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|NORTHERN DYNASTY MINERALS LTD.      
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|YEAR ENDED DECEMBER 31, 2006        
|MANAGEMENT'S DISCUSSION AND ANALYSIS
|                                    

T A B L E   O F   C O N T E N T S

|1.1  | DATE                                                            | 2                                                                          
|---- | --------------------------------------------------------------- | ---------------------------------------------------------------------------
|     |                                                                 |                                                                            
|1.2  | OVERVIEW                                                        | 2                                                                          
|     |                                                                 |                                                                            
|     | 1.2.1                                                           | SUMMARY                                                                    
|     |                                                                 |                                                                            
|     | 1.2.2                                                           | 2006 TECHNICAL PROGRAMS                                                    
|     |                                                                 |                                                                            
|     | 1.2.3                                                           | PLANS FOR 2007                                                             
|     |                                                                 |                                                                            
|     | 1.2.4                                                           | MARKET TRENDS                                                              
|     |                                                                 |                                                                            
|1.3  | SELECTED ANNUAL
      INFORMATION                               | 9                                                                          
|     |                                                                 |                                                                            
|1.4  | SUMMARY OF QUARTERLY
      RESULTS                              | 10                                                                         
|     |                                                                 |                                                                            
|1.5  | RESULTS OF OPERATIONS                                           | 11                                                                         
|     |                                                                 |                                                                            
|1.6  | LIQUIDITY                                                       | 12                                                                         
|     |                                                                 |                                                                            
|1.7  | CAPITAL RESOURCES                                               | 12                                                                         
|     |                                                                 |                                                                            
|1.8  | OFF-BALANCE
      SHEET ARRANGEMENTS                            | 12                                                                         
|     |                                                                 |                                                                            
|1.9  | TRANSACTIONS
      WITH RELATED PARTIES                         | 13                                                                         
|     |                                                                 |                                                                            
|1.10 | FOURTH QUARTER                                                  | 14                                                                         
|     |                                                                 |                                                                            
|1.11 | PROPOSED TRANSACTIONS                                           | 14                                                                         
|     |                                                                 |                                                                            
|1.12 | CRITICAL ACCOUNTING
      ESTIMATES                             | 14                                                                         
|     |                                                                 |                                                                            
|1.13 | CHANGES IN ACCOUNTING
      POLICIES INCLUDING INITIAL ADOPTION | 15                                                                         
|     |                                                                 |                                                                            
|1.14 | FINANCIAL INSTRUMENTS
      AND OTHER INSTRUMENTS               | 15                                                                         
|     |                                                                 |                                                                            
|1.15 | OTHER MD&A
      REQUIREMENTS                                   | 16                                                                         
|     |                                                                 |                                                                            
|     | 1.15.1                                                          | ADDITIONAL DISCLOSURE FOR
      VENTURE ISSUERS WITHOUT SIGNIFICANT REVENUE
|     |                                                                 |                                                                            
|     | 1.15.2                                                          | DISCLOSURE OF OUTSTANDING
      SHARE DATA                                 
|     |                                                                 |                                                                            
|     | 1.15.3                                                          | INTERNAL CONTROL OVER FINANCIAL
      REPORTING AND DISCLOSURE CONTROLS    

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|NORTHERN DYNASTY MINERALS LTD.      
|------------------------------------
|YEAR ENDED DECEMBER 31, 2006        
|MANAGEMENT'S DISCUSSION AND ANALYSIS
|                                    

1.1          
Date

This Management Discussion and Analysis ("MD&A") should be
read in conjunction with the audited consolidated financial statements of
Northern Dynasty Minerals Ltd. ("Northern Dynasty" or the "Company") for the
year ended December 31, 2006.

This MD&A is prepared as of March 28, 2007. All dollar
figures stated herein are expressed in Canadian dollars, unless otherwise
specified.

This discussion includes certain statements that may be
      deemed "forward-looking statements". These forward-looking statementsconstitute "forward-looking statements" within the meaning of
      Section 27A of theSecurities Act of 1933and Section
      21E of theSecuritiesExchange Act of 1934.All statements in this discussion, other than statements of
      historical facts, that address future production, reserve potential,
      exploration drilling, exploitation activities and events or developments
      that the Company expects are forward-looking statements. Although the
      Company believes the expectations expressed in such forward-looking
      statements are based on reasonable assumptions, such statements are not
      guarantees of future performance and actual results or developments may
      differ materially from those in the forward-looking statements. Factors
      that could cause actual results to differ materially from those in
      forward-looking statements include market prices, exploitation and
      exploration successes, continued availability of capital and financing and
      general economic, market or business conditions. Investors are cautioned
      that any such statements are not guarantees of future performance and
      actual results or developments may differ materially from those stated
      herein.


Cautionary Note to Investors
      Concerning Estimates of Measured and Indicated ResourcesThis section uses the terms measured resources and
      indicated resources. The Company advises investors that while those
      terms are recognized and required by Canadian regulations, the U.S.
      Securities and Exchange Commission does not recognize them. Investorsare cautioned not to assume that any part or all of mineral
      deposits in these categories will ever be converted into reserves.


|Cautionary Note to Investors
      Concerning Estimates of Inferred Resources                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|This section uses the term inferred resources. The
      Company advises investors that while this term is recognized and required
      by Canadian regulations, the U.S. Securities and Exchange Commission does
      not recognize it. Inferred resources have a great amount of uncertainty
      as to their existence, and as to their economic and legal feasibility. It
      cannot be assumed that all or any part of a mineral resource will ever be
      upgraded to a higher category. Under Canadian rules, estimates of Inferred
      Mineral Resources may not form the basis of economic studies, except in
      rare cases. Investors are cautioned not to assume that any part or all
      of an inferred resourceexists, or is economically or legally
      mineable.

1.2           
Overview

1.2.1         Summary

Northern Dynasty is a mineral exploration company focused on
developing the Pebble Copper-Gold-Molybdenum Project. The Pebble Property is
located in Alaska, 17 miles (27 kilometers) from the village of Iliamna, and
approximately 200 miles (320 kilometers) southwest of the city of Anchorage.

