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|YEAR ENDED DECEMBER 31, 2007        
|MANAGEMENT'S DISCUSSION AND ANALYSIS
|                                    

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

|1.1    | DATE                                                                        |                                         | 2 
|------ | --------------------------------------------------------------------------- | --------------------------------------- | --
|1.2    | OVERVIEW                                                                    | 2                                      
|1.2.1  | SUMMARY                                                                     | 2                                      
|1.2.2  | LIMITED PARTNERSHIP ESTABLISHED TO ADVANCE THE PEBBLE
      PROJECT         | 3                                      
|1.2.3  | TECHNICAL PROGRAMS                                                          | 4                                      
|       | EXPLORATION AND RESOURCE DRILLING                                           | 6                                      
|       | ENGINEERING                                                                 | 6                                      
|       | ENVIRONMENTAL, CULTURAL AND SOCIOECONOMIC STUDIES                           | 8                                      
|       | PLANS FOR 2008                                                              | 8                                      
|1.2.4  | MARKET TRENDS                                                               | 9                                      
|1.3    | SELECTED ANNUAL INFORMATION                                                 | 10                                     
|1.4    | SUMMARY OF QUARTERLY RESULTS                                                | 11                                     
|1.5    | RESULTS OF OPERATIONS                                                       | 12                                     
|1.6    | LIQUIDITY                                                                   | 13                                     
|1.7    | CAPITAL RESOURCES                                                           | 13                                     
|1.8    | OFF-BALANCE SHEET ARRANGEMENTS                                              | 13                                     
|1.9    | TRANSACTIONS WITH RELATED PARTIES                                           | 13                                     
|1.10   | FOURTH QUARTER                                                              | 14                                     
|1.11   | PROPOSED TRANSACTIONS                                                       | 14                                     
|1.12   | CRITICAL ACCOUNTING ESTIMATES                                               | 14                                     
|1.13   | CHANGES IN ACCOUNTING POLICIES INCLUDING INITIAL ADOPTION                   | 15                                     
|       | (A)                                                                         | NEWLY ADOPTED
      ACCOUNTING POLICIES | 15
|       | (B)                                                                         | ACCOUNTING POLICIES NOT YET ADOPTED     | 17
|1.14   | FINANCIAL INSTRUMENTS AND OTHER INSTRUMENTS                                 | 18                                     
|1.15   | OTHER MD&A REQUIREMENTS                                                     | 18                                     
|1.15.1 | ADDITIONAL DISCLOSURE FOR VENTURE ISSUERS WITHOUT
      SIGNIFICANT REVENUE | 18                                     
|1.15.2 | DISCLOSURE OF OUTSTANDING SHARE DATA                                        | 19                                     
|1.15.3 | INTERNAL CONTROLS OVER FINANCIAL REPORTING PROCEDURES                       | 20                                     
|1.15.4 | DISCLOSURE CONTROLS AND PROCEDURES                                          | 20                                     

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|YEAR ENDED DECEMBER 31, 2007        
|MANAGEMENT'S DISCUSSION AND ANALYSIS
|                                    

|1.1 | Date
|--- | ----

This Management Discussion and Analysis ("MD&A") should be
read in conjunction with the audited consolidated financial statements of
Northern Dynasty Minerals Ltd. ("Northern Dynasty" or the "Company") for the
year ended December 31, 2007, as publicly filed on SEDAR at www.sedar.com.

This MD&A is prepared as of March 20,2008. All
dollar figures stated herein are expressed in Canadian dollars, unless otherwise
specified.

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

|1.2   | Overview
|----- | --------
|      |         
|1.2.1 | Summary 

Northern Dynasty is a mineral exploration company whose major
asset is a 50% share of the Pebble Copper-Gold-Molybdenum Project (the
Project), and a stream of financing being provided towards the further
exploration and, if warranted, development of the Project. The Pebble property
is located in Alaska, 17 miles (30 kilometers) from the village of Iliamna, and
approximately 200 miles (320 kilometers) southwest of the city of Anchorage.

An extensive, northeast-trending mineralized system underlies
the Pebble property that hosts several copper, gold and molybdenum deposits. The
Pebble West deposit was discovered and partially outlined through drilling by a
previous operator from 1987-1997. Northern Dynasty acquired the right to earn an
interest in the Pebble property in late 2001. Work by the Company has resulted
in a significant expansion of the Pebble West deposit, the discovery and
preliminary delineation of the Pebble East deposit, and the identification of
two additional porphyry copper-gold-molybdenum deposits, a porphyry copper zone,
a gold-copper skarn occurrence and several high-grade gold veins.

Comprehensive technical programs, including drilling, a full
spectrum of engineering assessments, and environmental and socio-economic
studies have been focused on the Pebble West and Pebble East deposits. Extensive
measured and indicated resources were identified in Pebble West to 2004. Since
its discovery in 2005, work has been directed toward advancing the technical
data for Pebble East to a similar level of detail as Pebble West in preparation
for prefeasiblity and feasibility studies for the Project.

In late July 2007, Northern Dynasty and Anglo American plc
(Anglo American) established a 50:50 partnership (refer 1.2.2), the objective
of which is to engineer, permit, construct and operate a modern, long-life mine
at the Pebble Project. To accomplish this goal, plans are to complete a
prefeasibility study by December 2008 and a feasibility study by 2011, targeting
commercial production by 2015. In order to

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|YEAR ENDED DECEMBER 31, 2007        
|MANAGEMENT'S DISCUSSION AND ANALYSIS
|                                    

maintain its 50% interest, Anglo American will fund all project
expenditures until it has invested US$1.425 billion, after which expenditures
will be split 50:50.

The partnership is managed by its 50:50 owned General Partner,
Pebble Mines Corp. (PMC). Normal operations associated with the 2007 program
have continued under the guidance of PMC.

The 2007 program encompassed drilling, engineering, and
on-going environmental data collection and community engagement programs that
successfully advanced the understanding of the Pebble East deposit, as well as
expanding its mineral resources by 14%.

