---



CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED 
  DECEMBER 31, 2007, 2006, AND 2005

(Expressed in thousands of Canadian Dollars)

---

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

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

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM

To the Shareholders of Northern Dynasty Minerals Ltd.

We have audited the consolidated balance sheets of Northern
Dynasty Minerals Ltd. (the Company) as at December 31, 2007 and 2006, and the
consolidated statements of operations and comprehensive loss and cash flows for
each of the years in the three-year period ended December 31, 2007, and the
consolidated statements of shareholders equity and deficit for each of the
years in the two year period then ended. We have also audited the Companys
internal control over financial reporting as of December 31, 2007 based on the
criteria established in the Internal Control-Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). The
Companys management is responsible for these financial statements, for
maintaining effective internal control over financial reporting, and for its
assessment of the effectiveness of internal control over financial reporting.
Our responsibility is to express an opinion on these financial statements and an
opinion on the Companys internal control over financial reporting based on our
audits.

We conducted our audits in accordance with generally accepted
auditing standards in Canada and the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal
control based on the assessed risk. Our audit also included performing such
other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.

A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles. A
companys internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the
assets of the company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the companys assets that could have a
material effect on the financial statements.

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

In our opinion, these consolidated financial statements present
fairly, in all material respects, the financial position of the Company as at
December 31, 2007 and 2006 and the results of its operations and cash flows for
each of the years in the three year period ended December 31, 2007 in accordance
with Canadian generally accepted accounting principles. Also, in our opinion,
the Company maintained, in all material respects, effective internal control
over financial reporting as of December 31, 2007, based on the criteria
established in the Internal Control-Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO).

De Visser Gray LLP

CHARTERED ACCOUNTANTSVancouver, British Columbia
March 19, 2008

---

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

|                                                        |   | December
      31 |   |   | December
      31 |  
|------------------------------------------------------- | - | ----------------- | - | - | ----------------- | -
|                                                        |   | 2007              |   |   | 2006              |  
|                                                        |   |                   |   |   |                   |  
|ASSETS                                                  |   |                   |   |   |                   |  
|                                                        |   |                   |   |   |                   |  
|Current assets                                          |   |                   |   |   |                   |  
|Cash and equivalents                                    | $ | 40,341            |   | $ | 93,690            |  
|Marketable securities (note 5)                          |   | 13                |   |   |                  |  
|Amounts receivable and prepaids                         |   | 1,000             |   |   | 490               |  
|Options exercised proceeds receivable
      (note 9(g)) |   |                  |   |   | 3,740             |  
|Balance receivable
      from related parties (note 9)  |   | 27                |   |   | 192               |  
|                                                        |   | 41,381            |   |   | 98,112            |  
|                                                        |   |                   |   |   |                   |  
|Equipment (note 6)                                      |   | 674               |   |   | 633               |  
|Mineral property
      interests (note 7)               |   | 168,222           |   |   | 168,222           |  
|                                                        |   |                   |   |   |                   |  
|Total Assets                                            | $ | 210,277           |   | $ | 266,967           |  
|                                                        |   |                   |   |   |                   |  
|LIABILITIES AND SHAREHOLDERS' EQUITY                    |   |                   |   |   |                   |  
|                                                        |   |                   |   |   |                   |  
|Current liabilities                                     |   |                   |   |   |                   |  
|Accounts payable and accrued liabilities                | $ | 7,607             |   | $ | 7,839             |  
|Balance payable
      to related parties (note 9)       |   | 21                |   |   |                  |  
|                                                        |   | 7,628             |   |   | 7,839             |  
|                                                        |   |                   |   |   |                   |  
|Future income tax liability(note 10)                    |   | 57,786            |   |   | 61,601            |  
|Non-controlling
      interest(note 7(a)(iii))          |   | 35,552            |   |   |                  |  
|                                                        |   | 93,338            |   |   | 61,601            |  
|                                                        |   |                   |   |   |                   |  
|Shareholders' equity                                    |   |                   |   |   |                   |  
|Share capital                                           |   | 365,202           |   |   | 357,364           |  
|Contributed surplus                                     |   | 18,018            |   |   | 10,062            |  
|Accumulated other comprehensive loss                    |   | (3                | ) |   |                  |  
|Deficit                                                 |   | (273,906          | ) |   | (169,899          | )
|                                                        |   | 109,311           |   |   | 197,527           |  
|Subsequent event (note 7(b))                            |   |                   |   |   |                   |  
|                                                        |   |                   |   |   |                   |  
|Total Liabilities and Shareholders' Equity              | $ | 210,277           |   | $ | 266,967           |  

