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MANAGEMENT'S DISCUSSION AND ANALYSIS



YEAR ENDED DECEMBER 31, 2009

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|NORTHERN DYNASTY MINERALS LTD.      
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|MANAGEMENT'S DISCUSSION AND ANALYSIS
|YEAR ENDED DECEMBER 31, 2009        
|                                    

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

|1.1  | DATE                                                            | 3                                                                          
|---- | --------------------------------------------------------------- | ---------------------------------------------------------------------------
|     |                                                                 |                                                                            
|1.2  | OVERVIEW                                                        | 4                                                                          
|     | 1.2.1                                                           | SUMMARY                                                                    
|     | 1.2.2                                                           | LIMITED PARTNERSHIP ESTABLISHED
      TO ADVANCE THE PEBBLE PROJECT        
|     | 1.2.3                                                           | TECHNICAL PROGRAMS                                                         
|     | 1.2.4                                                           | MARKET TRENDS                                                              
|     |                                                                 |                                                                            
|1.3  | SELECTED ANNUAL
      INFORMATION                               | 12                                                                         
|     |                                                                 |                                                                            
|1.4  | SUMMARY OF QUARTERLY
      RESULTS                              | 13                                                                         
|     |                                                                 |                                                                            
|1.5  | RESULTS OF OPERATIONS                                           | 14                                                                         
|     |                                                                 |                                                                            
|1.6  | LIQUIDITY                                                       | 15                                                                         
|     |                                                                 |                                                                            
|1.7  | CAPITAL RESOURCES                                               | 16                                                                         
|     |                                                                 |                                                                            
|1.8  | OFF-BALANCE
      SHEET ARRANGEMENTS                            | 16                                                                         
|     |                                                                 |                                                                            
|1.9  | TRANSACTIONS
      WITH RELATED PARTIES                         | 16                                                                         
|     |                                                                 |                                                                            
|1.10 | FOURTH QUARTER                                                  | 17                                                                         
|     |                                                                 |                                                                            
|1.11 | PROPOSED TRANSACTIONS                                           | 17                                                                         
|     |                                                                 |                                                                            
|1.12 | CRITICAL ACCOUNTING
      ESTIMATES                             | 18                                                                         
|     |                                                                 |                                                                            
|1.13 | CHANGES IN ACCOUNTING
      POLICIES INCLUDING INITIAL ADOPTION | 21                                                                         
|     |                                                                 |                                                                            
|1.14 | FINANCIAL INSTRUMENTS
      AND OTHER INSTRUMENTS               | 24                                                                         
|     |                                                                 |                                                                            
|1.15 | OTHER MD&A
      REQUIREMENTS                                   | 27                                                                         
|     | 15.5.1                                                          | ADDITIONAL DISCLOSURE FOR VENTURE ISSUERS
      WITHOUT SIGNIFICANT REVENUE
|     | 15.5.2                                                          | DISCLOSURE OF OUTSTANDING
      SHARE DATA                                 
|     | 15.5.3                                                          | DISCLOSURE CONTROLS AND PROCEDURES                                         
|     | 15.5.4                                                          | MANAGMENTS REPORT
      ON INTERNAL CONTROL OVER FINANCIAL REPORTING      
|     | 15.5.5                                                          | CHANGES IN INTERNAL CONTROL OVER FINANCIAL
      REPORTING                 
|     | 15.5.6                                                          | RISK FACTORS                                                               

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|MANAGEMENT'S DISCUSSION AND ANALYSIS
|YEAR ENDED DECEMBER 31, 2009        
|                                    

1.1        Date

This Managements Discussion and Analysis ("MD&A") should
be read in conjunction with the audited consolidated financial statements of
Northern Dynasty Minerals Ltd. ("Northern Dynasty" or the "Company") for the
year ended December 31, 2009, as publicly filed on SEDAR at www.sedar.com.

The Company adopted International Financial Reporting Standards
("IFRS") and the following disclosure, and associated Financial Statements, are
presented in accordance with IFRS. The comparative periods for fiscal 2008 have
been restated in accordance with IFRS.

This MD&A is prepared as of March 30, 2010. All dollar
figures stated herein are expressed in Canadian dollars, unless otherwise
specified.

|This discussion includes certain statements that may be
      deemed "forward-looking statements". These forward-looking
      statements constitute "forward-looking statements" within the meaning of
      Section 27A of theSecuritiesAct of 1933and Section 21E of theSecurities Exchange Act of
      1934.Forward-looking statements are based on the opinions
      and estimates of management at the date the statements are made, and are
      subject to a variety of risks and uncertainties and other factors that
      could cause actual events or results to differ materially from those
      anticipated in the forward-looking statements. Factors and estimates that
      could cause actual results to differ materially from those in the
      forward-looking statements include market prices for metals, the
      conclusions of pre-feasibility, final feasibility and technical analyses,
      lower than expected grades and quantities of mineralization and resources,
      mining and recovery rates, availability of necessary capital, changes in
      and the effect of government policies, the ability to obtain required
      permits, delays in exploration and development projects and the
      possibility of adverse development in the financial markets. All
      statements, other than statements of historical facts, especially those
      that address estimated resource quantities, grades and contained metals,
      are forward-looking statements because they are generally made on the
      basis of estimation and extrapolation from a limited number of drill holes
      and metallurgical studies. Although diamond drill hole core provides
      valuable information about the size, shape and geology of an exploration
      project, there will always remain a significant degree of uncertainty in
      connection with these valuation factors until a deposit has been
      extensively drilled on closely spaced centers, which has occurred only in
      specific areas on the Pebble Project. Although the Company believes the
      expectations expressed in its forward-looking statements are based on
      reasonable assumptions, such statements should not be in any way be
      construed as guarantees of the ultimate size, quality or commercial
      feasibility of the Pebble Project or of the Companys future performance.
      The likelihood of future mining at the Pebble Project is subject to a
      large number of risks and will require achievement of a number of
      technical, economic and legal objectives, including obtaining necessary
      mining and construction permits, completion of pre-feasibility and final
      feasibility studies, preparation of all necessary engineering for
      underground workings and processing facilities as well as receipt of
      significant additional financing to fund these objectives as well as
      funding mine construction. Such funding may not be available to the
      Company on acceptable terms or on any terms at all. There is no known ore
      at the Pebble Project and there is no assurance that the mineralization at
      the Pebble Project will ever be classified as ore. The need for compliance
      with extensive environmental and socio- economic rules and practices and
      the requirement for the Company to obtain government permitting can cause
      a delay or even abandonment of a mineral project. The Company is also
      subject to the specific risks inherent in the mining business as well as
      general economic and business conditions. The Company reviews its
      forward looking statements on an ongoing basis and updates this
information when circumstances require it.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Unless otherwise noted, Northern Dynasty is solely
responsible for the content of the disclosure set out herein.

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|MANAGEMENT'S DISCUSSION AND ANALYSIS
|YEAR ENDED DECEMBER 31, 2009        
|                                    

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

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

1.2        Overview

1.2.1     Summary

Northern Dynasty is a mineral exploration company which owns
50% of the Pebble Limited Partnership (the "Pebble Partnership"). The Pebble
Partnership owns the Pebble Copper-Gold-Molybdenum Project (the "Pebble
Project"), which consists of the Pebble deposit and 153 square miles of
associated resource lands; and has access to a stream of financing for
comprehensive exploration, engineering, environmental and socioeconomic programs
and, if warranted, development of the Project.

The Pebble property is located in southwest Alaska, 19 miles
(30 kilometers) from the villages of Iliamna and Newhalen, and approximately 200
miles (320 kilometers) southwest of the city of Anchorage. It is situated
approximately 1,000 feet above sea-level, 65 miles from tidewater on Cook Inlet
and presents favorable conditions for successful mine site and infrastructure
development.

An extensive, northeast-trending mineralized system underlies
the Pebble property. Mineralization was discovered and an initial mineral
resource outlined in the Pebble porphyry copper deposit through drilling by a
previous operator during the period 1987-1997.

Northern Dynasty acquired the right to earn an interest in the
Pebble property in late 2001, and in 2002 carried out an initial exploration
program outside of the Pebble deposit area that resulted in the discovery of two
other porphyry copper-gold-molybdenum deposits, a porphyry copper zone and a
gold-copper skarn occurrence along the mineralized trend. Since 2002, work has
focused on the main Pebble deposit, resulting in discovery of higher grade
mineralization to the east and an overall expansion of the deposit.
Comprehensive technical programs, including drilling, engineering, environmental
and socioeconomic studies, have been underway since 2004.

In mid-2007, Northern Dynasty and Anglo American plc ("Anglo")
established the Pebble Partnership (see section 1.2.2) to engineer, permit,
construct and operate a modern, long-life mine at Pebble. To retain its 50%
interest in the Pebble Partnership, Anglo is required to complete a staged
investment of US$1.425 or US$1.5 billion if the feasibility study is completed
after 2011, to advance the Pebble Project toward permitting and operations.

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|MANAGEMENT'S DISCUSSION AND ANALYSIS
|YEAR ENDED DECEMBER 31, 2009        
|                                    

Work in 2009 and 2010

An update to the mineral resource estimate for the Pebble
deposit was announced in February 2010. The results at a 0.30% copper equivalent
(CuEQ)1cut-off are:

- 5.94 billion tonnes of Measured and Indicated Mineral Resources grading
  0.2% copper, 0.35 g/t gold and 250 ppm molybdenum (0.78% CuEQ), containing 55
  billion pounds of copper, 67 million ounces of gold, and 3.3 billion pounds of
  molybdenum; and
- 4.84 billion tonnes of Inferred Mineral Resources grading 0.24% copper,
  0.26 g/t gold and 215 ppm molybdenum (0.53% CuEQ), containing 25.6 billion
  pounds of copper, 40.4 million ounces of gold, and 2.3 billion pounds of
  molybdenum.

The new estimate represents a 17% increase in resources within
the measured and indicated categories, and a 12%, 14% and 16% increase in
contained copper, gold and molybdenum, respectively.

The Pebble Partnership is currently working to advance a
prefeasibility study (PFS) for the Pebble Project and prepare for permitting
under the National Environmental Policy Act (NEPA). Activities in 2009, and
those planned for 2010, are focused on these goals. It is expected that project
permitting will be initiated in 2011, and the process is estimated to take 2 to
3 years to complete.

