---



CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2008, 2007, AND 2006

(Expressed in thousands of Canadian Dollars)

---

D E V I S S E R   G R A Y  
  L L PCHARTERED ACCOUNTANTS

401 - 905 West Pender StreetVancouver, BC CanadaV6C 1L6

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders of Northern Dynasty Minerals Ltd.

We have audited the consolidated balance sheets of Northern Dynasty
  Minerals Ltd. (the Company) as at December 31, 2008 and 2007, and
  the consolidated statements of operations, comprehensive loss and cash flows
  for each of the years in the three-year period ended December 31, 2008, and
  the consolidated statements of shareholders equity and deficit for each
  of the years in the two year period then ended. We have also audited the Companys
  internal control over financial reporting as of December 31, 2008 based on the
  criteria established in the Internal Control-Integrated Framework issued by
  the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
  The Companys management is responsible for these financial statements,
  for maintaining effective internal control over financial reporting, and for
  its assessment of the effectiveness of internal control over financial reporting.
  Our responsibility is to express an opinion on these financial statements and
  an opinion on the Companys internal control over financial reporting based
  on our audits.

We conducted our audits in accordance with generally accepted
  auditing standards in Canada and the standards of the Public Company Accounting
  Oversight Board (United States). Those standards require that we plan and perform
  the audit to obtain reasonable assurance about whether the financial statements
  are free of material misstatement and whether effective internal control over
  financial reporting was maintained in all material respects. Our audits of the
  financial statements included examining, on a test basis, evidence supporting
  the amounts and disclosures in the financial statements, assessing the accounting
  principles used and significant estimates made by management, and evaluating
  the overall financial statement presentation. Our audit of internal control
  over financial reporting included obtaining an understanding of internal control
  over financial reporting, assessing the risk that a material weakness exists,
  and testing and evaluating the design and operating effectiveness of internal
  control based on the assessed risk. Our audits also included performing such
  other procedures as we considered necessary in the circumstances. We believe
  that our audits provide a reasonable basis for our opinions.

A companys internal control over financial reporting is
  a process designed to provide reasonable assurance regarding the reliability
  of financial reporting and the preparation of financial statements for external
  purposes in accordance with generally accepted accounting principles. A companys
  internal control over financial reporting includes those policies and procedures
  that (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 generally accepted
  accounting principles, and that receipts and expenditures of the company are
  being made only in accordance with authorizations of management and directors
  of the company; and (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.

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

In our opinion, these consolidated financial statements present
  fairly, in all material respects, the financial position of the Company as at
  December 31, 2008 and 2007 and the results of its operations and cash flows
  for each of the years in the three year period ended December 31, 2008 in accordance
  with Canadian generally accepted accounting principles. Also, in our opinion,
  the Company maintained, in all material respects, effective internal control
  over financial reporting as of December 31, 2008, based on the criteria established
  in the Internal Control-Integrated Framework issued by the Committee of Sponsoring
  Organizations of the Treadway Commission (COSO).

De Visser Gray LLP

CHARTERED ACCOUNTANTSVancouver, British Columbia
  March 20, 2009

---

|NORTHERN DYNASTY MINERALS LTD.              
|--------------------------------------------
|Consolidated Balance Sheets                 
|(Expressed in thousands of Canadian Dollars)

|                                                 |   | December
      31 |   |   | December
      31 |  
|------------------------------------------------ | - | ----------------- | - | - | ----------------- | -
|                                                 |   | 2008              |   |   | 2007              |  
|                                                 |   |                   |   |   |                   |  
|ASSETS                                           |   |                   |   |   |                   |  
|                                                 |   |                   |   |   |                   |  
|Current assets                                   |   |                   |   |   |                   |  
|Cash and equivalents                             | $ | 59,201            |   | $ | 40,341            |  
|Marketable securities (note 5)                   |   | 2                 |   |   | 13                |  
|Amounts receivable and prepaids                  |   | 1,109             |   |   | 1,000             |  
|Balance receivable from related parties (note 9) |   |                  |   |   | 27                |  
|                                                 |   | 60,312            |   |   | 41,381            |  
|                                                 |   |                   |   |   |                   |  
|Equipment(note 6)                                |   | 619               |   |   | 674               |  
|Mineral property interests(note 7)               |   | 168,222           |   |   | 168,222           |  
|                                                 |   |                   |   |   |                   |  
|Total Assets                                     | $ | 229,153           |   | $ | 210,277           |  
|                                                 |   |                   |   |   |                   |  
|LIABILITIES AND SHAREHOLDERS' EQUITY             |   |                   |   |   |                   |  
|                                                 |   |                   |   |   |                   |  
|Current liabilities                              |   |                   |   |   |                   |  
|Accounts payable and accrued liabilities         | $ | 12,015            |   | $ | 7,607             |  
|Balance payable to related parties (note 9)      |   | 1,328             |   |   | 21                |  
|                                                 |   | 13,343            |   |   | 7,628             |  
|                                                 |   |                   |   |   |                   |  
|Future income tax liability(note 10)             |   | 57,753            |   |   | 57,786            |  
|Non-controlling interest(note 7(a)(iii))         |   | 194,182           |   |   | 35,552            |  
|                                                 |   | 251,935           |   |   | 93,338            |  
|                                                 |   |                   |   |   |                   |  
|Shareholders' (deficiency) equity                |   |                   |   |   |                   |  
|Share capital                                    |   | 365,202           |   |   | 365,202           |  
|Contributed surplus                              |   | 23,435            |   |   | 18,018            |  
|Accumulated other comprehensive loss             |   | (950              | ) |   | (3                | )
|Deficit                                          |   | (423,812          | ) |   | (273,906          | )
|                                                 |   | (36,125           | ) |   | 109,311           |  
|Subsequent events (note 11)                      |   |                   |   |   |                   |  
|Commitment (note 12)                             |   |                   |   |   |                   |  
|                                                 |   |                   |   |   |                   |  
|Total Liabilities and Shareholders' Equity       | $ | 229,153           |   | $ | 210,277           |  

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

Approved by the Board of Directors

|/s/ Ronald W. Thiessen | /s/ Robert A. Dickinson
|---------------------- | -----------------------
|                       |                        
|Ronald W. Thiessen     | Robert A. Dickinson    
|Director               | Director               

---

|NORTHERN DYNASTY MINERALS LTD.                                                  
|--------------------------------------------------------------------------------
|Consolidated Statements of Operations and Comprehensive
      Loss              
|(Expressed in thousands of Canadian Dollars, except for
      share information)

|                                                                           |   | Years ended December 31 |  
|-------------------------------------------------------------------------- | - | ----------------------- | -
|                                                                           |   | 2008                    |  
|                                                                           |   |                         |  
|Expenses                                                                   |   |                         |  
|Amortization                                                               | $ | 182                     |  
|Conference and travel                                                      |   | 1,756                   |  
|Exploration (see schedule of exploration
      expenses)                   |   | 140,603                 |  
|Foreign exchange loss (gain)                                               |   | (9,168                  | )
|Interest income                                                            |   | (1,268                  | )
|Legal, accounting and audit                                                |   | 1,141                   |  
|Office and administration                                                  |   | 10,657                  |  
|Shareholder communication                                                  |   | 384                     |  
|Stock-based compensation - exploration (note
      8(c))                   |   | 1,641                   |  
|Stock-based compensation -
      administration (note 8(c))                |   | 3,776                   |  
|Trust
      and filing                                                     |   | 235                     |  
|Net loss before the following                                              |   | 149,939                 |  
|Gain on disposal of marketable securities                                  |   |                        |  
|Loss on disposal of fixed assets                                           |   |                        |  
|Net loss before taxes                                                      |   | 149,939                 |  
|Future income tax recovery                                                 |   | (33                     | )
|Loss for the
      year                                                    | $ | 149,906                 |  
|                                                                           |   |                         |  
|Other comprehensive loss                                                   |   |                         |  
|Unrealized loss on
      available-for-sale marketable securities (note 5) |   | 11                      |  
|Reclassification of realized gain on disposal
      of marketable          |   |                         |  
|securities included in loss                                                |   |                        |  
|Recognition of exchange difference on translation                          |   | 936                     |  
|Other comprehensive loss                                                   | $ | 947                     |  
|                                                                           |   |                         |  
|Total comprehensive loss                                                   | $ | 150,853                 |  
|                                                                           |   |                         |  
|Basic and diluted loss per common share                                    | $ | 1.62                    |  
|                                                                           |   |                         |  
|Weighted average number of                                                 |   |                         |  
|common
      shares outstanding                                            |   | 92,543,639              |  

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

---

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

|                                                                      |   | Years ended December 31 |  
|--------------------------------------------------------------------- | - | ----------------------- | -
|                                                                      |   | 2008                    |  
|                                                                      |   |                         |  
|Operating activities                                                  |   |                         |  
|Loss for the year                                                     | $ | (149,906                | )
|Items not involving cash                                              |   |                         |  
|Amortization                                                          |   | 182                     |  
|Contributions
      from non-controlling interest (note 7(a)(iii))    |   | 158,630                 |  
|Currency translation adjustment                                       |   | (936                    | )
|Finder's fees
      (note 5)                                          |   |                        |  
|Future income tax recovery                                            |   | (33                     | )
|Gain on disposal
      of marketable securities                       |   |                        |  
|Loss on disposal of fixed assets                                      |   |                        |  
|Shares received
      for property option agreement (note 5)          |   |                        |  
|Stock-based compensation (note
      8(c))                            |   | 5,417                   |  
|Changes in non-cash working
      capital items                       |   |                         |  
|Amounts receivable and prepaids                                       |   | (109                    | )
|Accounts payable
      and accrued liabilities                        |   | 4,408                   |  
|Balances receivable from and payable to related parties               |   | 1,334                   |  
|Cash and equivalents provided by (used in) operating
      activities |   | 18,987                  |  
|                                                                      |   |                         |  
|Investing activities                                                  |   |                         |  
|Proceeds on disposal of equipment                                     |   |                        |  
|Purchase of equipment                                                 |   | (127                    | )
|Acquisition costs of mineral property interest                        |   |                        |  
|Proceeds on sale of marketable securities                             |   |                        |  
|Cash and
      equivalents provided by (used in) investing activities |   | (127                    | )
|                                                                      |   |                         |  
|Financing activities                                                  |   |                         |  
|Common shares issued for cash, net of
      issue costs               |   |                        |  
|Options
      exercised proceeds received (receivable)                |   |                        |  
|Cash provided from financing activities                               |   |                        |  
|                                                                      |   |                         |  
|Increase (decrease) in cash and
      equivalents                     |   | 18,860                  |  
|Cash and
      equivalents, beginning of year                         |   | 40,341                  |  
|                                                                      |   |                         |  
|Cash and
      equivalents, end of year                               | $ | 59,201                  |  
|                                                                      |   |                         |  
|Components of cash and equivalents are as follows:                    |   |                         |  
|Cash                                                                  |   | 14,141                  |  
|Government of Canada treasury bills                                   |   | 44,077                  |  
|Bankers' acceptances                                                  |   | 983                     |  
|Guaranteed investment certificates                                    |   |                        |  
|Commercial paper                                                      |   |                        |  
|                                                                      | $ | 59,201                  |  
|                                                                      |   |                         |  
|Supplementary information                                             |   |                         |  
|Taxes paid                                                            | $ | 67                      |  
|Interest paid                                                         | $ |                        |  
|Interest received                                                     | $ | 1,268                   |  
|                                                                      |   |                         |  
|Non-cash investing and financing activities                           |   |                         |  
|Issuance of shares for mineral property
      interest                | $ |                        |  
|Fair value of stock options
      allocated to shares issued upon     |   |                         |  
|exercise                                                              | $ |                        |  

