---





CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDEDDECEMBER 31, 2005, 2004 AND 2003

(Expressed in Canadian Dollars)

---

D E V I S S E R      G
  R A YCHARTERED ACCOUNTANTS

401 - 905 West Pender Street 
  Vancouver, BC Canada 
  V6C 1L6

AUDITORS REPORT

To the Shareholders of Northern Dynasty Minerals Ltd.

We have audited the consolidated balance sheets of Northern
  Dynasty Minerals Ltd. as at December 31, 2005 and 2004, and the consolidated
  statements of operations and deficit and cash flows for each of the years in
  the three year period ended December 31, 2005. These financial statements are
  the responsibility of the Company=s management. Our responsibility is
  to express an opinion on these financial statements based on our audits.

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

In our opinion, these consolidated financial statements present
  fairly, in all material respects, the financial position of the Company as at
  December 31, 2005 and 2004 and the results of its operations and cash flows
  for each of the years in the three year period ended December 31, 2005 in accordance
  with Canadian generally accepted accounting principles



CHARTERED ACCOUNTANTS

Vancouver, British Columbia 
  March 13, 2006

---

NORTHERN DYNASTY MINERALS
LTD.Consolidated Balance Sheets(Expressed in
Canadian Dollars)

|                                                        |   | December
      31 |   |   | December
      31 |  
|------------------------------------------------------- | - | ----------------- | - | - | ----------------- | -
|                                                        |   | 2005              |   |   | 2004              |  
|                                                        |   |                   |   |   |                   |  
|Assets                                                  |   |                   |   |   |                   |  
|                                                        |   |                   |   |   |                   |  
|Current assets                                          |   |                   |   |   |                   |  
|Cash and equivalents                                    | $ | 12,948,640        |   | $ | 12,476,047        |  
|Marketable securities (note 4)                          |   | 363,906           |   |   | 363,906           |  
|Amounts receivable and prepaids                         |   | 416,971           |   |   | 402,206           |  
|Balances receivable from related parties
      (note 8) |   | 448,360           |   |   | 12,060            |  
|                                                        |   | 14,177,877        |   |   | 13,254,219        |  
|                                                        |   |                   |   |   |                   |  
|Equipment(note 5)                                       |   | 411,205           |   |   | 398,101           |  
|Mineral property interests(note 6)                      |   | 16,706,930        |   |   | 11,788,621        |  
|                                                        |   |                   |   |   |                   |  
|                                                        | $ | 31,296,012        |   | $ | 25,440,941        |  
|                                                        |   |                   |   |   |                   |  
|Liabilities and Shareholders' Equity                    |   |                   |   |   |                   |  
|                                                        |   |                   |   |   |                   |  
|Current liabilities                                     |   |                   |   |   |                   |  
|Accounts payable and accrued liabilities                | $ | 3,161,012         |   | $ | 3,025,155         |  
|                                                        |   |                   |   |   |                   |  
|Shareholders' equity                                    |   |                   |   |   |                   |  
|Share capital (note 7)                                  |   | 132,361,949       |   |   | 76,109,561        |  
|Contributed surplus (note 7(e))                         |   | 7,289,377         |   |   | 7,504,720         |  
|Deficit                                                 |   | (111,516,326      | ) |   | (61,198,495       | )
|                                                        |   | 28,135,000        |   |   | 22,415,786        |  
|Nature of operations (note 1)                           |   |                   |   |   |                   |  
|Commitments (notes 6(a) and 7(b)(vi))                   |   |                   |   |   |                   |  
|Subsequent events (notes 4, 6(a) and 11)                |   |                   |   |   |                   |  
|                                                        |   |                   |   |   |                   |  
|                                                        | $ | 31,296,012        |   | $ | 25,440,941        |  

The accompanying notes are an integral part of these
consolidated financial statements.

Approved by the Board of Directors

|/s/ Ronald W. Thiessen | /s/ Jeffrey R. Mason
|---------------------- | --------------------
|                       |                     
|Ronald W. Thiessen     | Jeffrey R. Mason    
|Director               | Director            

---

NORTHERN DYNASTY MINERALS
LTD.Consolidated Statements of Operations(Expressed in
Canadian Dollars)

|                                                            |   | Years ended December 31 |  
|----------------------------------------------------------- | - | ----------------------- | -
|                                                            |   | 2005                    |  
|                                                            |   |                         |  
|Expenses                                                    |   |                         |  
|Amortization                                                | $ | 93,179                  |  
|Conference and travel                                       |   | 700,718                 |  
|Exploration (schedule)                                      |   | 43,066,417              |  
|Legal, accounting and audit                                 |   | 312,507                 |  
|Office and administration                                   |   | 2,361,520               |  
|Shareholder communication                                   |   | 367,134                 |  
|Stock-based compensation - exploration (note
      7(d))    |   | 1,787,506               |  
|Stock-based compensation -
      administration (note 7(d)) |   | 2,302,389               |  
|Trust
      and filing                                      |   | 192,662                 |  
|                                                            |   | 51,184,032              |  
|                                                            |   |                         |  
|Other expense (income)                                      |   |                         |  
|Foreign exchange                                            |   | (281,639                | )
|Interest income                                             |   | (584,562                | )
|Gain on disposal of equipment                               |   |                        |  
|Write down of marketable securities                         |   |                        |  
|                                                            |   | (866,201                | )
|                                                            |   |                         |  
|Loss for the
      year                                     | $ | 50,317,831              |  
|                                                            |   |                         |  
|                                                            |   |                         |  
|Basic and diluted loss per common share                     | $ | 0.90                    |  
|                                                            |   |                         |  
|Weighted average number of                                  |   |                         |  
|common shares outstanding                                   |   | 55,845,791              |  

The accompanying notes are an integral part of these
consolidated financial statements.

Consolidated Statements of Deficit(Expressed in
Canadian Dollars)

|                           |   | Years ended December 31 | 
|-------------------------- | - | ----------------------- | 
|                           |   | 2005                    | 
|Deficit, beginning of year | $ | 61,198,495              | 
|Loss for the year          |   | 50,317,831              | 
|Deficit, end of year       | $ | 111,516,326             | 

The accompanying notes are an integral part of these
consolidated financial statements.

---

NORTHERN DYNASTY MINERALS
LTD.Consolidated Statements of Cash Flows(Expressed in
Canadian Dollars)

|                                                         |   | Years ended December 31 |  
|-------------------------------------------------------- | - | ----------------------- | -
|                                                         |   | 2005                    |  
|                                                         |   |                         |  
|Operating activities                                     |   |                         |  
|Loss for the year                                        | $ | (50,317,831             | )
|Items not
      involving cash                           |   |                         |  
|Amortization                                             |   | 93,179                  |  
|Gain on disposal of assets                               |   |                        |  
|Stock-based
      compensation                           |   | 4,089,895               |  
|Marketable securities received (note 6(d))               |   |                        |  
|Write down of
      marketable securities                |   |                        |  
|Changes in
      non-cash working capital items          |   |                         |  
|Amounts receivable
      and prepaids                    |   | (14,765                 | )
|Accounts payable and accrued liabilities                 |   | 135,857                 |  
|Balances
      receivable from and payable to            |   |                         |  
|related parties                                          |   | (436,300                | )
|Cash
      and equivalents used for operating activities |   | (46,449,965             | )
|                                                         |   |                         |  
|Investing activities                                     |   |                         |  
|Purchase of
      equipment                              |   | (106,283                | )
|Proceeds on disposal of equipment                        |   |                        |  
|Cash and equivalents used for investing activities       |   | (106,283                | )
|                                                         |   |                         |  
|Financing activities                                     |   |                         |  
|Common shares issued for cash, net of issue
      costs  |   | 47,028,841              |  
|                                                         |   |                         |  
|Increase in cash and equivalents                         |   | 472,593                 |  
|                                                         |   |                         |  
|Cash
      and equivalents, beginning of year            |   | 12,476,047              |  
|                                                         |   |                         |  
|Cash and equivalents, end of year                        | $ | 12,948,640              |  

The accompanying notes are an integral part of these
consolidated financial statements.

|Non-cash investing activities                           |   |           |  |   |            |  |   |        | 
|------------------------------------------------------- | - | --------- |  | - | ---------- |  | - | ------ | 
|Issuance of shares for mineral
      property interests | $ | 4,918,309 |  | $ | 11,788,621 |  | $ |       | 
|Fair value of
      stock options allocated to shares   |   |           |  |   |            |  |   |        | 
|issued upon
      exercise                              | $ | 4,305,238 |  | $ | 535,796    |  | $ | 26,696 | 