An extensive, northeast-trending mineralized system underlies
the Pebble Property. The system hosts several copper, gold and molybdenum
deposits. The Pebble West Deposit was discovered and partially outlined through
drilling by a previous operator from 1987-1997. Northern Dynasty acquired the
right to earn an interest in the Pebble Property in late 2001 and, since that
time, has substantially expanded the Pebble West deposit and located three
additional porphyry copper-gold-molybdenum deposits as well as a porphyry copper
zone, a gold-copper skarn occurrence and several high-grade gold veins.

The Pebble Project made a transition from exploration to
development planning in 2004. The Company has been carrying out comprehensive
technical programs, including drilling, a full spectrum of engineering
assessments, and environmental and socio-economic studies. Until 2005, these
studies had been focused on a development plan for the Pebble West Deposit, an
estimated 4.1 billion tonne near-surface resource that is

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|NORTHERN DYNASTY MINERALS LTD.      
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|YEAR ENDED DECEMBER 31, 2006        
|MANAGEMENT'S DISCUSSION AND ANALYSIS
|                                    

amenable to extraction by open pit methods. The estimated
mineral resources in the Pebble West deposit to March 2005 1 at a
0.30% copper-equivalent cut-off3 include:

- Measured and Indicated Resources of 3.0 billion tonnes grading 0.28%
  copper, 0.32 g/t gold, and 0.015% molybdenum, containing 18.8 billion pounds
  of copper, 31.3 million ounces of gold and 993 million pounds of molybdenum
- Inferred Resource of 1.1 billion tonnes grading 0.24% copper, 0.30 g/t gold
  and 0.014% molybdenum, containing 5.9 billion pounds of copper, 10.8 million
  ounces of gold and 361 million pounds of molybdenum.

In late 2005, the Pebble East porphyry copper-gold-molybdenum
deposit was discovered and, since that time, work has focused on this new
deposit. Pebble East is located adjacent and to the east of the Pebble West
deposit. It is deeper but higher grade than Pebble West and a preliminary
analysis indicates that it is amenable to underground bulk mining. An initial
inferred resource of 1.1 billion tonnes was announced for Pebble East at the end
of the 2005 season.

Drilling in 2006 continued to intersect long intervals of
high-grade copper-gold-molybdenum mineralization. In February 2007, the results
of a resource update were announced. At a 0.6% copper equivalent cut-off, the
estimated mineral resources in Pebble East are:

- Inferred Resource of 3.4 billion tonnes grading 0.56% copper, 0.36 g/t
  gold and 0.036% molybdenum, containing 42.6 billion pounds of copper, 39.6
  million ounces of gold, and 2.7 billion pounds of molybdenum.

Infill and step out drilling is planned for Pebble East in
2007. The step out holes will test for further expansion to the north and south,
as the deposit remains open in those directions. The focus of the infill program
will be to increase the confidence in the resource, and move a significant
portion of it into the measured and indicated categories.

The discovery of Pebble East also resulted in the preparation
of a new development plan and timelines for the Project. Additional engineering,
environmental and socio-economic studies have been undertaken in 2006, and will
continue in 2007, to support an Integrated Development Plan ("IDP") for the
Project involving both the Pebble East and Pebble West Deposits. The objective
is to provide the information necessary to submit, in due course, permit
applications for a modern, long-life mining operation.

In July 2006, the Company issued 8,745,845 common shares in
connection with a share purchase agreement with Kennecott Canada Exploration
Inc. (Kennecott), a subsidiary of Rio Tinto plc (Rio Tinto), for $10.00 per
share. Kennecott has a right of first refusal to participate in up to 50% of
future share placements by the Company, subject to customary exceptions, until
Kennecott reaches 19.9% of the Companys outstanding share capital. The right
thereafter continues as a 19.9% right until Kennecott either fails to take up
any offered allotment or the fifth anniversary of the agreement, whichever
occurs first.

In January 2007, Northern Dynasty was advised by Galahad Gold
plc (Galahad) that QIT-Fer Et Titane Inc., an affiliate of Rio Tinto, agreed
to purchase 9.4 million shares of Northern Dynasty from Galahad at a price of
$10 per share. The share purchase, which closed February 1, 2007, increased Rio
Tintos indirect

____________________________________________1
The resource estimate was completed under the direction of David W. Rennie, P.
Eng. of Scott Wilson Roscoe Postle Associates Inc., and R. Mohan Srivastava,
M.Sc., P.Geo., of FSS Canada Consultants Inc., independent Qualified
Persons.

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|NORTHERN DYNASTY MINERALS LTD.      
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|YEAR ENDED DECEMBER 31, 2006        
|MANAGEMENT'S DISCUSSION AND ANALYSIS
|                                    

ownership in Northern Dynasty to approximately 19.79% . As a
consequence of this transaction, Galahads shareholding in Northern Dynasty has
been reduced and its right to participate in Northern Dynasty financings will
expire. Also, Rio Tintos 5-year right to participate in certain future
financings will be reduced from a 50% level to approximately 19.9% . In December
2006, and subject to shareholder approval at the upcoming Annual General
Meeting, Northern Dynastys Board of Directors adopted a Shareholder Rights Plan
for the Company which is triggered at 20%. In conjunction with Galahads sale of
its Northern Dynasty shareholdings, Messr. Ian Watson and Messr. Morris Beattie,
retired from the board of directors.

1.2.2          2006
Technical Programs

Drilling

The 2006 program consisted of holes drilled for exploration,
engineering and environmental purposes in the area of the Pebble East deposit,
as tabulated below:

# of Drill holes
      Footage
      Meters
      Purpose
      Type19
    73,721
    22,470
    Exploration
    Core17
    3,176
    968
    Geotechnical
    Core14
    1,611
    491
    Monitoring wells
    Percussion50
    78,508
    23,659


Core drilling to explore and define the Pebble East deposit was
completed in 19 holes, expanding the deposit to a north-south strike length
exceeding 7000 ft (2100 m), and over a width exceeding 4000 ft (1220 m). Grades
consistently exceed 1% copper equivalent. The deposit remains open for expansion
to the north and to the south.

