive as DMC bids for new contracts.

Outlook for 2009

The challenge for 2009 will be to utilize DMC’s core of good people and its excellent safety record to obtain new work, rebuild its backlog and return to profitability.

DMC’s revenue is forecast to be significantly below 2008 revenues. DMC’s objectives in 2009 are as follows:

• Maintain safety excellence

• Maintain core staff working

• Maintain positive cash flow

• Sell non core equipment

Health, Safety, Environment and Community Relations

FNX recognizes that operating the Company’s business according to occupational health, safety, and environmental (“HSE”) best practices benefits the communities in which the Company lives and works and is essential to its success and continued development. The principle of sustainable development is an integral part of FNX’s operation philosophy in conducting its business of mineral exploration, extraction, processing and eventual decommissioning. In practice the Company operates to the benefit of its shareholders and its local communities using the resources and the environment today without compromising the long-term capacity to support post-mining land uses.

FNX holds the health and safety of its employees, contractors and visitors as a core value. The Company believes that all injuries are preventable. FNX places a major focus on the development and implementation of strategies and standards designed to minimize its occupational health and safety risks and continually improve corporate performance.

Both DMC and the FNX Sudbury operations experienced lower injury frequencies in 2008 than in any prior year. DMC completed the year with a Lost Time Injury Frequency Rate (“LTIFR”) of 0.39 and a Total Medical Injury Frequency Rate (“TMIFR”) of 2.32. This compares to a LTIFR¹ of 0.69 and a TMIFR¹ of 4.91 in 2007. The FNX Sudbury operations experienced a LTIFR of 0.48 and a TMIFR of 8.00 for 2008, compared to 0.60 and 9.04 respectively in 2007.

The reduction in injury frequencies is attributable to advances in two key initiatives during the year; the continued implementation of an integrated health, safety and environmental management system and the delivery of Courageous Leadership training to all levels of supervision in the organization.

The FNX Integrated Management System (“IMS”) is modeled on two compatible systems: the international environmental standard ISO 14001:2004 and the international occupational health and safety standard OHSAS 18001:2007. The IMS provides a framework for FNX to control its health, safety and environmental risks and improve its performance in these areas.

_{¹ LTIFR and TMIFR values are incidents per 200,000 person hours}

In April 2008, DMC attained certification in OHSAS 18001, becoming the first mining contractor in North America to achieve this status. Implementation of the IMS at the FNX Sudbury operations focuses on four specific areas:

1. Systematically identifying the Company’s health, safety and environ-mental legal requirements;

2. Conducting risk analysis to identify its health, safety and environmental hazards and risks;

3. Documenting the policy requirements and associated guidelines needed to ensure that the legal requirements are met and the hazards and risks are eliminated or controlled; and

4. Ensuring that everyone working on an FNX site is aware of their health, safety and environmental responsibilities, authorities and accountabilities.

With the assistance of external consultants, FNX developed a leadership training program called Courageous Leadership created around its four core values and a strong emphasis on health, safety and environmental matters. This leadership program was delivered to the majority of supervisors and managers at the FNX Sudbury operations in the fourth quarter. Training will continue in 2009 with the inclusion of DMC Mining Services personnel.

The FNX Health and Safety Advisory Committee (“Committee”), an independent committee comprised of representatives from industry, government and academia, provided guidance on legal issues and the Company’s leadership and management system initiatives. The Committee met four times during the year and reported to the HSE Committee of the Board and to the Board of Directors.

Environmental management system objectives and targets for 2008 were set at McCreedy West, Levack and Podolsky mines under the headings of air emissions, spills management, water consumption and hazardous waste management. In 2008, fugitive dust emissions were monitored monthly and metal concentrations in the dust were monitored quarterly. Dust emissions were highest close to mine site roads, so additional dust control measures were implemented to reduce dust. An FNX-wide Spill Prevention and Contingency Plan was developed to identify potential spills and evaluate the risk of these occurring. All potential spills with a medium or high risk have been addressed in spill and emergency response procedures. The necessary spill containment and clean up materials are in stock
at the mine sites.