---

NORTHERN DYNASTY MINERALS
LTD.Consolidated Schedules of Exploration
Expenses(Expressed in Canadian Dollars)

|                                                                |   |                 |  |   | Other      |   |   |            | 
|--------------------------------------------------------------- | - | --------------- |  | - | ---------- | - | - | ---------- | 
|                                                                |   | Pebble Property |  |   | Properties |   |   | Total      | 
|                                                                |   |                 |  |   |            |   |   |            | 
|Exploration expenses for
      the year ended December 31, 2005 |   |                 |  |   |            |   |   |            | 
|Assays and analysis                                             | $ | 343,426         |  | $ |           |   | $ | 343,426    | 
|Drilling                                                        |   | 5,724,305       |  |   |           |   |   | 5,724,305  | 
|Engineering                                                     |   | 9,338,697       |  |   |           |   |   | 9,338,697  | 
|Environmental                                                   |   | 13,081,142      |  |   |           |   |   | 13,081,142 | 
|Equipment rental                                                |   | 46,822          |  |   |           |   |   | 46,822     | 
|Freight                                                         |   | 557,971         |  |   |           |   |   | 557,971    | 
|Geological                                                      |   | 918,845         |  |   |           |   |   | 918,845    | 
|Graphics                                                        |   | 62,572          |  |   |           |   |   | 62,572     | 
|Helicopter                                                      |   | 4,669,476       |  |   |           |   |   | 4,669,476  | 
|Property fees and
      assessments                             |   | 175,003         |  |   |           |   |   | 175,003    | 
|Site activities                                                 |   | 5,052,487       |  |   |           |   |   | 5,052,487  | 
|Socioeconomic                                                   |   | 2,506,824       |  |   |           |   |   | 2,506,824  | 
|Travel and accommodation                                        |   | 588,847         |  |   |           |   |   | 588,847    | 
|Incurred during fiscal
      2005                               |   | 43,066,417      |  |   |           |   |   | 43,066,417 | 
|Cumulative expenditures, December 31, 2004                      |   | 43,661,377      |  |   | (66,418    | ) |   | 43,594,959 | 
|Cumulative expenditures, December 31, 2005                      | $ | 86,727,794      |  | $ | (66,418    | ) | $ | 86,661,376 | 
|                                                                |   |                 |  |   |            |   |   |            | 
|                                                                |   |                 |  |   |            |   |   |            | 
|Exploration expenses for the year ended
      December 31, 2004 |   |                 |  |   |            |   |   |            | 
|Assays and analysis                                             | $ | 745,237         |  | $ | (3,623     | ) | $ | 741,614    | 
|Drilling                                                        |   | 7,689,138       |  |   | (715,000   | ) |   | 6,974,138  | 
|Engineering                                                     |   | 3,886,839       |  |   |           |   |   | 3,886,839  | 
|Environmental                                                   |   | 9,806,864       |  |   |           |   |   | 9,806,864  | 
|Equipment rental                                                |   | 248,577         |  |   |           |   |   | 248,577    | 
|Freight                                                         |   | 603,711         |  |   |           |   |   | 603,711    | 
|Geological                                                      |   | 1,398,162       |  |   | (749       | ) |   | 1,397,413  | 
|Graphics                                                        |   | 93,985          |  |   | 472        |   |   | 94,457     | 
|Helicopter                                                      |   | 3,823,073       |  |   | 2,798      |   |   | 3,825,871  | 
|Property fees and assessments                                   |   | 139,714         |  |   |           |   |   | 139,714    | 
|Site activities                                                 |   | 3,715,240       |  |   |           |   |   | 3,715,240  | 
|Socioeconomic                                                   |   | 686,948         |  |   |           |   |   | 686,948    | 
|Travel and accommodation                                        |   | 475,105         |  |   | (1,591     | ) |   | 473,514    | 
|Incurred during fiscal 2004                                     |   | 33,312,593      |  |   | (717,693   | ) |   | 32,594,900 | 
|Cumulative expenditures, December 31, 2003                      |   | 10,348,784      |  |   | 651,275    |   |   | 11,000,059 | 
|Cumulative expenditures, December 31, 2004                      | $ | 43,661,377      |  | $ | (66,418    | ) | $ | 43,594,959 | 
|                                                                |   |                 |  |   |            |   |   |            | 
|                                                                |   |                 |  |   |            |   |   |            | 
|Exploration expenses for
      the year ended December 31, 2003 |   |                 |  |   |            |   |   |            | 
|Assays and analysis                                             | $ | 290,771         |  | $ |           |   | $ | 290,771    | 
|Drilling                                                        |   | 2,050,068       |  |   | 650,000    |   |   | 2,700,068  | 
|Engineering                                                     |   | 83,301          |  |   |           |   |   | 83,301     | 
|Equipment rental                                                |   | 27,648          |  |   |           |   |   | 27,648     | 
|Freight                                                         |   | 53,275          |  |   |           |   |   | 53,275     | 
|Geological                                                      |   | 620,908         |  |   | 1,275      |   |   | 622,183    | 
|Graphics                                                        |   | 99,932          |  |   |           |   |   | 99,932     | 
|Helicopter                                                      |   | 632,331         |  |   |           |   |   | 632,331    | 
|Property fees and assessments                                   |   | 195,389         |  |   |           |   |   | 195,389    | 
|Site activities                                                 |   | 723,326         |  |   |           |   |   | 723,326    | 
|Socioeconomic                                                   |   | 5,858           |  |   |           |   |   | 5,858      | 
|Travel and accommodation                                        |   | 67,647          |  |   |           |   |   | 67,647     | 
|Incurred during fiscal 2004                                     |   | 4,850,454       |  |   | 651,275    |   |   | 5,501,729  | 
|Cumulative expenditures, December 31, 2002                      |   | 5,498,330       |  |   |           |   |   | 5,498,330  | 
|Cumulative expenditures, December 31, 2003                      | $ | 10,348,784      |  | $ | 651,275    |   | $ | 11,000,059 | 

The accompanying notes are an integral part of these
consolidated financial statements.

---

|NORTHERN DYNASTY MINERALS LTD.                      
|----------------------------------------------------
|Notes to Consolidated Financial Statements          
|For the years ended December 31, 2005, 2004 and 2003
|(Expressed in
      Canadian Dollars)               

|1. | NATURE OF OPERATIONS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | Northern Dynasty Minerals Ltd. (the "Company") is
      incorporated under the laws of the Province of British Columbia, and its
      principal business activity is the exploration of mineral properties. The
      Companys principal mineral property interests are located in Alaska,
      United States of America (USA).                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | These consolidated financial statements have been
      prepared using Canadian generally accepted accounting principles assuming
      a going concern. The Company has incurred losses since inception and the
      ability of the Company to continue as a going concern depends upon its
      ability to develop profitable operations and to continue to raise adequate
      financing. These financial statements do not reflect adjustments, which
      could be material, to the carrying values of assets and liabilities which
      may be required should the Company be unable to continue as a going
      concern.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|2. | BASIS OF PRESENTATION AND PRINCIPLES OF
      CONSOLIDATION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | These consolidated financial statements have been
      prepared in accordance with Canadian generally accepted accounting
      principles. A reconciliation of material differences between these
      principles and accounting principles generally accepted in the United
      States is shown in note 12.                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | The Company has a wholly owned subsidiary, Northern
      Dynasty Mines Inc., incorporated under the laws of the State of Alaska,
      USA. These consolidated financial statements include the accounts of the
      Company and its wholly owned subsidiary. All material intercompany
      balances and transactions have been eliminated.                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|3. | SIGNIFICANT ACCOUNTING
POLICIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

|(a) | Cash and equivalents                                                                                                                                                                                                                             
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                  
|    | Cash and equivalents consist of cash and highly liquid
      investments, having maturity dates of three months or less from the date
      of purchase, which are readily convertible to known amounts of
  cash.                               
|    |                                                                                                                                                                                                                                                  
|(b) | Marketable securities                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                  
|    | The Company's investments in marketable securities are
      initially recorded at cost. When there has been a loss in value of an
      investment that is other than a temporary decline, the investment is
      written down to market value.
|    |                                                                                                                                                                                                                                                  
|(c) | Equipment                                                                                                                                                                                                                                        
|    |                                                                                                                                                                                                                                                  
|    | Equipment is recorded at cost and is amortized over its
      estimated useful life using the declining balance method at various rates
      ranging from 20% to 30% per annum.                                                                 

---

|NORTHERN DYNASTY MINERALS LTD.                      
|----------------------------------------------------
|Notes to Consolidated Financial Statements          
|For the years ended December 31, 2005, 2004 and 2003
|(Expressed in Canadian
      Dollars)               

|(d) | Mineral property interests                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    | The acquisition costs of mineral properties are
      capitalized until the properties are placed into production, sold or
      abandoned. These capitalized costs are amortized on a unit-of-production
      basis over the estimated useful life of the related properties following
      the commencement of production, or written off if the properties are
      allowed to lapse or are abandoned. If the deferred mineral property costs
      are determined not to be recoverable over the estimated useful life, or
      exceed estimated fair market value, the unrecoverable portion is charged
      to earnings in that period.                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    | Mineral property acquisition costs include the cash
      consideration and the fair market value of common shares, based on the
      trading price of the shares, on the date of issue or as otherwise provided
      under the agreement terms for the mineral property interest. Costs for
      properties for which the Company does not possess unrestricted ownership
      and exploration rights, such as option agreements, are expensed in the
      period incurred or until a feasibility study has determined that the
      property is capable of commercial production.                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    | Costs of exploration, feasibility studies, and option
        payments are expensed in the period incurred.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    | Administrative expenditures related to exploration
      activities are expensed in the period incurred.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|(e) | Share capital                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    | Common shares issued for mineral property interests are
      recorded at the fair market value based upon the trading price of the
      shares on the TSX Venture Exchange on the date of issue or as otherwise
      provided for under the terms of the agreement to issue the
  shares.                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    | The proceeds from common shares issued pursuant to
      flow-through share financing agreements are credited to share capital as
      the tax benefits of the exploration expenditures incurred pursuant to
      these agreements are transferred to the purchaser of the flow-through
      shares.                                                                                                                                                                                                                                                                                                                                                                                                                             
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    | Share issue costs are deducted from share
  capital.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|(f) | Stock-based compensation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    | The Company has a stock option plan which is described in
      note 7(d). The Company accounts for all non-cash stock-based payments and
      awards that are direct awards of stock, that call for settlement in cash
      or other assets, or that are share appreciation rights which call for
      settlement by the issuance of equity instruments, granted on or after
      January 1, 2002, on a fair value basis.                                                                                                                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    | Under this measurement approach, stock-based payments are
      measured at the fair value of the consideration received, or the fair
      value of the equity instruments issued, or liabilities incurred, whichever
      is more reliably measurable. The fair value of non-cash stock-based
      payments is periodically re-measured until counterparty performance is
      complete, and any change therein is recognized over the period and in the
      same manner as if the Company had paid cash instead of paying with or
      using equity instruments. The cost of non-cash stock-based payments that
      are fully vested and non-forfeitable at the grant date is measured and
      recognized at that date.