Mineral resources as estimated in February 2007 are presented
  at a variety of cut-offs in the table below:

PEBBLE EAST DEPOSIT - INFERRED MINERAL
        RESOURCES  FEBRUARY 20071Cut-Off
      Size
      Grade
      Contained MetalCuEQ2,3%
      MillionTonnes
      Copper%
      Goldg/t
      Molybdenum%
      CuEQ2%
      CopperB lb
      GoldM oz
      MolybdenumB lb0.60
      3,379
      0.57
      0.36
      0.036
      1.00
      42.6
      39.6
      2.70.70
      2,835
      0.62
      0.38
      0.037
      1.06
      38.8
      34.9
      2.30.80
      2,312
      0.67
      0.40
      0.038
      1.14
      34.3
      30.1
      1.90.90
      1,841
      0.73
      0.43
      0.038
      1.21
      29.6
      25.4
      1.51.00
      1,421
      0.79
      0.46
      0.039
      1.29
      24.6
      20.9
      1.21.10
      1,057
      0.85
      0.49
      0.039
      1.37
      19.8
      16.6
      0.9


Note 1
    By prescribed definition, Mineral Resources do not have
      demonstrated economic viability. An Inferred Mineral Resource is that part
      of a mineral resource for which quantity and grade can be estimated on the
      basis of geological evidence and limited sampling and reasonably assumed,
      but not verified, geological and grade continuity.Note 2
    Copper equivalent calculations use metal prices of
      US$1.00/lb for copper, US$400/oz for gold, and US$6.00/lb for molybdenum.
      Copper equivalent has not been adjusted for metallurgical recoveries.
      Adjustment factors to account for differences in relative metallurgical
      recoveries for copper, gold and molybdenum will depend upon the completion
      of definitive metallurgical testing. CuEQ = Cu % + (Au g/t x 12.86/22.05)
      + (Mo% x 132.28/22.05).Note 3
    A 0.30% CuEQ cut-off is considered to be comparable to
      that used for porphyry deposit open pit mining operations in the Americas.
      For bulk underground mining higher cut-offs, such as 0.60% CuEQ, are
      typically used. All cut-offs are subject to a feasibility study.


The February 2007 Pebble East resource estimate is based upon
drill core assay results from 132 core holes completed by Northern Dynasty in
the Pebble East area. The estimate was prepared by the technical staff of
Northern Dynasty and audited by industry leading geological and mining
consultants at Scott Wilson Roscoe

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|NORTHERN DYNASTY MINERALS LTD.      
|------------------------------------
|YEAR ENDED DECEMBER 31, 2006        
|MANAGEMENT'S DISCUSSION AND ANALYSIS
|                                    

Postle Associates Inc., under the direction of David W. Rennie,
P. Eng., an independent Qualified Person as defined by National Instrument
43-101. A technical report detailing the resource estimate is in
preparation.

Integrated Development Plan

The engineering effort in 2006 was reduced from the previous
year, pending the delineation of the Pebble East deposit. The work that was
completed was focused on collection of data to support the preparation of the
IDP, in particular, some key preliminary data for Pebble East. The main areas in
which analysis continued during the year were:

- Geotechnical evaluations of the surface soil deposits in the vicinity of
  potential tailings storage sites;
- Analysis of power supply options,
- Collection of geotechnical and hydrogeological data to support design of a
  potential underground mine at Pebble East;
- Initial evaluation of bulk underground mining options for Pebble East, with
  a focus on determining potential mining rates and development scenarios; and
- Initial scoping-level metallurgy on Pebble East and collection of samples
  for a pre-feasibility level metallurgy program in 2007.

Geotechnical Data

Pebble East

A major program was initiated to collect geotechnical data specifically
  intended to support design of a major underground mine at Pebble East. A major
  independent consulting firm with significant expertise in defining underground
  mining parameters was engaged. Their personnel oriented and logged 4 holes as
  they were drilled and also re-logged 4 holes drilled in 2005. In addition, a
  number of holes drilled in 2006 were tested with an acoustic logger. Work to
  correlate the geotechnical and acoustic logs was initiated in the third quarter.

All these data are currently being assessed and a similar
program will be conducted in 2007.

In addition to collecting rock quality parameters, a deep
groundwater monitoring system was installed in one of the exploration holes. The
data will be used to assess the hydrogeological parameters of Pebble East.

Surface

Seventeen holes, with depths ranging between 90 and 400 ft,
were drilled to further understand the characteristics of the surface soil
properties on the site. Most of these holes were drilled in the vicinity of one
of the possible tailings sites. Others were drilled over top of Pebble East to
assess the quality of the soils.

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|NORTHERN DYNASTY MINERALS LTD.      
|------------------------------------
|YEAR ENDED DECEMBER 31, 2006        
|MANAGEMENT'S DISCUSSION AND ANALYSIS
|                                    

Mine Engineering

In the third quarter, Northern Dynasty engaged an independent
consulting firm with significant experience in the evaluation of large-scale
underground mines to commence a scoping-level assessment of Pebble East. This
study demonstrated that an underground mine on Pebble East could produce as much
as 110,000 tonnes per day over a 50 year or longer period. The results of this
work are currently being updated to incorporate the latest resource model based
on the 2006 drilling. These results will then be used to assess the preferred
development strategy for the IDP.

Metallurgy

Preliminary scoping tests were completed at SGS Lakefield
Research in April 2006 on samples from a 200 ft intersection of drill hole 5327
in the Pebble East deposit. The samples were composited into a single overall
sample and into four samples representing 50 foot down-hole lengths. The work
demonstrated that the Pebble East mineralization that was tested is amenable to
treatment with a flowsheet encompassing a simplified suite of reagents,
incorporating rougher/scavenger flotation at natural pH and a combination of
regrinding of bulk rougher concentrate and bulk scavenger cleaner concentrate,
copper/pyrite separation and final cleaning. Excellent concentrate grades were
achieved with simple pH control using lime.

Projected overall recoveries for the composite tested, based on
lock cycle test results, are 98% for copper, 78% for gold and 73% for molybdenum
(to copper flotation concentrate) from a calculated feed grade of 0.75% Cu, 0.38
g Au/t and 0.012% Mo.

Sample collection for detailed metallurgical studies of Pebble
East commenced in the third quarter of 2006. Quarter core samples were collected
on site from holes drilled in 2005 and the first four holes drilled in 2006 and
forwarded to SGS Lakefield Research. Composite preparation was started by year
end; a total of 134 composites were prepared. The planned program, including
comminution tests, flotation test and environmental data generation, is
scheduled for completion in the first half of 2007.