The comprehensive program will continue in 2008, with a focus
on:

- Infill and step out drilling is planned to upgrade a portion of the mineral
  resources in the Pebble East deposit to an indicated category and support a
  prefeasibility study. Drilling will also test for the full extent of the
  deposit.
- Geotechnical data collection, detailed metallurgical testwork and
  infrastructure studies.
- Ongoing community engagement programs with a focus on project
  presentations, mining education tours, employee training and economic
  development programs.

|1.2.2 | Limited Partnership
      Established to Advance the Pebble Project
|----- | -------------------------------------------------------------------

On July 26, 2007, the Company converted a wholly-owned general
partnership formed in 2006 to hold its Pebble Property interests into a limited
partnership, the Pebble Limited Partnership (the Partnership), so that an
indirect wholly-owned subsidiary of Anglo American plc (Anglo) could subscribe
for 50% of the Partnership's equity effective July 31, 2007. Each of the Company
and Anglo effectively have equal rights in the Partnership through wholly-owned
affiliates. To maintain its 50% interest in the Partnership, Anglo will be
required to make staged cash investments into the Partnership aggregating to
US$1.425 billion.

Anglos staged investment includes a committed expenditure of
US$125 million to complete a prefeasibility study targeted for the end of 2008.
After the completion of the prefeasibility study, Anglo must, in order to
retain its 50% interest, elect to commit to a further US$325 million for a
feasibility study, the completion and approval of which is targeted for 2011 and
is expected to take the partnership to a production decision. Upon the decision
to develop a mine, Anglo must elect to commit to the next US$975 million of
expenditures to retain its 50% interest, completion of which will meet the
US$1.425 billion requirement. Thereafter, any further expenditure will be funded
on a 50:50 basis. If the feasibility study is completed after 2011, Anglos
overall funding requirement increases to US$1.5 billion.

The partnership agreement provides for equal project control
rights with no operators fees payable to either party.

The Company determined that the Partnership is a variable
interest entity (VIE) in accordance with

Accounting Guideline 15 (AcG-15), Consolidation of
Variable Entities. AcG-15 prescribes the application of consolidation
principles for entities that meet the definition of a VIE and for which the
Company is considered the primary beneficiary. The Company has concluded that it
is the primary beneficiary of the VIE and consequently has consolidated the
activities of the Partnership from August 1, 2007. Expenditures incurred on the
Pebble Project through the Partnership have been included in the

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|YEAR ENDED DECEMBER 31, 2007        
|MANAGEMENT'S DISCUSSION AND ANALYSIS
|                                    

consolidated statement of operations. Anglos contributions to
December 31, 2007 of $35.5 million (US$35.9 million) have been recorded as a
non-controlling interest in the partnership.

Over the coming months, the partnership will put a management
and operating team in place for the Alaskan-based operating company, guided by a
board of directors with equal representation from Anglo and Northern Dynasty.

|1.2.3 | Technical
      Programs
|----- | ------------------------

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

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

The Pebble West deposit is a near-surface resource that is
amenable to extraction by open pit methods. The estimated mineral resources in
the Pebble West deposit to March 20051,3at a 0.30%
copper-equivalent4,5 cutoff include:

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

The Pebble East deposit is located adjacent and to the east of
Pebble West. Pebble East is deeper but higher grade than Pebble West, and
geotechnical analysis indicates that it is amenable to underground bulk mining.
A new resource estimate was completed in February 20082,3 for Pebble
East. At a 0.60% copper equivalent4,5cut-off, there is:

____________________________________________1
The Pebble West resource estimate was completed in March 2005 under the
direction of David W. Rennie, P. Eng. of Scott Wilson Roscoe Postle Associates
Inc., and R. Mohan Srivastava, M.Sc., P.Geo., of FSS Canada Consultants Inc.,
who are independent Qualified Persons.2 The Pebble East estimate was prepared in February 2008 by David
  Gaunt, P.Geo., Hunter Dickinson Services Inc., and Duncan Campbell, MIMMM, Anglo
  American plc, technical consultants to the Partnership and the Qualified Persons
  for the current resource estimate. Neither would be considered independent.3 By prescribed definition,
Mineral Resources do not have demonstrated economic viability. An Inferred
Mineral Resource is that part of a mineral resource for which quantity and grade
can be estimated on the basis of geological evidence and limited sampling and
reasonably assumed, but not verified, geological and grade
continuity.4 Copper equivalent calculations use metal prices of
US$1.00/lb for copper, US$400/oz for gold, and US$6.00/lb for molybdenum. Copper
equivalent has not been adjusted for metallurgical recoveries. Adjustment
factors to account for differences in relative metallurgical recoveries for
copper, gold and molybdenum will depend upon the completion of definitive
metallurgical testing. CuEQ = Cu % + (Au g/t x 12.86/22.05) + (Mo % x
132.28/22.05) .5 A 0.30% CuEQ cut-off is considered to be
comparable to that used for porphyry deposit open pit mining operations in the
Americas. For bulk underground mining higher cut-offs, such as 0.60% CuEQ, are
typically used. All cut-offs are subject to a feasibility study

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|YEAR ENDED DECEMBER 31, 2007        
|MANAGEMENT'S DISCUSSION AND ANALYSIS
|                                    

- Inferred Resource of 3.9 billion tonnes grading 0.58% copper, 0.36 g/t gold
    and 0.033% molybdenum2, containing 49 billion pounds of copper,
    45 million ounces of gold, and 2.8 billion pounds of molybdenum.

Exploration and Resource Drilling

The 2007 program focused on Pebble East and consisted of two
components: delineation drilling and infill drilling, totaling some 157,000 feet
in 36 holes. Drill holes intersected long intervals of high-grade
copper-gold-molybdenum mineralization, consistently exceeding 1% copper
equivalent. The deposit remains open.

An updated estimate has been completed, increasing the inferred
mineral resources in the Pebble East Deposit by 14%. Results are tabulated
below. The estimate was prepared by technical consultants to the Partnership,
based on geological and assay information from 162 diamond drill holes completed
in the Pebble East area.

PEBBLE EAST DEPOSIT - INFERRED MINERAL RESOURCES AT FEBRUARY
2008

Cut-Off
    Size
    Grade
    Contained MetalCuEQ2,3 %
    Million Tonnes
    Copper %
    Gold g/t
    Molybdenum %
    CuEQ2 %
    Copper B lb
    Gold M oz
    Molybdenum B lb0.60
    3860
    0.58
    0.36
    0.033
    0.99
    49
    45
    2.80.70
    3100
    0.64
    0.39
    0.033
    1.07
    44
    39
    2.30.80
    2420
    0.71
    0.42
    0.034
    1.16
    38
    33
    1.80.90
    1900
    0.77
    0.46
    0.035
    1.25
    32
    28
    1.51.00
    1520
    0.82
    0.49
    0.035
    1.32
    27
    24
    1.21.10
    1200
    0.87
    0.53
    0.035
    1.40
    23
    21
    0.9


Engineering

Engineering work in 2007 was focused in the following
areas:

- Collection of additional site and underground geotechnical data to support
  ongoing mine design work;
- Completion of metallurgical testwork on Pebble East to optimize
  conventional processing systems and designs;
- Continuation of assessments of the major infrastructure elements (access
  road, port and power) in order to establish the optimum alternatives and
  designs for these Project components; and
- Assessment of potential project mine plans that would extract portions of
  the extensive mineral resources available to determine likely scenarios for
  the prefeasibility study.