---

|NORTHERN DYNASTY MINERALS LTD.                      
|----------------------------------------------------
|Notes to Consolidated Financial Statements          
|For the years ended December 31, 2005, 2004 and 2003
|(Expressed in Canadian
      Dollars)               

|    | Consideration received on the exercise of stock options
      is recorded as share capital and the related contributed surplus,
      recognized initially as the options vested with the recipient, is
      transferred to share capital.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|(g) | Foreign currency translation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    | All of the Company's foreign subsidiaries are considered
      integrated with those of the Companys domestic operations and use the
      Canadian dollar as their functional currency.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    | Monetary assets and liabilities of the Company and its
      integrated foreign operations are translated into Canadian dollars at
      exchange rates in effect at the balance sheet date. Non-monetary assets
      and liabilities are translated at historical exchange rates unless such
      items are carried at market, in which case they are translated at the
      exchange rates in effect on the balance sheet date. Revenues and expenses,
      except amortization, are translated at average exchange rates for the
      period. Amortization is translated at the same exchange rates as the
      assets to which it relates.                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    | Foreign exchange gains or losses are expensed.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|(h) | Income taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    | The Company uses the asset and liability method of
      accounting for income taxes. Under this method, future income tax assets
      and liabilities are computed based on differences between the carrying
      amount of assets and liabilities on the balance sheet and their
      corresponding tax values, generally using the enacted or substantively
      enacted income tax rates expected to apply to taxable income in the years
      in which those temporary differences are expected to be recovered or
      settled.                                                                                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    | Future income tax assets also result from unused loss
      carry forwards and other deductions. Future tax assets are recognized to
      the extent that they are considered more likely than not to be realized.
      The valuation of future income tax assets is adjusted, if necessary, by
      the use of a valuation allowance to reflect the estimated realizable
      amount.                                                                                                                                                                                                                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    | The Company's accounting policy for future income taxes
      currently has no effect on the financial statements of any of the periods
      presented.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|(i) | 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.
      The Company has no material asset retirement obligations
        as the disturbance to date is minimal.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|(j) | Impairment of long-lived assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    | Long-lived assets are assessed for impairment when events
        and circumstances warrant. The carrying value of a long-lived asset is
        impaired when the carrying amount exceeds the estimated                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

---

|NORTHERN DYNASTY MINERALS LTD.                      
|----------------------------------------------------
|Notes to Consolidated Financial Statements          
|For the years ended December 31, 2005, 2004 and 2003
|(Expressed in Canadian
      Dollars)               

|    | undiscounted net cash flow from use and fair value. In
      that event, the amount by which the carrying value of an impaired
      long-lived asset exceeds its fair value is charged to earnings.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|(k) | Loss per common share                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | Basic loss per common share is calculated by dividing the
      loss for the period by the weighted average number of common shares
      outstanding during the period.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | Diluted loss per common share is calculated using the
      treasury stock method. Under the treasury stock method, the weighted
      average number of common shares outstanding used for the calculation of
      diluted loss per common share assumes that the proceeds to be received on
      the exercise of dilutive stock options and warrants are used to repurchase
      common shares at the average market price during the period.                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | Diluted loss per common share has not been presented as
      the effect of the outstanding options and warrants would be
      anti-dilutive.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|(l) | Fair value of financial instruments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | The carrying values of cash and equivalents, amounts
      receivable, and accounts payable and accrued liabilities approximate their
      fair value due to their short term nature. The fair value of balances
      receivable from or payable to related parties are not readily determinable
      to the related party nature of such balances.                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | Marketable securities are presented at the lower of cost,
      net of accumulated write downs, and market value. The Company is not
      exposed to significant credit risk or interest rate risk.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|(m) | Use of estimates                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | The preparation of financial statements in conformity
      with Canadian generally accepted accounting principles requires management
      to make estimates and assumptions that affect the reported amounts of
      assets and liabilities, and the disclosure of contingent assets and
      liabilities as at the balance sheet date, and the reported amounts of
      revenues and expenses during the reporting period. Significant areas
      requiring the use of management estimates include the determination of
      potential impairments of asset values, and rates for amortization of
      equipment, as well as the assumptions used in determining the fair value
      of non-cash stock-based compensation. Actual results could differ from
      those estimates.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|(n) | Environmental expenditures                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | The operations of the Company have been, and may in the
      future be, affected from time to time in varying degree by changes in
      environmental regulations, including those for site restoration costs.
      Both the likelihood of new regulations and their overall effect upon the
      Company vary greatly from country to country and are not predictable. The
      Companys policy is to meet or possibly surpass environmental standards
      set by relevant legislation by the application of technically proven and
      economically feasible measures.                                                                                                                                                                                                            

---

|NORTHERN DYNASTY MINERALS LTD.                      
|----------------------------------------------------
|Notes to Consolidated Financial Statements          
|For the years ended December 31, 2005, 2004 and 2003
|(Expressed in Canadian
      Dollars)               

|    | Environmental expenditures that relate to ongoing
      environmental and reclamation programs are charged against operations as
      incurred or capitalized and amortized depending on their expected future
      economic benefit. Estimated future removal and site restoration costs are
      recognized when the ultimate liability is reasonably determinable, and are
      charged against operations over the estimated remaining life of the
      related business operations, net of expected recoveries.                                                                                                                                                                                                                                                                                                                                                                                                         
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|(o) | Variable interest entities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    | Effective January 1, 2005, the Company adopted the
      Canadian Institute of Chartered Accountants (CICA) Accounting Guideline
      15, "Consolidation of Variable Interest Entities" ("AcG15") on a
      prospective basis. AcG15 prescribes the application of consolidation
      principles for entities that meet the definition of a variable interest
      entity (VIE). An enterprise holding other than a voting interest in a
      VIE could, subject to certain conditions, be required to consolidate the
      VIE if it is considered its primary beneficiary whereby it would absorb
      the majority of the VIEs expected losses, receive the majority of its
      expected residual returns, or both. The adoption of this new standard had
      no effect on the consolidated financial statements as management has
      determined the Company does not have any variable interest
  entities.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|(p) | Comparative figures                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    | The preparation of the prior years' comparative figures
      have been reclassified to conform to the financial statement presentation
      adopted for the current year.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

|4. | MARKETABLE SECURITIES
|-- | ---------------------

| |                                                |  | Number          |  |   |         |  |   | Market  |  |   | Carrying | 
| | ---------------------------------------------- |  | --------------- |  | - | ------- |  | - | ------- |  | - | -------- | 
| |                                                |  | of
      shares |  |   | Cost    |  |   | value   |  |   | value    | 
| | December 31, 2005                              |  |                 |  |   |         |  |   |         |  |   |          | 
| | Taseko Mines Limited common shares (note       |  |                 |  |   |         |  |   |         |  |   |          | 
| | 6(d))                                          |  | 256,272         |  | $ | 715,000 |  | $ | 363,906 |  | $ | 363,906  | 
| |                                                |  |                 |  |   |         |  |   |         |  |   |          | 
| |                                                |  |                 |  |   |         |  |   |         |  |   |          | 
| | December 31, 2004                              |  |                 |  |   |         |  |   |         |  |   |          | 
| | Taseko Mines Limited common
      shares (note |  |                 |  |   |         |  |   |         |  |   |          | 
| | 6(d))                                          |  | 256,272         |  | $ | 715,000 |  | $ | 533,046 |  | $ | 363,906  | 

At December 31, 2005, the aggregate
  market value of the Company’s investment in the common shares of Taseko
  Mines Limited was the same as the carrying value. Subsequent to year end, the
  Company sold 250,000 common shares of Taseko Mines Limited for gross proceeds
  of $550,000.