Infrastructure

Although a base case for the project infrastructure has been
developed, previous studies had shown that some alternatives for the port site
and road may offer opportunities. Investigations continued during the latter
half of 2006. Homer Electric Association is continuing its analysis of power
generation and transmission alternatives to optimize project design, cost, and
schedule factors.

Environmental, Cultural and Socio-Economic Studies

Northern Dynastys comprehensive environmental and
socioeconomic study programs continued in 2006, along with its efforts to engage
local communities, and other project stakeholders in an informed dialogue on the
deposit geology, project design alternatives and the environmental studies. Over
the past 12 months, more than 350 meetings have been facilitated with project
stakeholders throughout the State of Alaska and the Company also continued its
local hire/recruiting, workforce training, and local business development
initiatives.

The Company has now completed three consecutive years of
environmental and socio-economic baseline data studies. This work was undertaken
by over 45 independent consulting firms, and expanded the geographic scope of
its investigations to support Pebble East planning. Water rights applications
were submitted to the

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|NORTHERN DYNASTY MINERALS LTD.      
|------------------------------------
|YEAR ENDED DECEMBER 31, 2006        
|MANAGEMENT'S DISCUSSION AND ANALYSIS
|                                    

Alaska Department of Natural Resources in July 2006 to maintain
Northern Dynastys priority status. These applications will be processed during
project permitting, which is planned to commence when the optimized project is
designed.

All consultants have completed the analysis of the data
collected during 2004-2005 and have drafted their respective chapters of the
Draft Environmental Baseline Document. These chapters are now with the senior
technical reviewers. Consultants are now analyzing the 2006 data.

Northern Dynasty continues to focus on developing positive
working relationships with many local Native and community institutions, while
supporting skills training, workforce and business development, local
scholarships, search and rescue efforts, and other community initiatives.

The Company has employed more than 100 local people from more
than 20 small Bristol Bay communities in each of the last two years, and made
significant expenditures on local goods, services and salaries. The Company
spent over $3 million in the local regions in 2006, an increase from $2.8
million in 2005. It also entered into 14 different goods and service contracts
with Bristol Bay companies. On-site training programs have enabled Northern
Dynasty to hire more local people and to advance workers to positions requiring
more skill and responsibility. The Company is also investing in the future, by
providing financial support to introduce mining and natural resources career
education in schools in the local region.

1.2.3          Plans
for 2007

A comprehensive program is planned for 2007, encompassing
drilling, engineering, and on-going environmental data collection and community
engagement programs. Detailed budgets are now in preparation.

Exploration and Resource Drilling

Drilling re-commenced at the Pebble Project site in the first
half of February 2007. Currently five rigs are working, with plans to ramp up to
8 rigs in April.

The 2007 program will focus on Pebble East and consist of two
components: delineation drilling and infill drilling. Delineation drilling in
the order of 100,000 ft (30,400 m) will focus on extending the Pebble East
deposit to the north and the south and to define its eastern and western limits.
Infill drilling will comprise approximately 150,000 ft (45,720 m) and focus on
upgrading the resource classification of the highest grade 1 billion tonnes of
the deposit.

Other Drilling

Drilling is also planned for the collection of additional
surface soils and groundwater data throughout the site.

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|NORTHERN DYNASTY MINERALS LTD.      
|------------------------------------
|YEAR ENDED DECEMBER 31, 2006        
|MANAGEMENT'S DISCUSSION AND ANALYSIS
|                                    

Engineering

To achieve the 2007 objectives, the key engineering tasks that
have been identified are:

- Collect additional site and underground geotechnical data to support
  ongoing mine design work;
- Complete pre-feasibility level metallurgical testwork on Pebble East to
  optimize conventional processing systems and designs;
- Continue to assess the major infrastructure elements (access road, port and
  power) in order to establish the optimum alternatives and designs for these
  Project components; and
- Develop the best overall Project mine plan from the extensive mineral
  resources available.

Environmental

Northern Dynasty's comprehensive environmental and
socioeconomic study programs will continue in 2007 with the objectives of
collecting data in the expanded Pebble East deposit area and to compare annual
variability. This data provides a foundation for the sound environmental design
of the project and preparation of state and federal permit applications in
future years. The primary focus of 2007 programs will be in the areas of water,
aquatic/fish, terrestrial/wildlife, wetlands, and subsistence/traditional use.
As well, the penultimate draft of the Pebble Project Environmental Baseline
Document will be completed in 2007.

Community outreach and stakeholder communication initiatives
will continue and expand in 2007 with the hiring of local community associates
within some of the area villages. In addition, there will be an expanded
interaction with and briefings of industry associations such as the Alaska
Miners Association and the Resource Development Council and with grassroots
movements such as Truth About Pebble. Notwithstanding the information campaign
against mining in Bristol Bay by a small minority of special interests, there is
growing support for responsible development and for adhering to due process in
project permitting in the State. This is evidenced by the successful October
2006 re-election of the incumbent mayor and key council members of the Lake and
Peninsula Borough and the November 2007 state election of a Republican governor
whose campaign position was in support of mining and advocated due process for
permitting of Pebble.

1.2.4          Market
Trends

Overall, copper prices have increasing since late 2003. Copper
prices averaged US$3.03/lb in 2006 but as a result of increasing supply, copper
prices have dropped slightly in early 2007, averaging US$2.62/lb to mid March.

Molybdenum prices increased from US$7.60/lb to US$34/lb in
2004, and peaked at an average price of US$33/lb in 2005. Prices stabilized in
2006, averaging US$25.53/lb over the year. In early 2007, molybdenum prices
increased slightly, averaging US$25.94/lb to mid March.

Overall, gold prices have been increasing for more than three
years and, although there was some volatility late in 2006, the average for the
year - US$604/oz  was higher than the average price - US$445/oz - in 2005.
Volatility in the gold price has continued in 2007, but the average price to mid
March is US$648/oz.