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

Approved by the Board of Directors

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

---

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

|                                                                           |   | Years ended December 31 |  
|-------------------------------------------------------------------------- | - | ----------------------- | -
|                                                                           |   | 2007                    |  
|                                                                           |   |                         |  
|Expenses                                                                   |   |                         |  
|Amortization                                                               | $ | 146                     |  
|Conference and travel                                                      |   | 1,161                   |  
|Exploration (see schedule of exploration expenses)                         |   | 86,424                  |  
|Foreign exchange loss (gain)                                               |   | 3,878                   |  
|Interest income                                                            |   | (2,749                  | )
|Legal, accounting and audit                                                |   | 1,649                   |  
|Office and administration                                                  |   | 5,062                   |  
|Shareholder communication                                                  |   | 623                     |  
|Stock-based compensation - exploration (note 8(d))                         |   | 4,644                   |  
|Stock-based compensation - administration
      (note 8(d))                |   | 6,489                   |  
|Trust and filing                                                           |   | 485                     |  
|Net loss before the following                                              |   | 107,812                 |  
|Gain on disposal of marketable securities                                  |   | (1                      | )
|Loss on disposal of fixed assets                                           |   | 11                      |  
|Net loss before taxes                                                      |   | 107,822                 |  
|Future income tax recovery                                                 |   | (3,815                  | )
|Loss for the year                                                          | $ | 104,007                 |  
|                                                                           |   |                         |  
|Other comprehensive loss                                                   |   |                         |  
|Unrealized loss on available-for-sale
      marketable securities (note 5) |   | 2                       |  
|Reclassification of realized gain on disposal
      of marketable          |   |                         |  
|securities included
      in loss                                          |   | 1                       |  
|Other comprehensive
      loss                                             | $ | 3                       |  
|                                                                           |   |                         |  
|Total comprehensive
      loss                                             | $ | 104,010                 |  
|                                                                           |   |                         |  
|Basic and diluted loss per common share                                    | $ | 1.13                    |  
|                                                                           |   |                         |  
|Weighted average number of                                                 |   |                         |  
|common shares outstanding                                                  |   | 91,978,571              |  

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

---

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

|                                                                   |   | Years ended December 31 |  
|------------------------------------------------------------------ | - | ----------------------- | -
|                                                                   |   | 2007                    |  
|                                                                   |   |                         |  
|Operating activities                                               |   |                         |  
|Loss for the year                                                  | $ | (104,007                | )
|Items not involving cash                                           |   |                         |  
|Amortization                                                       |   | 146                     |  
|Contributions
      from non-controlling interest (note 7(a)(iii)) |   | 35,552                  |  
|Finder's fees (note 5)                                             |   | 5                       |  
|Future income
      tax recovery                                   |   | (3,815                  | )
|Gain on disposal of marketable
      securities                    |   | (1                      | )
|Loss on disposal
      of fixed assets                             |   | 11                      |  
|Shares received for property
      option agreement (note 5)       |   | (20                     | )
|Stock-based
      compensation (note 8(d))                         |   | 11,133                  |  
|Changes in non-cash working capital items                          |   |                         |  
|Amounts receivable
      and prepaids                              |   | (510                    | )
|Accounts payable and accrued liabilities                           |   | (232                    | )
|Balances receivable from and
      payable to related parties      |   | 186                     |  
|Cash and equivalents
      used in operating activities            |   | (61,552                 | )
|                                                                   |   |                         |  
|Investing activities                                               |   |                         |  
|Proceeds on disposal of equipment                                  |   | 28                      |  
|Purchase of equipment                                              |   | (226                    | )
|Acquisition costs of mineral property
      interests              |   |                        |  
|Proceeds
      on sale of marketable securities                    |   |                        |  
|Cash and equivalents provided by (used for) investing activities   |   | (198                    | )
|                                                                   |   |                         |  
|Financing activities                                               |   |                         |  
|Common shares issued for cash, net of issue costs                  |   | 4,661                   |  
|Options exercised proceeds received (receivable)
      (note 9(h)) |   | 3,740                   |  
|Cash provided from
      financing activities                      |   | 8,401                   |  
|                                                                   |   |                         |  
|Increase (decrease) in cash and equivalents                        |   | (53,349                 | )
|Cash and equivalents, beginning of year                            |   | 93,690                  |  
|                                                                   |   |                         |  
|Cash and equivalents, end of year                                  | $ | 40,341                  |  
|                                                                   |   |                         |  
|Supplementary information                                          |   |                         |  
|Taxes paid                                                         | $ |                        |  
|Interest paid                                                      | $ |                        |  
|Interest received                                                  | $ | 2,751                   |  
|                                                                   |   |                         |  
|Non-cash investing and financing activities                        |   |                         |  
|Issuance of shares for mineral
      property interests            | $ |                        |  
|Fair value of stock options allocated to shares
      issued upon  |   |                         |  
|exercise                                                           | $ | 3,177                   |  