---

|NORTHERN DYNASTY MINERALS LTD.                      
|----------------------------------------------------
|Notes to Consolidated Financial Statements          
|For the years ended December 31, 2005, 2004 and 2003
|(Expressed in Canadian
      Dollars)               

|5. | EQUIPMENT
|-- | ---------

| |                              |   |         |  |   | Accumulated  |  |   |                      | 
| | ---------------------------- | - | ------- |  | - | ------------ |  | - | -------------------- | 
| |                              |   | Cost    |  |   | Amortization |  |   | Net
      Book Value | 
| | December 31, 2005            |   |         |  |   |              |  |   |                      | 
| | Buildings                    | $ | 186,359 |  | $ | 32,613       |  | $ | 153,746              | 
| | Furniture and
      fixtures |   | 219,496 |  |   | 60,673       |  |   | 158,823              | 
| | Site equipment               |   | 15,387  |  |   | 15,387       |  |   |                     | 
| | Vehicles                     |   | 66,043  |  |   | 21,422       |  |   | 44,621               | 
| | Computer equipment           |   | 81,986  |  |   | 27,971       |  |   | 54,015               | 
| |                              | $ | 569,271 |  | $ | 158,066      |  | $ | 411,205              | 
| |                              |   |         |  |   |              |  |   |                      | 
| | December 31, 2004            |   |         |  |   |              |  |   |                      | 
| | Buildings                    | $ | 186,359 |  | $ | 13,977       |  | $ | 172,382              | 
| | Furniture and
      fixtures |   | 179,281 |  |   | 17,585       |  |   | 161,696              | 
| | Site equipment               |   | 15,387  |  |   | 15,387       |  |   |                     | 
| | Vehicles                     |   | 17,500  |  |   | 5,250        |  |   | 12,250               | 
| | Computer equipment           |   | 64,462  |  |   | 12,689       |  |   | 51,773               | 
| |                              | $ | 462,989 |  | $ | 64,888       |  | $ | 398,101              | 

|6. | MINERAL PROPERTY
INTERESTS
|-- | --------------------------

|(a) | Pebble Property
|--- | ---------------

| |                                           |   | Years ended December 31 | 
| | ----------------------------------------- | - | ----------------------- | 
| |                                           |   | 2005                    | 
| | Balance, beginning of the period          | $ | 11,788,621              | 
| | Resource Lands                            |   |                         | 
| | Issuance of 1,772,775 common
      shares |   |                        | 
| | Exploration Lands                         |   |                         | 
| | Issuance of 977,795 common shares         |   | 4,918,309               | 
| | Pebble Property                           | $ | 16,706,930              | 

Pursuant to an Assignment Agreement dated
  October 29, 2001 between the Company and Hunter Dickinson Group Inc., (“HDGI”),
  a related party to the Company, the Company was assigned an 80% interest in
  two options, which had been granted by Teck Cominco American Incorporated (“Teck
  Cominco”) under a single agreement to HDGI in respect of Teck Cominco’s
  “Pebble” gold/copper/molybdenum property in southwestern Alaska.
  One option granted the right to purchase 100% of the lands containing the then
  known mineralized resource at Pebble (the “Resource Lands Option”)
  and the second option granted the right to purchase a 50% interest in the lands
  surrounding the Resource Lands (the “Exploration Lands Option”)
  (together, the “Options”). HDGI is a related party by virtue of
  (i) having certain directors in common with the Company, and (ii) its shareholders
  or their associates being at the time significant shareholders of the Company.
  The Assignment Agreement was ratified by shareholders of the Company on June
  28, 2002.

The Company was assigned the 80% interest
  together with the right to acquire the remaining 20% contractual interests in
  these option agreements from HDGI in consideration of the Company reimbursing
  HDGI’s costs of $584,655 in connection with the options, which included
  the staking of 134 claims to expand the property and 30 kilometers of induced
  polarization surveying over the new claims, and agreeing to “carry”(
  i.e. pay for) HDGI’s 20% share of costs in connection with the exercise
  requirements under the Options.

---

|NORTHERN DYNASTY MINERALS LTD.                      
|----------------------------------------------------
|Notes to Consolidated Financial Statements          
|For the years ended December 31, 2005, 2004 and 2003
|(Expressed in Canadian
      Dollars)               

The Resource Lands Option was extended
  by one year in an agreement dated December 19, 2002 under which the Company
  issued to Teck Cominco 200,000 shares for the extension. Pursuant to the Resource
  Lands Option the Company had the right to purchase the 36 claims of the Resource
  Lands, subject to HDGI’s 20% carried interests, by paying Teck Cominco
  US$10 million in cash or shares prior to November 30, 2004, which it did on
  November 23, 2004 by the issuance of 1,772,775 shares to Teck Cominco (total
  value of $11,788,621). Teck Cominco had the right for 180 days to elect whether
  to require the Company to manage the resale of these shares in a manner where
  Teck Cominco would be guaranteed the US$10 million in resale proceeds net of
  any excess or deficiency adjustments from resales of other blocks of shares
  which the Company managed. The actual adjusted amount was US$9,938,600 based
  on previous excess proceeds of resale. On May 9, 2005, Teck Cominco elected
  for the Company to guarantee the adjusted amount of US$9,938,600 in resale proceeds
  of the 1,772,775 shares. Teck Cominco’s resale proceeds are to be credited
  against the guaranteed amount; any share resale surplus shares are to be returned
  to the Company’s treasury, and any share resale proceeds shortfall below
  the US$9,938,600 are to be made up by the Company in cash or through the issuance
  of additional shares. Under the agreement, the Company is to ensure proceeds
  totalling US$9,938,600 by May 22, 2006. Additionally, the Company is required
  to manage the sale of at least US$1 million in each 3 month period commencing
  May 22, 2005. In the event that the proceeds are less than US$9,938,600, the
  Company is required to pay 110% of the shortfall, prior to May 22, 2007.

At December 31, 2005, 473,700 of the
1,772,775 shares had been sold for proceeds of US$2,039,902. Subsequent to the
year end and to February 28, 2006, the Company managed the sale of an additional
1,276,414 shares for proceeds paid to Teck Cominco of US$7,893,984. At February
28, 2006, the Company is required to manage the resale of the remaining shares
where Teck Cominco would be guaranteed resale proceeds of US$4,715.

At the time of the Company exercising
the Resource Lands Option, it exercised the Exploration Lands Option to earn a
50% interest in the adjacent Exploration Lands, subject to HDGIs carried
interest, by having completed 60,000 feet of drilling on the Exploration Lands
prior to November 30, 2004

As a consequence of the Company exercising
  the Exploration Lands Option, and subject to the Company acquiring HDGI’s
  interest, Teck Cominco could elect to either form a 50/50 joint venture with
  the Company with respect to the Exploration Lands, or to sell its 50% interest
  in the Exploration Lands to the Company for US$4 million and retain a net profits
  interest. On February 21, 2005, Teck Cominco elected to sell its remaining 50%
  interest in the Exploration Lands to the Company for the stipulated US$4 million
  payment, a 4% pre-payback net profits interest (after debt service), and a 5%
  after-payback net profits interest in any mine production from the Exploration
  Lands. The Company issued 977,795 shares of the Company at the then-prevailing
  market price as consideration for the required US$4 million payment but subject
  to Teck Cominco’s right to elect to have the proceeds guaranteed.

Teck Cominco had the right, until
August 24, 2005, to elect whether to require the Company to manage the resale of
these shares in a manner where Teck Cominco would be guaranteed US$4 million in
resale proceeds by August 24, 2006. On July 18, 2005, Teck Cominco elected for
the Company to guarantee the US$4 million in resale proceeds. Teck Comincos
resale proceeds will be credited with any share resale surplus returned to the
Companys treasury, and should the share resale shortfall below the US$4 million
required amount, the shortfall must be made up by the Company in cash or through
the issuance of additional shares. At December 31, 2005, none of

---

|NORTHERN DYNASTY MINERALS LTD.                      
|----------------------------------------------------
|Notes to Consolidated Financial Statements          
|For the years ended December 31, 2005, 2004 and 2003
|(Expressed in Canadian
      Dollars)               

the original 977,795 shares had been
sold and the surplus on the price protection guarantee for the Resource and
Exploration Lands Options was $252,047.

Subsequent to the year end and to
February 28, 2006, the Company managed the sale of 653,686 shares for proceeds
paid to Teck Cominco of approximately US$3,994,028. The Company is required to
manage the resale of the remaining shares where Teck Cominco would be guaranteed
resale proceeds of US$5,972.

Upon payment in full by the Company of
  the guaranteed amount of the combined US$14 million of resale proceeds to Teck
  Cominco, the exercise of the Exploration Lands Option and the Resource Lands
  Option will be completed and the Company will vest its interest and take registered
  title to the claims comprising them, subject to acquisition of HDGI’s
  interest.

As a consequence of electing to exercise
  the Options, the Company was entitled under the Assignment Agreement with HDGI
  to elect to acquire HDGI’s 20% carried contractual interests in the Options
  for cash or share consideration equal to the independently appraised value of
  the carried interests. The valuation was required to be acceptable to the TSX
  Venture Exchange. No commissions or finders’ fees were payable in respect
  of the acquisition of the carried interests in the Options. On March 15, 2005,
  the Company announced it had reached an agreement with HDGI to acquire the 20%
  carried contractual interests for a purchase price of 14,002,268 common shares.
  The agreed number of shares was based on negotiations between the Company and
  HDGI with reference to an independent valuation of the carried interests performed
  by Ross Glanville & Associates Ltd; the valuation was publicly filed at
  www.sedar.com. The TSX Venture Exchange
  and the American Stock Exchange accepted the acquisition transaction in May
  and June 2005, respectively. The transaction to acquire HDGI’s carried
  interests will be completed by way of an acquisition of the corporation, HDGI.