Geotechnical Data

Pebble East

The Pebble East geotechnical data collection program is managed
  by a international independent consulting firm. The objective of this program
  is to collect geotechnical data to support design of an important underground
  mine at Pebble East. In the first quarter, data was collected from the acoustic
  logger, and logged and collated by site staff. Personnel from the geotechnical
  consulting firm arrived on site in the second quarter of 2007 and, from then
  until the end of December, one rig was dedicated to a program that included
  drilling and logging oriented core. A number of holes were tested using the
  acoustic logger and geotechnical data was collected from all core by the Partnership
  personnel under the supervision of the independent consultant.

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|YEAR ENDED DECEMBER 31, 2007        
|MANAGEMENT'S DISCUSSION AND ANALYSIS
|                                    

Surface

A surface geotechnical program, designed to supplement the
extensive database collected in previous years, took place during the third and
fourth quarters of 2007. The data will be used in the design of site
infrastructure, tailings and water management systems. A total of 46 holes were
laid out for the program, and 26 were completed by the end of the field
season.

Metallurgy

More detailed flotation and comminution testwork for the Pebble
East deposit commenced in January 2007, building on the scoping work done in
2006. Comminution techniques reduce the size of rock material to liberate
minerals of interest. The initial phase of Pebble East comminution program was
completed during the second quarter, and additional work identified for Pebble
East and West. Samples were collected and shipped for tests to be completed in
2008.

In addition to testing for use of conventional grinding
technology, a suite of samples was subjected to High Pressure Grinding Roll
(HPGR) tests in 2007. The tests showed that there would be no advantage to
utilizing HPGR at Pebble. Crushing tests were also carried out in fourth
quarter.

A grind versus net present value analysis was completed on
Pebble East samples. The analysis indicated that the optimum primary grind size
would be approximately 200 microns, which is significantly coarser than the
values used for planning to date. Using a coarser grind could significantly
increase throughput for the same power draw through the currently planned
grinding circuit or, alternately, obtain the same throughput with less grinding
power. This work continues, with expected completion in the first quarter of
fiscal 2008.

Flotation development work, including testing flotation
conditions and determining reagent types, consumption, and recovery parameters,
was completed in the second quarter. As the flowsheet is different than that
originally devised for Pebble West, it must be re-tested with additional Pebble
West samples. A new batch of samples was acquired by drilling nine holes at the
Pebble West deposit in 2007, which were prepared and shipped from site by the
end of the program. Work to confirm the flowsheet and reagent scheme for Pebble
East as well as Pebble West and blended ore scenarios will take place in 2008.
Additional grinding tests will be conducted on these samples.

Copper, gold and molybdenum recoveries achieved to flotation
  concentrate, projected to a 26% copper concentrate, were 91% for copper, 64%
  for gold and 94% for molybdenum. Silver recovery is estimated at 50%. Palladium
  has been detected in the Pebble East material. Payable levels of rhenium have
  also been found in the molybdenum concentrate. Testwork is underway to determine
  expected recoveries, as all of these metals have the potential to add significant
  value to the project.

Infrastructure

Although a base case for the project infrastructure has been
developed, previous studies had shown that there may be additional opportunities
provided through alternatives for the port site and road. Alternate port site
studies were completed by year-end. This study confirmed that the two port
alternatives that were studied rank very closely and further additional analysis
will be required to make a final selection.

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|YEAR ENDED DECEMBER 31, 2007        
|MANAGEMENT'S DISCUSSION AND ANALYSIS
|                                    

Environmental, Cultural and Socioeconomic Studies

Comprehensive environmental and socioeconomic base-line study
programs continued in 2007, with the objectives of collecting data in the area
of the expanded Pebble East deposit and comparing annual variability. This data
provides a foundation for the sound environmental design of the project and
preparation of state and federal permit applications in future years.

Environmental and socio-economic baseline data studies have now
  been completed for four consecutive years. This work was undertaken by over
  45 independent consulting firms, and expanded the geographic scope of its investigations
  to support Pebble East planning. In addition to the currently obtained data,
  environmental base line information that was collected during the exploration
  activities by the prior operator has been obtained.

The Partnership team continued its efforts to engage people in
  the local communities, as well as other project stakeholders, in an informed
  dialogue on the deposit geology, project design alternatives, and environmental
  studies. Over the past 12 months, 430 meetings have been facilitated with project
  stakeholders throughout the State of Alaska. Local hire/recruiting, workforce
  training, and local business development initiatives were ongoing. Four community
  associates were hired to assist with project education in villages located in
  the area.

In 2007, the Stakeholder Relations (SR) team included eight people
  directly and many others indirectly. The primary goal was to be visible and
  available in the communities. Ninety communities were visited and more than
  45 mining education tours were hosted. Those tours included representatives
  from 95 different stakeholder groups visiting the Pebble site and 47 representatives
  from stakeholder groups attending tours to operating mines in Alaska and British
  Columbia. In addition the SR team made presentations on the Pebble Project to
  52 different groups around Alaska in addition to 40 presentations made during
  site tours.

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

More than 140 local people from more than 16 communities in the
Bristol Bay area were employed by the Project last year, and significant
expenditures were made on local goods, services and salaries. On-site training
programs have enabled more local people to be hired and workers to be advanced
to positions requiring more skill and responsibility. The Partnership has also
continued to provide financial support to enable mining and natural resources
career education to be introduced at schools in the local region.

Plans for 2008

Drilling

A 157,000-foot infill and delineation drill program commenced
in mid February 2008. The drill program is designed to upgrade the resource
classification of a portion of the Pebble East mineral resources to an

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|YEAR ENDED DECEMBER 31, 2007        
|MANAGEMENT'S DISCUSSION AND ANALYSIS
|                                    

indicated category in preparation for prefeasibility mine
planning studies. Drilling will also test for the outside limits of the
deposit.