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|NORTHERN DYNASTY MINERALS LTD.      
|------------------------------------
|YEAR ENDED DECEMBER 31, 2006        
|MANAGEMENT'S DISCUSSION AND ANALYSIS
|                                    

1.3           
Selected Annual Information

The consolidated financial statements have been prepared in
accordance with Canadian generally accepted accounting principles, and are
expressed in Canadian dollars.

|                                                     |   | As at       |   |   | As at       |   |   | As at       |  
|---------------------------------------------------- | - | ----------- | - | - | ----------- | - | - | ----------- | -
|                                                     |   | December 31 |   |   | December 31 |   |   | December 31 |  
|                                                     |   | 2006        |   |   | 2005        |   |   | 2004        |  
|Current assets                                       | $ | 98,111,993  |   | $ | 14,177,877  |   | $ | 13,254,219  |  
|Mineral properties                                   |   | 168,221,821 |   |   | 16,706,930  |   |   | 11,788,621  |  
|Other assets                                         |   | 633,445     |   |   | 411,205     |   |   | 398,101     |  
|Total assets                                         |   | 266,967,259 |   |   | 31,296,012  |   |   | 25,440,941  |  
|                                                     |   |             |   |   |             |   |   |             |  
|Current liabilities                                  |   | 7,839,372   |   |   | 3,161,012   |   |   | 3,025,155   |  
|Other liabilities                                    |   | 61,601,069  |   |   |             |   |   |             |  
|Shareholders
      equity                           |   | 197,526,818 |   |   | 28,135,000  |   |   | 22,415,786  |  
|Total liabilities and shareholders equity           |   | 266,967,259 |   |   | 31,296,012  |   |   | 25,440,941  |  
|                                                     |   |             |   |   |             |   |   |             |  
|Working capital                                      |   | 90,272,621  |   |   | 11,016,865  |   |   | 10,229,064  |  
|                                                     |   |             |   |   |             |   |   |             |  
|Expenses                                             |   |             |   |   |             |   |   |             |  
|Amortization                                         |   | 123,908     |   |   | 93,179      |   |   | 45,994      |  
|Conference and travel                                |   | 935,981     |   |   | 700,718     |   |   | 351,201     |  
|Exploration                                          |   | 50,612,416  |   |   | 43,066,417  |   |   | 32,594,900  |  
|Legal, accounting and audit                          |   | 931,318     |   |   | 312,507     |   |   | 143,916     |  
|Office and administration                            |   | 3,041,226   |   |   | 2,361,520   |   |   | 1,382,986   |  
|Shareholder communication                            |   | 385,920     |   |   | 367,134     |   |   | 471,032     |  
|Trust and filing                                     |   | 149,270     |   |   | 192,662     |   |   | 85,438      |  
|Foreign exchange loss (gain)                         |   | (772,703    | ) |   | (281,639    | ) |   | 251,135     |  
|Future income tax recovery                           |   | (637,496    | ) |   |            |   |   |            |  
|Gain on sale of marketable securities                |   | (194,381    | ) |   |            |   |   |            |  
|Interest expense (income)                            |   | (2,237,667  | ) |   | (584,562    | ) |   | (357,926    | )
|Write down of marketable securities                  |   |            |   |   |            |   |   | 351,094     |  
|Stock-based compensation  exploration               |   | 1,882,378   |   |   | 1,787,506   |   |   | 3,111,302   |  
|Stock-based compensation  administration            |   | 4,162,686   |   |   | 2,302,389   |   |   | 3,267,575   |  
|Loss for the
      period                            | $ | 58,382,856  |   | $ | 50,317,831  |   | $ | 41,698,647  |  
|                                                     |   |             |   |   |             |   |   |             |  
|Basic and diluted loss per share                     | $ | (0.75       | ) | $ | (0.90       | ) | $ | (1.04       | )
|                                                     |   |             |   |   |             |   |   |             |  
|Weighted average number of common shares outstanding |   | 77,708,870  |   |   | 55,845,791  |   |   | 39,926,335  |  

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|NORTHERN DYNASTY MINERALS LTD.      
|------------------------------------
|YEAR ENDED DECEMBER 31, 2006        
|MANAGEMENT'S DISCUSSION AND ANALYSIS
|                                    

1.4           
Summary of Quarterly Results

Expressed in thousands of Canadian dollars, except per-share
amounts. Small differences are due to rounding.

Dec 31
      Sept 30
      June 30
      Mar 31
      Dec 31
      Sep 30
      June 30
      Mar 312006
      2006
      2006
      2006
      2005
      2005
      2005
      2005Current assets
      98,112
      107,966
      22,516
      $ 11,885
      $ 14,178
      $ 18,646
      $ 28,265
      $ 39,262Mineral properties
      168,222
      152,178
      152,096
      16,707
      16,707
      16,707
      16,707
      16,707Other assets
      633
      512
      391
      394
      411
      431
      450
      405Total assets
      266,967
      260,656
      175,003
      28,986
      31,296
      35,784
      45,422
      56,374Current liabilities
      7,839
      6,391
      4,166
      2,987
      3,161
      4,718
      4,812
      3,892Other liabilities
      61,601
      46,195
      46,194
      
      
      
      
      Shareholders equity
      197,527
      208,070
      124,643
      25,999
      28,135
      31,066
      40,610
      52,482Total liabilities andshareholders equity
      266,967
      260,656
      175,003
      28,986
      31,296
      35,784
      45,422
      56,374Working capital
      90,273
      101,574
      18,350
      8,898
      11,017
      13,928
      23,453
      35,370ExpensesAmortization
      61
      26
      19
      18
      24
      24
      25
      19Conference and travel
      375
      199
      184
      178
      210
      147
      261
      83Exploration
      16,565
      16,115
      11,055
      6,877
      10,483
      15,335
      11,666
      5,582Legal, accounting and audit
      324
      240
      205
      163
      128
      62
      74
      50Office and administration
      732
      696
      865
      749
      469
      695
      705
      493Shareholder communication
      139
      69
      95
      83
      77
      116
      85
      89Trust and filing
      2
      29
      11
      107
      59
      38
      29
      67Subtotal
      18,198
      17,374
      12,434
      8,175
      11,450
      16,417
      12,845
      6,383Fair value adjustment onprice protection
      
      
      
      
      (634)
      634
      
      Foreign exchange loss (gain)
      (746)
      (230)
      268
      (65)
      (55)
      (199)
      (47)
      20Interest expense (income)
      (984)
      (943)
      (177)
      (133)
      (113)
      (152)
      (201)
      (118)(Gain) on sale of marketablesecurities
      
      
      
      (194)
      
      
      