On completion of the acquisition of HDGI
  and the discharge of Teck Cominco’s share resale guarantees, Northern
  Dynasty, together with one or more 100% subsidiaries, will own a 100% right
  title and interest in the entire Pebble property (subject only to the Teck Cominco
  net profits interest in the Exploration Lands portion of the property).

|(b) | Pickle Lake Joint Venture                                                                                                                                                                                                                                                                                                                                                                                                                                  
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    | The Company holds a 37.5% participating joint venture
      interest, subject to a 2.5% net profits interest ("NPI") held by the
      original owners, in certain mineral properties in northwestern Ontario
      under the Pickle Lake Joint Venture. The Company is searching for
      additional joint venture partners to fund further exploration on these
      properties. The Company continues to maintain these claims in good
      standing.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|(c) | Little Bald Mountain                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    | The Company holds an 8.1% net profits interest in the
      Little Bald Mountain property in Nevada, USA.                                                                                                                                                                                                                                                                                                                                                  

---

|NORTHERN DYNASTY MINERALS LTD.                      
|----------------------------------------------------
|Notes to Consolidated Financial Statements          
|For the years ended December 31, 2005, 2004 and 2003
|(Expressed in Canadian
      Dollars)               

|(d) | Farmout Agreement                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    | In December 2003, the Company entered into a Farmout
      Agreement (the "Agreement") with Taseko Mines Limited ("Taseko"), a public
      company with certain directors in common with the Company. Under the terms
      of the Agreement, Taseko granted to the Company rights to earn a joint
      venture working interest, subject to a maximum contribution of $650,000,
      in certain exploration properties located in the vicinity of Tasekos
      Gibraltar mine property. For a period of 150 days after the Company had
      earned its working interests, Taseko had the right to purchase, at its
      option, the Company's earned interest for cash or common share
      consideration aggregating 110% of the Company's earn-in amount.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    | During the year ended December 31, 2003, the Company had
      earned an interest in these properties to the extent of $650,000, which
      was charged to operations in that year.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    | During 2004, Taseko exercised its right to purchase the
      Company's interest by issuing 256,272 common shares of Taseko for total
      consideration of $715,000. The Company's holdings of these Taseko common
      shares are presented as marketable securities (note
4).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

|7. | SHARE CAPITAL
|-- | -------------

|(a) | Authorized share capital                                                                                         
|--- | -----------------------------------------------------------------------------------------------------------------
|    |                                                                                                                  
|    | The Company's authorized share capital consists of an
      unlimited number of common shares, without par
value.

---

|NORTHERN DYNASTY MINERALS LTD.                      
|----------------------------------------------------
|Notes to Consolidated Financial Statements          
|For the years ended December 31, 2005, 2004 and 2003
|(Expressed in Canadian
      Dollars)               

|(b) | Issued and outstanding common
  shares
|--- | --------------------------------------

| |                                                                 |   |       |  |  | Number of  |  |   |             | 
| | --------------------------------------------------------------- | - | ----- |  |  | ---------- |  | - | ----------- | 
| | Common shares issued:                                           |   | Price |  |  | Shares     |  |   | Amount      | 
| | Balance, December 31, 2002                                      |   |       |  |  | 15,515,355 |  | $ | 11,035,977  | 
| | Private placement January 2003,
      net of issue costs (i)    | $ | 0.50  |  |  | 1,700,000  |  |   | 809,654     | 
| | Private
      placement July 2003, net of issue costs (ii)      |   | 0.72  |  |  | 6,944,445  |  |   | 4,979,549   | 
| | Share purchase options exercised                                |   | 0.40  |  |  | 981,500    |  |   | 392,600     | 
| | Share purchase
      options exercised                          |   | 0.43  |  |  | 8,000      |  |   | 3,440       | 
| | Share purchase options exercised                                |   | 0.50  |  |  | 12,500     |  |   | 6,250       | 
| | Share purchase
      options exercised                          |   | 0.75  |  |  | 12,500     |  |   | 9,375       | 
| | Warrants exercised                                              |   | 0.40  |  |  | 775,000    |  |   | 310,000     | 
| | Warrants
      exercised                                        |   | 0.45  |  |  | 1,176,470  |  |   | 529,412     | 
| | Warrants exercised                                              |   | 0.60  |  |  | 1,910,000  |  |   | 1,146,000   | 
| | Warrants
      exercised                                        |   | 0.62  |  |  | 2,000,000  |  |   | 1,240,000   | 
| | Warrants exercised                                              |   | 0.75  |  |  | 500,000    |  |   | 375,000     | 
| | Warrants exercised                                              |   | 1.15  |  |  | 197,548    |  |   | 227,180     | 
| | Balance, December 31, 2003                                      |   |       |  |  | 31,733,318 |  |   | 21,064,437  | 
| | Private
      placement March 2004, net of issue costs (iii)    |   | 8.00  |  |  | 2,750,000  |  |   | 21,905,914  | 
| | Private placement August 2004,
      net of issue costs (iv)    |   | 3.55  |  |  | 2,816,902  |  |   | 9,800,333   | 
| | Share purchase
      options exercised                          |   | 0.40  |  |  | 88,750     |  |   | 35,500      | 
| | Share purchase options exercised                                |   | 0.50  |  |  | 106,500    |  |   | 53,250      | 
| | Share purchase
      options exercised                          |   | 0.75  |  |  | 70,000     |  |   | 52,500      | 
| | Share purchase options exercised                                |   | 1.18  |  |  | 10,000     |  |   | 11,800      | 
| | Share purchase
      options exercised                          |   | 5.00  |  |  | 33,999     |  |   | 169,995     | 
| | Property option payments                                        |   | 6.65  |  |  | 1,772,725  |  |   | 11,788,621  | 
| | Warrants
      exercised (i)                                    |   | 0.60  |  |  | 30,000     |  |   | 18,000      | 
| | Warrants exercised
      (ii)                                   |   | 0.90  |  |  | 6,944,445  |  |   | 6,250,000   | 
| | Warrants
      exercised                                        |   | 1.15  |  |  | 500,000    |  |   | 575,000     | 
| | Warrants exercised
      (iii)                                  |   | 4.65  |  |  | 821,875    |  |   | 3,821,719   | 
| | Replacement of
      lost certificate                           |   |       |  |  | 11,905     |  |   |            | 
| | Fair value of stock options
      allocated to shares issued on |   |       |  |  |            |  |   |             | 
| | exercise                                                        |   |       |  |  |           |  |   | 562,492     | 
| | Balance, December 31, 2004                                      |   |       |  |  | 47,690,419 |  |   | 76,109,561  | 
| | Private
      placement March 2005, net of issue costs (v)      |   | 4.25  |  |  | 7,247,000  |  |   | 29,209,019  | 
| | Share purchase options exercised                                |   | 0.75  |  |  | 25,000     |  |   | 18,750      | 
| | Share purchase
      options exercised                          |   | 0.94  |  |  | 50,000     |  |   | 47,000      | 
| | Share purchase options exercised                                |   | 1.18  |  |  | 3,000      |  |   | 3,540       | 
| | Share purchase
      options exercised                          |   | 2.30  |  |  | 7,500      |  |   | 17,250      | 
| | Share purchase options exercised                                |   | 2.35  |  |  | 315,000    |  |   | 740,250     | 
| | Share purchase
      options exercised                          |   | 5.00  |  |  | 1,287,001  |  |   | 6,435,005   | 
| | Share purchase options exercised                                |   | 5.05  |  |  | 38,000     |  |   | 191,900     | 
| | Share purchase
      options exercised                          |   | 5.31  |  |  | 3,334      |  |   | 17,704      | 
| | Warrants exercised
      (i)                                    |   | 0.60  |  |  | 10,000     |  |   | 6,000       | 
| | Warrants
      exercised (iv)                                   |   | 4.15  |  |  | 2,176,902  |  |   | 9,034,143   | 
| | Warrants exercised                                              |   | 5.00  |  |  | 261,656    |  |   | 1,308,280   | 
| | Common shares
      issued upon property acquisition            |   | 5.03  |  |  | 977,795    |  |   | 4,918,309   | 
| | (note 6(a))                                                     |   |       |  |  |            |  |   |             | 
| | Fair value of
      stock options allocated to shares issued on |   |       |  |  |           |  |   | 4,305,238   | 
| | exercise                                                        |   |       |  |  |            |  |   |             | 
| | Balance, December 31, 2005                                      |   |       |  |  | 60,092,607 |  | $ | 132,361,949 | 