Environmental

Environmental and socioeconomic study program objectives for
  2008 include collection of data to cover the expanded Pebble East deposit area
  and to compare annual variability. This data provides a foundation for the sound
  environmental design of the project and preparation of state and federal permit
  applications in future years. The primary focus of 2008 field programs will
  be in the areas of water, aquatic/fish, terrestrial/wildlife, wetlands, and
  subsistence/traditional use. As well, a draft of the Pebble Project Environmental
  Baseline Document will incorporate 2007 data.

Stakeholder Relations

This year stakeholder relations will be focused on introducing
and explaining the Partnership and to introduce Anglo and what Anglo brings to
the Project. The Stakeholder Relations team will continue their same level of
outreach in communities and around the State. The Partnership will also be
working closely with The Keystone Center and stakeholders to help design a
stakeholder dialogue process that will be most acceptable to Pebble
Stakeholders.

Stakeholder tours to operating mines are also planned for 2008.
These tours are an excellent opportunity for stakeholders to learn about mining.
Many participants come away with a better understanding about mining, gaining
answers to many of their questions, as well as education to tell their
communities and families about when they return home.

Workforce development and education plans for 2008 include
additional training in the areas of various equipment operations, health, safety
and environment, and other areas. College sponsorship programs for high school
students will also be continued.

|1.2.4 | Market Trends
|----- | -------------

Overall, copper prices have been increasing since late 2003 and
averaged US$3.22/lb in 2007. In 2008, copper prices have averaged US$3.48/lb to
March 20. Forecasts suggest that there will be continued strong demand over the
medium term, keeping prices above US$2.50/lb, and growing demand over the longer
term.

Gold prices have been increasing for more than three years. The
gold price averaged approximately US$695/oz in 2007. Gold prices have increased
significantly in 2008, averaging US$925/oz to March 20. Gold prices are forecast
to show continued strength over the medium to long term.

Molybdenum prices increased from US$7.60/lb in 2003 and peaked
in 2005 at an average price of US$34/lb. Prices decreased in 2006, averaging
US$25.53/lb over the year, and strengthened again in 2007, averaging US$30.47/lb
for the year. In 2008, molybdenum prices have averaged US$33.72/lb to March 20.
Molybdenum prices are expected to moderate but average at or above US$18/lb
through 2010.

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|------------------------------------
|YEAR ENDED DECEMBER 31, 2007        
|MANAGEMENT'S DISCUSSION AND ANALYSIS
|                                    

|1.3 | Selected Annual
      Information
|--- | ---------------------------------

The consolidated financial statements have been prepared in
accordance with Canadian generally accepted accounting principles, and are
expressed in thousands of Canadian dollars, except per share amounts.

|                                                     |   | As at       |   |   | As at       |   |   | As at       |  
|---------------------------------------------------- | - | ----------- | - | - | ----------- | - | - | ----------- | -
|                                                     |   | December 31 |   |   | December 31 |   |   | December 31 |  
|                                                     |   | 2007        |   |   | 2006        |   |   | 2005        |  
|Current assets                                       | $ | 41,381      |   | $ | 98,112      |   | $ | 14,178      |  
|Mineral properties                                   |   | 168,222     |   |   | 168,222     |   |   | 16,707      |  
|Other assets                                         |   | 674         |   |   | 633         |   |   | 411         |  
|Total
      assets                                   |   | 210,277     |   |   | 266,967     |   |   | 31,296      |  
|                                                     |   |             |   |   |             |   |   |             |  
|Current liabilities                                  |   | 7,628       |   |   | 7,839       |   |   | 3,161       |  
|Other liabilities                                    |   | 93,338      |   |   | 61,601      |   |   |            |  
|Shareholders
      equity                           |   | 109,311     |   |   | 197,527     |   |   | 28,135      |  
|Total liabilities and shareholders equity           |   | 210,277     |   |   | 266,967     |   |   | 31,296      |  
|                                                     |   |             |   |   |             |   |   |             |  
|Working capital                                      |   | 33,753      |   |   | 90,273      |   |   | 11,017      |  
|                                                     |   |             |   |   |             |   |   |             |  
|Expenses (income)                                    |   |             |   |   |             |   |   |             |  
|Amortization                                         |   | 146         |   |   | 124         |   |   | 93          |  
|Conference and travel                                |   | 1,161       |   |   | 936         |   |   | 701         |  
|Exploration                                          |   | 86,424      |   |   | 50,613      |   |   | 43,066      |  
|Legal, accounting and audit                          |   | 1,649       |   |   | 931         |   |   | 313         |  
|Office and administration                            |   | 5,062       |   |   | 3,041       |   |   | 2,362       |  
|Shareholder communication                            |   | 623         |   |   | 386         |   |   | 367         |  
|Trust and filing                                     |   | 485         |   |   | 149         |   |   | 193         |  
|Foreign exchange loss (gain)                         |   | 3,878       |   |   | (773        | ) |   | (282        | )
|Future income tax recovery                           |   | (3,815      | ) |   | (637        | ) |   |            |  
|Loss on disposal of fixed assets                     |   | 11          |   |   |            |   |   |            |  
|Gain on disposal of marketable securities            |   | (1          | ) |   | (194        | ) |   |            |  
|Interest income                                      |   | (2,749      | ) |   | (2,238      | ) |   | (585        | )
|Stock-based compensation  exploration               |   | 4,644       |   |   | 1,882       |   |   | 1,788       |  
|Stock-based compensation  administration            |   | 6,489       |   |   | 4,163       |   |   | 2,302       |  
|Loss for the
      year                              |   | 104,007     |   |   | 58,383      |   | $ | 50,318      |  
|                                                     |   |             |   |   |             |   |   |             |  
|Basic and diluted loss per common share              | $ | 1.13        |   | $ | 0.75        |   | $ | 0.90        |  
|                                                     |   |             |   |   |             |   |   |             |  
|Weighted average number of common shares outstanding |   | 91,978,571  |   |   | 77,708,870  |   |   | 55,845,791  |  

Page 9

---

|                                    
|------------------------------------
|YEAR ENDED DECEMBER 31, 2007        
|MANAGEMENT'S DISCUSSION AND ANALYSIS
|                                    

|1.4 | Summary of Quarterly
      Results
|--- | ----------------------------------