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

---

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

|                                                                             |  | Year ended        |  |   | Year ended        |  
|---------------------------------------------------------------------------- |  | ----------------- |  | - | ----------------- | -
|                                                                             |  | December 31, 2007 |  |   | December 31, 2006 |  
|                                                                             |  |                   |  |   |                   |  
|Share capital                                                                |  | Number of shares  |  |   |                   |  
|Balance at beginning of the year                                             |  | 91,685,519        |  | $ | 357,364           |  
|Share purchase options
      exercised at $4.50 per share                    |  | 150,068           |  |   | 675               |  
|Share purchase options exercised at $4.65
      per share                    |  |                  |  |   |                  |  
|Share purchase options
      exercised at $5.00 per share                    |  |                  |  |   |                  |  
|Share purchase options exercised at $5.31
      per share                    |  | 515,066           |  |   | 2,735             |  
|Share purchase options
      exercised at $5.37 per share                    |  | 15,000            |  |   | 81                |  
|Share purchase options exercised at $5.40
      per share                    |  | 68,400            |  |   | 369               |  
|Share purchase options
      exercised at $7.25 per share                    |  | 105,436           |  |   | 764               |  
|Share purchase options exercised at $9.81
      per share                    |  | 2,500             |  |   | 25                |  
|Share purchase options
      exercised at $10.32 per share                   |  | 1,650             |  |   | 17                |  
|Fair value of stock options allocated to
      shares issued on exercise     |  |                  |  |   | 3,177             |  
|Warrants exercised at $5.00
      per share, net of issue costs              |  |                  |  |   |                  |  
|Common shares issued pursuant to share
      purchase                        |  |                   |  |   |                   |  
|agreement,
      net of issue costs (note 8(b))                              |  |                  |  |   | (5                | )
|Common shares issued upon acquisition (note
      7(a)(ii))                  |  |                  |  |   |                  |  
|Common shares returned to treasury (note
      7(a)(i))                      |  |                  |  |   |                  |  
|Balance at end
      of the year                                             |  | 92,543,639        |  | $ | 365,202           |  
|                                                                             |  |                   |  |   |                   |  
|Contributed surplus                                                          |  |                   |  |   |                   |  
|Balance at beginning of the year                                             |  |                   |  |   | 10,062            |  
|Stock-based compensation (note 8(d))                                         |  |                   |  |   | 11,133            |  
|Common shares returned
      to treasury                                     |  |                   |  |   |                  |  
|Fair
      value of stock options allocated to shares issued on exercise     |  |                   |  |   | (3,177            | )
|Balance at end of the year                                                   |  |                   |  | $ | 18,018            |  
|                                                                             |  |                   |  |   |                   |  
|Accumulated other comprehensive loss                                         |  |                   |  |   |                   |  
|Balance at beginning of the year                                             |  |                   |  |   |                  |  
|Unrealized loss on available-for-sale
      marketable securities (note 5)   |  |                   |  |   | (2                | )
|Gain
      recognized on disposal of available-for-sale marketable securties |  |                   |  |   | (1                | )
|Balance at end of the year                                                   |  |                   |  | $ | (3                | )
|                                                                             |  |                   |  |   |                   |  
|Deficit                                                                      |  |                   |  |   |                   |  
|Balance at beginning of the year                                             |  |                   |  |   | (169,899          | )
|Loss for the year                                                            |  |                   |  |   | (104,007          | )
|Balance at end
      of the year                                             |  |                   |  | $ | (273,906          | )
|                                                                             |  |                   |  |   |                   |  
|TOTAL SHAREHOLDERS'
      EQUITY                                             |  |                   |  | $ | 109,311           |  