Budget expenditures of up to US$72.9 million have been approved
by the board of the general partner (Pebble Mines Corp.) for 2010. A technical
review will be undertaken in May 2010, at which time the engineering budget
required to move the Pebble Project forward toward a timely completion of the
PFS will be further reviewed.

Northern Dynasty has cash and cash equivalents on hand of $44.9
million for its operating requirements. With the project funding committed by
Anglo for 2010, and given its holdings of cash and cash equivalents, management
believes that the Company has sufficient sources to cover its short and long
term cash requirements.

1.2.2     Limited Partnership Established
to Advance the Pebble Project

On July 26, 2007, the Company converted a wholly-owned general
partnership that held its Pebble Property interests into a limited partnership,
the Pebble Partnership. An indirect wholly-owned subsidiary of Anglo subscribed
for 50% of the Pebble Partnership's equity effective July 31, 2007. Each of the
Company and Anglo effectively has equal rights in the Pebble Partnership through
wholly-owned affiliates. To maintain its 50% interest in the Pebble Partnership,
Anglo is required to commit staged cash investments into the Pebble Partnership
aggregating to US$1.425 billion, potentially increasing to US$1.5 billion, as
described below.

______________________________________________

1See notes to the Table in section 1.2.3.

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|MANAGEMENT'S DISCUSSION AND ANALYSIS
|YEAR ENDED DECEMBER 31, 2009        
|                                    

Anglos staged investment requirements include an initial
minimum expenditure of US$125 million. This investment funded expenditures on
the project approved by the Board of the general partner (Pebble Mines Corp.),
with the goal of producing a prefeasibility study. After approval of a
prefeasibility study, Anglo is required, in order to retain its 50% interest in
the Pebble Partnership, to commit to further expenditures which bring its total investment to at least US$450 million which
amount is to be expended towards producing a final feasibility study and in
related activities, the completion of which is expected to take the Pebble
Partnership to a production decision. The final feasibility study may require
more than the cumulative US$450 million of expenditures. Upon an affirmative
decision by the Pebble 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 Pebble Partnership. Following completion of the
US$1.425 billion expenditure, any further expenditure will be funded by Anglo
and the Company 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 Pebble
Partnership agreement provides for equal project control rights with no
operators fees payable to either party.

On adoption of IFRS, the Company determined that the investment
in the Pebble Partnership qualifies as an interest in a jointly controlled
entity in accordance with International Accounting Standard 31, Interests in
Joint Ventures. The Company has elected to apply the equity method to
account for its interest in the Pebble Partnership. Previously, under Canadian
generally accepted accounting principles ("Canadian GAAP"), the Company
considered the Pebble Partnership a variable interest entity with the Company
the primary beneficiary and consequently had consolidated the activities of the
Pebble Partnership and recognized a non-controlling interest.

Anglos cash contribution since the formation of the Pebble
Partnership on July 31, 2007 to December 31, 2009 amounts to $264 million
(US$245.8 million) (year ended December 31, 2009 $69.8 million (US$61.8
million)).

Senior management of the Pebble Partnership is now fully in
place in Anchorage, Alaska. The Alaska-based operations are guided by the board
of the general partner with equal representation from Anglo and Northern
Dynasty.

1.2.3     Technical
Programs

The Pebble Partnership has assembled an experienced engineering
and permitting team to prepare a Prefeasibility Study for the Pebble Project,
consisting of over 20 senior engineers and technical specialists (many of whom
are from Anglo and others are from Northern Dynasty), as well as engineering
firms and specialized consultancies from around the world.

The 2009 work plan, described in more detail below, included
site investigations (resource and environmental drilling); engineering studies
(evaluation of project options to optimize the project scale and completion of
trade-off studies to determine the preferred project components); continuation
of baseline data collection in key areas (e.g. hydrology, water quality, fish
resources) and analysis of data collected in previous years for the
Environmental Baseline Document; and a public affairs program to engage
communities and project stakeholders, and to advance initiatives in the areas of
workforce development, business development and public education.

Exploration and Resource Drilling

The 2009 drilling program included condemnation drilling in the
area of site facilities to facilitate completion of PFS mine planning and
exploration drilling outside of the main Pebble resource area.

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|MANAGEMENT'S DISCUSSION AND ANALYSIS
|YEAR ENDED DECEMBER 31, 2009        
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Drilling was completed in two phases that took place during the
periods of May to June and August to October 2009. Approximately 34,940 feet of
drilling was completed in 36 holes.

On February 12, 2010, the Alaska Department of Natural
Resources (DNR) announced that temporary land and water use permits granted to
facilitate exploration drilling at the Pebble Project would be temporarily
suspended, pending the submission of a plan to ensure that future water
withdrawals comply with state permits. The Pebble Partnership was fined a total
of $45,000 for instances between 2007 and 2009 in which water was drawn from
unpermitted sources. The Pebble Partnership has taken steps to comply with the
new permitting requirements put forward by the DNR and does not expect any delay
to its 2010 field season.

Pebble Deposit Resources

The January 2010 updated mineral resources estimate for the
Pebble deposit is based on 509 core holes, including 37 new holes drilled since
mid-2008. The estimate was prepared for the Pebble Partnership by David Gaunt,
P.Geo., a qualified person as defined under 43-101 who is not independent of
Northern Dynasty. A technical report has been filed on www.sedar.com.

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|NORTHERN DYNASTY MINERALS LTD.      
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|MANAGEMENT'S DISCUSSION AND ANALYSIS
|YEAR ENDED DECEMBER 31, 2009        
|                                    

PEBBLE DEPOSIT MINERAL RESOURCES  JANUARY 2010

MEASURED MINERAL RESOURCES

|Cut-Off | Size        | Grade | Contained
        Metal
|------- | ----------- | ----- | -----------------------
|CuEQ%   | Tonnage     | Cu%   | Goldg/t                
|0.30    | 527,000,000 | 0.33  | 0.35                   
|0.40    | 508,000,000 | 0.34  | 0.36                   
|0.60    | 277,000,000 | 0.40  | 0.42                   
|1.00    | 27,000,000  | 0.62  | 0.62                   

INDICATED MINERAL RESOURCES

|Cut-Off | Size          | Grade | Contained
        Metal
|------- | ------------- | ----- | -----------------------
|CuEQ%   | Tonnage       | Cu%   | Goldg/t                
|0.30    | 5,414,000,000 | 0.43  | 0.35                   
|0.40    | 4,891,000,000 | 0.46  | 0.36                   
|0.60    | 3,391,000,000 | 0.56  | 0.41                   
|1.00    | 1,422,000,000 | 0.77  | 0.51                   

MEASURED + INDICATED MINERAL RESOURCES

|Cut-Off | Size          | Grade | Contained
        Metal
|------- | ------------- | ----- | -----------------------
|CuEQ%   | Tonnage       | Cu%   | Goldg/t                
|0.30    | 5,942,000,000 | 0.42  | 0.35                   
|0.40    | 5,399,000,000 | 0.45  | 0.36                   
|0.60    | 3,668,000,000 | 0.55  | 0.41                   
|1.00    | 1,449,000,000 | 0.76  | 0.52                   

INFERRED MINERAL RESOURCES

|Cut-Off | Size          | Grade | Contained
        Metal
|------- | ------------- | ----- | -----------------------
|CuEQ%   | Tonnage       | Cu%   | Goldg/t                
|0.30    | 4,835,000,000 | 0.24  | 0.26                   
|0.40    | 2,845,000,000 | 0.32  | 0.30                   
|0.60    | 1,322,000,000 | 0.48  | 0.37                   
|1.00    | 353,000,000   | 0.69  | 0.45                   

|Note 1 | Copper equivalent calculations used metal prices of
      US$1.85/lb for copper, US$902/oz for gold and US$12.50/lb for molybdenum,
      and metallurgical recoveries of 85% for copper, 69.6% for gold, and 77.8%
      for molybdenum in the Pebble West area and 89.3% for copper, 76.8% for
      gold, 83.7% for molybdenum in the Pebble East area. Recovery values
      reflect average results of metallurgical testwork completed to date and
      are subject to revision pending ongoing metallurgical studies. Revenue is
      calculated for each metal based on grades, recoveries and selected metal
      prices: accumulated revenues are then divided by the revenue at 1% copper.
      Recoveries for gold and molybdenum are normalized to the copper recovery
      as show below:
|------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

CuEQ (Pebble West) = Cu % + (Au g/t x
69.6%/85% x 29.00/40.79) + (Mo % x 77.8%/85% x 275.58/40.79) CuEQ (Pebble
East) = Cu% + (Au g/t x 76.8%/89.3% x 29.00/40.79) + (Mo % x 83.7%/89.3% x
275.58/40.79)

|Note 2 | By prescribed definition, Mineral Resources do not have
      demonstrated economic viability. An Inferred Mineral Resource is that part
      of a mineral resource for which quantity and grade can be estimated on the
      basis of geological evidence and limited sampling and reasonably assumed,
      but not verified, geological and grade continuity. The mineral resources
      fall within a volume or shell defined by long-term metal price estimates
      of US$2.50/lb for copper, US$900/oz for gold and US$25/lb for molybdenum.
|------ | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|Note 3 | For bulk underground mining, cut-offs such as 0.60% CuEQ,
      are typically used for porphyry deposit bulk underground mining operations
      at copper porphyry deposits located around the world. A 0.30% CuEQ cut-off
      is considered to be comparable to that used for porphyry deposit open pit
      mining operations in the Americas.                                                                                                                                                                                                     
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|Note 4 | All mineral resource estimates, cut-offs and
      metallurgical recoveries are subject to a feasibility study.                                                                                                                                                                                                                                                                                                                                                                                                                                          

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|MANAGEMENT'S DISCUSSION AND ANALYSIS
|YEAR ENDED DECEMBER 31, 2009        
|                                    

Engineering

The 2009 engineering program was designed to assess a range of
options to optimize the project scale, including trade-off studies of major
project components; metallurgical studies to determine the optimal conventional
processing systems and designs; and evaluations of the major infrastructure
elements to identify the optimum alternatives and designs for these project
components.