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

---

|NORTHERN DYNASTY MINERALS LTD.                                                  
|--------------------------------------------------------------------------------
|Consolidated Statements of Shareholders' Equity and
      Deficit               
|(Expressed in thousands of Canadian Dollars, except for
      share information)

|                                                                             |  |                  |  |   | Year ended        |   |  |                  |  |   | Year ended        |  
|---------------------------------------------------------------------------- |  | ---------------- |  | - | ----------------- | - |  | ---------------- |  | - | ----------------- | -
|                                                                             |  |                  |  |   | December 31, 2008 |   |  |                  |  |   | December 31, 2007 |  
|                                                                             |  |                  |  |   |                   |   |  |                  |  |   |                   |  
|Share capital                                                                |  | Number of shares |  |   |                   |   |  | Number of shares |  |   |                   |  
|Balance at beginning of the year                                             |  | 92,543,639       |  | $ | 365,202           |   |  | 91,685,519       |  | $ | 357,364           |  
|Share purchase options
      exercised at $4.50 per share                    |  |                 |  |   |                  |   |  | 150,068          |  |   | 675               |  
|Share purchase options exercised at
      $5.31 per share                    |  |                 |  |   |                  |   |  | 515,066          |  |   | 2,735             |  
|Share purchase options
      exercised at $5.37 per share                    |  |                 |  |   |                  |   |  | 15,000           |  |   | 81                |  
|Share purchase options exercised at
      $5.40 per share                    |  |                 |  |   |                  |   |  | 68,400           |  |   | 369               |  
|Share purchase options
      exercised at $7.25 per share                    |  |                 |  |   |                  |   |  | 105,436          |  |   | 764               |  
|Share purchase options exercised at
      $9.81 per share                    |  |                 |  |   |                  |   |  | 2,500            |  |   | 25                |  
|Share purchase options
      exercised at $10.32 per share                   |  |                 |  |   |                  |   |  | 1,650            |  |   | 17                |  
|Fair value of stock options allocated
      to shares issued on exercise     |  |                 |  |   |                  |   |  |                 |  |   | 3,177             |  
|Common shares issued
      pursuant to share purchase                        |  |                  |  |   |                   |   |  |                  |  |   |                   |  
|agreement, net of issue costs (note 8(b))                                    |  |                 |  |   |                  |   |  |                 |  |   | (5                | )
|Balance at end of the year                                                   |  | 92,543,639       |  | $ | 365,202           |   |  | 92,543,639       |  | $ | 365,202           |  
|                                                                             |  |                  |  |   |                   |   |  |                  |  |   |                   |  
|Contributed surplus                                                          |  |                  |  |   |                   |   |  |                  |  |   |                   |  
|Balance at beginning of the year                                             |  |                  |  |   | 18,018            |   |  |                  |  |   | 10,062            |  
|Stock-based
      compensation (note 8(c))                                   |  |                  |  |   | 5,417             |   |  |                  |  |   | 11,133            |  
|Fair value of stock options allocated to shares issued on exercise           |  |                  |  |   |                  |   |  |                  |  |   | (3,177            | )
|Balance at end of the year                                                   |  |                  |  | $ | 23,435            |   |  |                  |  | $ | 18,018            |  
|                                                                             |  |                  |  |   |                   |   |  |                  |  |   |                   |  
|Accumulated other comprehensive loss                                         |  |                  |  |   |                   |   |  |                  |  |   |                   |  
|Balance at beginning of the year                                             |  |                  |  |   | (3                | ) |  |                  |  |   |                  |  
|Unrealized loss on
      available-for-sale marketable securities (note 5)   |  |                  |  |   | (11               | ) |  |                  |  |   | (2                | )
|Gain recognized on disposal of
      available-for-sale marketable securties |  |                  |  |   |                  |   |  |                  |  |   | (1                | )
|Translation adjustment                                                       |  |                  |  |   | (936              | ) |  |                  |  |   |                  |  
|Balance at
      end of the year                                             |  |                  |  | $ | (950              | ) |  |                  |  | $ | (3                | )
|                                                                             |  |                  |  |   |                   |   |  |                  |  |   |                   |  
|Deficit                                                                      |  |                  |  |   |                   |   |  |                  |  |   |                   |  
|Balance at beginning of the year                                             |  |                  |  |   | (273,906          | ) |  |                  |  |   | (169,899          | )
|Loss for the year                                                            |  |                  |  |   | (149,906          | ) |  |                  |  |   | (104,007          | )
|Balance at end of the year                                                   |  |                  |  | $ | (423,812          | ) |  |                  |  | $ | (273,906          | )
|                                                                             |  |                  |  |   |                   |   |  |                  |  |   |                   |  
|TOTAL SHAREHOLDERS' EQUITY                                                   |  |                  |  | $ | (36,125           | ) |  |                  |  | $ | 109,311           |  

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

---

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

|                                                 |   | Years ended December 31 | 
|------------------------------------------------ | - | ----------------------- | 
|                                                 |   | 2008                    | 
|                                                 |   |                         | 
|Assays and analysis                              | $ | 1,387                   | 
|Drilling                                         |   | 25,997                  | 
|Engineering                                      |   | 28,602                  | 
|Environmental                                    |   | 26,320                  | 
|Equipment rental                                 |   | 103                     | 
|Freight                                          |   | 2,197                   | 
|Geological                                       |   | 3,253                   | 
|Graphics                                         |   | 34                      | 
|Land access                                      |   | 450                     | 
|Option payment (note 5)                          |   |                        | 
|Property fees and assessments                    |   | 370                     | 
|Public affairs                                   |   | 9,511                   | 
|Site activities                                  |   | 22,971                  | 
|Socioeconomic                                    |   | 3,134                   | 
|Transportation                                   |   | 14,564                  | 
|Travel and
      accommodation                   |   | 1,710                   | 
|Incurred during the year                         |   | 140,603                 | 
|Cumulative
      expenditures, beginning of year |   | 223,698                 | 
|Cumulative expenditures, end of year             | $ | 364,301                 | 

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

---

|NORTHERN DYNASTY MINERALS LTD.                                             
|---------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                 
|For the years ended December 31, 2008, 2007 and 2006                       
|(Expressed in
      thousands of Canadian Dollars, unless otherwise stated)

|1. | NATURE OF OPERATIONS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | Northern Dynasty Minerals Ltd. (the "Company") is
      incorporated under the laws of the Province of British Columbia, and its
      principal business activity is the exploration of mineral properties. The
      Companys principal mineral property interest is its 50% share in the
      Pebble Project (note 7(a)(iii)) located in Alaska, United States of
      America (USA).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | The Company is in the process of exploring its mineral
      property interests and has not yet determined whether its mineral property
      interests contain mineral reserves that are economically recoverable. The
      Companys continuing operations and the underlying value and
      recoverability of the amounts shown for mineral property interests are
      entirely dependent upon the existence of economically recoverable mineral
      reserves, the ability of the Company to obtain the necessary financing to
      complete the exploration and development of the mineral property
      interests, obtaining the necessary permits to mine, and on future
      profitable production or proceeds from the disposition of the mineral
      property interests.                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|2. | BASIS OF PRESENTATION AND PRINCIPLES OF
      CONSOLIDATION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | These consolidated financial statements have been
      prepared in accordance with Canadian generally accepted accounting
      principles (Canadian GAAP). A reconciliation of material differences
      between these principles and accounting principles generally accepted in
      the United States is shown in note 13.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | These consolidated financial statements include the accounts
        of the Company and its wholly- owned subsidiaries. The Company has determined
        that its 50:50 partnership with an indirect wholly-owned subsidiary of
        Anglo American plc (Anglo) in the Pebble Project qualifies
        as a variable interest entity and concluded that the Company is the primary
        beneficiary and accordingly has consolidated the activities of the partnership
        (notes 3(o) and 7(a)(iii)). Expenditures incurred on the Pebble Project
        through the partnership, while funded 100% by Anglo, have been included
        in the consolidated statement of operations. Anglos contributions
        for the year ended December 30, 2008 of $158.6 million (US$148 million)
        have been recorded as a non-controlling interest in the partnership.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | All material intercompany balances and transactions have
      been eliminated at December 31, 2008, 2007 and
      2006.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

---

|NORTHERN DYNASTY MINERALS LTD.                                             
|---------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                 
|For the years ended December 31, 2008, 2007 and 2006                       
|(Expressed in
      thousands of Canadian Dollars, unless otherwise stated)

|3.  | SIGNIFICANT ACCOUNTING POLICIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|(a) | Cash and equivalents                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    | Cash and equivalents consist of cash and highly liquid
      investments, having maturity dates of three months or less from the date
      of purchase, which are readily convertible to known amounts of cash. At
      December 31, 2008, of the $59,201 (2007  $40,341) cash and equivalents
      held by the Company, $12,671 (US$10,403) were held in United States
      dollars (2007  $37,417 (US$37,745)). The Companys cash and equivalents
      are invested with major financial institutions in business accounts,
      bankers acceptances and in government treasury bills which are available
      on demand by the Company for its programs, and are not invested in any
      asset backed deposits/investments.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|(b) | Equipment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    | Equipment is recorded at cost and is amortized over its
      estimated useful life using the declining balance method at various rates
      ranging from 20% to 30% per annum.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|(c) | Mineral property interests                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    | Exploration expenditures incurred prior to the
      determination of the feasibility of mining operations and administrative
      expenditures are expensed as incurred. Mineral property acquisition costs,
      and exploration and development expenditures incurred subsequent to such
      determination and to increase or to extend the life of existing
      production, are capitalized and amortized over the estimated life of the
      property following the commencement of commercial production, or are
      written off if the property is sold, allowed to lapse or abandoned, or
      when an impairment has been determined to have occurred.                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    | Mineral property acquisition costs include the cash
      consideration and the fair market value of common shares, based on the
      trading price of the shares, on the date of issue or as otherwise provided
      under the agreement terms for the mineral property interest. Costs for
      properties for which the Company does not possess unrestricted ownership
      and exploration rights, such as option agreements, are expensed in the
      period incurred or until a feasibility study has determined that the
      property is capable of commercial production.                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    | Costs of exploration activities, feasibility studies, and
      option payments are expensed in the period incurred.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    | Administrative expenditures related to exploration
      activities are expensed in the period incurred.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    | The amount presented for mineral property interests
      represents costs incurred to date and accumulated acquisition costs, less
      write-downs, and does not necessarily reflect present or future values.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