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

---

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

|                                                 |   | Years ended December 31 |  
|------------------------------------------------ | - | ----------------------- | -
|                                                 |   | 2007                    |  
|                                                 |   |                         |  
|Assays and analysis                              | $ | 1,114                   |  
|Drilling                                         |   | 17,700                  |  
|Engineering                                      |   | 4,464                   |  
|Environmental                                    |   | 19,624                  |  
|Equipment rental                                 |   | 97                      |  
|Freight                                          |   | 2,150                   |  
|Geological                                       |   | 1,780                   |  
|Graphics                                         |   | 110                     |  
|Option payment (note 5)                          |   | (20                     | )
|Property fees and assessments                    |   | 202                     |  
|Site activities                                  |   | 18,592                  |  
|Socioeconomic                                    |   | 7,778                   |  
|Transportation                                   |   | 11,567                  |  
|Travel and accommodation                         |   | 1,266                   |  
|Incurred during the year                         |   | 86,424                  |  
|Cumulative expenditures,
      beginning of year |   | 137,274                 |  
|Cumulative expenditures, end of year             | $ | 223,698                 |  

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

---

|NORTHERN DYNASTY MINERALS LTD.                                             
|---------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                 
|For the years ended December 31, 2007, 2006 and 2005                       
|(Expressed in thousands
      of Canadian Dollars, unless otherwise stated)

|1.  | NATURE OF OPERATIONS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    | Northern Dynasty Minerals Ltd.
        (the "Company") is incorporated under the laws of the Province of British
        Columbia, and its principal business activity is the exploration of mineral
        properties. The Companys principal mineral property interest is
        its 50% share in the Pebble Project (note 7(a)(iii)) located in Alaska,
        United States of America (USA).                                                                                                                                                                                                                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    | The Company is in the process
        of exploring its mineral property interests and has not yet determined
        whether its mineral property interests contain mineral reserves that are
        economically recoverable. The Companys continuing operations and
        the underlying value and recoverability of the amounts shown for mineral
        property interests are entirely dependent upon the existence of economically
        recoverable mineral reserves, the ability of the Company to obtain the
        necessary financing to complete the exploration and development of the
        mineral property interests, obtaining the necessary permits to mine, and
        on future profitable production or proceeds from the disposition of the
        mineral property interests.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|2.  | BASIS OF PRESENTATION AND
        PRINCIPLES OF CONSOLIDATION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    | These consolidated financial
        statements have been prepared in accordance with Canadian generally accepted
        accounting principles. A reconciliation of material differences between
        these principles and accounting principles generally accepted in the United
        States is shown in note 11.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    | These consolidated financial
        statements include the accounts of the Company and its wholly- owned subsidiaries.
        The Company has determined that its 50:50 partnership with an indirect
        wholly-owned subsidiary of Anglo-American plc (Anglo) in the
        Pebble Project qualifies as a variable interest entity and concluded that
        the Company is the primary beneficiary and accordingly has consolidated
        the activities of the partnership (notes 3(m) and 7(a)(iii)).                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    | All material intercompany balances
        and transactions have been eliminated at December 31, 2007, 2006 and 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|3.  | SIGNIFICANT ACCOUNTING POLICIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|(a) | Cash and equivalents                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    | Cash and equivalents consist
        of cash and highly liquid investments, having maturity dates of three
        months or less from the date of purchase, which are readily convertible
        to known amounts of cash. At December 31, 2007, of the $40,341 (2006 
        $93,690) cash and equivalents held by the Company, $37,490 (US$38,740)
        were held in United States dollars (2006  $20,747 (US$17,801)).
        The Companys cash and equivalents are invested in business accounts
        with CIBC, and which are available on demand for the Companys programs,
        and which are not invested in any asset backed deposits/investments.                                                                                                                                    