Metallurgy

In 2009, work was focused on assessing the Pebble West
supergene zone and advancing variability testwork for the entire deposit.
Following detailed copper speciation analyses in 2007 and early 2008, the
relative metallurgical responses of the various types of mineralization
throughout the deposit were tested. In the second quarter, additional analysis
to clarify the supergene metallurgy commenced in conjunction with an ongoing
geo-metallurgical program on material from both the Pebble East and Pebble West
areas, which will be used to refine the metallurgical flowsheet for the
completion of the prefeasibility study. Work was further advanced, in particular
on the geo-metallurgy, in the third and fourth quarters.

Infrastructure

A base case for project infrastructure has been developed in
conjunction with the ongoing prefeasibility study program. Infrastructure for
the project includes port, road, and power options that will be necessary to
support future mine operations. Alternatives were developed and assessed in 2008
and reviewed in 2009 to identify the optimal infrastructure plans and to
determine any opportunities for cost savings and improvements to the time table
for development.

Environmental and Socioeconomic Studies

Comprehensive environmental and socioeconomic baseline study
programs are ongoing, with the objectives of collecting data in the Pebble East
area and comparing annual variability. This data provides a foundation for the
sound environmental design of the project and preparation of state and federal
permit applications in future years. The primary areas of focus for 2009 field
programs were hydrology, water quality and fish resources.

The Environmental Baseline Document (EBD) remains on schedule
to be finalized in late 2010. This document will be submitted with permit
applications once mine engineering and a proposed development plan is completed.
The EBD will present information and analysis on baseline physical, biological
and social conditions based upon ongoing data collection by the Pebble
Partnerships environmental study team since 2004. Its purpose is to provide the
public, regulatory agencies and the Pebble Partnership with a detailed
compendium of pre-development environmental and socioeconomic conditions in the
project area.

A lawsuit filed on July 29, 2009, in Anchorage Superior Court
by Trustees for Alaska (an environmental law firm) on behalf of certain
activists asserts that the Alaska Department of Natural Resources violated
Alaskas Constitution by granting exploration and temporary water use permits to
the Pebble Partnership. Neither the Company nor the Pebble Partnership is named
as parties, however the Pebble Partnership has been granted intervener status in
the case. While plaintiffs had requested a preliminary injunction to halt
exploration activity at Pebble until the case is resolved, the court denied this
request on November 27, 2009. The court is expected to hear the Trustees
constitutional challenge in late 2010. The lawsuit is considered unlikely to
succeed as it seeks to impugn the States regulatory regime for resource
management.

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|MANAGEMENT'S DISCUSSION AND ANALYSIS
|YEAR ENDED DECEMBER 31, 2009        
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Cultural Studies

Archaeological studies have been carried out on all areas that
might be disturbed by the project, with the exception of possible road and port
locations. Examination of the road and port sites are not expected until 2010,
once a decision is made regarding the exact location of these project features.

Community Engagement

An active program of stakeholder outreach continued in 2009,
including community meetings, stakeholder visits, presentations and event
appearances, as well as stakeholder tours to the Pebble Project site and to
operating mines in Alaska. The focus of these outreach activities is to update
stakeholders on the Pebble Project, to receive feedback on stakeholder
priorities and concerns, and to educate participants about modern mining
practices.

The Keystone Center, a non-profit organization that specializes
in developing stakeholder dialogue processes, has initiated an independent
dialogue process around the Pebble Project. The 2009 program included the
recruitment of independent technical and scientific experts to review the Pebble
Partnerships work and serve as a credible and objective arbiter for project
stakeholders.

The Pebble Partnership has a number of other initiatives
underway to enhance stakeholder relationships, including:

| | 1. | The Pebble Fund for Sustainable Bristol Bay Fisheries
      & Communities a five-year, US$5 million endowment, established
      in February 2008, to enhance the health and sustainability of regional
      fisheries and the communities they support. An advisory board of citizens
      representing communities from throughout Bristol Bay developed the grant
      criteria and awards Pebble Fundgrants. Approximately US$1.6
      million was dispensed in 2009.                                                                                                                                                 
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | 2. | The Pebble Project Pre-Permitting Environmental &
      Socio-Economic Data Release Series is a voluntary initiative to share the
      preliminary findings of the comprehensive environmental study program with
      project stakeholders prior to the beginning of project permitting. In
      2009, the Pebble Partnership issued 7 data reports, namely: trace elements
      (vegetation, fish, mammal and mussel tissue); aquatic macroinvertebrates
      and periphyton; marine nearshore habitats; marine nearshore fish and
      benthic invertebrates; noise; Lake Iliamna Studies; and Visual
      Resources.

Workforce development initiatives included additional training
in the areas of equipment operations, health, safety and environment. Working
with the U.S. and Alaska Departments of Labor, the Pebble Partnership has
established the first-ever registered apprenticeship training program to help
local drill helpers become certified drillers. The Company is also investing in
programs to train local workers to become environmental technicians, emergency
medical technicians and bear guards. College scholarship programs for Bristol
Bay high school students also continued in 2009.

Plans for 2010

Approved budget expenditures for the US$72.9 million program at
the Pebble Project in 2010 include:

- an engineering program to finalize a Prefeasibility Study and prepare for
  project permitting in 2011;

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|MANAGEMENT'S DISCUSSION AND ANALYSIS
|YEAR ENDED DECEMBER 31, 2009        
|                                    

- an environmental and socioeconomic study program to continue baseline data
  collection in key areas (e.g. hydrology, water quality, fish resources) and to
  complete an Environmental Baseline Document in preparation for project
  permitting;
- a geology and site investigation program headquartered in Iliamna, Alaska
  to undertake ongoing exploration drilling, and support engineering and
  environmental studies;
- a public affairs program to engage project stakeholders and local
  communities, and advance key initiatives in the areas of workforce
  development, business development and public consultation; and
- corporate and administrative costs.

1.2.4     Market Trends

Copper prices increased significantly between late 2003 and mid
2008, and then dropped in late 2008. The average price in 2008 was approximately
US$3.16/lb. Prices in 2009 ranged from US$1.39/lb in early January to US$3.33/lb
at year end, averaging US$2.34/lb for the year.

Prices remain strong in 2010. The average price for the year to
the date of this report is US$3.28/lb.

Although there has been periodic volatility in the gold market,
the average annual price has increased for the past four years. The average gold
price in 2008 was approximately US$872/oz. In response to the global economic
uncertainty that began in mid 2008, gold prices were strong in 2009. Prices
ranged from US$802/oz in early January to US$1200/oz in early December and
averaged US$974/oz over the year.

Prices remain strong in 2010. The average price for the year to
the date of this report is US$1,110/oz.

Molybdenum prices increased from US$7.60/lb in 2003 to peak at
US$34/lb in 2005. Prices averaged US$25.53/lb in 2006 and US$30.47/lb in 2007.
Although dropping significantly in the latter part of 2008, the average price
for the year was US$28.98/lb.

Molybdenum prices continued to decrease in 2009 to early May,
then began to increase, averaging US$11.28/lb for the year.

Prices have been stronger in 2010. The average price to the
date of this report is US$15.74/lb.

Page 11

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|NORTHERN DYNASTY MINERALS LTD.      
|------------------------------------
|MANAGEMENT'S DISCUSSION AND ANALYSIS
|YEAR ENDED DECEMBER 31, 2009        
|                                    

1.3        Selected Annual
Information

The Company adopted and transitioned to International Financial
Reporting Standards ("IFRS") as of January 1, 2008. The comparative periods for
fiscal 2008 have been restated in accordance with IFRS as part of the transition
to IFRS. The reconciliation from Canadian GAAP (GAAP) to IFRS is included in
Note 16 in the notes to the consolidated financial statements. All figures are
expressed in thousands of Canadian dollars, except per share amounts.

|                                           |   | In accordance |  |   | In accordance |  |   | In accordance |  |   | In accordance | 
|------------------------------------------ | - | ------------- |  | - | ------------- |  | - | ------------- |  | - | ------------- | 
|                                           |   | with IFRS     |  |   | with IFRS     |  |   | with IFRS     |  |   | with GAAP     | 
|                                           |   | As at         |  |   | As at         |  |   | As at         |  |   | As at         | 
|                                           |   | December 31   |  |   | December 31   |  |   | January 1     |  |   | December 31   | 
|Statements of
      Financial Position     |   | 2009          |  |   | 2008          |  |   | 2008          |  |   | 2007          | 
|Other assets                               | $ |               |  | $ | 11            |  | $ | 15            |  | $ | 674           | 
|Mineral property interests                 |   |              |  |   |              |  |   |              |  |   | 168,222       | 
|Investment in the Pebble Partnership       |   | 104,937       |  |   | 121,611       |  |   | 98,976        |  |   |              | 
|Current assets                             |   | 45,133        |  |   | 46,282        |  |   | 41,236        |  |   | 41,381        | 
|Total assets                               |   | 150,070       |  |   | 167,904       |  |   | 140,227       |  |   | 210,277       | 
|Shareholders equity                       |   | 146,070       |  |   | 163,315       |  |   | 134,961       |  |   | 109,311       | 
|Other liabilities                          |   | 3,807         |  |   | 4,441         |  |   | 3,614         |  |   | 93,338        | 
|Current
      liabilities                  |   | 193           |  |   | 148           |  |   | 1,652         |  |   | 7,628         | 
|Total shareholders equity and liabilities |   | 150,070       |  |   | 167,904       |  |   | 140,227       |  |   | 210,277       | 
|Working capital                            |   | 44,940        |  |   | 46,134        |  |   | 39,584        |  |   | 33,753        | 