---

|NORTHERN DYNASTY MINERALS LTD.                                             
|---------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                 
|For the years ended December 31, 2008, 2007 and 2006                       
|(Expressed in
      thousands of Canadian Dollars, unless otherwise stated)

|(d) | Financial Instruments                                                                                                                                                                                                                                                                                                                                                                                                                                     
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | All financial instruments, including
      derivatives, are included on the Companys balance sheet and measured
      either at fair value or, in certain circumstances when fair value may not
      be considered most relevant, at cost or amortized cost. Changes in fair
      value are recognized in the statements of operations or accumulated other
      comprehensive loss, depending on the classification of the related
      instruments.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | All financial assets and liabilities
      are recognized when the entity becomes a party to the contract creating
      the asset or liability.                                                                                                                                                                                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | 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,
      or other financial liabilities. Initial and subsequent measurement and
      recognition of changes in the value of financial instruments depends on
      their initial classification:                                                                

- Held-to-maturity investments,
      loans and receivables, and other financial liabilities are initially measured at fair value and
        subsequently measured at amortized cost.
          Amortization of premiums or discounts and losses due to impairment are included in current period net loss.
- Available-for-sale financial
      assets are measured at fair value. Changes in fair value are included in other comprehensive loss until the gain or
        loss is recognized in net loss.
- Held for trading financial
      instruments are measured at fair value. All changes in fair value are included in net loss in the period in which they
        arise.
- All derivative financial
      instruments are measured at fair value, even when they are part of a hedging relationship. Changes in fair value are
        included in net loss in the period in which they
          arise, except for hedge transactions which qualify for hedge accounting treatment in which case gains and closes are
            recognized in other comprehensive loss.

The Company had classified its
  financial instruments as follows:

- Marketable securities are classified as
      available-for-sale securities and are measured at fair market value with
      unrealized gains or losses recorded in other comprehensive loss. At the time
      securities are sold or otherwise disposed of, gains or losses are included in
      net loss.

|(e) | Comprehensive Loss                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | Comprehensive loss is the change in the Companys
      shareholder equity that results from transactions and other events from
      other than the Companys shareholders and includes items that would not
      normally be included in net loss, such as unrealized gains or losses on
      available-for- sale investments. Certain gains and losses that would
      otherwise be recorded as part of net loss is presented in other
      comprehensive loss until it is considered appropriate to recognize into
      net

---

|NORTHERN DYNASTY MINERALS LTD.                                             
|---------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                 
|For the years ended December 31, 2008, 2007 and 2006                       
|(Expressed in
      thousands of Canadian Dollars, unless otherwise stated)

|(e) | Comprehensive Loss (continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    | loss. Accumulated other comprehensive loss is presented
      as a separate category in shareholders equity.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    | Accordingly, the Company reports a consolidated statement
      of operations and comprehensive loss and includes the account accumulated
      other comprehensive loss in the shareholders equity section of the
      consolidated balance sheet.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|(f) | Asset retirement obligations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    | The Company recognizes statutory, contractual or other
      legal obligations related to the retirement of tangible long-lived assets
      when such obligations are incurred, if a reasonable estimate of fair value
      can be made. These obligations are measured initially at fair value and
      the resulting costs capitalized to the carrying value of the related
      asset. In subsequent periods, the liability is adjusted for any changes in
      the amount or timing and for the discounting of the underlying future cash
      flows. The capitalized asset retirement cost is amortized to operations
      over the life of the asset.                                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    | The Company has no material asset retirement obligations
      as the disturbance to date is minimal, and the Company carries out, and
      expenses in the period incurred, appropriate reclamation
      activities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|(g) | Impairment of long-lived assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    | Long-lived assets, including mineral properties and
      equipment, are reviewed for impairment whenever events or changes in
      circumstances indicate that the carrying amount of an asset may not be
      recoverable. Recoverability of assets to be held and used is measured by a
      comparison of the carrying amount of an asset to estimated undiscounted
      future cash flows expected to be generated by the asset. If the carrying
      amount of an asset exceeds its estimated future cash flows, an impairment
      charge is recognized by the amount by which the carrying amount of the
      asset exceeds the fair value of the asset. Assets to be disposed, if any,
      are presented separately on the balance sheet and reported at the lower of
      the carrying amount and the fair value less costs to sell, and are no
      longer amortized.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    | As at December 31, 2008, the Company completed an
      impairment analysis which considered the indicators of impairment in
      accordance with Section 3063, Impairment of Long-lived Assetsas
      well as EIC-126, Accounting by Exploration Companies for Exploration
        Costsand AcG-11, Enterprises in the Development Stage.
      Management concluded that no impairment charge was required because there
      have been no significant changes in the legal factors or climate that
      affects the value of the properties, all property rights remain in good
      standing, there have been no significant changes in the projections for
      the properties and exploration results continue to
      be                                                                                                                                               

---

|NORTHERN DYNASTY MINERALS LTD.                                             
|---------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                 
|For the years ended December 31, 2008, 2007 and 2006                       
|(Expressed in
      thousands of Canadian Dollars, unless otherwise stated)

|(g) | Impairment of long-lived asset
      (continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | positive, the Company intends to continue its exploration
      and development plans on its property, and project funding continue to be
      provided by its partner.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|(h) | Share capital                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | The Company records proceeds from share issuances net of
      issue costs. Shares issued for consideration other than cash are valued at
      the quoted market price on the date of issue or as otherwise provided for
      under the terms of the agreement to issue the shares.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|(i) | Stock-based compensation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | The Company has a share option plan which is described in
      note 8(c). The Company records all stock-based payments using the fair
      value method.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | Under the fair value method, stock-based payments are
      measured at the fair value of the consideration received or the fair value
      of the equity instruments issued or liabilities incurred, whichever is
      more reliably measurable and are charged to operations over the vesting
      period. The offset is credited to contributed surplus.                                                                                                                                                                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | Consideration received upon the exercise of stock options
      is credited to share capital and the related contributed surplus is
      transferred to share capital.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|(j) | Foreign currency translation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | The Company's functional currency is the Canadian dollar.
      Monetary assets and liabilities denominated in a foreign currency are
      translated into Canadian dollars at exchange rates in effect at the
      balance sheet date. Non-monetary assets and liabilities are translated at
      historical exchange rates unless such items are carried at market, in
      which case they are translated at the exchange rates in effect on the
      balance sheet date. Revenues and expenses, except amortization, are
      translated at average exchange rates for the year. Amortization is
      translated at the same exchange rates as the assets to which it relates.
      Gains or losses on translation are recorded in the statement of
      operations.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | Where the company classifies a foreign operation as
      self-sustaining, assets and liabilities are translated at exchange rates
      in effect at balance sheet date and revenue and expense items, including
      amortization at average exchange rates for the year. Exchange gains or
      losses on translation are accumulated in accumulated other comprehensive
      loss in shareholders equity.                                                                                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | During the year, the Company classified the Pebble
      Limited Partnership (the Partnership) as a foreign self-sustaining
      operation due to the following factors:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

---

|NORTHERN DYNASTY MINERALS LTD.                                             
|---------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                 
|For the years ended December 31, 2008, 2007 and 2006                       
|(Expressed in
      thousands of Canadian Dollars, unless otherwise stated)

|(j) | Foreign currency translation
      (continued)
|--- | ----------------------------------------------

- cash flows of the Company are segregated from those
      of the day-to-day operations of the Partnership;
- costs incurred by the Partnership are primarily
      locally based;
- the day-to-day operations of the Partnership are
      being fully financed by the Companys partner, Anglo, and are being received
      in the currency in which the Partnership operates, being the US dollar; and
- there are no intercompany transactions between the
      Company and the Partnership.

|(k) | Income taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    | The Company uses the asset and liability method of
      accounting for income taxes. Under this method, future income tax assets
      and liabilities are computed based on differences between the carrying
      amount of assets and liabilities on the balance sheet and their
      corresponding tax values, generally using the enacted or substantively
      enacted income tax rates expected to apply to taxable income in the years
      in which those temporary differences are expected to be recovered or
      settled.                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    | Future income tax assets also result from unused loss
      carry forwards and other deductions. Future tax assets are recognized to
      the extent that they are considered more likely than not to be realized.
      The valuation of future income tax assets is adjusted, if necessary, by
      the use of a valuation allowance to reflect the estimated realizable
      amount.                                                                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|(l) | Loss per common share                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    | Basic loss per common share is calculated by dividing the
      loss for the year by the weighted average number of common shares
      outstanding during the year.                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    | Diluted loss per common share is calculated using the
      treasury stock method. Under the treasury stock method, the weighted
      average number of common shares outstanding used for the calculation of
      diluted loss per common share assumes that the proceeds to be received on
      the exercise of dilutive stock options and warrants are used to repurchase
      common shares at the average market price during the year.                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    | When the Company is in a net loss position, diluted loss
      per share is not presented separately as the effect of the outstanding
      options and warrants would be anti-dilutive.                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|(m) | Use of estimates                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    | The preparation of financial statements in conformity
      with Canadian GAAP requires management to make estimates and assumptions
      that affect the reported amounts of assets and liabilities, and the
      disclosure of contingent assets and liabilities as at the balance sheet
      date, and the amounts of revenues and expenses reported during the period.
      Significant areas requiring the use of management estimates include the
      determination of the recoverability on buildings and equipment, impairment
      of mineral property interests, rates of amortization of equipment,
      the