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

|                            |   | Dec 31   |   |   | Sep 30  |   |   | Jun 30  |   |   | Mar 31  |   |   | Dec 31  |   |   | Sep 30  |   |   | Jun 30  |   |   | Mar 31 |  
|--------------------------- | - | -------- | - | - | ------- | - | - | ------- | - | - | ------- | - | - | ------- | - | - | ------- | - | - | ------- | - | - | ------ | -
|                            |   | 2007     |   |   | 2007    |   |   | 2007    |   |   | 2007    |   |   | 2006    |   |   | 2006    |   |   | 2006    |   |   | 2006   |  
|Current assets              | $ | 41,381   |   | $ | 46,068  |   | $ | 59,913  |   | $ | 82,611  |   | $ | 98,112  |   | $ | 107,966 |   | $ | 22,516  |   | $ | 11,885 |  
|Mineral properties          |   | 168,222  |   |   | 168,222 |   |   | 168,222 |   |   | 168,222 |   |   | 168,222 |   |   | 152,178 |   |   | 152,096 |   |   | 16,707 |  
|Other assets                |   | 674      |   |   | 594     |   |   | 669     |   |   | 715     |   |   | 633     |   |   | 512     |   |   | 391     |   |   | 394    |  
|Total assets                |   | 210,277  |   |   | 214,884 |   |   | 228,804 |   |   | 251,548 |   |   | 266,967 |   |   | 260,656 |   |   | 175,003 |   |   | 28,986 |  
|                            |   |          |   |   |         |   |   |         |   |   |         |   |   |         |   |   |         |   |   |         |   |   |        |  
|Current liabilities         |   | 7,628    |   |   | 7,199   |   |   | 7,311   |   |   | 5,821   |   |   | 7,839   |   |   | 6,391   |   |   | 4,166   |   |   | 2,987  |  
|Other liabilities           |   | 93,338   |   |   | 74,441  |   |   | 58,663  |   |   | 60,619  |   |   | 61,601  |   |   | 46,195  |   |   | 46,194  |   |   |       |  
|Shareholders equity        |   | 109,311  |   |   | 133,244 |   |   | 162,830 |   |   | 185,108 |   |   | 197,527 |   |   | 208,070 |   |   | 124,643 |   |   | 25,999 |  
|Total liabilities and       |   |          |   |   |         |   |   |         |   |   |         |   |   |         |   |   |         |   |   |         |   |   |        |  
|shareholders equity        |   | 210,2778 |   |   | 214,884 |   |   | 228,804 |   |   | 251,548 |   |   | 266,967 |   |   | 260,656 |   |   | 175,003 |   |   | 28,986 |  
|                            |   |          |   |   |         |   |   |         |   |   |         |   |   |         |   |   |         |   |   |         |   |   |        |  
|Working capital             |   | 33,753   |   |   | 38,869  |   |   | 52,602  |   |   | 76,790  |   |   | 90,273  |   |   | 101,574 |   |   | 18,350  |   |   | 8,898  |  
|                            |   |          |   |   |         |   |   |         |   |   |         |   |   |         |   |   |         |   |   |         |   |   |        |  
|Expenses                    |   |          |   |   |         |   |   |         |   |   |         |   |   |         |   |   |         |   |   |         |   |   |        |  
|Amortization                |   | 34       |   |   | 36      |   |   | 47      |   |   | 30      |   |   | 61      |   |   | 26      |   |   | 19      |   |   | 18     |  
|Conference and travel       |   | 434      |   |   | 278     |   |   | 281     |   |   | 168     |   |   | 375     |   |   | 199     |   |   | 184     |   |   | 178    |  
|Exploration                 |   | 23,529   |   |   | 27,396  |   |   | 21,761  |   |   | 13,738  |   |   | 16,565  |   |   | 16,115  |   |   | 11,055  |   |   | 6,877  |  
|Legal, accounting and audit |   | 692      |   |   | 495     |   |   | 175     |   |   | 287     |   |   | 324     |   |   | 240     |   |   | 205     |   |   | 163    |  
|Office and administration   |   | 1,241    |   |   | 1,710   |   |   | 826     |   |   | 1,285   |   |   | 732     |   |   | 696     |   |   | 865     |   |   | 749    |  
|Shareholder communication   |   | 125      |   |   | 115     |   |   | 263     |   |   | 119     |   |   | 139     |   |   | 69      |   |   | 95      |   |   | 83     |  
|Trust and filing            |   | 216      |   |   | 39      |   |   | 138     |   |   | 92      |   |   | 2       |   |   | 29      |   |   | 11      |   |   | 107    |  
|Subtotal                    |   | 26,271   |   |   | 30,069  |   |   | 23,490  |   |   | 15,719  |   |   | 18,198  |   |   | 17,374  |   |   | 12,434  |   |   | 8,175  |  
|Foreign exchange loss       |   |          |   |   |         |   |   |         |   |   |         |   |   |         |   |   |         |   |   |         |   |   |        |  
|(gain)                      |   | 767      |   |   | 1,266   |   |   | 1,947   |   |   | (102    | ) |   | (746    | ) |   | (230    | ) |   | 268     |   |   | (65    | )
|Interest income             |   | (401     | ) |   | (560    | ) |   | (821    | ) |   | (968    | ) |   | (984    | ) |   | (943    | ) |   | (177    | ) |   | (133   | )
|Loss on disposal of fixed   |   |          |   |   |         |   |   |         |   |   |         |   |   |         |   |   |         |   |   |         |   |   |        |  
|assets                      |   |         |   |   | 11      |   |   |        |   |   |        |   |   |        |   |   |        |   |   |        |   |   |       |  
|Gain on disposal of         |   |          |   |   |         |   |   |         |   |   |         |   |   |         |   |   |         |   |   |         |   |   |        |  
|marketable securities       |   | (1       | ) |   |        |   |   |        |   |   |        |   |   |        |   |   |        |   |   |        |   |   | (194   | )
|Subtotal                    |   | 26,636   |   |   | 30,786  |   |   | 24,616  |   |   | 14,649  |   |   | 16,468  |   |   | 16,201  |   |   | 12,525  |   |   | 7,783  |  
|Stock-based compensation    |   | 1,644    |   |   | 2,384   |   |   | 3,168   |   |   | 3,937   |   |   | 1,339   |   |   | 1,048   |   |   | 2,555   |   |   | 1,103  |  
|Future income tax recovery  |   | (43      | ) |   | (832    | ) |   | (1,956  | ) |   | (982    | ) |   | (638    | ) |   |        |   |   |        |   |   |       |  
|Loss for the period         | $ | 28,237   |   | $ | 32,338  |   | $ | 25,828  |   | $ | 17,604  |   | $ | 17,169  |   | $ | 17,249  |   | $ | 15,080  |   | $ | 8,886  |  
|                            |   |          |   |   |         |   |   |         |   |   |         |   |   |         |   |   |         |   |   |         |   |   |        |  
|Basic and diluted loss per  |   |          |   |   |         |   |   |         |   |   |         |   |   |         |   |   |         |   |   |         |   |   |        |  
|common share                | $ | 0.31     |   | $ | 0.35    |   | $ | 0.28    |   | $ | 0.19    |   | $ | 0.19    |   | $ | 0.20    |   | $ | 0.21    |   | $ | 0.15   |  
|                            |   |          |   |   |         |   |   |         |   |   |         |   |   |         |   |   |         |   |   |         |   |   |        |  
|Weighted average number     |   |          |   |   |         |   |   |         |   |   |         |   |   |         |   |   |         |   |   |         |   |   |        |  
|of common shares            |   |          |   |   |         |   |   |         |   |   |         |   |   |         |   |   |         |   |   |         |   |   |        |  
|outstanding YTD             |   |          |   |   |         |   |   |         |   |   |         |   |   |         |   |   |         |   |   |         |   |   |        |  
|(thousands)                 |   | 92,264   |   |   | 91,968  |   |   | 91,922  |   |   | 91,756  |   |   | 91,027  |   |   | 86,599  |   |   | 71,977  |   |   | 60,804 |  