      Subtotal
      16,468
      16,201
      12,525
      7,783
      10,648
      16,700
      12,597
      6,285Stock-based compensation
      1,339
      1,048
      2,555
      1,103
      442
      1,497
      759
      1,391Future income tax recovery
      (638)
      
      
      
      
      
      
      Loss for the period
      17,169
      17,249
      15,080
      8,886
      11,090
      18,197
      13,356
      7,676Basic and diluted loss pershare
      $ (0.19)
      $ (0.20)
      $ (0.21)
      $ (0.15)
      $ (0.18)
      $ (0.32)
      $ (0.24)
      $ (0.16)Weighted average number ofcommon shares outstandingYTD (thousands)
      91,027
      86,599
      71,977
      60,804
      59,309
      57,189
      56,670
      49,351


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|NORTHERN DYNASTY MINERALS LTD.      
|------------------------------------
|YEAR ENDED DECEMBER 31, 2006        
|MANAGEMENT'S DISCUSSION AND ANALYSIS
|                                    

1.5           
Results of Operations

Loss for the year ended December 31, 2006 increased to $58.4
million, compared to a loss of $50.3 million in the previous fiscal year.
Included in the loss for the current year was a non-cash stock-based
compensation expense of $6.0 million (2005  $4.1 million) .

Expenses, excluding stock-based compensation, foreign exchange
gains, interest income and future income tax recovery, increased slightly to
$56.2 million from $47.1 million in the previous year.

Exploration costs increased slightly to $50.6 million from
$43.1 million in the previous year. The main exploration expenditure during the
year were:

- environmental planning and testing (2006  $13.7 million; 2005  $13.1
  million);
- site activities (2006  $10.3 million; 2005  $5.1 million);
- drilling (2006  $7.6 million; 2005  $5.7 million) and
- helicopter transportation (2006  $5.6 million; 2005  $4.7 million).
- engineering (2006  $4.7 million; 2005  $9.3 million)
- socioeconomic (2006  $4.6 million; 2005  $2.5 million)

The increase in exploration costs is due to the increased
activities involved in creating an integrated development plan, involving both
Pebble East and Pebble West, to achieve feasibility level engineering and
provide the information necessary to submit, in due course, permit applications
for a mine at Pebble.

Office and administration costs increased to $3.0 million from
$2.4 million in the previous year mainly due to increased administrative
activities required to support work at the Pebble site. Legal, accounting and
audit increased to $0.9 million (2005  $0.3 million) due to legal advisory
services incurred for regulatory and environmental matters in Alaska.

Stock-based compensation of $6.0 million was charged to
operations during 2006 fiscal year, compared to $4.1 million in the previous
year, due to the amortization of stock based compensation granted in the prior
year and options granted during the year.

Interest income increased to $2.2 million (2005  $0.6 million)
due to higher cash balance on hand compared to the prior year.

There was a future income tax recovery during the year of $0.6
million due to the build up of losses and resource pools available to reduce
future income.

---

|NORTHERN DYNASTY MINERALS LTD.      
|------------------------------------
|YEAR ENDED DECEMBER 31, 2006        
|MANAGEMENT'S DISCUSSION AND ANALYSIS
|                                    

1.6           
Liquidity

Historically, the Company's sole source of funding has been the
issuance of equity securities for cash, primarily through private placements to
sophisticated investors and institutions. The Company has issued common shares
in each of the past few years, pursuant to private placement financings and the
exercise of warrants or options. The Company's access to financing when the
financing is not transaction specific is always uncertain. There can be no
assurance of continued access to significant equity funding.

At December 31, 2006, the Company had working capital of
approximately $90.3 million.

On July 28, 2006 the Company issued 8,745,845 common shares in
connection with a share purchase agreement with Kennecott Canada Exploration
Inc. (Kennecott) for $10.00 per share. Kennecott has a right of first refusal
to participate in up to 50% of future share placements by the Company, subject
to customary exceptions, until Kennecott reaches 19.9% of the Companys
outstanding share capital. The right thereafter continues as a 19.9% right until
Kennecott either fails to take up any offered allotment or the fifth anniversary
of the agreement, whichever occurs first.

The Company has no long term debt, capital lease obligations,
operating leases or any other long term obligations.

The Company has no "Purchase Obligations", defined as any
agreement to purchase goods or services that is enforceable and legally binding
on the Company.

1.7           
Capital Resources

At December 31, 2006, Northern Dynasty had working capital of
approximately $90.3 million, as compared to $11 million at December 31, 2005.
The Company has no long-term debt and had 91,685,519 common shares issued and
outstanding at December 31, 2006.

The Company had no commitments for material capital
expenditures as of December 31, 2006.

During the period November 2004 to May 2006, the Company
exercised its options for a 100% interest in the Pebble property.

The Company will use its capital resources primarily to
continue its exploration and development program on the Pebble property.

The Company has no lines of credit or other sources of
financing which have been arranged but as yet unused.

1.8           
Off-Balance Sheet Arrangements

None.

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|NORTHERN DYNASTY MINERALS LTD.      
|------------------------------------
|YEAR ENDED DECEMBER 31, 2006        
|MANAGEMENT'S DISCUSSION AND ANALYSIS
|                                    

1.9           
Transactions with Related Parties

Hunter Dickinson Inc. ("HDI") is a private company owned
equally by nine public companies, one of which is Northern Dynasty. HDI has
certain directors in common with the Company and carries out geological,
corporate development, administrative, financial management including raising of
funds, investor relations, and other management activities for, and incurs third
party costs on behalf of, the Company. The Company reimburses HDI on a full
cost-recovery basis.

Costs for services rendered by HDI to the Company were
$3,728,221 for the year ended December 31, 2006 as compared to $2,286,249 for
the year ended December 31 2005. The variance between the current year and the
2005 fiscal year is due to the increased level of activity of the Company and
additional resources provided by HDI to assist the Companys exploration and
development activities.

In October 2001, the Company was assigned an 80% interest in
two options granted by Teck Cominco to HDGI, a related party to the Company, in
respect of Teck Comincos Pebble copper-gold-molybdenum property in southwestern
Alaska. During the year ended December 31, 2006, the Company completed the
acquisition of the 20% remaining contractual interest in the Pebble Property
from HDGI (see note 6 of the accompanying financial statements).