---

|NORTHERN DYNASTY MINERALS LTD.                                             
|---------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                 
|For the years ended December 31, 2008, 2007 and 2006                       
|(Expressed in
      thousands of Canadian Dollars, unless otherwise stated)

|(m) | Use of estimates (continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    | determination of reclamation obligations, and the
      assumptions used in determining the fair value of non-cash stock-based
      compensation. Actual results could differ from those estimates.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|(n) | Environmental expenditures                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    | The operations of the Company have been, and may in the
      future be, affected from time to time in varying degree by changes in
      environmental regulations, including those for site restoration costs.
      Both the likelihood of new regulations and their overall effect upon the
      Company vary greatly from country to country and are not predictable. The
      Companys policy is to meet or possibly surpass environmental standards
      set by relevant legislation by the application of technically proven and
      economically feasible measures.                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    | Environmental expenditures that relate to ongoing
      environmental and reclamation programs are charged against operations as
      incurred or capitalized and amortized depending on their expected future
      economic benefit. Estimated future removal and site restoration costs are
      recognized when the ultimate liability is reasonably determinable, and are
      charged against operations over the estimated remaining life of the
      related business operations, net of expected recoveries.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|(o) | Variable interest entities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    | The Company accounts for variable interest entities
      (VIE) in accordance with CICA Accounting Guideline 15, Consolidation
        of Variable Interest Entities("AcG-15"). 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. VIEs are entities in which equity investors do not have the
      characteristics of a controlling financial interest or do not have
      sufficient equity at risk for the entity to finance its activities without
      additional subordinated financial support from other parties. The primary
      beneficiary is the party that has exposure to a majority of the expected
      losses and/or expected residual returns of the VIE. An enterprise holding
      other than a voting interest in a VIE could, subject to certain
      conditions, be required to consolidate the VIE if it is considered its
      primary beneficiary.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    | The Company has determined that the Pebble Limited
      Partnership (the Partnership) is a VIE and has concluded that it is the
      primary beneficiary and consequently has consolidated the activities of
      the Pebble Limited Partnership from August 1, 2007 (note 7
      (a)(iii)).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    | Expenditures incurred on the Pebble Project through the
      Partnership have been included in the consolidated statement of
      operations. Anglos contributions to December 31, 2008 of $194.2 million
      (US$183.9 million) have been recorded as a non-controlling interest in the
      Partnership.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

---

|NORTHERN DYNASTY MINERALS LTD.                                             
|---------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                 
|For the years ended December 31, 2008, 2007 and 2006                       
|(Expressed in
      thousands of Canadian Dollars, unless otherwise stated)

|(p) | Comparative figures                                                                                                                                                                                
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                    
|    | The preparation of the prior years' comparative figures
      have been reclassified where appropriate to conform to the financial
      statement presentation adopted for the current
      year.

|4. | CHANGES IN ACCOUNTING
      POLICIES
|-- | ------------------------------------

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

| | (i)  | Capital Disclosures (Section 1535)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |      | 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 externally imposed capital requirements and, if it has
      not complied, the consequences of such non-compliance.                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |      | The Company's objectives when managing capital are to
      safeguard the Company's ability to continue as a going concern, so that it
      can explore and develop its projects for the benefit of its shareholders
      and other stakeholders. The Company considers the components of
      shareholders equity as well as its cash and equivalents, as capital. The
      Company manages the capital structure and makes adjustments to it in the
      light of changes in economic conditions and the risk characteristics of
      the underlying assets. The Company may issue new shares through private
      placements and public offerings in order to maintain or adjust its capital
      structure. The Company is not subject to externally imposed capital
      requirements.                         
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |      | In order to facilitate the management of its capital
      requirements, the Company prepares annual expenditure budgets that are
      updated as necessary depending on various factors, including successful
      capital deployment and general industry conditions. The Company expects
      its current capital resources will be sufficient to carry its exploration
      and development plans and operations through its current operating period.
      There were no changes to the Companys approach to capital management
      during the year ended December 31, 2008.                                                                                                                                                                                                                                     
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | (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.

---

|NORTHERN DYNASTY MINERALS LTD.                                             
|---------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                 
|For the years ended December 31, 2008, 2007 and 2006                       
|(Expressed in
      thousands of Canadian Dollars, unless otherwise stated)

| | (iii) | Financial Instruments  Disclosure
      (continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | ----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |       | The carrying amounts of the Companys cash and
      equivalents, marketable securities, amounts receivable, balances due
      to/receivable from related parties, refundable deposits, accounts payable
      and accrued liabilities approximate their fair values. The fair value of
      marketable securities is based on the market value of the quoted
      investments.                                                                                                                                                                                                                                                                                                                                                                                                                              
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |       | Financial Instrument Risk Exposure and Risk
      Management                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |       | The Company is exposed in varying degrees to a variety of
      financial instrument related risks. The Board approves and monitors the
      risk management processes, inclusive of documented treasury policies,
      counterparty limits, and controlling and reporting structures. The types
      of risk exposure and the way in which such exposure is managed is provided
      as follows:                                                                                                                                                                                                                                                                                                                                                                                                           
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |       | Credit Risk                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |       | Credit risk is the risk of potential loss to the Company
      if a counterparty to a financial instrument fails to meet its contractual
      obligations. The Companys credit risk is primarily attributable to its
      liquid financial assets, including cash and equivalents, amounts
      receivable and balances receivable from related parties. The Company
      limits the exposure to credit risk by only investing its cash and
      equivalents with high-credit quality financial institutions and in
      government treasury bills. The carrying value of the Companys cash and
      equivalents and amounts receivable represent the maximum exposure to
      credit risk. The Company does not have financial assets that are invested
      in asset backed commercial paper.      
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |       | Liquidity Risk                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |       | Liquidity risk is the risk that the Company will not be
      able to meet its financial obligations when they become due. The Company
      ensures, as far as reasonably possible, it will have sufficient capital in
      order to meet short term business requirements, after taking into account
      cash flows from operations and the Companys holdings of cash and
      equivalents. The Company believes that these sources will be sufficient to
      cover the likely short and long term cash requirements. The Companys cash
      and equivalents are invested in business accounts, bankers acceptances,
      government treasury bills which are available on demand by the Company for
      its programs, and which are not invested in any asset backed
      deposits/investments.
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |       | Foreign exchange risk                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |       | The Company is exposed to foreign exchange risk as its
      operating expenses, through the Partnership, are primarily incurred in US
      dollars and its liabilities are primarily denominated in US dollars. The
      results of the Companys operations are subject to currency transaction
      risk and currency translation risk. The operating results and financial
      position of the Company are reported in Canadian dollars in the Companys
      consolidated financial statements. The fluctuation of the US dollar in
      relation to the Canadian dollar will consequently have an impact upon the
      losses incurred by the                                                                                                                                                     

---

|NORTHERN DYNASTY MINERALS LTD.                                             
|---------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                 
|For the years ended December 31, 2008, 2007 and 2006                       
|(Expressed in
      thousands of Canadian Dollars, unless otherwise stated)

Foreign exchange risk
  (continued)

Company and may also affect the value
  of the Companys assets and the amount of shareholders equity.

The Company has not entered into any
  agreements or purchased any instruments to hedge possible currency risks at this
  time.

The exposure of the Companys cash and
  equivalents, amounts receivable and amounts receivable from related parties to
  foreign exchange risk is as follows:

| | Currency               |   | December 31, 2008 |  |   | December 31, 2007 | 
| | ---------------------- | - | ----------------- |  | - | ----------------- | 
| |                        |   | Foreign           |  |   | Amount in         | 
| |                        |   | currency          |  |   | Canadian          | 
| |                        |   | amount            |  |   | dollars           | 
| | United States Dollar   |   |                   |  |   |                   | 
| | Cash and equivalents   | $ | 10,403            |  | $ | 12,671            | 
| | Amounts receivable     |   | 663               |  |   | 812               | 
| | Total financial assets | $ | 11,066            |  | $ | 13,483            | 

The exposure of the Companys accounts
  payable and accrued liabilities and amounts due to related parties to foreign
  exchange risk is as follows:

| | Currency                          |   | December 31, 2008 |  |   | December 31, 2007 | 
| | --------------------------------- | - | ----------------- |  | - | ----------------- | 
| |                                   |   | Foreign           |  |   | Amount in         | 
| |                                   |   | currency          |  |   | Canadian          | 
| |                                   |   | amount            |  |   | dollars           | 
| | United States Dollar              |   |                   |  |   |                   | 
| | Accounts payable and              |   |                   |  |   |                   | 
| | accrued liabilities               | $ | 6,561             |  | $ | 8,057             | 
| | Total financial
      liabilities | $ | 6,561             |  | $ | 8,057             | 

Based on the above net exposures and
  assuming that all other variables remain constant, a 10% depreciation of the
  Canadian dollar against the United States dollar would result in a decrease in
  the net comprehensive loss of approximately $0.7 million as reflected in the
  Companys statement of operations.

Interest rate risk

The Company is subject to interest
  rate risk with respect to its investments in cash equivalents. The Companys
  policy is to invest cash at fixed rates of interest and cash reserves are to be
  maintained in cash equivalents in order to maintain liquidity, while achieving a
  satisfactory return for shareholders. Fluctuations in interest rates when the
  cash equivalents mature impact interest income earned.

---

|NORTHERN DYNASTY MINERALS LTD.                                             
|---------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                 
|For the years ended December 31, 2008, 2007 and 2006                       
|(Expressed in
      thousands of Canadian Dollars, unless otherwise stated)

| |      | Commodity price risk                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |      | While the value of the Companys core mineral resource
      property, the Pebble Property, is related to the price of gold, copper and
      molybdenum and the outlook for these minerals, the Company currently does
      not have any operating mines and hence does not have any hedging or other
      commodity based risks in respect of its operational activities.                                                                                                                                                                                                                                          
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |      | Gold, copper, and molybdenum prices historically have
      fluctuated widely and are affected by numerous factors outside of the
      Company's control, including, but not limited to, industrial and retail
      demand, central bank lending, forward sales by producers and speculators,
      levels of worldwide production, short-term changes in supply and demand
      because of speculative hedging activities, and certain other factors
      related specifically to gold.                                                                                                                           
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | (iv) | Going Concern  Amendments to Section
      1400                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |      | 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 Companys
      has assessed its ability to continue as a going concern and has concluded
      that this assumption is appropriate in the preparation of these
      consolidated financial statements as ongoing exploration activities
      through the Partnership are being financed by the Companys partner and
      the Company has sufficient cash and equivalents to fund its expected
      expenditures.