|                                                           |   | In accordance with  |   |   | In accordance with  |   |   | In accordance with |  
|---------------------------------------------------------- | - | ------------------- | - | - | ------------------- | - | - | ------------------ | -
|Statements of Comprehensive Loss (Income)                  |   | IFRS                |   |   | IFRS                |   |   | GAAP               |  
|                                                           |   | Year ended December |   |   | Year ended December |   |   | Year ended         |  
|Expenses (income)                                          |   | 31
      2009       |   |   | 31
      2008       |   |   | December 31 2007   |  
|Conference and travel                                      | $ | 349                 |   | $ | 273                 |   | $ | 1,161              |  
|Depreciation                                               |   |                    |   |   | 4                   |   |   | 146                |  
|Donations                                                  |   | 445                 |   |   |                    |   |   |                   |  
|Exploration                                                |   | 321                 |   |   | 408                 |   |   | 86,424             |  
|Insurance                                                  |   | 263                 |   |   | 407                 |   |   | 405                |  
|Legal, accounting and audit                                |   | 354                 |   |   | 370                 |   |   | 1,649              |  
|Office costs                                               |   | 331                 |   |   | 226                 |   |   | 2,565              |  
|Salaries                                                   |   | 1,453               |   |   | 1,381               |   |   | 2,092              |  
|Shareholder communication                                  |   | 750                 |   |   | 384                 |   |   | 623                |  
|Trust and filing                                           |   | 199                 |   |   | 235                 |   |   | 485                |  
|Foreign exchange loss (gain)                               |   | 130                 |   |   | (9,130              | ) |   | 3,878              |  
|Future (deferred) income tax recovery                      |   | (25                 | ) |   |                    |   |   | (3,815             | )
|Impairment of marketable
      securities                  |   | 15                  |   |   |                    |   |   |                   |  
|Impairment of property, plant and equipment
      (PPE)  |   | 11                  |   |   |                    |   |   |                   |  
|Loss on disposal of fixed
      assets                     |   |                    |   |   |                    |   |   | 11                 |  
|Gain on disposal of marketable securities                  |   |                    |   |   |                    |   |   | (1                 | )
|Interest income                                            |   | (335                | ) |   | (1,115              | ) |   | (2,749             | )
|Share-based compensation                                   |   | 8,479               |   |   | 7,707               |   |   | 11,133             |  
|Loss for the year                                          | $ | 12,740              |   | $ | 1,150               |   | $ | 104,007            |  
|                                                           |   |                     |   |   |                     |   |   |                    |  
|Basic and diluted loss per
      common share              | $ | 0.14                |   | $ | 0.01                |   | $ | 1.13               |  
|Weighted average number of common shares
      outstanding |   | 92,828,293          |   |   | 92,543,639          |   |   | 91,978,571         |  

Page 12

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|NORTHERN DYNASTY MINERALS LTD.      
|------------------------------------
|MANAGEMENT'S DISCUSSION AND ANALYSIS
|YEAR ENDED DECEMBER 31, 2009        
|                                    

1.4        Summary of Quarterly
Results

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

|                                                                                   |   | Presented in accordance with IFRS |  
|---------------------------------------------------------------------------------- | - | --------------------------------- | -
|                                                                                   |   | Dec 31                            |  
|                                                                                   |   | 2009                              |  
|                                                                                   |   |                                   |  
|Other assets                                                                       | $ |                                  |  
|Equity Investment                                                                  |   | 104,937                           |  
|Current assets                                                                     |   | 45,133                            |  
|Total assets                                                                       |   | 150,070                           |  
|                                                                                   |   |                                   |  
|Equity                                                                             |   | 146,070                           |  
|Other liabilities                                                                  |   | 3,807                             |  
|Current liabilities                                                                |   | 193                               |  
|Total shareholders equity andliabilities                                          |   | 150,070                           |  
|                                                                                   |   |                                   |  
|Working capital                                                                    |   | 44,940                            |  
|                                                                                   |   |                                   |  
|Comprehensive Loss                                                                 |   |                                   |  
|Expenses                                                                           |   |                                   |  
|Conference and travel                                                              |   | 59                                |  
|Depreciation                                                                       |   | (11                               | )
|Donations                                                                          |   |                                  |  
|Exploration                                                                        |   | 241                               |  
|Foreign exchange loss (gain)                                                       |   | 12                                |  
|Insurance                                                                          |   | 64                                |  
|Impairment on marketable securities                                                |   | 15                                |  
|Legal, accounting and audit                                                        |   | 128                               |  
|Office costs                                                                       |   | 34                                |  
|Salaries                                                                           |   | 249                               |  
|Shareholder communication                                                          |   | 113                               |  
|Share-based compensation                                                           |   | 1,346                             |  
|Trust and filing                                                                   |   | 9                                 |  
|Total before undernoted                                                            |   | 2,259                             |  
|                                                                                   |   |                                   |  
|Interest income                                                                    |   | (89                               | )
|Impairment loss on PPE                                                             |   | 11                                |  
|Loss (income) for
      the period                                                 |   | 2,181                             |  
|Loss (gain) on marketable securities                                               |   |                                  |  
|Exchange arising on translation of     the Pebble
      Partnership                |   | 1,967                             |  
|Defered income tax recovery                                                        |   | (25                               | )
|Deferred income tax                                                                |   | (609                              | )
|Comprehensive loss (income)                                                        | $ | 3,514                             |  
|                                                                                   |   |                                   |  
|Basic and diluted loss (income)     per common
      share                         | $ | 0.02                              |  
|                                                                                   |   |                                   |  
|Weighted average number of     common shares
      outstanding     YTD (thousands) |   | 93,063                            |  

Page 13

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|NORTHERN DYNASTY MINERALS LTD.      
|------------------------------------
|MANAGEMENT'S DISCUSSION AND ANALYSIS
|YEAR ENDED DECEMBER 31, 2009        
|                                    

1.5        Results of Operations

The following financial data has been prepared in accordance
with IFRS as issued by the International Accounting Standards Board ("IASB") and
interpretations of the International Financial Reporting Interpretations
Committee ("IFRIC") and are expressed in Canadian dollars unless otherwise
stated.

The Companys operations and business are not driven by
seasonal trends, but rather the achievement of project milestones such as the
achievement of various technical, environmental, socio-economic and legal
objectives, including obtaining the necessary permits, completion of
pre-feasibility and final feasibility studies, preparation of engineering
designs, as well as receipt of financings to fund these objectives along with
mine construction.

Results of Comprehensive Loss for the Year Ended December
  31, 2009 vs. 2008

Loss for the year ended December 31, 2009 was $12.7 million,
compared to a loss of $1.2 million for the previous fiscal year. The increase in
loss was due to a significant foreign exchange gain realized in the prior year
as a result of the Companys converting its US dollar cash into Canadian
dollars.

In the current year, share-based compensation expense increased
to $8.5 million (2008  $7.7 million) as a result of share purchase options
granted during the year. $4.5 million of the total share-based compensation
expense recognized during the year was in the first quarter due to the vesting
of share purchase options in the first quarter. The Company recognizes the fair
value of options at the grant date and each tranche is recognized on a straight
line basis over the period during which the share purchase options vest. The
higher expense in the first quarter of 2009 was due to the vesting of certain
tranches share purchase options during the period. The Company also donated
shares in the Company in the first quarter to the Britannia Beach Historical
Society, a registered charitable organization that owns the British Columbia
Musuem of Mining, at a cost of $0.4 million (being the fair market value of the
shares at the time of donation). Office costs increased marginally by $0.1
million compared to the previous year due to subscription costs and set-up fees
related to a datasite. Shareholder communication costs increased to $0.8 million
in 2009 from $0.4 million in 2008 due mainly to increased investor relations
activities in Europe.

The Company recorded a foreign exchange loss of $0.1 million
for the year compared to a $9.1 million gain in fiscal 2008. In 2008, the
Companys cash and cash equivalents were held mainly in US dollars which
resulted in gains on translation as the Canadian dollar depreciated against the
US dollar from $0.99 at the end of December 2007 to $1.22 at the end of December
2008. However, cash and cash equivalents are now predominately held in Canadian
dollars and as such, the Companys exposure to foreign exchange fluctuations
have been minimal during 2009.

As a result of the credit crisis, interest rates earned on cash
deposits were at record lows and resulted in the Company earning only $0.3
million in interest in 2009 as compared to $1.1 million in 2008.

As a result of the depreciation of the US dollar in 2009 (from
approximately 1USD=1.22CAD on January 1, 2009 to 1USD=1.05CAD at December 31,
2009), the Company recorded an exchange loss in other comprehensive loss of
$16.7 million during the year relating to the exchange differences arising on
translation of the Companys equity investment in the Pebble Partnership, which
has a US dollar functional currency. During the year, the US dollar appreciated
from 1USD=1.22CAD at January 1, 2009 to 1USD=1.26CAD at March 31, 2009
(resulting in a Q1 exchange gain of $4.3 million on on the Companys equity
investment in the Pebble Partnership); followed by a depreciation in the US
dollar to 1USD=1.16CAD at June 30, 2009 (resulting in an Q2 exchange loss of
$9.8 million); a further depreciation to 1USD=1.07CAD at September 30, 2009 (resulting in an Q3 exchange loss of $9.2 million);
and a depreciation in to 1USD=1.05CAD at December 31, 2009 (resulting in an Q4
exchange loss of $2 million). This is in comparison to an exchange gain in
fiscal 2008 where the US dollar appreciated from 1USD=0.99CAD on January 1, 2008
to 1USD=1.22CAD December 31, 2008, resulting in a exchange gain in other
comprehensive income of $22.6 million for the fiscal 2008 year.

Page 14

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|NORTHERN DYNASTY MINERALS LTD.      
|------------------------------------
|MANAGEMENT'S DISCUSSION AND ANALYSIS
|YEAR ENDED DECEMBER 31, 2009        
|                                    

Investment in the Pebble Partnership

As indicated in section 1.2.2, the Company adopted IFRS from
January 1, 2009 with a transition date of January 1, 2008. The Company has
determined that, in accordance with IFRS, it has joint control of the Pebble
Partnership and has elected to account for its investment in the Pebble
Partnership under the equity method. The transition to IFRS is explained further
in section 1.13.

Expenditures incurred on the Pebble Project through the Pebble
Partnership are being funded 100% by Anglo. Anglos total contributions from
inception to December 31, 2009 are $264 million (US$245.8 million).

For the year ended December 31, 2009, the Pebble Partnership
incurred total losses of $68.3 million (2008  $151.0 million). Exploration
costs decreased to $59.3 million from $142.2 million in the previous year as the
Pebble Partnership continued to focus on preparing a Pre-Feasibility study for
the Pebble Project. The main exploration expenditures during the year were for:

- engineering (2009  $11.7 million; 2008  $29.4 million);
- environmental planning and testing (2009  $18 million; 2008  $27.1
  million);
- site activities (2009  $22 million; 2008  $71.6 million); and
- public affairs (2009  $7.6 million; 2008  $14.1 million).