---

|NORTHERN DYNASTY MINERALS LTD.                      
|----------------------------------------------------
|Notes to Consolidated Financial Statements          
|For the years ended December 31, 2005, 2004 and 2003
|(Expressed in Canadian
      Dollars)               

| | (i)   | In January 2003, the Company completed a private
      placement consisting of 1,300,000 flow-through units and 400,000 non
      flow-through units at $0.50 each. Each flow-through unit was comprised of
      a flow-through common share and a two-year non-flow-through share purchase
      warrant. Each warrant entitled the holder to purchase one common share at
      a price of $0.60 until January 14, 2005. The non flow-through units were
      comprised of one common share and one two-year share purchase warrant with
      the same warrant terms.
| | ----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | (ii)  | In July 2003, the Company completed a private placement
      consisting of 6,944,445 units at a price of $0.72 per unit. Each unit was
      comprised of one common share and one warrant exercisable to purchase an
      additional common share at a price of $0.90 until June 12, 2004.                                                                                                                                                                                                                                                                             
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | (iii) | In March 2004, the Company completed a private placement
      by issuing 2,750,000 units at $8.00 each. Each unit was comprised of a
      common share and one half warrant. Each whole warrant entitled the holder
      to purchase one common share at a price of $9.00 until March 16,
    2005.                                                                                                                                                                                                                                                                    
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |       | On July 16, 2004, the Company enacted, pursuant to
      approval from the TSX Venture Exchange, a reduction in the exercise price
      for 821,875 of these warrants to $4.65 each with a 30-day accelerated
      expiry provision, at the option of the Company, in the event the closing
      price of the Company's common shares on the TSX Venture Exchange is at
      least $4.65 for any 10 consecutive trading days. Such notice was issued on
      October 14, 2004 and all 821,875 of these warrants were exercised within
      the allotted 30 days.    
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | (iv)  | In August 2004, the Company completed a private placement
      consisting of 2,816,902 units at a price of $3.55 per unit. Each unit was
      comprised of one common share and one warrant exercisable to purchase one
      additional common share at a price of $4.15 until August 5,
2005.                                                                                                                                                                                                                                                                         
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | (v)   | In March 2005, the Company completed a private placement
      consisting of 7,247,000 units at a price of $4.25 per unit. Each unit was
      comprised of one common share and one warrant exercisable to purchase one
      additional common share at a price of $5.00 until September 18,
    2006.                                                                                                                                                                                                                                                                  
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | (vi)  | The Company is committed to issuing 14,002,268 common
      shares pursuant to its acquisition of the remaining 20% of the Pebble
      property.                                                                                                                                                                                                                                                                                                                                                                                                                         

---

|NORTHERN DYNASTY MINERALS LTD.                      
|----------------------------------------------------
|Notes to Consolidated Financial Statements          
|For the years ended December 31, 2005, 2004 and 2003
|(Expressed in Canadian
      Dollars)               

|(c) | Share purchase warrants                                                                                                                        
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                
|    | The continuity of share purchase warrants (each warrant
      exercisable into one common share) for the year ended December 31, 2005
      is:

| |                                 |           | Exercise | Dec. 31   |           |             | Expired/    | Dec. 31  
| | ------------------------------- | --------- | -------- | --------- | --------- | ----------- | ----------- | ---------
| | Expiry date                     | Note      | price    | 2004      | Issued    | Exercised   | cancelled   | 2005     
| | January 14, 2005                | 7(b)(i)   | $ 0.60   | 10,000    |          | (10,000)    |            |         
| | March 16, 2005                  | 7(b)(iii) | $ 9.00   | 553,125   |          |            | (553,125)   |         
| | August 5, 2005                  | 7(b)(iv)  | $ 4.15   | 2,816,902 |          | (2,176,902) | (640,000)   |         
| | Sept. 18, 2006                  | 7(b)(v)   | $ 5.00   |          | 7,247,000 | (261,656)   |            | 6,985,344
| |                                 |           |          | 3,380,027 | 7,247,000 | (2,448,558) | (1,193,125) | 6,985,344
| |                                 |           |          |           |           |             |             |          
| | Weighted average exercise price | $ 4.93    | $ 5.00   | $ 4.23    | $ 6.40    | $ 5.00     

The continuity of share purchase
warrants (each warrant exercisable into one common share) for the year ended
December 31, 2004 is:

| |                                 |           | Exercise     | Dec. 31   |           |             | Expired/  | Dec. 31  
| | ------------------------------- | --------- | ------------ | --------- | --------- | ----------- | --------- | ---------
| | Expiry date                     | Note      | Price        | 2003      | Issued    | Exercised   | Cancelled | 2004     
| | March 27, 2004                  |           | $ 1.15       | 500,000   |          | (500,000)   |          |         
| | June 12, 2004                   | 7(b)(ii)  | $ 0.90       | 6,944,445 |          | (6,944,445) |          |         
| | January 14, 2005                | 7(b)(i)   | $ 0.60       | 40,000    |          | (30,000)    |          | 10,000   
| | March 16, 2005                  | 7(b)(iii) | $ 9.00       |          | 553,125   |            |          | 553,125  
| | March 16, 2005                  | 7(b)(iii) | $ 4.65       |          | 821,875   | (821,875)   |          |         
| | August 5, 2005                  | 7(b)(iv)  | $
      4.15 |          | 2,816,902 |            |          | 2,816,902
| |                                 |           |              | 7,484,445 | 4,191,902 | (8,296,320) |          | 3,380,027
| |                                 |           |              |           |           |             |           |          
| | Weighted average exercise price | $ 0.92    | $ 4.89       | $ 0.82    | $        | $ 4.93     

|(d) | Share purchase option compensation plan                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    | The Company has a share purchase option compensation plan
      which was approved by the Company's shareholders at the 2004 Annual and
      Extraordinary General Meeting, that had authorized the Company to grant up
      to 7,000,000 share purchase options to its employees, officers, directors
      and consultants.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    | At the 2005 Annual General Meeting held in July 2005
      shareholders approved an increase in the number of share purchase options
      of an additional 4,300,000 which are available to grant to its employees,
      officers, directors and consultants. As at December 31, 2005, 2,974,166 of
      these options were outstanding and 4,846,166 remained available to grant.
      Vesting of these options is at the discretion of the board of directors,
      typically over a period of up to three years, subject to regulatory terms
      and approval. The exercise price of each option can be set equal to or
      greater than the closing market price of the common shares on the TSX
      Venture Exchange on the day prior to the date of the grant of the option,
      less any allowable discounts from the market price. Options have a maximum
      term of five years and terminate 30 days following the termination of the
      optionee's employment, except in the cases of retirement or
  death.

---

|NORTHERN DYNASTY MINERALS LTD.                      
|----------------------------------------------------
|Notes to Consolidated Financial Statements          
|For the years ended December 31, 2005, 2004 and 2003
|(Expressed in Canadian
      Dollars)               

The continuity of share purchase
options for the year ended December 31, 2005 is:

| |                                 | Exercise     | Dec. 31      |              |              | Expired
      / | Dec. 31  
| | ------------------------------- | ------------ | ------------ | ------------ | ------------ | --------------- | ---------
| | Expiry date                     | price        | 2004         | Granted      | Exercised    | cancelled       | 2005     
| | May 9, 2005                     | $ 0.75       | 25,000       |             | (25,000)     |                |         
| | July 29, 2005                   | $ 0.94       | 50,000       |             | (50,000)     |                |         
| | July 29, 2005                   | $ 1.18       | 3,000        |             | (3,000)      |                |         
| | July 29, 2005                   | $ 2.35       | 315,000      |             | (315,000)    |                |         
| | September 19, 2005              | $ 2.30       | 7,500        |             | (7,500)      |                |         
| | November 30, 2005               | $ 5.00       | 1,469,334    |             | (1,241,000)  | (228,334)       |         
| | November 30, 2005               | $ 5.05       | 38,000       |             | (38,000)     |                |         
| | November 30, 2006               | $ 4.65       | 100,000      |             |             |                | 100,000  
| | November 30, 2006               | $ 5.00       | 2,192,000    |             | (46,001)     | (248,499)       | 1,897,500
| | September 28, 2007              | $ 5.40       |             | 150,000      |             |                | 150,000  
| | November 30, 2007               | $ 4.50       |             | 170,000      |             |                | 170,000  
| | November 30, 2007               | $ 5.31       |             | 655,000      | (3,334)      | (10,000)        | 641,666  
| | December 14, 2007               | $ 5.37       |             | 15,000       |             |                | 15,000   
| |                                 |              | 4,199,834    | 990,000      | (1,728,835)  | (486,833)       | 2,974,166
| |                                 |              |              |              |              |                 |          
| | Weighted average exercise price | $
      4.71 | $
      5.19 | $
      4.32 | $
      5.01 | $
      5.05   