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

---

|NORTHERN DYNASTY MINERALS LTD.                                             
|---------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                 
|For the years ended December 31, 2008, 2007 and 2006                       
|(Expressed in
      thousands of Canadian Dollars, unless otherwise stated)

| | (ii) | Goodwill and Intangibles                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |      | The AcSB issued CICA Handbook Section 3064 which replaces
      Section 3062, Goodwill and Other Intangible Assets, and Section
      3450, Research and Development Costs. This new section establishes
      standards for the recognition, measurement, presentation and disclosure of
      goodwill subsequent to its initial recognition and of intangible assets.
      Standards concerning goodwill remain unchanged from the standards included
      in the previous Section 3062. The section applies to interim and annual
      financial statements issued on or after January 1, 2009. Section 3064 is
      not expected to have a significant impact on the financial
      statements.

|5. | MARKETABLE SECURITIES
|-- | ---------------------

|                                      |  | Number
      of |   |   |        |  
|------------------------------------- |  | --------------- | - | - | ------ | -
|Available for sale                    |  | shares          |   |   | Amount |  
|Solomon Resources Limited             |  |                 |   |   |        |  
|Cost 
      common shares            |  | 75,000          |   | $ | 20     |  
|Finders fees paid in
      shares    |  | (15,000         | ) |   | (5     | )
|Unrealized loss
      recognized 2007 |  |                |   |   | (2     | )
|Balance, December
      31, 2007      |  | 60,000          |   |   | 13     |  
|Unrealized loss
      recognized 2008 |  |                |   |   | (11    | )
|Balance, December
      31, 2008      |  | 60,000          |   | $ | 2      |  

In 2007, the Company received 75,000
  common shares in Solomon Resources Limited (Solomon), a company listed on the
  TSX Venture Exchange, in terms of an exclusive agreement in which Solomon had an
  option to earn a minimum 50% interest in a non core property (note 7(b)). To
  secure this option agreement the Company transferred 15,000 of these shares to
  an individual in payment for this service. During the year, the Company received
  notice from Solomon that it will be withdrawing from the option agreement.

These shares have been classified as
  available-for-sale securities and have been measured at fair market value being
  the quoted market price. Unrealized gains and losses have been recorded in
  comprehensive loss.

---

|NORTHERN DYNASTY MINERALS LTD.                                             
|---------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                 
|For the years ended December 31, 2008, 2007 and 2006                       
|(Expressed in
      thousands of Canadian Dollars, unless otherwise stated)

|6. | EQUIPMENT
|-- | ---------

| |                        |   |       |  |   | Accumulated  |  |   |                      | 
| | ---------------------- | - | ----- |  | - | ------------ |  | - | -------------------- | 
| |                        |   | Cost  |  |   | Amortization |  |   | Net
      Book Value | 
| | December 31, 2008      |   |       |  |   |              |  |   |                      | 
| | Buildings              | $ | 312   |  | $ | 99           |  | $ | 213                  | 
| | Furniture and fixtures |   | 295   |  |   | 171          |  |   | 124                  | 
| | Site equipment         |   | 242   |  |   | 140          |  |   | 102                  | 
| | Vehicles               |   | 94    |  |   | 69           |  |   | 25                   | 
| | Computer equipment     |   | 271   |  |   | 116          |  |   | 155                  | 
| |                        | $ | 1,214 |  | $ | 595          |  | $ | 619                  | 
| |                        |   |       |  |   |              |  |   |                      | 
| | December 31, 2007      |   |       |  |   |              |  |   |                      | 
| | Buildings              | $ | 312   |  | $ | 76           |  | $ | 236                  | 
| | Furniture and fixtures |   | 235   |  |   | 133          |  |   | 102                  | 
| | Site equipment         |   | 242   |  |   | 96           |  |   | 146                  | 
| | Vehicles               |   | 94    |  |   | 59           |  |   | 35                   | 
| | Computer equipment     |   | 204   |  |   | 49           |  |   | 155                  | 
| |                        | $ | 1,087 |  | $ | 413          |  | $ | 674                  | 

|7.  | MINERAL PROPERTY INTERESTS
|--- | --------------------------
|    |                           
|(a) | Pebble Property           

| |                                    |   | Years ended December 31 | 
| | ---------------------------------- | - | ----------------------- | 
| |                                    |   | 2008                    | 
| | Balance, beginning and end of year | $ | 168,222                 | 

(i) Exploration and Resource Lands

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

The Company was assigned the 80%
  interest together with the right to acquire the remaining 20% contractual
  interests in these option agreements from HDGI in consideration of the Company
  reimbursing HDGIs costs of $585 in connection with the options, which included
  the staking of 134 claims to expand the property and 30 kilometers of induced
  polarization surveying over the new claims, and agreeing to pay for HDGIs 20%
  share of costs in connection with the exercise requirements under the
  Options.

---

|NORTHERN DYNASTY MINERALS LTD.                                             
|---------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                 
|For the years ended December 31, 2008, 2007 and 2006                       
|(Expressed in
      thousands of Canadian Dollars, unless otherwise stated)

(i) Exploration and Resource Lands
  (continued)

The Resource Lands Option was extended
  by one year in an agreement dated December 19, 2002 under which the Company
  issued to Teck Cominco 200,000 shares for the extension. Pursuant to the
  Resource Lands Option the Company had the right to purchase the 36 claims of the
  Resource Lands, subject to HDGIs 20% carried interests, by paying Teck Cominco
  US$10 million in cash or shares prior to November 30, 2004, which it did on
  November 23, 2004 by the issuance of 1,772,775 shares to Teck Cominco (total
  value $11.8 million). Teck Cominco had the right for 180 days to elect whether
  to require the Company to manage the resale of these shares (NDM Resource Lands
  shares) in a manner where Teck Cominco would be guaranteed the US$10 million in
  resale proceeds net of any excess or deficiency adjustments. The actual adjusted
  amount was US$9.9 million. On May 9, 2005, Teck Cominco elected for the Company
  to guarantee the adjusted amount of US$9.9 million in resale proceeds of the
  1,772,775 shares by May 22, 2006. The Company completed its commitment by
  selling 473,700 shares for US$2 million, in 2005 and managing the sale of
  1,277,028 shares for the balance in 2006. The remaining 22,047 unsold NDM
  Resource Lands shares relating to this acquisition were returned to the
  Companys treasury.

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

As a consequence of the Company
  exercising the Exploration Lands Option, Teck Cominco could elect to either form
  a 50:50 joint venture with the Company with respect to the Exploration Lands, or
  to sell its 50% interest in the Exploration Lands to the Company for US$4
  million and retain a net profits interest. On February 21, 2005, Teck Cominco
  elected to sell its remaining 50% interest in the Exploration Lands to the
  Company for the stipulated US$4 million payment, a 4% pre-payback net profits
  interest (after debt service), and a 5% after-payback net profits interest in
  any mine production from the Exploration Lands. The Company issued 977,795
  shares of the Company at the then-prevailing market price as consideration for
  the required US$4 million payment but subject to Teck Comincos right to elect
  to have the proceeds guaranteed until August 24, 2005.

Teck Cominco elected on July 18, 2005,
  to require the Company to manage the resale of these shares (NDM Exploration
  Lands shares) for the guaranteed US$4 million in resale proceeds by August 24,
  2006. The Company completed its commitment to Teck Cominco in 2006 through the
  sale of 654,502 NDM Exploration Lands shares for proceeds of approximately
  US$4.0 million. The remaining 323,293 unsold NDM Exploration Lands shares were
  returned to the Companys treasury.

In total, 345,340 unsold common shares
  of the Company at a value of $1.8 million, were returned to the treasury of the
  Company. The Company recorded this amount in contributed surplus and a related
  future income tax liability of $728 generated on this transaction is fully
  offset by previously unrecognized tax assets.

---

|NORTHERN DYNASTY MINERALS LTD.                                             
|---------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                 
|For the years ended December 31, 2008, 2007 and 2006                       
|(Expressed in
      thousands of Canadian Dollars, unless otherwise stated)

(ii) HDGI 20% carried contractual
  interest

As a consequence of the Company
  electing to exercise the Options, the Company was entitled under the Assignment
  Agreement with HDGI to elect to acquire HDGIs 20% carried contractual interests
  in the Options for cash or share consideration equal to an independently
  appraised value of the carried interests.

On May 31, 2006, the Company acquired
  100% of the outstanding common shares of HDGI for purchase price of 14,002,268
  common shares of the Company. The agreed number of shares was based on
  negotiations between the Company, represented by a Special Committee of the
  Board of Directors, and HDGI with reference to an independent valuation of the
  carried interests performed by Ross Glanville & Associates Ltd in March
  2005. Both parties agreed to a valuation of $6.37 per share, based upon the
  issuance of 14,002,268 common shares, as representing the fair value of the 20%
  carried contractual interest. The valuation report was publicly filed on SEDAR
  at www.sedar.com. Both the TSX Venture Exchange and the American Stock
  Exchange accepted the acquisition transaction. The results of HDGIs operations
  have been included in the consolidated financial statements since the date of
  acquisition.

The following table summarizes the
  assets acquired and liabilities assumed on the date of acquisition:

|Mineral property interest                | $ | 151,433 |  
|---------------------------------------- | - | ------- | -
|Future income tax
      liability        |   | (62,239 | )
|Purchase price                           | $ | 89,194  |  
|                                         |   |         |  
|Consideration  14,002,268 common shares | $ | 89,194  |  

With the completion of the acquisition
  of HDGI and being discharged of Teck Comincos share resale guarantees, the
  Company, until July 31, 2007, owned a 100% right, title and interest in the
  entire Pebble Property (subject only to the Teck Cominco net profits interest in
  the Exploration Lands portion of the property). On July 31, 2007, the Company
  formed a 50:50 limited partnership with Anglo American plc (see 7(a)(iii)).

The HDGI acquisition created a future
  tax liability due to the limited pools available in HDGI to offset taxable
  income earned in that company relative to the carrying cost of the acquired
  asset on the Companys balance sheet. Subsequent to the date of acquisition,
  deductible expenditures incurred by HDGI have reduced this liability and this
  amount has been recorded as a future income tax recovery.

(iii) Non-controlling interest,
  Limited Partnership with Anglo American

|                                                     |   | 2008    |  |   | 2007   | 
|---------------------------------------------------- | - | ------- |  | - | ------ | 
|Balance, beginning of year                           | $ | 35,552  |  | $ |       | 
|Contributions by
      Anglo American to Partnership |   | 158,630 |  |   | 35,552 | 
|Balance, end of year                                 | $ | 194,182 |  | $ | 35,552 | 

On July 26, 2007, the Company converted
  a wholly-owned general partnership formed in 2006 to hold its Pebble Property
  interest into a limited partnership, the Pebble Limited Partnership (the

---

|NORTHERN DYNASTY MINERALS LTD.                                             
|---------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                 
|For the years ended December 31, 2008, 2007 and 2006                       
|(Expressed in
      thousands of Canadian Dollars, unless otherwise stated)

(iii) Non-controlling interest
  (continued)

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. The purpose of the strategic Partnership is to engineer, permit,
  construct and operate a modern, long-life mine at the Pebble Project. The
  Partnership's assets include the shares of two Alaskan subsidiaries which hold
  registered title to the claims. To maintain its 50% interest in the Partnership,
  Anglo is required to make staged cash investments into the Partnership
  aggregating to US$1.425 billion as discussed below.