During the year ended December 31, 2006, the Company paid:

- $176,138 (2006  $203,225) to a private company controlled by Bruce
  Jenkins, the Chief Operating Officer of the Company's main subsidiary, for
  project management services.
- $31,355 (2005  $47,421) by Galahad Gold plc, a significant shareholder of
  the Company at December 31, 2006, for travel expenses.
- $1,950 (2005  $11,835) to a private company controlled by Morris Beattie,
  a then director at December 31, 2006, for engineering services.
- $16,050 (2005  $nil) to a private company controlled by Gordon Fretwell, a
  director, for management services.

On November 30, 2006, the Company received irrevocable
notifications of exercise from holders of 748,000 common share purchase options.
Under the Company's incentive option plan, as amended, the persons exercising
these options were permitted to defer paying to the Company the required
exercise proceeds of $5.00 per share for a period up until 10 days after an
internally imposed share trading blackout period applicable to these persons has
been lifted (but within 90 days in any event unless a regulatory approval for an
further extension is obtained). The blackout was imposed on account of their
involvement in certain sensitive negotiations. The common share certificates in
respect of these exercised options are held by the Company and will not be
released until the required cash payment has been received. Subsequent to
December 31, 2006, the blackout was lifted and the cash payment relating to the
exercised options were received by the Company.

---

|NORTHERN DYNASTY MINERALS LTD.      
|------------------------------------
|YEAR ENDED DECEMBER 31, 2006        
|MANAGEMENT'S DISCUSSION AND ANALYSIS
|                                    

1.10           
Fourth Quarter

The loss for the fourth quarter of 2006 decreased slightly to
$17.1 million from 17.2 million in the third quarter of the year due to a future
income tax recovery of $0.6 million. Exploration activity at the Pebble site and
stock-based compensation increased slightly in the fourth quarter of 2006
compared to the third quarter of 2006 due to the amortization of stock-based
compensation granted in prior quarters.

Exploration expenses increased in the fourth quarter of the
year to $16.6 million from $16.1 million in the third quarter of the year due to
ongoing exploration activities continuing later in the year. Office and
administration increased slightly by in the fourth quarter of the year to $0.74
million from $0.69 million in the third quarter due to legal advisory services
incurred for regulatory matters in Alaska and auditing and accounting services
for tax related matters.

1.11           
Proposed Transactions

There are no proposed asset or business acquisitions or
dispositions, other than those in the ordinary course, before the board of
directors for consideration.

1.12           
Critical Accounting Estimates

The Company's accounting policies are presented in note 3 of
the consolidated financial statements for the year ended December 31, 2005,
included in the Annual Information Form and on file at www.sedar.com. The preparation of consolidated
financial statements in accordance with generally accepted accounting principles
requires management to select accounting policies and make estimates. Such
estimates may have a significant impact on the financial statements. These
estimates include:

- mineral resources and reserves,
- the carrying values of mineral properties,
- the carrying values of property, plant and equipment, and
- the valuation of stock-based compensation expense.

Actual amounts could differ from the estimates used and,
accordingly, affect the results of operations.

Mineral resources and reserves, and the carrying values of
mineral properties, and of property, plant and equipment

Mineral resources and reserves are
estimated by professional geologists and engineers in accordance with recognized
industry, professional and regulatory standards. These estimates require inputs
such as future metals prices, future operating costs, and various technical
geological, engineering, and construction parameters. Changes in any of these
inputs could cause a significant change in the resources and reserves estimates
which in turn could have a material effect on the carrying value of property,
plant and equipment.

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|NORTHERN DYNASTY MINERALS LTD.      
|------------------------------------
|YEAR ENDED DECEMBER 31, 2006        
|MANAGEMENT'S DISCUSSION AND ANALYSIS
|                                    

The carrying value of mineral
properties is also dependant on the valuation used for the common shares and
warrants of the Company issued for the acquisition of mineral properties. The
value of the common shares issued is the price of the common shares of the
Company at the date of issuance to effect the acquisition. The Company uses the
Black-Scholes pricing model to estimate a value for the warrants issued upon the
acquisition of a property. This model, and other models which are used to value
options and warrants, require inputs such as expected volatility, expected life
to exercise, and interest rates. Changes in any of these inputs could cause a
significant change in the carrying value initially recorded for mineral
properties.

Stock-based compensation expense

From time to time, the Company may
grant share purchase options to directors, employees and service providers. The
Company uses the Black-Scholes option pricing model to estimate a value for
these options. This model, and other models which are used to value options,
require inputs such as expected volatility, expected life to exercise, and
interest rates. Changes in any of these inputs could cause a significant change
in the stock-based compensation expense charged in a period.

Asset retirement obligations

The Company recognizes statutory,
contractual or other legal obligations related to the retirement of tangible
long-lived assets when such obligations are incurred, if a reasonable estimate
of fair value can be made. These obligations are measured initially at fair
value and the resulting costs capitalized to the carrying value of the related
asset. In subsequent periods, the liability is adjusted for any changes in the
amount or timing and for the discounting of the underlying future cash flows.
The capitalized asset retirement cost is amortized to operations over the life
of the asset.

1.13           
Changes in Accounting Policies including Initial Adoption

The CICA issued Section 3855, Financial Instruments
Recognition and Measurement, Section 3861, Financial Instruments  Disclosure
and Presentation, Section 3865, Hedges, and Section 1530, Comprehensive
Income, all applicable to the Company for annual or interim accounting periods
beginning on January 1, 2007.

Section 3855 requires all financial assets, financial
liabilities and non-financial derivatives to be recognized on the balance sheet
and measured based on specified categories. Section 3861 identifies and details
information to be disclosed in the financial statements.

Section 3865 sets out when hedge accounting can be applied and
builds on existing Canadian GAAP guidance by specifying how hedge accounting is
applied and disclosed.

Section 1530 introduces new standards for the presentation and
disclosure of the components of comprehensive income. Comprehensive income is
defined as the change in net assets of an enterprise during a reporting period
from transactions and other events and circumstances from non-owner sources.

The Company is currently evaluating the full impact of the
standards and will be required to present a new statement entitled
Comprehensive Income.