Page 10

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|                                    
|------------------------------------
|YEAR ENDED DECEMBER 31, 2007        
|MANAGEMENT'S DISCUSSION AND ANALYSIS
|                                    

|1.5 | Results of
      Operations
|--- | ---------------------------

Loss for the year ended December 31, 2007 increased to $104.0
million, compared to a loss of $58.4 million in the previous fiscal year.
Included in the loss for the current year was a non-cash stock-based
compensation expense of $11.1 million (2006  $6.0 million).

Expenses, excluding stock-based compensation, foreign exchange,
interest income, and future income taxes, increased to $95.5 million from $56.2
million in the previous year due to higher exploration activity and an earlier
start on the exploration program.

Exploration costs increased to $86.4 million from $50.6 million
in the previous year. The main exploration expenditures during the year
were:

- environmental planning and testing (2007  $19.6 million; 2006  $13.7
  million);
- site activities (2007  $18.6 million; 2006  $10.3 million);
- drilling (2007  $17.7 million; 2006  $7.6 million) and
- helicopter transportation (2007  $11.6 million; 2006  $5.6 million).
- engineering (2007  $4.5 million; 2006  $4.7 million)
- socioeconomic (2007  $7.8 million; 2006  $4.6 million)

The increase in exploration costs is due to increased drilling
associated with the Pebble East deposit with some 157,000 feet in 36 holes being
drilled that encompassed both delineation and infill drilling. This assisted the
Company in expanding its mineral resources in the the Pebble East deposit (refer
1.2.3) . The increase in environmental and socioeconomic costs was due to the
on-going environmental data collection in the area of the expanded Pebble East
deposit and increased community engagagement programs, both of which have
advanced the understanding of the Pebble East deposit including providing a
foundation for a sound environmental design of the project and preparation of
state and federal permit applications in future years.

Office and administration costs increased to $5.1 million from
$3.0 million in the previous year mainly due to increased administrative
activities required to support work at the Pebble site and advisory fees. Legal,
accounting and audit increased to $1.6 million from $0.9 million due to legal
advisory services incurred for regulatory and environmental matters and
accounting tax services related to the transaction with Anglo.

Increased stock-based compensation of $11.1 million was charged
to operations during the year ended December 31, 2007, compared to $6.0 million
in the previous year, due to the amortization of stock based compensation
granted in the prior year and options granted during the year.

There was a future income tax recovery during the year of $3.8
million (2006  $0.6) due to the build up of losses and resource pools available
to reduce future income.

Page 11

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|                                    
|------------------------------------
|YEAR ENDED DECEMBER 31, 2007        
|MANAGEMENT'S DISCUSSION AND ANALYSIS
|                                    

|1.6 | Liquidity
|--- | ---------

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

At December 31, 2007, the Company had working capital of
approximately $33.8 million as compared to $90.3 million at December 31,
2006.

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

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

|1.7 | Capital
      Resources
|--- | -----------------------

At December 31, 2007, Northern Dynasty had working capital of
approximately $33.8 million, as compared to $90.3 million at December 31, 2006.
The Company has no long-term debt and had 92,543,639 common shares issued and
outstanding at December 31, 2007.

On July 26, 2007, the Company converted a wholly-owned general
partnership formed in 2006 to hold its Pebble Property interests into a limited
partnership, the Pebble Limited Partnership (the Partnership), so that an
indirect wholly-owned subsidiary of Anglo American plc (Anglo) could subscribe
for 50% of the Partnership's equity effective July 31, 2007. Each of the Company
and Anglo effectively have equal rights in the Partnership through wholly-owned
affiliates. To maintain its 50% interest in the Partnership, Anglo will be
required to make staged cash investments into the Partnership aggregating to
US$1.425 billion over a period of several years (refer 1.2.2) .

The Company had no commitments for material capital
expenditures as of December 31, 2007.

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

|1.8 | Off-Balance Sheet
      Arrangements
|--- | ------------------------------------

None.

|1.9 | Transactions with
      Related Parties
|--- | ---------------------------------------

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

Page 12

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|                                    
|------------------------------------
|YEAR ENDED DECEMBER 31, 2007        
|MANAGEMENT'S DISCUSSION AND ANALYSIS
|                                    

Costs for services rendered by HDSI to the Company were $5.4
  million for the year ended December 31, 2007 as compared to $3.7 million for
  the comparable period in 2006. The increase over 2006 is due to the increased
  level of activity of the Company that saw additional resources being provided
  by HDSI to assist the Companys exploration and development activities.
  Included in the total of services provided by HDSI for the year ended December
  31, 2007 is $1,483 invoiced to the Partnership for services from August 1, 2007.