Anglos staged investment requirements
  include an initial minimum expenditure of US$125 million to be expended towards
  a prefeasibility study (funding completed as of 2008), plus a requirement to
  fund additional expenditures approved by the board of the general partner
  (Pebble Mines Corp.) unless Anglo elects to terminate its rights and relinquish
  all its interests in the Partnership. After the completion and approval by the
  general partner of the prefeasibility study, Anglo is required, in order to
  retain its 50% interest in the Partnership, to commit to further expenditures
  which bring its total investment to at least US$450 million which amount is to
  be expended in producing a final feasibility study and in related activities,
  the completion of which is expected to take the Partnership to a production
  decision. Upon an affirmative decision by the Partnership to develop a mine,
  Anglo is required to commit to the remainder of the total investment of US$1.425
  billion in order to retain its interest in the Partnership. Following completion
  of the US$1.425 billion expenditure, any further expenditure will be funded by
  Anglo and Northern Dynasty on a 50:50 basis (subject to dilution for
  non-contribution). If the feasibility study is completed after 2011, Anglos
  overall funding requirement increases from US$1.425 billion to US$1.5 billion.
  The Partnership agreement provides for equal project control rights for both
  partners, with no operators fees payable to either party.

The Company has accounted for the
  Partnership as a VIE (note 3(o)). Expenditures incurred since August 1, 2007 on
  the Pebble Project have been incurred through the Partnership. Anglos
  contributions to the Partnership for the year ended December 31, 2008 amounted
  to $188.5 million (US$148.0 million) (Five months to December 31, 2007  $35.5
  million (US$35.9 million)) and have been recorded as a non-controlling interest
  in the Partnership. Under the Partnership agreement and applicable tax
  regulations, neither the Company nor its affiliated general partnership will be
  entitled to the benefits for tax purposes of the expenditures incurred by the
  Partnership from Anglos investment, as these benefits accrue exclusively to
  Anglo under the Partnership agreement and applicable tax regulations.

|(b) | Pickle Lake Joint Venture                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | The Company holds a 37.5% participating joint venture
      interest, subject to a 2.5% net profits interest ("NPI") held by the
      original owners, in certain mineral properties which are non core to the
      Company, in northwestern Ontario under the Pickle Lake Joint Venture. The
      remaining 62.5% joint venture interest is held by Energold Minerals Inc.
      (Energold) (together jointly with the Company, the Partners). The
      Company continues to maintain these claims in good
      standing.

---

|NORTHERN DYNASTY MINERALS LTD.                                             
|---------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                 
|For the years ended December 31, 2008, 2007 and 2006                       
|(Expressed in
      thousands of Canadian Dollars, unless otherwise stated)

|(b) | Pickle Lake Joint Venture (continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | In October 2006, the Partners entered into an option
      agreement with Solomon Resources Limited (Solomon) whereby Solomon had
      the right to earn up to a 60% interest in the Eyapamikama Lake property
      (formerly Arseno Lake), located 170 kilometres north of Pickle Lake. Under
      the option agreement, Solomon was granted an exclusive option to earn a
      minimum 50% interest in the property by funding an initial exploration
      program of $25 which it completed. In 2007, Solomon exercised this option
      and opted in terms of the option agreement to issue to the Partners a
      total of 200,000 common shares of Solomon (Solomon shares) of which
      75,000 were issued to the Company (note 5) and 125,000 to
      Energold.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | Under the option agreement to earn its 50% interest,
      Solomon was also required to incur exploration expenditures totaling $1
      million and issue to the Partners 200,000 Solomon shares and make a cash
      payment of $65 or 400,000 Solomon shares by January 31, 2008. However,
      before January 31, 2008, Solomon indicated it had not incurred the
      required exploration expenditures due to their exploration program being
      delayed as a result of a breakdown in talks with relevant parties. Further
      attempts by Solomon to revive talks proved unsuccessful and Solomon
      consequently decided to terminate the option agreement.                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|(c) | Little Bald Mountain                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | The Company holds an 8.1% net profits interest in the
      Little Bald Mountain property in Nevada, USA.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

|8. | SHARE CAPITAL
|-- | -------------

|(a) | Authorized share capital                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    | The Company's authorized share capital consists of an
      unlimited number of common shares, without par value.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|(b) | Issued and outstanding common shares (refer to
      Consolidated Statements of Shareholders Equity and Deficit)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    | In July 2006, the Company issued 8,745,845 common shares
      in connection with a share purchase agreement with Kennecott Canada
      Exploration Inc. (Kennecott), a subsidiary of Rio Tinto plc, for $10.00
      per share. Kennecott has a right of first refusal to participate in up to
      50% of future share placements by the Company, subject to customary
      exceptions, until Kennecott reaches 19.9% of the Companys outstanding
      share capital. The right thereafter continues as a 19.9% right until
      Kennecott either fails to take up any offered allotment or the fifth
      anniversary of the agreement, whichever occurs first. In early 2007, Rio
      Tinto, through its subsidiary QIT-Fer Et Titane Inc., purchased 9.4
      million common shares of Northern Dynasty from a significant shareholder
      of the Company to bring its share ownership to approximately
      19.6%.

---

|NORTHERN DYNASTY MINERALS LTD.                                             
|---------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                 
|For the years ended December 31, 2008, 2007 and 2006                       
|(Expressed in
      thousands of Canadian Dollars, unless otherwise stated)

|(c) | Share purchase option compensation plan                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    | The Company has a share option plan approved by the
      shareholders that allows it to grant options, subject to regulatory terms
      and approval, to its officers, directors, employees and service providers.
      The share option plan (the "2008 Rolling Option Plan") is based on the
      maximum number of eligible shares equaling a rolling percentage of up to
      10% of the Company's outstanding common shares, calculated from time to
      time. Pursuant to the 2008 Rolling Option Plan, if outstanding options are
      exercised, or expire, and/or the number of issued and outstanding common
      shares of the Company increases, then the options available to grant under
      the plan increase proportionately. The exercise price of each option is
      set by the Board of Directors at the time of grant but cannot be less than
      the market price (less permissible discounts). Options can have a maximum
      term of ten years and typically terminate 90 days following the
      termination of the optionees employment or engagement, except in the case
      of retirement or death. Vesting of options is at the discretion of the
      Board of Directors at the time the options are granted.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    | The continuity of share purchase options for the year
      ended December 31, 2008 is:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

| |                                 |   | Exercise |      |  | Dec 31    |      |  |           |   |  |           |      |  | Expired
      / |      |  | Dec 31    | 
| | ------------------------------- | - | -------- | ---- |  | --------- | ---- |  | --------- | - |  | --------- | ---- |  | --------------- | ---- |  | --------- | 
| | Expiry date                     |   | price    |      |  | 2007      |      |  | Granted   |   |  | Exercised |      |  | cancelled       |      |  | 2008      | 
| | April 30, 2009                  | $ | 7.25     |      |  | 359,400   |      |  |          |   |  |          |      |  |                |      |  | 359,400   | 
| | April 30, 2009                  | $ | 9.81     |      |  | 50,000    |      |  |          |   |  |          |      |  |                |      |  | 50,000    | 
| | April 30, 2009                  | $ | 10.32    |      |  | 596,350   |      |  |          |   |  |          |      |  | (3,350          | )    |  | 593,000   | 
| | April 14, 2011                  | $ | 9.74     |      |  |          |      |  | 1,510,500 |   |  |          |      |  | (48,832         | )    |  | 1,461,668 | 
| | April 30, 2011                  | $ | 7.25     |      |  | 945,000   |      |  |          |   |  |          |      |  |                |      |  | 945,000   | 
| | October 27, 2011                | $ | 3.00     |      |  |          |      |  | 224,660   |   |  |          |      |  | (2,783          | )    |  | 221,877   | 
| | February 20, 2012               | $ | 10.95    |      |  | 828,000   |      |  |          |   |  |          |      |  |                |      |  | 828,000   | 
| | April 11, 2013                  | $ | 3.00     |      |  |          |      |  | 753,000   |   |  |          |      |  |                |      |  | 753,000   | 
| | August 22, 2013                 | $ | 5.35     |      |  |          |      |  | 40,000    |   |  |          |      |  |                |      |  | 40,000    | 
| | October 27, 2013                | $ | 3.00     |      |  |          |      |  | 140,000   |   |  |          |      |  |                |      |  | 140,000   | 
| |                                 |   |          |      |  | 2,778,750 |      |  | 2,668,160 |   |  |          |      |  | (54,965         | )    |  | 5,391,945 | 
| |                                 |   |          |      |  |           |      |  |           |   |  |           |      |  |                 |      |  |           | 
| | Weighted average exercise price |   | $        | 9.06 |  | $         | 8.75 |  | $         |  |  | $         | 9.43 |  | $               | 8.90 | 

The continuity of share purchase
  options for the year ended December 31, 2007 is:

| |                                       |   | Exercise |      |  | Dec 31    |       |  |           |      |  |           |      |  | Expired
      / |      |  | Dec 31    | 
| | ------------------------------------- | - | -------- | ---- |  | --------- | ----- |  | --------- | ---- |  | --------- | ---- |  | --------------- | ---- |  | --------- | 
| | Expiry date                           |   | price    |      |  | 2006      |       |  | Granted   |      |  | Exercised |      |  | cancelled       |      |  | 2007      | 
| | September 28, 2007                    | $ | 5.40     |      |  | 85,067    |       |  |          |      |  | (68,400   | )    |  | (16,667         | )    |  |          | 
| | November 30, 2007                     | $ | 4.50     |      |  | 150,068   |       |  |          |      |  | (150,068  | )    |  |                |      |  |          | 
| | November 30, 2007                     | $ | 5.31     |      |  | 515,066   |       |  |          |      |  | (515,066  | )    |  |                |      |  |          | 
| | December 14, 2007                     | $ | 5.37     |      |  | 15,000    |       |  |          |      |  | (15,000   | )    |  |                |      |  |          | 
| | April 30, 2009                        | $ | 7.25     |      |  | 410,670   |       |  |          |      |  | (45,436   | )    |  | (5,834          | )    |  | 359,400   | 
| | April 30, 2009                        | $ | 9.81     |      |  | 62,500    |       |  |          |      |  | (2,500    | )    |  | (10,000         | )    |  | 50,000    | 
| | April 30, 2009                        | $ | 10.32    |      |  |          |       |  | 613,000   |      |  | (1,650    | )    |  | (15,000         | )    |  | 596,350   | 
| | April 30, 2011                        | $ | 7.25     |      |  | 1,125,000 |       |  |          |      |  | (60,000   | )    |  | (120,000        | )    |  | 945,000   | 
| | February 20, 2012                     | $ | 10.95    |      |  |          |       |  | 828,000   |      |  |          |      |  |                |      |  | 828,000   | 
| |                                       |   |          |      |  | 2,363,371 |       |  | 1,441,000 |      |  | (858,120  | )    |  | (167,501        | )    |  | 2,778,750 | 
| |                                       |   |          |      |  |           |       |  |           |      |  |           |      |  |                 |      |  |           | 
| | Weighted
      average exercise price |   | $        | 6.64 |  | $         | 10.68 |  | $         | 5.44 |  | $         | 7.49 |  | $               | 9.06 | 