For further discussion on exploration activities and the
technical programs undertaken during 2009, please refer to section 1.2.3.

1.6        Liquidity

Historically, the Company's sole source of funding has been the
issuance of equity securities for cash, primarily through private placements to
sophisticated investors and institutions. Except for 2008, the Company has
issued common shares in each of the past few years pursuant to private placement
financings and the exercise of warrants and/or share purchase options. The
Company's access to financing when the financing is not transaction specific is
always uncertain. There can be no assurance of continued access to significant
equity funding.

The funding of expenditures on the Pebble Project held through
the Pebble Partnership is currently being provided by Anglo (described below).
Excluding cash and cash equivalents in the Pebble Partnership, Northern Dynasty
has approximately $45 million in cash and cash equivalents for its own operating
requirements. With the project funding committed by Anglo for 2010, and given
its holdings of cash and cash equivalents, the Company believes it has
sufficient sources to cover its short and long term cash requirements.

Page 15

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|NORTHERN DYNASTY MINERALS LTD.      
|------------------------------------
|MANAGEMENT'S DISCUSSION AND ANALYSIS
|YEAR ENDED DECEMBER 31, 2009        
|                                    

As discussed in section 1.2.2. , the Company is in a 50:50
limited partnership with Anglo. Each of the Company and Anglo effectively has
equal rights in the Pebble Partnership through wholly-owned affiliates. To
maintain its 50% interest in the Pebble Partnership, Anglo is required to make
staged cash investments into the Pebble Partnership aggregating to US$1.425
billion, increasing to US$1.5 billion if the feasibility study is completed past 2011, over a period of several years.
This includes 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 any additional expenditures approved. Thereafter in order to
retain its 50% interest, Anglo is required to commit to further expenditures
which bring its total investment to at least US$450 million, which amount is to
be expended producing a final feasibility study and in related activities, the
completion of which is expected to take the Pebble Partnership to a production
decision. Upon an affirmative decision to develop a mine, Anglo is required to
commit to the remainder of the total investment of US$1.425 billion to US$1.5
billion in order to retain its 50% interest in the Pebble Partnership.

At December 31, 2009, the Company had working capital of
approximately $44.9 million as compared to $46.1 million at December 31,
2008.

The Company has no long term debt, capital lease obligations,
operating leases or any other long term obligations. The Company has no
"Purchase Obligations", defined as any agreement to purchase goods or services
that is enforceable and legally binding on the Company that specifies all
significant terms, including: fixed or minimum quantities to be purchased;
fixed, minimum or variable price provisions; and the approximate timing of the
transaction.

The Pebble Partnership has purchase orders for goods and
services relating to engineering, environmental, stakeholder affairs and site
operations activities on the Pebble Project. It also is responsible for all
maintenance payments on the property and routine office leases. All costs are
funded through existing cash resources in the Pebble Partnership which are being
funded by Anglo and are in the normal course of operations.

1.7        Capital Resources

The Company has no long-term debt and had 93,173,976 common
shares issued and outstanding at December 31, 2009.

The Company had no commitments for material capital
expenditures as of December 31, 2009.

The Pebble Partnership, which is being funded by Anglo, has a
US$3.4 million commitment to the Pebble Fund for Sustainable Bristol Bay
Fisheries & Communities over the next three years (refer to Community
Engagementin 1.2.3)

The Company has no lines of credit or other sources of
financing.

1.8        Off-Balance Sheet
Arrangements

None.

1.9        Transactions with
Related Parties

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

Page 16

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|NORTHERN DYNASTY MINERALS LTD.      
|------------------------------------
|MANAGEMENT'S DISCUSSION AND ANALYSIS
|YEAR ENDED DECEMBER 31, 2009        
|                                    

Costs for services rendered by HDSI to the Company for year
ended December 31, 2009 were $1.6 million as compared to $1.3 million for the
year ended December 31, 2008. The increase over 2008 is due to the Company using
resources provided by HDSI to assist with ongoing administration and management
of the Company including continuous disclosure obligations, shareholder
communications and investor relations, as well as assisting with the Companys
role as partner in the Pebble Partnership. Costs for expenses paid by HDSI and
reimbursed by the Company for the year ended December 31, 2009 amounted to $0.6
million as compared to $0.9 million for the year ended December 31, 2008.

The Company also paid $3,000 (2008  $16,000) to Sidev Holdings
Ltd., a private company controlled by a former director of Pebble East Claims
Corp., a wholly owned private US subsidiary of the Pebble Partnership, which
provided project management services at market rates.

1.10     Fourth
Quarter

The Company recorded a loss for the fourth quarter of 2009 of
$2.2 million as compared to an income of $4.0 million in the fourth quarter of
2008, mainly due to foreign exchange gains recognized on the Companys US dollar
cash balances in 2008. In the fourth quarter of 2008, there was a foreign
exchange gain of $6.5 million as compared to loss of $0.01 million in the fourth
quarter of 2009. The gain in 2008 was the result of foreign exchange gains
realized by the Company when it converted the majority of its US dollar cash and
equivalents (approx. US$35 million) into Canadian dollars and the appreciation
of the US dollar by approximately twenty (20) basis points relative to the
Canadian dollar.

The increase in loss was also due to exploration expenses and
office and administration expenses which increased over the prior year quarter.
The Company conducted certain engineering studies for its own account in
relation to the Pebble Project. Share-based compensation decreased to $1.3
million for the quarter compared to $2.4 million in the previous year due to the
vesting of previously granted share options. The Company recognizes the fair
value of options at the grant date and each tranche is recognized on a straight
line basis over the period during which the share purchase options vest. Once
options become fully vested, no further share-based compensation is recognized
on the fully vested options. The Company also earned only $0.1 million in
interest as compared to $0.4 million due to lower interest rates in 2009.

As a result of the depreciation of the US dollar in the fourth
quarter of 2009 (from approximately 1USD=1.07CAD on October 1, 2009 to
1USD=1.05CAD at December 31, 2009), the Company also recorded an exchange loss
in other comprehensive loss of $2.0 million during the fourth quarter relating
to the exchange differences arising on translation of the Companys equity
investment in the Pebble Partnership, which has a US dollar functional currency.
In the fourth quarter of 2008, the US dollar appreciated from 1USD=1.06CAD to
1USD=1.22CAD, resulting in an exchange gain in other comprehensive income of
$15.4 million on the Companys equity investment in the Pebble Partnership.

1.11     Proposed
Transactions

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

Page 17

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|NORTHERN DYNASTY MINERALS LTD.      
|------------------------------------
|MANAGEMENT'S DISCUSSION AND ANALYSIS
|YEAR ENDED DECEMBER 31, 2009        
|                                    

1.12     Critical
Accounting Estimates

The Company's significant accounting policies are presented in
Note 2 in the notes to the consolidated financial statements for the year ended
December 31, 2009. The preparation of these consolidated financial statements
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements and
reported amounts of expenses during the reporting period. Actual outcomes could
differ from these estimates. The consolidated financial statements include
estimates which, by their nature, are uncertain. The impacts of such estimates
are pervasive throughout the consolidated financial statements, and may require
accounting adjustments based on future occurrences. Revisions to accounting
estimates are recognized in the period in which the estimate is revised and
future periods if the revision affects both current and future periods.

Significant assumptions about the future and other sources of
estimation uncertainty at the financial position reporting date, that could
result in a material adjustment to the carrying amounts of assets and
liabilities, in the event that actual results differ from assumptions made,
include, but are not limited to, the following:

| | i.   | the recoverability of amounts receivable which are
      included in the consolidated statements of financial position;                                                                                                                   
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |      |                                                                                                                                                                                                                                           
| | ii.  | the carrying value of the investment in the Pebble
      Partnership and the recoverability of the carrying value included in the
      consolidated statements of financial position;                                                    
| |      |                                                                                                                                                                                                                                           
| | iii. | the estimated useful lives of property, plant and
      equipment which are included in the consolidated statements of financial
      position and the related depreciation included in profit or
loss;                                  
| |      |                                                                                                                                                                                                                                           
| | iv.  | the inputs used in accounting for share-based
      compensation expense in profit or loss; and                                                                                                                                           
| |      |                                                                                                                                                                                                                                           
| | v.   | the provision for income taxes which is included in
      profit or loss and the composition of deferred income tax assets and
      liabilities included in the consolidated statements of financial position
      at December 31, 2009.

1) Mineral resources and reserves, and the carrying values
of the Companys investment in the Pebble Partnership

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

2) Impairment analysis of assets

At each financial reporting date the carrying amounts of the
Companys assets are reviewed to determine whether there is any indication that
those assets are impaired. If any such indication exists, the recoverable amount
of the asset is estimated in order to determine the extent of the impairment, if
any. The recoverable amount is the higher of fair value less costs to sell and
value in use. In assessing value in use, the estimated future cash flows are
discounted to their present value using a pre-tax discount rate that reflects
current market assessments of the time value of money and the risks specific to
the asset. If the recoverable amount of an asset is estimated to be less than
its carrying amount, the carrying amount of the asset is reduced to its
recoverable amount and the impairment loss is recognized in the profit or loss
for the period. For the purposes of impairment testing, exploration and
evaluation assets are allocated to cash-generating units to which the exploration activity relates. For an asset that does not
generate largely independent cash inflows, the recoverable amount is determined
for the cash generating unit to which the asset belongs.

Page 18

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|NORTHERN DYNASTY MINERALS LTD.      
|------------------------------------
|MANAGEMENT'S DISCUSSION AND ANALYSIS
|YEAR ENDED DECEMBER 31, 2009        
|                                    

Recoverability of the carrying amount of the exploration and
evaluation assets is dependent on successful development and commercial
exploitation, or alternatively, sale of the respective assets.

Changes in any of the assumptions used to determine impairment
testing could materially affect the results of the analysis.

At December 31, 2009, the Company reviewed the carrying value
of its assets and determined that there were no indicators of impairment.