---

|NORTHERN DYNASTY MINERALS LTD.                                             
|---------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                 
|For the years ended December 31, 2007, 2006 and 2005                       
|(Expressed in thousands
      of Canadian Dollars, unless otherwise stated)

|(b) | Equipment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    | Equipment is recorded at cost and is amortized over
        its estimated useful life using the declining balance method at various
        rates ranging from 20% to 30% per annum.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|(c) | Mineral property interests                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    | Exploration expenditures incurred prior to the determination
        of the feasibility of mining operations and administrative expenditures
        are expensed as incurred. Mineral property acquisition costs, and exploration
        and development expenditures incurred subsequent to such determination
        and to increase or to extend the life of existing production, are capitalized
        and amortized over the estimated life of the property following the commencement
        of commercial production, or are written off if the property is sold,
        allowed to lapse or abandoned, or when an impairment has been determined
        to have occurred.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    | Mineral property acquisition costs include the cash
        consideration and the fair market value of common shares, based on the
        trading price of the shares, on the date of issue or as otherwise provided
        under the agreement terms for the mineral property interest. Costs for
        properties for which the Company does not possess unrestricted ownership
        and exploration rights, such as option agreements, are expensed in the
        period incurred or until a feasibility study has determined that the property
        is capable of commercial production.                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    | Costs of exploration activities, feasibility studies,
        and option payments are expensed in the period incurred.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    | Administrative expenditures related to exploration activities
        are expensed in the period incurred.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    | The amount presented for mineral property interests
        represents costs incurred to date and accumulated acquisition costs, less
        write-downs, and does not necessarily reflect present or future values.                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|(d) | Asset retirement obligations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    | The Company recognizes statutory, contractual or other
        legal obligations related to the retirement of tangible long-lived assets
        when such obligations are incurred, if a reasonable estimate of fair value
        can be made. These obligations are measured initially at fair value and
        the resulting costs capitalized to the carrying value of the related asset.
        In subsequent periods, the liability is adjusted for any changes in the
        amount or timing and for the discounting of the underlying future cash
        flows. The capitalized asset retirement cost is amortized to operations
        over the life of the asset.       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    | The Company has no material asset retirement obligations
        as the disturbance to date is minimal, and the Company carries out, and
        expenses in the period incurred, appropriate reclamation activities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

---

|NORTHERN DYNASTY MINERALS LTD.                                             
|---------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                 
|For the years ended December 31, 2007, 2006 and 2005                       
|(Expressed in thousands
      of Canadian Dollars, unless otherwise stated)