The continuity of share purchase
options for the year ended December 31, 2004 is:

| |                                 | Exercise     | Dec. 31      |              |              | Expired
      / | Dec. 31  
| | ------------------------------- | ------------ | ------------ | ------------ | ------------ | --------------- | ---------
| | Expiry date                     | Price        | 2003         | Granted      | Exercised    | Cancelled       | 2004     
| | May 15, 2004                    | $ 0.40       | 88,750       |             | (88,750)     |                |         
| | December 20, 2004               | $ 0.50       | 106,500      |             | (106,500)    |                |         
| | May 9, 2005                     | $ 0.75       | 95,000       |             | (70,000)     |                | 25,000   
| | July 29, 2005                   | $ 0.94       | 50,000       |             |             |                | 50,000   
| | July 29, 2005                   | $ 1.18       | 15,500       |             | (10,000)     | (2,500)         | 3,000    
| | July 29, 2005                   | $ 2.35       | 315,000      |             |             |                | 315,000  
| | September 19, 2005              | $ 2.30       | 7,500        |             |             |                | 7,500    
| | November 30, 2005               | $ 5.00       | 1,535,000    |             | (33,999)     | (31,667)        | 1,469,334
| | November 30, 2005               | $ 5.05       | 38,000       |             |             |                | 38,000   
| | November 30, 2006               | $ 4.65       |             | 100,000      |             |                | 100,000  
| | November 30, 2006               | $ 5.00       |             | 2,192,000    |             |                | 2,192,000
| |                                 |              | 2,251,250    | 2,292,000    | (309,249)    | (34,167)        | 4,199,834
| |                                 |              |              |              |              |                 |          
| | Weighted average exercise price | $
      3.93 | $
      4.98 | $
      1.04 | $
      4.72 | $
      4.71   

---

|NORTHERN DYNASTY MINERALS LTD.                      
|----------------------------------------------------
|Notes to Consolidated Financial Statements          
|For the years ended December 31, 2005, 2004 and 2003
|(Expressed in Canadian
      Dollars)               

The exercise prices of all share
purchase options granted during the year were equal to the market price at the
grant date. Using an option pricing model with the assumptions noted below, the
estimated fair value of all options granted during 2005 and 2004 have been
reflected in the statements of operations as follows:

| |                                             |   | Years ended December 31 | 
| | ------------------------------------------- | - | ----------------------- | 
| |                                             |   | 2005                    | 
| | Exploration                                 |   |                         | 
| | Engineering                                 | $ | 643,879                 | 
| | Environmental, socioeconomic and
      land |   | 255,325                 | 
| | Geological                                  |   | 888,302                 | 
| |                                             |   | 1,787,506               | 
| | Operations and administration               |   | 2,302,389               | 
| | Total compensation cost
      recognized in |   |                         | 
| | operations, credited to contributed surplus | $ | 4,089,895               | 

The weighted average assumptions used
to estimate the fair value of options granted during the period were:

| |                         | 2005          | 2004          | 2003         
| | ----------------------- | ------------- | ------------- | -------------
| | Risk-free interest rate | 3%            | 3%            | 3%           
| | Expected life           | 2.5 years     | 2.2 years     | 2.1 years    
| | Vesting period          | 0  18 months | 0  18 months | 0  18 months
| | Expected volatility     | 60%           | 80%           | 92%          
| | Expected dividend yield | nil           | nil           | nil          

Option pricing models require the input
of highly subjective assumptions including the expected price volatility.
Changes in the subjective input assumptions can materially affect the fair value
estimate, and therefore the existing models do not necessarily provide a
reliable measure of the fair value of the Company's share purchase options.

|(e) | Contributed surplus
|--- | -------------------

| | Balance, December 31, 2002                                               | $ | 13,271     |  
| | ------------------------------------------------------------------------ | - | ---------- | -
| | Changes during 2003                                                      |   |            |  
| | Non-cash stock-based compensation                                        |   | 1,675,064  |  
| | Contributed surplus, December 31, 2003                                   |   | 1,688,335  |  
| | Changes during 2004                                                      |   |            |  
| | Non-cash stock-based compensation                                        |   | 6,378,877  |  
| | Fair value of stock options allocated to
      shares issued on exercise |   | (562,492   | )
| | Contributed surplus, December 31, 2004                                   |   | 7,504,720  |  
| | Changes during 2005                                                      |   |            |  
| | Non-cash stock-based compensation                                        |   | 4,089,895  |  
| | Fair value of stock options allocated to
      shares issued on exercise |   | (4,305,238 | )
| | Contributed
      surplus, December 31, 2005                             | $ | 7,289,377  |  

---

|NORTHERN DYNASTY MINERALS LTD.                      
|----------------------------------------------------
|Notes to Consolidated Financial Statements          
|For the years ended December 31, 2005, 2004 and 2003
|(Expressed in Canadian
      Dollars)               

|8. | RELATED PARTY BALANCES AND
  TRANSACTIONS
|-- | -----------------------------------------

| |                                                 |   | Years ended December 31, |  |   |           | 
| | ----------------------------------------------- | - | ------------------------ |  | - | --------- | 
| | Transactions                                    |   | 2005                     |  |   | 2004      | 
| | Services rendered and
      expenses reimbursed |   |                          |  |   |           | 
| | Hunter Dickinson Inc. (a)                       | $ | 2,286,249                |  | $ | 2,002,148 | 
| | Hunter Dickinson
      Group Inc. (b)           |   | 12,800                   |  |   | 12,800    | 
| | Sidev Holdings Ltd. (c)                         |   | 203,225                  |  |   | 148,567   | 
| | Brian Mountford
      & Associates Ltd. (d)     |   |                         |  |   | 112,000   | 
| | Galahad Gold plc (e)                            |   | 47,421                   |  |   | 129,000   | 
| | Shambala Gold
      plc (e)                     |   | 124,998                  |  |   |          | 
| | Beattie Consulting Ltd. (f)                     |   | 11,835                   |  |   |          | 

| | Balances receivable (payable)       |   | At December 31, 2005 |   |   | At December 31, 2004 |  
| | ----------------------------------- | - | -------------------- | - | - | -------------------- | -
| | Hunter Dickinson
      Inc. (a)     | $ | 451,560              |   | $ | 35,484               |  
| | Hunter Dickinson Group Inc. (b)     |   | (3,200               | ) |   | (3,424               | )
| | Galahad Gold plc and subsidiary (e) |   |                     |   |   | (20,000              | )
| |                                     | $ | 448,360              |   | $ | 12,060               |  

| | (a) | 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 provides geological,
      corporate development, administrative and management services to, and
      incurs third party costs on behalf of, the Company and its subsidiaries on
      a full cost recovery basis pursuant to an agreement dated December 31,
      1996. Balances payable to HDI from time to time result from advances by
      HDI to the Company and from services rendered to, but not yet paid for by,
      the Company.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | (b) | Hunter Dickinson Group Inc. (HDGI) is a private company
      with certain directors in common that provides consulting services to the
      Company. The balances payable to HDGI have resulted from the services
      rendered to, but not yet paid for by, the Company.                                                                                                                                                                                                                                                                                                                                                                    
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |     | In October 2001, the Company was assigned an 80% interest
        in two options granted by Teck Cominco to HDGI in respect of Teck Cominco’s
        "Pebble" gold-copper-molybdenum property in southwestern Alaska
        (note 6(a)).                                                                                                                                                                                                                                                                                                                                                                                                        
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |     | In March 2005, the Company announced it had reached
        an agreement to acquire the 20% remaining contractual interest in the
        Pebble Property from HDGI (note 6(a)).                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | (c) | During the year ended December 31, 2005, the Company paid
      $203,225 (year ended December 31, 2004  $148,567) to Sidev Holdings Ltd.,
      a private company controlled by Bruce Jenkins, the Chief Operating Officer
      and a director of Northern Dynasty Mines Inc., a wholly owned private USA
      subsidiary of the Company, for project management services.                                                                                                                                                                                                                                                                     
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | (d) | During the year ended December 31, 2005, the Company paid
      $nil (year ended December 31, 2004  $112,000) to Brian Mountford &
      Associates Ltd., a private company controlled by Brian Mountford, who was
      a director of the Company, and was President and Director of Northern
      Dynasty Mines Inc., a wholly owned private USA                                                                                                                                                                                                                                                                                              

---

|NORTHERN DYNASTY MINERALS LTD.                      
|----------------------------------------------------
|Notes to Consolidated Financial Statements          
|For the years ended December 31, 2005, 2004 and 2003
|(Expressed in Canadian
      Dollars)               

| |     | subsidiary of the Company, during a substantial portion
      of the period, for engineering and project management services and for his
      services as an officer of the Company, from which positions he resigned at
      the end of June 2005. Mr. Mountford also served as a consultant to Galahad
      Gold plc and its wholly owned subsidiary Shambhala Gold plc, which are
      significant shareholders of the Company.                                                                                            
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | (e) | During the year ended December 31, 2005, the Company paid
      $124,998 (year ended December 31, 2004  $nil) to Shambhala Gold plc, (a
      subsidiary of Galahad Gold plc) for engineering and project management
      services provided by Mr. Mountford to the Company. During the year ended
      December 31, 2005, the Company was charged $47,421 (year ended December
      31, 2004  $129,000l) by Galahad Gold plc, a significant shareholder of
      the Company with a director in common, for travel expenses.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | (f) | During the period August 2, 2005 to December 31, 2005,
      the Company paid $11,835 to Beattie Consulting Ltd., a private company
      controlled by Morris Beattie, a director of Northern Dynasty Minerals
      Ltd.                                                                                                                                                                                                                                                                                                        

|9. | INCOME TAXES                                                                                                                                                                                                                
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                             
|   | Substantially all the difference between the actual
        income tax expense (recovery) of $nil and the expected income tax recovery
        based on statutory tax rates relates to the benefit of losses not recognized.
|   |                                                                                                                                                                                                                             
|   | As at December 31, 2005 the tax effect of the significant
        components within the Companys future tax asset (liability) were
        as follows:                                                                     

| |                                        |   | December 31 |   |   | December 31 |  
| | -------------------------------------- | - | ----------- | - | - | ----------- | -
| |                                        |   | 2005        |   |   | 2004        |  
| | Future income tax assets (liabilities) |   |             |   |   |             |  
| | Resource pools                         | $ | 29,809,000  |   | $ | 15,779,000  |  
| | Loss carry forwards                    |   | 2,833,000   |   |   | 1,726,000   |  
| | Equipment                              |   | 53,000      |   |   | 23,000      |  
| | Share issue costs                      |   | 503,000     |   |   | 106,000     |  
| | Other                                  |   | 120,000     |   |   | 125,000     |  
| | Subtotal                               |   | 33,318,000  |   |   | 17,759,000  |  
| | Valuation
      allowance              |   | (33,318,000 | ) |   | (17,759,000 | )
| | Net future income tax asset            | $ |            |   | $ |            |  