3) Restoration, rehabilitation, and environmental
obligations

An obligation to incur restoration, rehabilitation and
environmental costs arises when environmental disturbance is caused by the
exploration or development of a mineral property interest. Such costs arising
from the decommissioning of plant and other site preparation work, discounted to
their net present value, are provided for and capitalized at the start of each
project to the carrying amount of the asset, along with a corresponding
liability as soon as the obligation to incur such costs arises. The timing of
the actual rehabilitation expenditure is dependent on a number of factors such
as the life and nature of the asset, the operating license conditions, and when
applicable the environment in which the mine operates.

Discount rates using a pre-tax rate that reflect the time value
of money are used to calculate the net present value. These costs are charged
against profit or loss over the economic life of the related asset, through
amortization using either the unit-of-production or the straight line method.
The corresponding liability is progressively increased as the effect of
discounting unwinds creating an expense recognized in profit or loss.

Decommissioning costs are also adjusted for changes in
estimates. Those adjustments are accounted for as a change in the corresponding
capitalized cost, except where a reduction in costs is greater than the
unamortized capitalized cost of the related assets, in which case the
capitalized cost is reduced to nil and the remaining adjustment is recognized in
profit or loss.

The operations of the Company may in the future be, affected
from time to time in varying degree by changes in environmental regulations or
changes in estimates used in determining restoration and rehabilitation
obligations. Both the likelihood of new regulations or degree of changes in
estimates and their overall effect upon the Company are not predictable.

At December 31, 2009, the Company has no material restoration,
rehabilitation and environmental obligations as the disturbance to date is
minimal.

4) Share-based compensation expense

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

Page 19

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|NORTHERN DYNASTY MINERALS LTD.      
|------------------------------------
|MANAGEMENT'S DISCUSSION AND ANALYSIS
|YEAR ENDED DECEMBER 31, 2009        
|                                    

The following weighted average assumptions and inputs were used
to estimate the fair value of options granted during the year:

- Risk free rate  1.79%
- Expected life  3.9 years
- Expected volatility  64%
- Grant date share price  $5.41
- Expected dividend yield  nil

5) Income Taxes

The Company uses the asset and liability method of accounting
for income taxes. Under this method, deferred income tax assets and liabilities
are computed based on differences between the carrying amounts of assets and
liabilities on the balance sheet and their corresponding tax values, generally
using the substantively enacted or 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. Deferred income tax assets also result from unused loss
carry forwards, resource-related pools, and other deductions. Deferred tax
assets are recognized to the extent that they are considered more likely than
not to be realized. The valuation of deferred income tax assets is adjusted, if
necessary, by the use of a valuation allowance to reflect the estimated
realizable amount.

A deferred tax difference would arise on the carrying value of
the investment in the Pebble Partnership as a result of historical transactions.
The Company recognizes net deferred tax liabilities as it believes it does not
control the timing of the reversal of these temporary differences even though
management has made the judgment that the reversal is not expected to occur in
the foreseeable future.

Page 20

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|NORTHERN DYNASTY MINERALS LTD.      
|------------------------------------
|MANAGEMENT'S DISCUSSION AND ANALYSIS
|YEAR ENDED DECEMBER 31, 2009        
|                                    

1.13     Changes in
Accounting Policies including Initial Adoption

|(a) | Transition to and Initial Adoption of
  IFRS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | Effective January 1, 2009 the Company early adopted IFRS
      following the exemption received from the applicable Canadian Securities
      Administrators under National Instrument 52-107, Acceptable Accounting
      Principles, Auditing Standards and Reporting Currency ("NI 52-107") on
      March 2, 2009.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | The accounting policies as set out in Note 2 of the
      consolidated financial statements have been applied consistently to all
    periods presented in the consolidated financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | Impact of IFRS on Our Organization                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | The result of the conversion to IFRS can be seen in the
      way the Company now presents its financial results. The Companys
      conversion involved reviewing and changing accounting policies; restating
      comparative period information; reviewing organizational and internal
      controls and determining if any changes were required in the Companys
      accounting systems. To facilitate the process and ensure that the full
      impact of the transition to IFRS was understood and managed appropriately,
      the Company retained the services of an external third party accounting
      firm and employed the services of an IFRS conversion project manager.
      During the transition the Company ensured that key accounting personnel
      were prepared and and had a thorough understanding of IFRS through
      external training whereby accounting personnel attended several training
      courses on the adoption and implementation of IFRS, and through assisting
      with the scoping and design phases of the transition including assistance
      with the preparation of reconciliations between Canadian GAAP historical
      information and IFRS. The Company also ensured that directors were kept
      informed through update presentations to ensure an appropriate
      understanding of IFRS during the transition process. The impact of the
      conversion to IFRS on the Companys accounting systems however, has been
      minimal as the Company is still in the exploration phase. The Companys
      internal and disclosure control processes, as currently designed, have not
      required significant modifications as a result of its conversion to IFRS.
      The Company has assessed the impacts of adopting IFRS on our contractual
      arrangements, and has not identified any material compliance issues. The
      Company has considered the impacts that the transition will have on our
      internal planning process and compensation arrangements and has not
      identified any significant impacts.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | First Time Adoption of IFRS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | The guidance for the first time adoption of IFRS is set
      out in IFRS 1, First Time Adoption of International Financial Reporting
      Standards("IFRS 1"). IFRS 1 provides for certain mandatory exceptions
      and optional exemptions for first time adopters of IFRS. The Company
      elected to take the following IFRS 1 optional exemptions:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

Page 21

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|NORTHERN DYNASTY MINERALS LTD.      
|------------------------------------
|MANAGEMENT'S DISCUSSION AND ANALYSIS
|YEAR ENDED DECEMBER 31, 2009        
|                                    

An explanation of how the transition
from previous Canadian GAAP to IFRS has affected the Companys financial
position, financial performance and cash flows is set out in Note 16 in the
notes to the consolidated financial statements and which is also discussed
below.

(i)       Basis of
Consolidation

Under GAAP, the Group accounted for its
interest in the Pebble Partnership (Partnership) as a variable interest entity
(VIE) with the Group as the primary beneficiary. The Partnership was
determined to be a VIE because the total equity investment at risk is not
sufficient to permit the Partnership to finance its mine development activities
without additional financial support from its partners. The Partnership will be
required to incur several hundred millions of dollars over several years to
achieve its business objective to engineer, permit, construct and operate a
modern, long-life mine. Although both Anglo and the Group each hold an equal 50%
voting interest in the Partnership, the Groups exposure to the potential
expected losses of the VIE is greater than Anglos because at any point in time
prior to Anglo completing its full cash contribution of US$1.425 billion to
retain its 50% interest in the Pebble Partnership, Anglo has the ability to
withdraw from the Partnership and the Group will be required to fund 100% of the
remaining Partnership expenditures. Consequently, the Group concluded that the
primary beneficiary of the Partnership would be the Group. Accordingly, the
Group consolidated 100% of the Partnership, and previously reported a
non-controlling interest.

IFRS does not include the concept of a
variable interest entity. IFRS requires the Group to consolidate entities
including Special Purpose Entities only where the Group has the power to govern
the financial and operating policies of an entity so as to obtain benefits from
its activities. On application of IFRS, the Group has determined that it has
joint control of the Pebble Partnership as the Group holds 50% of the voting
interest of the Partnership with Anglo holding the other 50%. The Group does not
control the Partnership based on voting interest and does not own more than half
of the voting power. Furthermore, both Anglo and the Group have equal rights and
powers in governing the financial and operating policies of the Partnership or
appointing and removing members of the Partnerships board of directors.
Decision making is governed by the Partnerships board of directors, with equal
representation from Anglo and the Group. The structure of the board of directors
and the voting requirements result in joint decision making by Anglo and the
Group in all circumstances. Under IFRS, the Group can elect to use either the
equity method or proportionate consolidation method to account for its interest
in the Pebble Partnership. The Group has elected to apply the equity method to
account for its interest in the Pebble Partnership, and the carrying value of
the investment is the Groups cost of investment to date in US dollars.

Business combinations that occurred
prior to January 1, 2008 were not accounted for in accordance with IFRS 3,
Business Combinations ("IFRS 3") or IAS 27, Consolidated and Separate Financial
Statements, in accordance with the IFRS 1 exemption discussed above.

(ii)     
Deferred Tax on Mineral Properties

Under Canadian GAAP, the Company
recognized a future income tax liability on temporary differences arising on the
acquisition of the Pebble mineral property interest from a related party (where
the fair value of the asset acquired exceeded its tax basis) in a transaction
which was not a business combination. IAS 12, Income Taxes, does not
permit the recognition of deferred taxes on such transactions.

Page 22

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|NORTHERN DYNASTY MINERALS LTD.      
|------------------------------------
|MANAGEMENT'S DISCUSSION AND ANALYSIS
|YEAR ENDED DECEMBER 31, 2009        
|                                    

|    | Upon the adoption of IFRS, the Company derecognized the
      impacts of all future income tax liabilities which had previously been
      recognized on the initial acquisition of the Pebble mineral property
      interest. The Company has also determined that a deferred tax liability is
      required to be recognized under IAS 12 for temporary differences related
      to its equity interest in the Pebble Partnership and has recorded such
      upon transition to IFRS.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | (iii)    Share-based
  Payment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | Under Canadian GAAP, the Company measured share-based
      compensation related to share purchase options at the fair value of the
      options granted using the Black-Scholes option pricing formula and
      recognized this expense over the vesting period of the options. For the
      purpose of accounting for share-based payment transactions an individual
      is classified as an employee when the individual is consistently
      represented to be an employee under law. The fair value of the options
      granted to employees is measured on the date of grant. The fair value of
      options granted to contractors and consultants is measured on the date the
      services are completed. Forfeitures are recognized as they
occur.                                                                                                                                                                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | IFRS 2, Share Based Payment,is similar to
      Canadian GAAP and requires the Company to measure share-based compensation
      related to share purchase options granted to employees at the fair value
      of the options on the date of grant and to recognize such expense over the
      vesting period of the options. However, for options granted to
      non-employees, IFRS requires that share-based compensation be measured at
      the fair value of the services received unless the fair value cannot be
      reliably measured. Forfeitures are estimated at the time of grant. For the
      purpose of accounting for share-based payment transactions an individual
      is classified as an employee when the individual is an employee for legal
      or tax purposes (direct employee) or provides services similar to those
      performed by a direct employee. This definition of an employee is broader
      than that previously applied under Canadian GAAP and resulted in certain
      contractors and consultants being classified as employees under
    IFRS.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | For the share purchase options granted to the individuals
      reclassified, changes in fair value after the grant date previously
      recognized for Canadian GAAP purposes has been adjusted. The adjustments
      were calculated only for unvested options issued and outstanding as of and
      after the Transition Date.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | (iv)     Cumulative Translation
      Differences                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | IFRS requires that the functional currency of each entity
      of the Company be determined separately. The Company has determined that
      as at the Transition Date the Canadian dollar was the functional currency
      of all entities in the Company except the Pebble Partnership, which has a
      US dollar functional currency. In accordance with IFRS 1 optional
      exemptions, the Company elected to transfer the cumulative foreign
      currency translation differences, recognized as a separate component of
      equity, to deficit at the Transition Date.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|(b) | Accounting Standards, Interpretations and Amendments
      to Existing Standards That Are Not Yet Effective                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | The group has not yet adopted certain new standards,
      amendments and interpretations to existing standards, which have been
      published but are only effective for our accounting periods beginning on
      or after January 1, 2010 or later periods. These
include:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