Reducing water consumption is always a challenge. Site water balances were developed and opportunities to recycle water were identified. McCreedy West, Levack and Podolsky mines recycle their process water. However, the McCreedy West Mine does draw make up water as required from the Onaping River. All three mine sites significantly upgraded their hazardous waste (e.g. waste oil and waste antifreeze) handling facilities. Both Levack and Podolsky constructed dedicated facilities to store materials with potential environmental impacts when delivered from the supplier and to handle, store and dispose of these wastes in an environmentally safe manner. McCreedy West is planning to upgrade their facilities based on the Levack facility design.

FNX is committed to operate in compliance with all environmental regulatory requirements including leases, licenses and approvals. McCreedy West, Levack and Podolsky properties all hold a number of permits and approvals issued by the Ontario Ministry of the Environment. Due to the mine sites continuing growth and development in 2008, a number of amendments to these regulatory approvals were requested including: upgrading the municipal sewage treatment facilities at McCreedy West and Podolsky to tertiary treatment; upgrading the high efficiency water treatment plant at Podolsky by adding an ammonia treatment module and improving mine ventilation at Levack and Podolsky.

Water pumped from underground at McCreedy West, Levack and Podolsky mines is treated before discharge. During colder weather in the fall of 2007 and into the winter of 2008, the water treatment plant at Podolsky was unable to fully treat ammonia in the mine water. This resulted in a number of incidents of ammonia concentrations exceeding the permitted level. The Ministry of the Environment issued a Provincial Officers Order to control the ammonia and install an ammonia treatment module in the water treatment plant. The staff at Podolsky effectively reduced ammonia below the permitted level and subsequently installed an ammonia treatment module over the summer. Ammonia concentrations have been in compliance since May 2008. All water quality data collected during plant operations is submitted to the Ministry of the Environment quarterly.

Receiving environment monitoring programs are conducted at all of FNX’s properties. Podolsky Mine has a comprehensive surface water, groundwater and aquatic life monitoring program covering the Norman North Creek and Post Creek watersheds. This water flows through the Wahnapitae First Nation Reserve and into Lake Wahnapitae.

Podolsky Mine submits annual surface water and groundwater compliance reports each year to the Ministry of the Environment by March 31^st. Surface water monitoring for McCreedy West and Levack consists of quarterly sampling at several stations in Moose Creek and the Onaping River.

The McCreedy West mine monitors blast vibration due to its close proximity to the communities of Onaping and Levack. Vibration monitors are set up in the underground workings and in the basements of two homes in the community of Levack. All readings taken in 2008 were well below the Ministry of the Environment nuisance level.

The independent Environmental Technical Advisory Committee (“Advisory Committee”), formed in 2005 and composed of nationally recognized senior environmental professionals with experience in industry, government and academia, met four times in 2008. They visited the Levack, McCreedy West and Podolsky mines, reviewed environmental monitoring data and reports, assisted with government and community relations and reported their findings to FNX management and to the Board of Directors. The Advisory Committee also oversaw environmental compliance audits which were conducted by independent Registered Environmental Auditors at each of the three mine sites in the fall of 2008. There were no audit findings classified as high risk. The findings classified as medium and low risk were largely addressed by year end 2008. The remaining findings will be addressed in the first quarter of 2009.

Regular and ongoing public consultation is a commitment FNX made to the local communities in which the Company operates. The McCreedy West and Levack Mines held a joint public meeting in Onaping and Levack communities in November 2008. Approximately 30 local residents attended the meeting and interacted with mine staff. There had been no public complaints since the previous meeting in 2007. As a result, the meeting participants’ concerns reflected mostly on the recent downturn in the economy and what effect it may have on the operation of the mines. There was general support for the ongoing operations by FNX.

On July 4, 2008, FNX signed an Impact Benefit Agreement (“IBA”) with the Wahnapitae First Nation. The key areas addressed in the IBA include protecting the environment, enhancing educational opportunities, creating business opportunities and fostering good relations between the parties. Upon signing, an Implementation Committee chaired by the Wahnapitae First Nation was formed to ensure that the terms and conditions are met.

Reporting to the Implementation Committee are a joint Environment Committee, which will focus specifically on environmental monitoring and protection and a joint Human Resources Committee which will work on educational, contractual and business development opportunities. In September, FNX met with the Atikameksheng Anishnawbek First Nation to begin a dialogue on activities at the McCreedy West and Levack Mines.