Income tax expense differs from the amount
  that would result from applying the Canadian federal and provincial tax rates
  to earnings before income taxes. These differences result from the following
  items:

| |                                                               |   | December 31 |   |   | December 31 |  
| | ------------------------------------------------------------- | - | ----------- | - | - | ----------- | -
| |                                                               |   | 2005        |   |   | 2004        |  
| | Combined Canadian federal and provincial statutory
      rate |   | 34.87%      |   |   | 35.62%      |  
| |                                                               |   |             |   |   |             |  
| | Income tax at statutory rates                                 | $ | (17,546,000 | ) | $ | (14,853,000 | )
| | Non-deductible items                                          |   | 1,435,000   |   |   | 2,272,000   |  
| | Prior losses expired                                          |   |            |   |   | 19,000      |  
| | Reduction in statutory tax rates                              |   | 1,077,000   |   |   |            |  
| | Benefit of share issuance costs                               |   | (381,000    | ) |   | (71,000     | )
| | Change in valuation allowance                                 |   | 15,559,000  |   |   | 12,412,000  |  
| | Other                                                         |   | (144,000    | ) |   | 221,000     |  
| |                                                               | $ |            |   | $ |            |  

---

|NORTHERN DYNASTY MINERALS LTD.                      
|----------------------------------------------------
|Notes to Consolidated Financial Statements          
|For the years ended December 31, 2005, 2004 and 2003
|(Expressed in Canadian
      Dollars)               

At December 31, 2005, the Company had
  available losses for income tax purposes in Canada totaling approximately $8.6
  million (2004 – $4.8 million), expiring in various years from 2006 to
  2015.

The Company has capital losses available
  of $nil, which, when available, can be used to offset future capital gains.

The Company has approximately $104.1
  million (2004 – $56.1 million) of resource tax pools available in Canada,
  which, when available, may be carried forward and utilized to reduce future
  taxes related to certain resource income.

|10. | SEGMENTED INFORMATION                                                                                                                                           
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                 
|    | The Company operates in a single reportable operating and
      geographic segment  the exploration and development of mineral properties
      in Alaska, USA.

|11. | SUBSEQUENT EVENTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    | Subsequent to December 31, 2005 to March 13, 2006, the
        Company issued 1,036,229 common shares pursuant to the exercise of 348,032
        share purchase options and 688,197 share purchase warrants and cancelled
        10,000 share purchase options.
      Subsequent to year end, the Company sold 250,000 common
        shares of Taseko Mines Limited for gross proceeds of $550,000, see note
        4.
      On the Pebble mineral property interest, see note 6(a) for subsequent
        events.                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|12. | DIFFERENCES BETWEEN CANADIAN AND UNITED STATES
      GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    | The consolidated financial statements have been prepared
      in accordance with Canadian generally accepted accounting principles
      (Canadian GAAP), which differ in certain material respects from those
      principles that the Company would have followed had its consolidated
      financial statements been prepared in accordance with United States
      generally accepted accounting principles (US GAAP). Had the Company
      followed US GAAP, certain items on the statements of loss and deficit, and
      balance sheets would have been reported as
follows:

| | Total assets                                                    |   | 2005       |  |   | 2004       | 
| | --------------------------------------------------------------- | - | ---------- |  | - | ---------- | 
| | Total assets under Canadian GAAP                                | $ | 31,296,012 |  | $ | 25,460,941 | 
| | Mark-to-market
      adjustment, shares of Taseko Mines Limited |   |           |  |   | 169,140    | 
| | Total assets under US GAAP                                      | $ | 31,296,012 |  | $ | 25,630,081 | 

---

|NORTHERN DYNASTY MINERALS LTD.                      
|----------------------------------------------------
|Notes to Consolidated Financial Statements          
|For the years ended December 31, 2005, 2004 and 2003
|(Expressed in Canadian
      Dollars)               

| | Loss for the year                              |   | 2005        |   |   | 2004        |   |   | 2003       |  
| | ---------------------------------------------- | - | ----------- | - | - | ----------- | - | - | ---------- | -
| | Loss for the year under
      Canadian GAAP    | $ | (50,317,831 | ) | $ | (41,698,647 | ) | $ | (8,299,461 | )
| | Other comprehensive income                     |   |             |   |   |             |   |   |            |  
| | Mark-to-market
      adjustment on shares of   |   |             |   |   |             |   |   |            |  
| | Taseko Mines Limited (a)                       |   |            |   |   | 169,140     |   |   |           |  
| | Realization on
      prior year mark-to-market |   |             |   |   |             |   |   |            |  
| | adjustment (a)                                 |   | (169,140    | ) |   |            |   |   |           |  
| | Comprehensive loss for the year under US GAAP  | $ | (50,486,971 | ) | $ | (41,529,507 | ) | $ | (8,299,461 | )
| |                                                |   |             |   |   |             |   |   |            |  
| | Loss per share under US GAAP                   | $ | (0.90       | ) | $ | (1.04       | ) | $ | (0.35      | )
| |                                                |   |             |   |   |             |   |   |            |  
| | Comprehensive loss per share under US GAAP     | $ | (0.90       | ) | $ | (1.04       | ) | $ | (0.35      | )

| | There are no material differences between Canadian GAAP
        and US GAAP in the consolidated statements of cash flows for the years
        ended December 31, 2005, 2004, and 2003.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(a) | Available-for-sale securities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    | US GAAP requires investments in available-for-sale securities
        to be recorded at fair value in accordance with SFAS 115, "Accounting
        for Certain Investments in Debt and Equity Securities". Unrealized
        gains are recorded as "other comprehensive income" and the cumulative
        balance of these amounts is recorded as a separate component of shareholders
        equity.                                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    | US GAAP requires the Company to present comprehensive
        income in accordance with SFAS 130, "Reporting Comprehensive Income",
        which establishes standards for the reporting and display of comprehensive
        income, its components and accumulated balances. Comprehensive income
        comprises net income and all changes to shareholders equity except
        those resulting from investments by owners and distributions to owners.                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    | Under US GAAP, the Company's investment in marketable
        securities, namely its holdings of common shares of Taseko Mines Limited,
        would have a mark-to-market adjustment of $nil (2004  $169,140)
        to reflect their market value of $363,906 at December 31, 2005. No such
        adjustment would be recorded under Canadian GAAP.                                                                                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    | In April 2005, the Canadian Institute of Chartered Accountants
        ("CICA") issued new and amended accounting standards for recognition,
        measurement and disclosure of financial instruments, hedges and comprehensive
        income. One of the new standards requires companies to present comprehensive
        income and its components, as well as net income, in their financial statements.
        The new standards are effective for interim and annual financial statements
        for fiscal years beginning on or after October 1, 2006.

---

|NORTHERN DYNASTY MINERALS LTD.                      
|----------------------------------------------------
|Notes to Consolidated Financial Statements          
|For the years ended December 31, 2005, 2004 and 2003
|(Expressed in Canadian
      Dollars)               

|(b) | Impact of recent United States accounting
        pronouncements
|--- | ----------------------------------------------------------------
|    |                                                                 
|    | (i)                                                             
|    |                                                                 
|    | (ii)                                                            

| |       | December 15, 2005 and upon adoption, can be applied by
      either retroactively restating prior periods or using a cumulative
      catch-up adjustment. The Company does not believe that adoption of this
      Statement will have a material effect on the Companys financial
      statements as stripping costs are currently treated as variable production
      costs.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | (iii) | On June 1, 2005, the FASB issued SFAS No. 154,
      Accounting Changes and Error Corrections, a replacement of APB
      Opinion No. 20, Accounting Changes, and FASB Statement No. 3,
      Reporting Accounting Changes in Interim Financial Statements. SFAS
      154 requires retrospective application to prior periods financial
      statements of a change in accounting principle unless it is impracticable
      to do so. This is a change from the existing practice that requires most
      accounting changes to be accounted for by including in net income in the
      period of the change the cumulative effect of changing to the new
      accounting principle. SFAS 154 will be effective for accounting changes
      and corrections of errors made in fiscal years beginning after December
      15, 2005. The impact of SFAS 154 cannot be determined until such time as
      the Company makes a change in accounting  policy.
|
|
|
|
|
|
|
|
|
|

---