Page 23

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|NORTHERN DYNASTY MINERALS LTD.      
|------------------------------------
|MANAGEMENT'S DISCUSSION AND ANALYSIS
|YEAR ENDED DECEMBER 31, 2009        
|                                    

| |  | IFRS 3 (Revised), Business Combinations, effective for
      annual periods beginning on or after July 1, 2009;                                                                                                                    
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | IFRS 9, Financial Instruments  Classification and
      Measurement, effective January 1, 2013;                                                                                                                                   
| |  | Amendments to IAS 24, Related Party Disclosures,
      effective January 1, 2011; and                                                                                                                                              
| |  | Amendments to IAS 27, Consolidated and Separate Financial
      Statements, IAS 28 Investments in Associates and IAS 31, Investments in
      Joint Ventures, effective for annual periods beginning on or after July 1,
      2009

At the financial position reporting
date, the following accounting interpretation was in issue but not yet
effective: IFRIC 19, Extinguishing Financial Liabilities with Equity
Instruments. This interpretation is not expected to have any impact on the
financial results of the Group.

The Company anticipates that the
adoption of these standards and interpretations in future periods will have no
material impact on the consolidated financial statements of the Group except for
additional disclosures.

1.14     Financial Instruments and Other
Instruments

The Group does not have any derivative financial instruments.

1) Non-derivative financial assets:

The Group has the following non-derivative financial assets:
financial assets at fair value through profit or loss, available-for-sale
financial assets, and loans and receivables.

Financial assets at fair value through
  profit or loss("FVTPL")

A financial asset is classified at fair
value through profit or loss if it is classified as held for trading or is
designated as such upon initial recognition. Financial assets are designated as
at FVTPL if the Group manages such investments and makes purchase and sale
decisions based on their fair value in accordance with the Groups documented
risk management or investment strategy. Attributable transaction costs are
recognized in profit or loss when incurred. Financial assets at fair value
through profit or loss are measured at fair value, and changes therein are
recognized in profit or loss.

Available-for-sale financial assets

The Groups investments in marketable
securities are classified as available-for-sale ("AFS") financial assets.
Subsequent to initial recognition, they are measured at fair value and changes
therein, other than impairment losses and foreign currency differences on AFS
monetary items, are recognized in other comprehensive income or loss. When an
investment is derecognized, the cumulative gain or loss in the investment
revaluation reserve is transferred to profit or loss.

The fair value of AFS monetary assets
denominated in a foreign currency is determined in that foreign currency and
translated at the spot rate at the end of the reporting period. The change in
fair value attributable to translation differences that result from the
amortized cost of the monetary asset is recognized in profit or loss. The change
in fair value of AFS equity investments are recognized directly in equity.

Loans and receivables

Page 24

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|NORTHERN DYNASTY MINERALS LTD.      
|------------------------------------
|MANAGEMENT'S DISCUSSION AND ANALYSIS
|YEAR ENDED DECEMBER 31, 2009        
|                                    

Loans and receivables are financial
assets with fixed or determinable payments that are not quoted in an active
market. Such assets are initially recognized at fair value plus any directly
attributable transaction costs. Subsequent to initial recognition loans and
receivables are measured at amortized cost using the effective interest method,
less any impairment losses.

Loans and receivables comprise amounts
receivable and balances receivable from a related party.

2) Non-derivative financial
liabilities:

The Group has the following non-derivative financial
liabilities: amounts payable and other liabilities.

Such financial liabilities are recognized initially at fair
value net of any directly attributable transaction costs. Subsequent to initial
recognition these financial liabilities are measured at amortized cost using the
effective interest method.

3) Financial Risk Management

The Group 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 investment policies, counterparty
limits, and controlling and reporting structures. The type 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 Group if a counterparty to a financial instrument fails to meet its
contractual obligations. The Groups credit risk is primarily attributable to
its liquid financial assets, including cash and cash equivalents, amounts
receivable and balances receivable from related parties. The Group limits the
exposure to credit risk by only investing its cash and cash equivalents with
high-credit quality financial institutions in business and saving accounts,
guaranteed investment certificates, and in government treasury bills which are
available on demand by the Group for its programs.

Liquidity Risk

Liquidity risk is the risk that the
Group will not be able to meet its financial obligations when they become due.
The Group 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 Groups holdings of cash and cash
equivalents. The Group believes that these sources will be sufficient to cover
the likely short term cash requirements. The Groups cash and cash equivalents
are currently invested in business accounts and guaranteed investment
certificates which are available on demand by the Group for its programs.

The Group has no contractual
obligations other than current trade payables.

Foreign Exchange Risk

The Group is exposed to foreign
exchange risk as some of its cash and cash equivalents are held in US dollars.
Also certain of the Groups corporate expenses are incurred in US dollars. The
results of the Groups operations are subject to currency transaction risk and
currency translation risk. The operating results and financial
position of the Group are reported in Canadian dollars in the Group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 Group and may also affect the value of the Groups assets and the amount
of shareholders equity. The Group has not entered into any agreements or
purchased any instruments to hedge possible currency risks at this time.

Page 25

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|NORTHERN DYNASTY MINERALS LTD.      
|------------------------------------
|MANAGEMENT'S DISCUSSION AND ANALYSIS
|YEAR ENDED DECEMBER 31, 2009        
|                                    

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

| | Currency                  |   | As
      at December 31, 2009 |  |   | As
      at December 31, 2008 |  |   | As at January 1, 2008 | 
| | ------------------------- | - | ----------------------------- |  | - | ----------------------------- |  | - | --------------------- | 
| |                           |   | Foreign                       |  |   | Amount in                     |  |   | Foreign               | 
| |                           |   | currency                      |  |   | Canadian                      |  |   | currency              | 
| |                           |   | amount                        |  |   | dollars                       |  |   | amount                | 
| | US dollars                |   |                               |  |   |                               |  |   |                       | 
| | Cash and cash equivalents | $ | 651                           |  | $ | 684                           |  | $ | 1,028                 | 
| | Amounts
      receivable  |   |                              |  |   |                              |  |   |                      | 
| | Total financial assets    | $ | 651                           |  | $ | 684                           |  | $ | 1,028                 | 

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

| | Currency                                             |   | As
      at December 31, 2009 |  |   | As
      at December 31, 2008 |  |   | As at January 1, 2008 | 
| | ---------------------------------------------------- | - | ----------------------------- |  | - | ----------------------------- |  | - | --------------------- | 
| |                                                      |   |                               |  |   |                               |  |   |                       | 
| |                                                      |   | Foreign                       |  |   | Amount in                     |  |   | Foreign               | 
| |                                                      |   | currency                      |  |   | Canadian                      |  |   | currency              | 
| |                                                      |   | amount                        |  |   | dollars                       |  |   | amount                | 
| | US dollars                                           |   |                               |  |   |                               |  |   |                       | 
| | Amounts payable and          other
      liabilities | $ | 1                             |  | $ | 1                             |  | $ |                      | 
| | Total financial liabilities                          | $ | 1                             |  | $ | 1                             |  | $ |                      | 

Based on the above net exposures and
assuming that all other variables remain constant, a 10% depreciation of the
Canadian dollar against the US dollar would result in a decrease in the loss of
approximately $68 in the year (2008  $125). This sensitivity analysis includes
only outstanding foreign currency denominated monetary items, and excludes the
effect of any translation adjustments for the investment in the Pebble
Partnership.

*Interest rate risk*

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

Assuming that all other variables
remain constant, a 10 basis point increase or decrease in interest rates would
have resulted in an increase or decrease in the loss of approximately $33 in the
year (2008  $112).

Page 26

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|NORTHERN DYNASTY MINERALS LTD.      
|------------------------------------
|MANAGEMENT'S DISCUSSION AND ANALYSIS
|YEAR ENDED DECEMBER 31, 2009        
|                                    

Commodity price risk

While the value of the Groups core
mineral resource property, held through its 50% interest in the Pebble
Partnership, is related to the price of gold, copper and molybdenum and the
outlook for these minerals, the Group 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 Group'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.

Capital Management

The Group's policy is to maintain a
strong capital base so as to maintain investor and creditor confidence and to
sustain future development of the business. The capital structure of the Group
consists of equity, comprising share capital, net of accumulated deficit.

There were no changes in the Group's
approach to capital management during the year. The Group is not subject to any
externally imposed capital requirements.