|(e) | Impairment of long-lived assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | Long-lived assets, including mineral properties and
        equipment, are reviewed for impairment whenever events or changes in circumstances
        indicate that the carrying amount of an asset may not be recoverable.
        Recoverability of assets to be held and used is measured by a comparison
        of the carrying amount of an asset to estimated undiscounted future cash
        flows expected to be generated by the asset. If the carrying amount of
        an asset exceeds its estimated future cash flows, an impairment charge
        is recognized by the amount by which the carrying amount of the asset
        exceeds the fair value of the asset. Assets to be disposed, if any, are
        presented separately on the balance sheet and reported at the lower of
        the carrying amount and the fair value less costs to sell, and are no
        longer amortized.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|(f) | Share capital                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | The Company records proceeds from share issuances net
        of issue costs. Shares issued for consideration other than cash are valued
        at the quoted market price on the date of issue or as otherwise provided
        for under the terms of the agreement to issue the shares.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|(g) | Stock-based compensation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | The Company has a share option plan which is described
        in note 8(d). The Company records all stock-based payments using the fair
        value method.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | Under the fair value method, stock-based payments are
        measured at the fair value of the consideration received or the fair value
        of the equity instruments issued or liabilities incurred, whichever is
        more reliably measurable and are charged to operations over the vesting
        period. The offset is credited to contributed surplus.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | Consideration received upon the exercise of stock options
        is credited to share capital and the related contributed surplus is transferred
        to share capital.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|(h) | Foreign currency translation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | The Company's functional currency is the Canadian dollar.
        Monetary assets and liabilities denominated in a foreign currency are
        translated into Canadian dollars at exchange rates in effect at the balance
        sheet date. Non-monetary assets and liabilities are translated at historical
        exchange rates unless such items are carried at market, in which case
        they are translated at the exchange rates in effect on the balance sheet
        date. Revenues and expenses, except amortization, are translated at average
        exchange rates for the year. Amortization is translated at the same exchange
        rates as the assets to which it relates. Gains or losses on translation
        are recorded in the statement of operations.                                                                                                                    

---

|NORTHERN DYNASTY MINERALS LTD.                                             
|---------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                 
|For the years ended December 31, 2007, 2006 and 2005                       
|(Expressed in thousands
      of Canadian Dollars, unless otherwise stated)

|(i) | Income taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | The Company uses the asset and liability method of accounting
        for income taxes. Under this method, future income tax assets and liabilities
        are computed based on differences between the carrying amount of assets
        and liabilities on the balance sheet and their corresponding tax values,
        generally using the enacted or substantively enacted income tax rates
        expected to apply to taxable income in the years in which those temporary
        differences are expected to be recovered or settled.                                                                                                                                                                                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | Future income tax assets also result from unused loss
        carry forwards and other deductions. Future tax assets are recognized
        to the extent that they are considered more likely than not to be realized.
        The valuation of future income tax assets is adjusted, if necessary, by
        the use of a valuation allowance to reflect the estimated realizable amount.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|(j) | Loss per common share                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | Basic loss per common share is calculated by dividing
        the loss for the year by the weighted average number of common shares
        outstanding during the year.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | Diluted loss per common share is calculated using the
        treasury stock method. Under the treasury stock method, the weighted average
        number of common shares outstanding used for the calculation of diluted
        loss per common share assumes that the proceeds to be received on the
        exercise of dilutive stock options and warrants are used to repurchase
        common shares at the average market price during the year.                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | When the Company is in a net loss position, diluted
        loss per share is not presented separately as the effect of the outstanding
        options and warrants would be anti-dilutive.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|(k) | Use of estimates                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | The preparation of financial statements in conformity
        with Canadian generally accepted accounting principles requires management
        to make estimates and assumptions that affect the reported amounts of
        assets and liabilities, and the disclosure of contingent assets and liabilities
        as at the balance sheet date, and the reported amounts of revenues and
        expenses during the reporting period. Significant areas requiring the
        use of management estimates include the determination of the recoverability
        on buildings and equipment, impairment of mineral property interests,
        rates of amortization of equipment, the determination of reclamation obligations,
        and the assumptions used in determining the fair value of non-cash stock-based
        compensation. Actual results could differ from those estimates.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|(l) | Environmental expenditures                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | The operations of the Company have been, and may in
        the future be, affected from time to time in varying degree by changes
        in environmental regulations, including those for site restoration costs.
        Both the likelihood of new regulations and their overall effect upon the
        Company vary greatly from country to country and are not predictable.
        The Companys policy is to meet or possibly                                                                                                                                                                                                                                                                                                                                                                                                                                                               