During the year ended December 31, 2007, the Company paid $0.2
million (2006  $0.2 million) to a private company controlled by Bruce Jenkins,
the Chief Operating Officer of a wholly-owned private US subsidiary of the
Company until July 31, 2007 and the Partnership from August 1, 2007 onwards, for
project management services.

During the year ended December 31, 2007, the Company paid $0.02
million (2006 - $nil) to a private company controlled by Dave Copeland, a
director of the Company, for consulting engineering services.

During the year ended December 31, 2007, the Company received
the required cash payment of $3.7 million from holders of 748,000 common share
purchase options which were exercised but could not be traded until an
internally imposed share trading blackout period which was applicable to these
persons had been lifted. The common share certificates in respect of these
exercised options were held by the Company until the cash payment had been
received after the lifting of the blackout in early 2007.

|1.10 | Fourth
      Quarter
|---- | --------------------

The Company reported a loss for the fourth quarter of 2007 of
$28.2 million from $32.3 million in the third quarter and $17.2 million in the
fourth quarter of 2006. The decrease in the current quarter as compared to the
prior quarter was due to lower exploration expenses and a decrease in
stock-based compensation to $1.6 million from $2.4 million in the prior quarter.
Also office and administration costs decreased to $1.2 million from $1.7 million
in the third quarter of the year. The increase from 2006 was due to higher
exploration expenses and foreign exchange.

|1.11 | Proposed
      Transactions
|---- | ---------------------------

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

|1.12 | Critical Accounting
      Estimates
|---- | -----------------------------------

The Company's accounting policies are presented in notes 3 and
4 of the audited consolidated financial statements for the year ended December
31, 2007. The preparation of consolidated financial statements in accordance
with generally accepted accounting principles requires management to select
accounting policies and make estimates. Such estimates may have a significant
impact on the financial statements. These estimates include:

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

Page 13

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|                                    
|------------------------------------
|YEAR ENDED DECEMBER 31, 2007        
|MANAGEMENT'S DISCUSSION AND ANALYSIS
|                                    

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

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

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

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

Stock-based compensation expense

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

Asset retirement obligations

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

|1.13 | Changes in Accounting
      Policies including Initial Adoption
|---- | ---------------------------------------------------------------

|(a) | Newly Adopted Accounting Policies
|--- | ---------------------------------

Effective January 1, 2007, the Company
adopted the following new accounting standards issued by the Canadian Institute
of Chartered Accountants (CICA) relating to financial instruments. As required
by the transitional provisions of these new standards, these new standards have
been adopted on a prospective basis with no restatement to prior period
financial statements.

Page 14

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|                                    
|------------------------------------
|YEAR ENDED DECEMBER 31, 2007        
|MANAGEMENT'S DISCUSSION AND ANALYSIS
|                                    

| | (i)  | Section 3855 
        Financial Instruments  Recognition and Measurement.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |      | This
        standard requires all financial instruments within its scope, including
        derivatives, to be included on a Companys balance sheet and
        measured either at fair value or, in certain circumstances at cost or
        amortized cost. Changes in fair value are to be recognized in the statements
        of operations or other comprehensive income (loss), depending on the classification
        of that related instrument.                                                                                                                                                                                                                                                                                                                            
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |      | All
        financial assets and liabilities are recognized when the entity becomes
        a party to the contract creating the asset or liability. As such,
        any of the Companys outstanding financial assets and liabilities
        at the effective date of adoption are recognized and measured in accordance
        with the new requirements as if these requirements had always been in
        effect. Any changes to the fair values of assets and liabilities prior
        to January 1, 2007 are recognized by adjusting opening deficit or opening
        accumulated other comprehensive income (loss). On adoption of this standard
        no adjustments to opening deficit or opening accumulated other comprehensive
        income (loss) were required.
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |      | All
        financial instruments are classified into one of the following categories:
        held for trading, held-to-maturity, loans and receivables, available-for-sale
        financial assets, other financial liabilities or derivatives. Initial
        and subsequent measurement and recognition of changes in the value of
        financial instruments depends on their initial classification:                                                                                                                                                                                                                                                                                                                                                                         
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |      | In accordance with
        this new standard, the Company has classified its financial instruments
        as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | (ii) | Section 3865 
        Hedges.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |      | This new standard specifies
        the circumstances under which hedge accounting is permissible and how
        hedge accounting may be performed. The Company currently does not have
        any financial instruments which qualify for hedge accounting.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

Page 15

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|                                    
|------------------------------------
|YEAR ENDED DECEMBER 31, 2007        
|MANAGEMENT'S DISCUSSION AND ANALYSIS
|                                    

| | (iii) | Section 1530  Comprehensive Income
      (Loss).
| | ----- | -------------------------------------------------

Comprehensive income (loss) is the change in the Companys shareholders equity
that results from transactions, events, and circumstances from other than the
Companys shareholders and includes items that would not normally be included in
net income (loss), such as unrealized gains or losses on available-for-sale
investments. This standard requires certain gains and losses that would
otherwise be recorded as part of net earnings be presented in accumulated other
comprehensive income(loss) until it is considered
appropriate to recognize into net income(loss). This
standard also mandates the presentation of comprehensive income(loss), and its components, with the same prominence as
the other line items in the financial statements.

Accordingly, the Company now reports a
consolidated statement of comprehensive income and includes the category
accumulated other comprehensive income in the shareholders equity section of
the consolidated balance sheet. As at December 31, 2007, the Company had
accumulated other comprehensive loss of $3, and for the year ended December 31,
2007, comprehensive loss was $2 greater than the net loss.

| | (iv) | Section 1506 - Accounting Changes
| | ---- | ---------------------------------

This standard establishes criteria for
changing accounting policies, together with the accounting treatment and
disclosure of changes in accounting policies, changes in accounting estimates
and correction of errors. As a result, changes in accounting policies are only
permitted when required by a primary source of generally accepted accounting
principles or when the change will result in more reliable and more relevant
information.