---

|NORTHERN DYNASTY MINERALS LTD.      
|------------------------------------
|YEAR ENDED DECEMBER 31, 2006        
|MANAGEMENT'S DISCUSSION AND ANALYSIS
|                                    

The CICA also issued Section 1506, Accounting Changes, which
revises the current standards on changes in accounting policy, estimates or
errors as follows: voluntary changes in accounting policy are allowed only when
they result in financial statements that provide reliable and more relevant
information; changes in accounting policy are to be applied retrospectively
unless doing so is impracticable; changes in estimates are to be recorded
prospectively; and prior period adjustments are to be corrected retrospectively.
In addition, this standard calls for enhanced disclosure about the effects of
changes in accounting policies, estimates and errors on the financial
statements.

Section 1506 is applicable for the Company beginning January 1,
2007. The impact of Section 1506 cannot be determined until such time as the
Company makes a change in accounting policy.

1.14           
Financial Instruments and Other Instruments

None.

1.15           
Other MD&A Requirements

Additional information relating to the Company, including the
Company's Annual Information Form, is available on SEDAR at www.sedar.com.

1.15.1         Additional
Disclosure for Venture Issuers without Significant Revenue

Not applicable. The Company is a non-venture issuer.

---

|NORTHERN DYNASTY MINERALS LTD.      
|------------------------------------
|YEAR ENDED DECEMBER 31, 2006        
|MANAGEMENT'S DISCUSSION AND ANALYSIS
|                                    

1.15.2         Disclosure
of Outstanding Share Data

The following details the share capital structure as of March
28, 2007, the date of this MD&A, subject to minor accounting
adjustments.

Expiry
        date
      Exercise price
      
      Number
      NumberCommon shares
      
      
      
      
      91,890,519Share purchase options
      September 28, 2007
      $ 5.40
      
      53,000November 30, 2007
      $ 4.50
      
      134,334November 30, 2007
      $ 5.31
      
      430,000December 14, 2007
      $ 5.37
      
      15,000April 30, 2009
      $ 7.25
      
      381,870April 30, 2011
      $ 7.25
      
      945,000April 30, 2009
      $ 9.81
      
      62,500April 30, 2009
      $10.32
      
      613,000February 20, 2012
      $10.95
      
      828,000
      3,462,704


The following are the principal risk factors and uncertainties
which, in management's opinion, are likely to most directly affect the ultimate
feasibility of the Pebble project. The mineralized material at the Pebble
project is currently classified as a mineral resource and it is not a reserve.
Considerable additional work, including in-fill drilling, additional process
tests, and other engineering and geologic work will be required to determine if
the mineralized material is an economically exploitable reserve. There can be no
assurance that this mineralized material can become a reserve or that the amount
may be converted to a reserve or the grade thereof. Final feasibility work has
not been done to confirm the pit design, mining methods, and processing methods.
Final feasibility could determine that the currently assumed pit design, mining
methods, and processing methods are not correct. Construction and operation of
the mine and processing facilities depends on securing environmental and other
permits on a timely basis. No permits have been applied for and there can be no
assurance that required permits can be secured or secured on a timely basis.
Data is incomplete and cost estimates have been developed in part based on costs
at projects believed to be comparable, and not based on firm price quotes.
Costs, including design, procurement, construction, and on-going operating costs
and metal recoveries could be materially different from those currently assumed.
There can be no assurance that mining can be conducted at assumed rates and
grades. The project requires the development of port facilities, roads and
electrical generating and transmission facilities. Although Northern Dynasty
believes that the State of Alaska favors the development of these facilities and
may be willing to arrange financing for their development, there can be no
assurance that these infrastructure facilities can be developed on a timely and
cost-effective basis. Energy risks include the potential for significant
increases in the cost of fuel and electricity. The project has been evaluated
using projected long-term price levels for copper, gold, silver and molybdenum.
Prices for these commodities are historically volatile, and Northern Dynasty has
no control of or influence on those prices, all of which are determined in
international markets. There can be no assurance that the prices of these
commodities will continue at current levels or that they will not decline below
the projected prices. Prices for gold, copper, silver, and molybdenum have been
below the projected prices at times during the past ten years, and for extended
periods of time. The project will require major financing, probably a
combination of debt and equity financing. There can be no assurance that debt
and/or equity financing will be available on acceptable terms. A significant
increase in costs of capital could materially and adversely affect the value and
feasibility of constructing the project. Other general risks include those
ordinary to very large construction projects including the general uncertainties
inherent in engineering and construction cost, the need to comply with generally
increasing environmental obligations, and accommodation of local and community
concerns.

---

|NORTHERN DYNASTY MINERALS LTD.      
|------------------------------------
|YEAR ENDED DECEMBER 31, 2006        
|MANAGEMENT'S DISCUSSION AND ANALYSIS
|                                    

1.15.3         Internal
Control Over Financial Reporting and Disclosure Controls

Disclosure Controls and Procedures

The Chief Executive Officer (CEO) and Chief Financial Officer
(CFO) are responsible for establishing and maintaining adequate disclosure
controls and procedures. Disclosure controls and procedures are designed to
ensure that information required to be disclosed in the Companys filings under
securities legislation is accumulated and communicated to management, including
the CEO and CFO as appropriate, to allow timely decisions regarding public
disclosure. They are designed to provide reasonable assurance that all
information required to be disclosed in these filings is recorded, processed,
summarized and reported within the time periods specified in securities
legislation. The Company reviews its disclosure controls and procedures;
however, it cannot provide an absolute level of assurance because of the
inherent limitations in control systems to prevent or detect all misstatements
due to error or fraud.

The Companys management, including the CEO and CFO, conducted
an evaluation of the effectiveness of the design and operation of the Companys
disclosure controls and procedures as of December 31, 2006. Based on this
evaluation, the CEO and CFO have concluded that the Companys disclosure
controls and procedures are effective.

Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining
adequate internal control over financial reporting to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with GAAP. Internal
control over financial reporting includes those policies and procedures that:
(1) pertain to the maintenance of records that in reasonable detail accurately
and fairly reflect the transactions and dispositions of the assets of the
Company, (2) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with GAAP,
and that receipts and expenditures of the Company are being made only in
accordance with authorizations of management and directors of the Company, and
(3) 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.

The Companys management has evaluated the effectiveness of
internal control over financial reporting. Based on this evaluation, management
has concluded that internal control over financial reporting was effective as of
December 31, 2006.

---