1.15 Other MD&A Requirements

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

1.15.1 Additional Disclosure for Venture
Issuers without Significant Revenue

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

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|NORTHERN DYNASTY MINERALS LTD.      
|------------------------------------
|MANAGEMENT'S DISCUSSION AND ANALYSIS
|YEAR ENDED DECEMBER 31, 2009        
|                                    

1.15.2 Disclosure of Outstanding Share
Data

The following details the share capital structure as of the
date of this MD&A.

|                       | Expiry
      date | Exercise price | Number    | Number    
|---------------------- | ----------------- | -------------- | --------- | ----------
|Common shares          |                   |                |           | 93,730,366
|                       |                   |                |           |           
|Share purchase options | April 14, 2011    | $9.74          | 27,500    |           
|                       | April 30, 2011    | $7.25          | 180,000   |           
|                       | October 27, 2011  | $3.00          | 118,519   |           
|                       | February 2, 2012  | $5.00          | 385,668   |           
|                       | February 4, 2012  | $5.00          | 1,350,317 |           
|                       | February 20, 2012 | $10.95         | 150,000   |           
|                       | March 26, 2012    | $8.25          | 25,000    |           
|                       | April 11, 2013    | $9.74          | 75,000    |           
|                       | August 22, 2013   | $5.35          | 40,000    |           
|                       | October 27, 2013  | $3.00          | 107,000   |           
|                       | February 2, 2014  | $5.00          | 1,993,000 |           
|                       | February 4, 2014  | $5.00          | 146,667   | 4,598,671 

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|NORTHERN DYNASTY MINERALS LTD.      
|------------------------------------
|MANAGEMENT'S DISCUSSION AND ANALYSIS
|YEAR ENDED DECEMBER 31, 2009        
|                                    

1.15.3 Disclosure Controls and
Procedures

The Companys management, with the participation of its Chief
Executive Officer and Chief Financial Officer, have evaluated the effectiveness
of the Companys disclosure controls and procedures. Based on that evaluation,
the Companys Chief Executive Officer and Chief Financial Officer have concluded
that, as of the end of the period covered by this report, the Companys
disclosure controls and procedures were effective to provide reasonable
assurance that the information required to be disclosed by the Company in
reports it files is recorded, processed, summarized and reported, within the
appropriate time periods.

1.15.4 Managements Report on Internal
Control over Financial Reporting

The Company's management, including the Chief Executive Officer
and the Chief Financial Officer, is responsible for establishing and maintaining
adequate internal control over financial reporting. Internal control over
financial reporting (ICFR) is a process designed by, or under the supervision
of the Company's principal executive and principal financial officers and
effected by the Company's Board of Directors, management and other personnel, to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with IFRS. The Company's internal control over financial reporting includes
those policies and procedures that:

- pertain to the maintenance of records that, in reasonable detail,
  accurately and fairly reflect the transactions and dispositions of the assets
  of the Company;
- provide reasonable assurance that transactions are recorded as necessary to
  permit preparation of financial statements in accordance with IFRS, and that
  receipts and expenditures of the Company are being made only in accordance
  with authorizations of management and directors of the company; and
- provide reasonable assurance regarding prevention or timely detection of
  unauthorized acquisition, use or disposition of the Company's assets that
  could have a material effect on the financial statements.

The Companys management, including its Chief Executive Officer
and Chief Financial Officer, believe that any system of internal control over
financial reporting, no matter how well conceived and operated, can provide only
reasonable, not absolute, assurance that the objectives of the control system
are met. Furthermore, the design of a control system must reflect the fact that
there are resource constraints and the benefits of controls must be considered
relative to their costs. Because of the inherent limitations in all control
systems, they cannot provide absolute assurance that all control issues and
instances of fraud, if any, within the Company have been prevented or detected.
These inherent limitations include the realities that judgments in
decisions-making can be faulty and breakdowns can occur because of simple error
or mistake. Additionally, controls can be circumvented by the individual acts of
some persons, by collusion of two or more people, or by unauthorized override of
control. The design of any system of controls is also based in part upon certain
assumptions about the likelihood of future events, and there can be no assurance
that any design will succeed in achieving its stated goals under all potential
future conditions. Accordingly, because of the inherent limitations in a cost
effective control system, misstatements due to error or fraud may occur and not
be detected.

The Companys management assessed the effectiveness of the
Companys internal control over financial reporting as of December 31, 2009. In
making the assessment, it used the criteria set forth in the Internal
Control-Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO). Based on their assessment, management has
concluded that, as of December 31, 2009, the Companys internal control over
financial reporting was effective based on those criteria.

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|NORTHERN DYNASTY MINERALS LTD.      
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|MANAGEMENT'S DISCUSSION AND ANALYSIS
|YEAR ENDED DECEMBER 31, 2009        
|                                    

The Companys internal control over financial reporting as of
December 31 2009, has been audited by Deloitte & Touche LLP, Independent
Registered Chartered Accountants who also audited the Companys Consolidated
Financial Statements for the year ended December 31, 2009. Deloitte & Touche
LLP as stated in their report, that immediately precedes the Company's audited
consolidated financial statements for the year ended December 31, 2009,
expressed an unqualified opinion on the effectiveness of the Companys internal
control over financial reporting.

1.15.5 Changes in Internal Control over
Financial Reporting

There has been no change in the design of the Companys
internal control over financial reporting that has materially affected, or is
reasonably likely to materially affect, the Companys internal control over
financial reporting during the period covered by this Managements Discussion
and Analysis.

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|NORTHERN DYNASTY MINERALS LTD.      
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|MANAGEMENT'S DISCUSSION AND ANALYSIS
|YEAR ENDED DECEMBER 31, 2009        
|                                    

1.15.6 Risk Factors

The following are the principal risk factors and uncertainties
which, in management's opinion, are likely to most directly affect the ultimate
feasibility of the Pebble project.

The Pebble Projects mineral property interests do
  not contain any ore reserves or any known body of economic mineralization

Although there are known bodies of mineralization on the Pebble
Project, and the Pebble Partnership has completed core drilling programs within,
and adjacent to, the deposits to determine measured and indicated resources,
there are currently no known reserves or body of commercially viable ore and the
Pebble Project must be considered an exploration prospect only. Extensive
additional work is required before the Company or the Pebble Partnership can
ascertain if any mineralization may be economic and hence constitute ore.
Engineering, socioeconomic and environmental studies are ongoing. Exploration
for minerals is a speculative venture necessarily involving substantial risk. If
the expenditures the Company the Pebble Partnership incurred on the Pebble
Project do not result in discovery and development of commercial quantities of
ore, the value of exploration and acquisition expenditures will be totally
lost.

Feasibility work to determine the viability of the Pebble
Project have not been completed

Final feasibility work has not been done to confirm the pit or
underground mine design, mining methods, and processing methods. Final
feasibility could determine that the currently assumed pit or other mine design,
mining methods, and processing methods are not correct. Construction and
operation of the mine and processing facilities depends on securing
environmental and other permits on a timely basis. No permits have been applied
for and there can be no assurance that required permits can be secured or
secured on a timely basis. Cost estimates used are based on costs at projects
believed to be comparable, and not based on firm price quotes. Costs, including
design, procurement, construction, and on-going operating costs and metal
recoveries could be materially different from those currently assumed. There can
be no assurance that mining can be conducted at assumed rates and grades. The
project requires the development of port facilities, roads and electrical
generating and transmission facilities. Although the Company believes that the
State of Alaska favours the development of these facilities, there can be no
assurance that these infrastructure facilities can be developed on a timely and
cost-effective basis. Energy risks include the potential for significant
increases in the cost of fuel and electricity.

Volatility in Metal Prices

The project has been evaluated using projected long-term price
levels for copper, gold and molybdenum. Prices for these commodities are
historically volatile, and the Company has no control of or influence on those
prices, all of which are determined in international markets. The level of
interest rates, the rate of inflation, the world supplies of and demands for
copper, gold and molybdenum and the stability of exchange rates can all cause
fluctuations in these prices. Such external economic factors are influenced by
changes in international investment patterns and monetary systems and political
developments. There can be no assurance that the prices of these commodities
will continue at current levels or that they will not decline below the
projected prices.

The prices of copper, gold and molybdenum have fluctuated in
recent years, and future significant price declines could cause unfavorable
changes in the economics of the project and may result in investors being
unprepared to finance mineral projects, with the result that the Company may not
have sufficient financing with which to funds its exploration and development
activities.

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|NORTHERN DYNASTY MINERALS LTD.      
|------------------------------------
|MANAGEMENT'S DISCUSSION AND ANALYSIS
|YEAR ENDED DECEMBER 31, 2009        
|                                    

Compliance with environmental requirements will take
large resources and changes to these requirements could significantly increase
the costs developing the Pebble Project and could delay these activities.

The Pebble Partnership and the Company must comply with
stringent environmental legislation in carrying out work on the Pebble Project.
Environmental legislation is evolving in a manner that will require stricter
standards and enforcement, increased fines and penalties for non-compliance,
more stringent environmental assessments of proposed projects and a heightened
degree of responsibility for companies and their officers, directors and
employees. Changes in environmental legislation could increase the cost to the
Pebble Partnership of carrying out its exploration and, if warranted,
development of the Pebble Project. Further, compliance with new or additional
environmental legislation may result in delays to the exploration and, if
warranted, development activities.

Changes in government regulations and the presence of
unknown environmental hazards may result in significant unanticipated compliance
and reclamation costs

Government regulations relating to mineral rights tenure,
permission to disturb areas and the right to operate can adversely affect the
Company. Northern Dynasty and the Pebble Partnership may not be able to obtain
all necessary licenses and permits that may be required to carry out exploration
at their projects. Obtaining the necessary governmental permits is a complex,
time-consuming and costly process. The duration and success of efforts to obtain
permits are contingent upon many variables not within our control. Obtaining
environmental permits may increase costs and cause delays depending on the
nature of the activity to be permitted and the interpretation of applicable
requirements implemented by the permitting authority. There can be no assurance
that all necessary approvals and permits will be obtained and, if obtained, that
the costs involved will not exceed those that we previously estimated. It is
possible that the costs and delays associated with the compliance with such
standards and regulations could become such that we would not proceed with the
development or operation.

General Mining Risks

Mining is an inherently risky business with large capital
expenditures and cyclical metals markets.

Although the Company and the Pebble Partnership maintains high
environmental standards for its project, like most major mining projects, there
are almost always public concerns about new mining projects. The opponents of
the Pebble Project are well organized and are trying to bring public and
political pressure against the Pebble Project. If successful, the opponents
could delay or prevent the commercialization of the Pebble Project even if it is
found to be economically viable and technically legally permittable.

The Company and Pebble Partnership also competes with many
companies possessing far greater financial resources and technical facilities
for the acquisition of mineral concessions, claims, leases and other mineral
interests, as well as for the recruitment and retention of qualified employees.

The project will also require major financing, probably a
combination of debt and equity financing. There can be no assurance that debt
and/or equity financing will be available on acceptable terms. A significant
increase in costs of capital could materially and adversely affect the value and
feasibility of constructing the project.

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