|(b) | Accounting Policies Not Yet Adopted
|--- | -----------------------------------

| | (i)  | Section 1535  Capital Disclosures                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |      | This standard requires disclosure of an entity's
      objectives, policies and processes for managing capital, quantitative data
      about what the entity regards as capital and whether the entity has
      complied with any capital requirements and, if it has not complied, the
      consequences of such non-compliance. This standard is
      effective for the Company for interim and annual periods relating to
      fiscal years beginning on or after January 1, 2008. The Company is
      currently evaluating the effects of adopting this
  standard.                                                                                                                                                                                                                                                                                                                           
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | (ii) | Financial Instruments  Disclosure (Section 3862) and
      Presentation (Section 3863)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |      | These standards replace CICA 3861, Financial
      Instruments  Disclosure and Presentation. They increase the
      disclosures currently required, which will enable users to evaluate the
      significance of financial instruments for an entity's financial position
      and performance, including disclosures about fair value. In addition,
      disclosure is required of qualitative and quantitative information about
      exposure to risks arising from financial instruments, including specified
      minimum disclosures about credit risk, liquidity risk and market risk. The
      quantitative disclosures must provide information about the extent to
      which the entity is exposed to risk, based on information provided
      internally to the entitys key management personnel. This standard is effective for the Company for interim and
      annual periods

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|                                    
|------------------------------------
|YEAR ENDED DECEMBER 31, 2007        
|MANAGEMENT'S DISCUSSION AND ANALYSIS
|                                    

| |       | beginning on or after January 1,
      2008. The Company expects that its disclosures will be expanded to
      incorporate the additional requirements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | ----- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | (iii) | Amendments to Section 1400  Going
  Concern                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |       | CICA 1400,General Standards of Financial Statement
      Presentation, was amended to include
      requirements to assess and disclose an entity's ability to continue as a
      going concern. The new requirements are effective for interim and annual
      financial statements relating to fiscal years beginning on or after
      January 1, 2008.The Company is currently evaluating the impact of
      this new standard.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | (iv)  | International Financial Reporting Standards
      ("IFRS")                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |       | In 2006, the Canadian Accounting Standards Board ("AcSB")
      published a new strategic plan that will significantly affect financial
      reporting requirements for Canadian companies. The AcSB strategic plan
      outlines the convergence of Canadian GAAP with IFRS over an expected five
      year transitional period. In February 2008, the AcSB announced that 2011
      is the changeover date for publicly-listed companies to use IFRS,
      replacing Canada's own GAAP. The date is for interim and annual financial
      statements relating to fiscal years beginning on or after January 1, 2011.
      The transition date of January 1, 2011 will require the restatement for
      comparative purposes of amounts reported by the Company for the year ended
      December 31, 2010. While the Company has begun assessing the adoption of
      IFRS for 2011, the financial reporting impact of the transition to IFRS
      cannot be reasonably estimated at this time.

|1.14 | Financial Instruments
      and Other Instruments
|---- | -------------------------------------------------

None.

|1.15 | Other MD&A
      Requirements
|---- | -----------------------------

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

|1.15.1 | Additional Disclosure
      for Venture Issuers without Significant Revenue
|------ | ---------------------------------------------------------------------------

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

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|                                    
|------------------------------------
|YEAR ENDED DECEMBER 31, 2007        
|MANAGEMENT'S DISCUSSION AND ANALYSIS
|                                    

|1.15.2 | Disclosure of
      Outstanding Share Data
|------ | ------------------------------------------

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

|                       |  | Expiry
      date |  |   | Exercise price |  |  | Number  |  |  | Number     | 
|---------------------- |  | ----------------- |  | - | -------------- |  |  | ------- |  |  | ---------- | 
|Common shares          |  |                   |  |   |                |  |  |         |  |  | 92,543,639 | 
|                       |  |                   |  |   |                |  |  |         |  |  |            | 
|Share purchase options |  | April 30, 2009    |  | $ | 7.25           |  |  | 359,400 |  |  |            | 
|                       |  | April 30, 2011    |  | $ | 7.25           |  |  | 945,000 |  |  |            | 
|                       |  | April 30, 2009    |  | $ | 9.81           |  |  | 50,000  |  |  |            | 
|                       |  | April 30, 2009    |  | $ | 10.32          |  |  | 593,000 |  |  |            | 
|                       |  | February 20, 2012 |  | $ | 10.95          |  |  | 828,000 |  |  | 2,775,400  | 

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|                                    
|------------------------------------
|YEAR ENDED DECEMBER 31, 2007        
|MANAGEMENT'S DISCUSSION AND ANALYSIS
|                                    

|1.15.3 | Internal Controls over
      Financial Reporting Procedures
|------ | -----------------------------------------------------------

The management of the Company is responsible for establishing
and maintaining adequate internal controls over financial reporting. The
Companys internal control system was designed to provide reasonable assurance
to the Companys management and the board of directors regarding the preparation
and fair presentation of published financial statements. Internal control over
financial reporting includes those policies and procedures that: (1) pertain to
the maintenance of records that in reasonable detail accurately and fairly
reflect the transactions and dispositions of the assets of the Company, (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with GAAP, and that
receipts and expenditures of the Company are being made only in accordance with
authorizations of management and directors of the Company, and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the Companys assets that could have a
material effect on the financial statements. All internal control systems, no
matter how well designed, have inherent limitations. Therefore, even those
systems determined effective can provide only reasonable assurance with respect
to financial statement preparation and presentation.

The Companys management, with the participation of the Chief
Executive Officer and the Chief Financial Officer, has evaluated the
effectiveness of internal control over financial reporting based on the
framework and criteria established in Internal Control  Integrated Framework,
issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Based on this evaluation, our management has concluded that internal control
over financial reporting was effective as of December 31, 2007 to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements in accordance with GAAP.

|1.15.4 | Disclosure Controls and
      Procedures
|------ | ----------------------------------------

As of the end of the period covered by this report, our
management carried out an evaluation, with the participation of our Chief
Executive Officer and Chief Financial Officer, of the effectiveness of our
disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934 (the Exchange Act)). Based
upon that evaluation, our Chief Executive Officer and Chief Financial Officer
concluded that, as of the end of the period covered by this report, our
disclosure controls and procedures were effective in recording, processing,
summarizing and reporting, on a timely basis, information required to be
disclosed by us in reports that we file or submit under the Exchange Act.

It should be noted that while our Chief Executive Officer and
our Chief Financial Officer believe that our disclosure controls and procedures
provide a reasonable level of assurance that they are effective, they do not
expect that our disclosure controls and procedures or internal control over
financial reporting will prevent all errors and fraud. A control system, no
matter how well conceived or operated, can provide only reasonable, not
absolute, assurance that the objectives of the control system will be met.

Page 19

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|                                    
|------------------------------------
|YEAR ENDED DECEMBER 31, 2007        
|MANAGEMENT'S DISCUSSION AND ANALYSIS
|                                    

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

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