---

|NORTHERN DYNASTY MINERALS LTD.                                             
|---------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                 
|For the years ended December 31, 2008, 2007 and 2006                       
|(Expressed in
      thousands of Canadian Dollars, unless otherwise stated)

|(c) | Share purchase option compensation plan
      (continued)                      
|--- | -------------------------------------------------------------------------------
|    |                                                                                
|    | Options outstanding and exercisable at December 31, 2008
      were as follows:

| |                                       |   | Exercise |  |  | Options     |      |  | Number of      |  |  | Contractual Life  | 
| | ------------------------------------- | - | -------- |  |  | ----------- | ---- |  | -------------- |  |  | ----------------- | 
| | Expiry date                           |   | price    |  |  | outstanding |      |  | options vested |  |  | remaining (years) | 
| | April 30, 2009                        | $ | 7.25     |  |  | 359,400     |      |  | 359,400        |  |  | 0.33              | 
| | April 30, 2009                        | $ | 9.81     |  |  | 50,000      |      |  | 50,000         |  |  | 0.33              | 
| | April 30, 2009                        | $ | 10.32    |  |  | 593,000     |      |  | 593,000        |  |  | 0.33              | 
| | April 14, 2011                        | $ | 9.74     |  |  | 1,461,668   |      |  | 492,335        |  |  | 2.28              | 
| | April 30, 2011                        | $ | 7.25     |  |  | 945,000     |      |  | 945,000        |  |  | 2.33              | 
| | October 27, 2011                      | $ | 3.00     |  |  | 221,877     |      |  | 74,886         |  |  | 2.82              | 
| | February 20, 2012                     | $ | 10.95    |  |  | 828,000     |      |  | 828,000        |  |  | 3.14              | 
| | April 11, 2013                        | $ | 3.00     |  |  | 753,000     |      |  | 251,000        |  |  | 4.28              | 
| | August 22, 2013                       | $ | 5.35     |  |  | 40,000      |      |  | 13,333         |  |  | 4.64              | 
| | October 27, 2013                      | $ | 3.00     |  |  | 140,000     |      |  | 46,667         |  |  | 4.82              | 
| | Total                                 |   |          |  |  | 5,391,945   |      |  | 3,653,621      |  |  |                   | 
| | Weighted
      average exercise price |   |          |  |  | $           | 8.98 |  |                |  | 

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

| |                                             |   | Years ended December 31 | 
| | ------------------------------------------- | - | ----------------------- | 
| |                                             |   | 2008                    | 
| | Exploration                                 |   |                         | 
| | Engineering                                 | $ | 364                     | 
| | Environmental, socioeconomic and land       |   | 66                      | 
| | Geological                                  |   | 1,211                   | 
| |                                             |   | 1,641                   | 
| | Operations and administration               |   | 3,776                   | 
| | Total compensation cost recognized in       |   |                         | 
| | operations, credited to contributed surplus | $ | 5,417                   | 

The grant date fair value of options
  granted during the year ended December 31, 2008 was $3.92 (2007  $5.51) .

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

| |                         | 2008          | 2007          | 2006         
| | ----------------------- | ------------- | ------------- | -------------
| | Risk-free interest rate | 2%            | 4%            | 4%           
| | Expected life           | 3.7 years     | 3.8 years     | 4.4 years    
| | Vesting period          | 0  24 months | 0  24 months | 0  24 months
| | Expected volatility     | 60%           | 64%           | 52%          
| | Expected dividend yield | nil           | nil           | nil          

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

---

|NORTHERN DYNASTY MINERALS LTD.                                             
|---------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                 
|For the years ended December 31, 2008, 2007 and 2006                       
|(Expressed in
      thousands of Canadian Dollars, unless otherwise stated)

|9. | RELATED PARTY BALANCES AND
      TRANSACTIONS
|-- | ---------------------------------------------

| |                                           |   | Years ended December 31 | 
| | ----------------------------------------- | - | ----------------------- | 
| | Transactions                              |   | 2008                    | 
| | Services rendered and expenses reimbursed |   |                         | 
| | Hunter Dickinson Services Inc.
      (a)  | $ | 10,675                  | 
| | Sidev Holdings Ltd. (b)                   |   | 175                     | 
| | CEC Engineering Ltd. (c)                  |   | 150                     | 
| | Galahad Gold plc (d)                      |   |                        | 
| | Beattie Consulting Ltd. (e)               |   |                        | 

| | Balances receivable                |   | At December 31, 2008 |  |   | At December 31, 2007 | 
| | ---------------------------------- | - | -------------------- |  | - | -------------------- | 
| | Hunter Dickinson Services Inc. (a) | $ |                     |  | $ | 27                   | 

| | Balances payable                         |   | At December 31, 2008 |  |   | At December 31, 2007 | 
| | ---------------------------------------- | - | -------------------- |  | - | -------------------- | 
| | Hunter Dickinson Services Inc.
      (a) | $ | 1,328                |  | $ |                     | 
| | Sidev
      Holdings Ltd. (b)            |   |                     |  |   | 21                   | 
| |                                          | $ | 1,328                |  | $ | 21                   | 

| | (a) | 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
      provides geological, corporate development, administrative and management
      services to, and incurs third party costs on behalf of, the Company and
      its subsidiaries on a full cost recovery basis pursuant to an agreement
      dated June 1, 2008. Balances receivable from HDSI result from advances to
      HDSI by the Company for services to be rendered subsequent to the period
      reported. Included in the total of services provided by HDSI for the year
      ended December 31, 2008 is $8,509 invoiced to the Pebble Limited
      Partnership for services.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | (b) | Sidev Holdings Ltd., is a private company controlled by a
      former director of Pebble East Claims Corp. (formerly Northern Dynasty
      Mines Inc., a wholly-owned subsidiary of Pebble Limited Partnership),
      which provides project management services at market rates.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | (c) | CEC Engineering Ltd. is a private company owned by a
      director that provides engineering and project management services to the
      Company at market rates.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | (d) | Galahad Gold plc (Galahad) was previously a significant
      shareholder of the Company, with a director in common, which charged the
      Company for travel expenses incurred. Shambala Gold plc, a subsidiary of
      Galahad, provided engineering and project management services to the
      Company at market rates.                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | (e) | Beattie Consulting Ltd. is a private company controlled
      by a former director of Northern Dynasty Minerals Ltd. that provided
      project management services to the Company at market
      rates.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

---

|NORTHERN DYNASTY MINERALS LTD.                                             
|---------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                 
|For the years ended December 31, 2008, 2007 and 2006                       
|(Expressed in
      thousands of Canadian Dollars, unless otherwise stated)

|10. | INCOME TAXES                                                                                                                                       
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                    
|    | As at December 31, 2008 the tax effect of the significant
      components within the Companys future tax asset (liability) were as
      follows:

| |                                                             |   | December 31 |   |   | December 31 |  
| | ----------------------------------------------------------- | - | ----------- | - | - | ----------- | -
| |                                                             |   | 2008        |   |   | 2007        |  
| | Future income tax assets (liabilities)                      |   |             |   |   |             |  
| | Resource pools                                              | $ | 76,508      |   | $ | 75,878      |  
| | Loss carry forwards                                         |   | 3,916       |   |   | 5,969       |  
| | Equipment                                                   |   | 162         |   |   | 105         |  
| | Other                                                       |   | 1           |   |   | 1           |  
| | Subtotal                                                    |   | 80,587      |   |   | 81,953      |  
| | Valuation allowance                                         |   | (75,373     | ) |   | (76,772     | )
| | Net future income tax asset                                 |   | 5,214       |   |   | 5,181       |  
| |                                                             |   |             |   |   |             |  
| | Acquisition of HDGI  Excess
      of book value of mineral |   |             |   |   |             |  
| | property over tax value                                     |   | (62,239     | ) |   | (62,239     | )
| | Sale of NDM Exploration and
      Resource Lands shares    |   |             |   |   |             |  
| | Excess of book value of mineral property over tax value     |   | (728        | ) |   | (728        | )
| | Net future income tax liability                             | $ | (57,753     | ) | $ | (57,786     | )

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

| |                                          |   | December 31 |   |   | December 31 |   |   | December 31 |  
| | ---------------------------------------- | - | ----------- | - | - | ----------- | - | - | ----------- | -
| |                                          |   | 2008        |   |   | 2007        |   |   | 2006        |  
| | Combined Canadian federal and provincial |   |             |   |   |             |   |   |             |  
| | statutory rate                           |   | 31.00%      |   |   | 34.12%      |   |   | 34.12%      |  
| |                                          |   |             |   |   |             |   |   |             |  
| | Income tax at statutory rates            | $ | (46,464     | ) | $ | (36,789     | ) | $ | (20,138     | )
| | Non-deductible items                     |   | 1,683       |   |   | 3,809       |   |   | 2,098       |  
| | Partnership losses not deductible        |   | 46,950      |   |   | 14,081      |   |   |            |  
| | Reduction in statutory tax rates         |   | (130        | ) |   | 1,092       |   |   | 360         |  
| | Difference in foreign tax rates          |   | (119        | ) |   | (3,270      | ) |   | (3,620      | )
| | Change in valuation allowance            |   | (1,399      | ) |   | 17,340      |   |   | 20,131      |  
| | Other                                    |   | (554        | ) |   | (78         | ) |   | 532         |  
| | Income tax
      recovery                | $ | (33         | ) | $ | (3,815      | ) | $ | (637        | )

At December 31, 2008, the Company had
  available losses for income tax purposes in Canada totaling approximately
  $10,318 (2007  $18,200), expiring in various years from 2008 to 2027.

The Company has capital losses
  available of $156 (2007  $160), which can be used to offset future capital
  gains. The Company has approximately $186,600 (2007  $187,700) of resource tax
  pools available in Canada, which, when available, may be carried forward and
  utilized to reduce future taxes related to certain resource income. In addition,
  the Company has approximately $186,300 (2007  $185,600) of resource tax pools
  available, which may be used to shelter certain resource income in the United
  States.

---

|NORTHERN DYNASTY MINERALS LTD.                                             
|---------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                 
|For the years ended December 31, 2008, 2007 and 2006                       
|(Expressed in
      thousands of Canadian Dollars, unless otherwise stated)

|11. | SUBSEQUENT EVENTS
|--- | -----------------
|    |                  
|    | The Company      

- issued 4,980,200 options with an exercise price of
      $5.00 per common share, with expiry dates of February 2 and February 4, 2012
      and 2014 respectively;
- cancelled 4,450,734 options with exercise prices
      between $7.25 to $10.95 and with various expiry dates between April 04, 2009
      to April 11, 2013; and
- was granted approval to early adopt IFRS (note
      4(b)(i))

|12. | COMMITMENT                                                                                                                                                                                                                                                                                                                                                                                           
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                      
|    | The Company, through the Pebble Limited Partnership has a
      commitment to contribute an initial US$5 million over a five-year period,
      of which US$1 million was contributed in 2008, to the Pebble Fund for
      Sustainable Bristol Bay Fisheries and Communities, a grant-making body
      dedicated to enhancing fisheries and sustaining local communities in
      southwest Alaska.

---

|NORTHERN DYNASTY MINERALS LTD.                                             
|---------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                 
|For the years ended December 31, 2008, 2007 and 2006                       
|(Expressed in
      thousands of Canadian Dollars, unless otherwise stated)

|13. | DIFFERENCES BETWEEN CANADIAN AND UNITED STATES
      GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | The consolidated financial statements have been prepared
      in accordance with Canadian generally accepted accounting principles
      (Canadian GAAP), which differ in certain material respects from those
      principles that the Company would have followed had its consolidated
      financial statements been prepared in accordance with United States
      generally accepted accounting principles (US GAAP). Had the Company
      followed US GAAP, certain items on the statements of loss and deficit, and
      balance sheets would have been reported as
      follows:

| | Total
      assets                                                      |   | 2008    |  |   | 2007    | 
| | ----------------------------------------------------------------------- | - | ------- |  | - | ------- | 
| | Total
      assets under US and Canadian GAAP                           | $ | 229,153 |  | $ | 210,277 | 
| |                                                                         |   |         |  |   |         | 
| | Total
      liabilities                                                 |   | 2008    |  |   | 2007    | 
| | Total liabilities under US and Canadian GAAP                            | $ | 265,278 |  | $ | 100,966 | 
| |                                                                         |   |         |  |   |         | 
| | Total share capital
      and contributed surplus                       |   | 2008    |  |   | 2007    | 
| | Total share capital and contributed surplus under US and
      Canadian |   |         |  |   |         | 
| | GAAP                                                                    | $ | 388,637 |  | $ | 383,220 | 
| |                                                                         |   |         |  |   |         | 
| | Total accumulated
      other comprehensive loss                        |   | 2008    |  |   | 2007    | 
| | Total accumulated other comprehensive loss under US and
      Canadian  |   |         |  |   |         | 
| | GAAP                                                                    | $ | 950     |  | $ | 3       | 
| |                                                                         |   |         |  |   |         | 
| | Total deficit                                                           |   | 2008    |  |   | 2007    | 
| | Total
      deficit under US and Canadian GAAP                          | $ | 423,812 |  | $ | 273,906 | 

| | Consolidated
      Statements of Operations    |   | 2008     |   |   | 2007     |   |   | 2006    |  
| | ---------------------------------------------- | - | -------- | - | - | -------- | - | - | ------- | -
| | Loss for the year under Canadian GAAP, being   |   |          |   |   |          |   |   |         |  
| | comprehensive
      loss in 2008               | $ | (150,853 | ) | $ | (104,010 | ) | $ | (58,383 | )
| | Other comprehensive income                     |   |          |   |   |          |   |   |         |  
| | Realization on prior year
      mark-to-market |   |          |   |   |          |   |   |         |  
| | adjustment (a)                                 |   |         |   |   |         |   |   |        |  
| | Comprehensive loss for the year under US GAAP  | $ | (150,853 | ) | $ | (104,010 | ) | $ | (58,383 | )
| |                                                |   |          |   |   |          |   |   |         |  
| | Loss per share under US GAAP                   | $ | (1.62    | ) | $ | (1.13    | ) | $ | (0.75   | )
| |                                                |   |          |   |   |          |   |   |         |  
| | Comprehensive loss per share under US GAAP     | $ | (1.62    | ) | $ | (1.13    | ) | $ | (0.75   | )

There are no material differences
  between Canadian GAAP and US GAAP in the consolidated statements of cash flows
  for the years ended December 31, 2008, 2007, and 2006.

---

|NORTHERN DYNASTY MINERALS LTD.                                             
|---------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                 
|For the years ended December 31, 2008, 2007 and 2006                       
|(Expressed in
      thousands of Canadian Dollars, unless otherwise stated)

|(a) | Impact of recently adopted United States accounting
      pronouncements
|--- | ------------------------------------------------------------------------
|    |                                                                         
|    | (i)                                                                     
|    |                                                                         
|    | (ii)                                                                    
|    |                                                                         
|    |                                                                         
|    |                                                                         
|    | (iii)                                                                   
|    |                                                                         
|    |                                                                         

|(b) | United States accounting pronouncements to be
      adopted
|--- | -----------------------------------------------------------
|    |                                                            
|    | (i)                                                        

---

|NORTHERN DYNASTY MINERALS LTD.                                             
|---------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                 
|For the years ended December 31, 2008, 2007 and 2006                       
|(Expressed in
      thousands of Canadian Dollars, unless otherwise stated)

| |       | fair value as an intangible asset; and requires that
      changes in accounting for deferred tax asset valuation allowances and
      acquired income tax uncertainties after the measurement period be
      recognized as a component of provision for taxes. SFAS 141(R) also
      establishes disclosure requirements to enable the evaluation of the nature
      and financial effects of the business combination. SFAS 141(R) is
      effective for the Companys 2009 fiscal year. Therefore, the Company will
      apply SFAS 141(R) prospectively to all business combinations subsequent to
      January 1, 2009.                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | ----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | (ii)  | In December 2007, the FASB issued SFAS No. 160, Non
      controlling Interests in Consolidated Financial Statements  an amendment
      of Accounting Research Bulletin No. 51(SFAS 160). SFAS 160
      establishes accounting and reporting standards for the non controlling
      interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS
      160 also establishes disclosure requirements that clearly identify and
      distinguish between the controlling and non-controlling interests and
      requires the separate disclosure of income attributable to controlling and
      non controlling interests. SFAS 160 is effective for fiscal years
      beginning January 1, 2009. The Company is currently evaluating the impact
      that the adoption of SFAS 160 will have on its consolidated financial
      statement but does not expect the adoption of SFAS 160 to have a material
      impact on results of operations, cash flows or financial
      position.                                                     
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | (iii) | In February 2008, the FASB issued FASB Staff Position
      ("FSP") SFAS 157-2, "Effective Date of FASB Statement No. 157" ("FSP SFAS
      157-2"). FSP SFAS 157-2 delays the effective date of SFAS No. 157, "Fair
      Value Measurements" ("SFAS 157") to fiscal years beginning after November
      15, 2008 for all non financial assets and non financial liabilities,
      except those that are recognized or disclosed at fair value in the
      financial statements on a recurring basis. As a result of adoption of FSP
      SFAS 157-2, the Company will adopt SFAS 157 for non financial assets and
      non financial liabilities in fiscal 2009. Although the Company will
      continue to evaluate the application of SFAS 157 to non financial assets
      and nonfinancial liabilities, the Company does not expect the adoption of
      SFAS 157 with respect to non financial assets and non financial
      liabilities will have a material impact on its consolidated results of
      operations, cash flows or financial position
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | (iv)  | In March 2008, the FASB issued SFAS No. 161,
      Disclosure about Derivative Instruments and Hedging Activities (FAS
      161).FAS 161 changes the disclosure requirements for derivative
      instruments and hedging activities by requiring enhanced disclosures about
      how and why an entity uses derivatives instruments, how derivative
      instruments and related hedged items affect an entitys operating results,
      financial position, and cash flows. FAS 161 is effective for the Companys
      2009 fiscal year. The Company is currently reviewing the provisions of FAS
      161 and has not yet adopted the statement. However, the Company does not
      believe the adoption of FAS 161 will have a material impact on its
      consolidated results of operations, cash flows or financial
      position.                                                                                                                                                                                                               
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | (v)   | In May 2008, the FASB issued FSP Accounting Principles
      Board ("APB") 14-1 "Accounting for Convertible Debt Instruments That May
      Be Settled in Cash upon Conversion (Including Partial Cash Settlement)"
      ("FSP APB 14-1"). FSP APB 14-1 requires the issuer of certain convertible
      debt instruments that may be settled in cash
      (or                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

---

|NORTHERN DYNASTY MINERALS LTD.                                             
|---------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                 
|For the years ended December 31, 2008, 2007 and 2006                       
|(Expressed in
      thousands of Canadian Dollars, unless otherwise stated)

| |      | other assets) on conversion to separately account for the
      liability and equity components of those instruments by allocating the
      proceeds from the issuance between the liability component and the
      embedded conversion option. This standard is effective for the Companys
      2009 fiscal year. The Company is currently reviewing the provisions of
      this standard.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | (vi) | In May 2008, the FASB issued SFAS No. 162, The
      Hierarchy of Generally Accepted Accounting Principles ("SFAS No.
      162"). The new standard is intended to improve financial reporting by
      identifying a consistent framework, or hierarchy, for selecting accounting
      principles to be used in preparing financial statements that are presented
      in conformity with U.S. generally accepted accounting principles for non
      governmental entities. SFAS No. 162 is effective 60 days following the
      Securities and Exchange Commission's approval of the Public Company
      Accounting Oversight Board Auditing amendments to AU Section 411, The
      Meaning of Present Fairly in Conformity with Generally Accepted Accounting
      Principles. The Company is currently evaluating the impact of adoption of
      SFAS No. 162 but does not expect adoption to have a material impact on
      results of operations, cash flows or financial
      position.

---