---

|NORTHERN DYNASTY MINERALS LTD.                                             
|---------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                 
|For the years ended December 31, 2007, 2006 and 2005                       
|(Expressed in thousands
      of Canadian Dollars, unless otherwise stated)

|    | surpass environmental standards set by relevant legislation
        by the application of technically proven and economically feasible measures.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | Environmental expenditures that relate to ongoing environmental
        and reclamation programs are charged against operations as incurred or
        capitalized and amortized depending on their expected future economic
        benefit. Estimated future removal and site restoration costs are recognized
        when the ultimate liability is reasonably determinable, and are charged
        against operations over the estimated remaining life of the related business
        operations, net of expected recoveries.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|(m) | Variable interest entities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | The Company accounts for variable interest entities
        (VIE) in accordance with CICA Accounting Guideline 15, Consolidation
        of Variable Interest Entities("AcG15"). AcG-15 prescribes the application
        of consolidation principles for entities that meet the definition of a
        VIE and for which the Company is considered the primary beneficiary. VIEs
        are entities in which equity investors do not have the characteristics
        of a controlling financial interest or do not have sufficient equity at
        risk for the entity to finance its activities without additional subordinated
        financial support from other parties. The primary beneficiary is the party
        that has exposure to a majority of the expected losses and/or expected
        residual returns of the VIE. An enterprise holding other than a voting
        interest in a VIE could, subject to certain conditions, be required to
        consolidate the VIE if it is considered its primary beneficiary.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | The Company has determined that the Pebble Limited Partnership
        (the Partnership) is a VIE and has concluded that it is the
        primary beneficiary and consequently has consolidated the activities of
        the Pebble Limited Partnership from August 1, 2007 (note 7 (a)(iii)).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | Expenditures incurred on the Pebble Project through
        the Partnership have been included in the consolidated statement of operations.
        Anglos contributions to December 31, 2007 of $35.5 million (US$35.9
        million) have been recorded as a non-controlling interest in the partnership.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|(n) | Comparative figures                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | The preparation of the prior years' comparative figures
        have been reclassified to conform to the financial statement presentation
        adopted for the current year.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

---

|NORTHERN DYNASTY MINERALS LTD.                                             
|---------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                 
|For the years ended December 31, 2007, 2006 and 2005                       
|(Expressed in thousands
      of Canadian Dollars, unless otherwise stated)

|**4.** | CHANGES IN ACCOUNTING POLICY                                                                                                                                                                                                                                                                                                                                                                                                 
|------ | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       |                                                                                                                                                                                                                                                                                                                                                                                                                              
|*(a)*  | Newly Adopted
        Accounting Policies                                                                                                                                                                                                                                                                                                                                                                                    
|       |                                                                                                                                                                                                                                                                                                                                                                                                                              
|       | Effective January
        1, 2007, the Company adopted the following new accounting standards issued
        by the Canadian Institute of Chartered Accountants (CICA)
        relating to financial instruments. As required by the transitional provisions
        of these new standards, these new standards have been adopted on a prospective
        basis with no restatement to prior period financial statements.
|       |                                                                                                                                                                                                                                                                                                                                                                                                                              
|       | (i)                                                                                                                                                                                                                                                                                                                                                                                                                          
|       |                                                                                                                                                                                                                                                                                                                                                                                                                              
|       |                                                                                                                                                                                                                                                                                                                                                                                                                              
|       |                                                                                                                                                                                                                                                                                                                                                                                                                              
|       |                                                                                                                                                                                                                                                                                                                                                                                                                              
|       |                                                                                                                                                                                                                                                                                                                                                                                                                              
|       |                                                                                                                                                                                                                                                                                                                                                                                                                              
|       |                                                                                                                                                                                                                                                                                                                                                                                                                              
|       |                                                                                                                                                                                                                                                                                                                                                                                                                              
|       |                                                                                                                                                                                                                                                                                                                                                                                                                              
|       |                                                                                                                                                                                                                                                                                                                                                                                                                              
|       |                                                                                                                                                                                                                                                                                                                                                                                                                              
|       |                                                                                                                                                                                                                                                                                                                                                                                                                              
|       |                                                                                                                                                                                                                                                                                                                                                                                                                              
|       |                                                                                                                                                                                                                                                                                                                                                                                                                              

---

|NORTHERN DYNASTY MINERALS LTD.                                             
|---------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                 
|For the years ended December 31, 2007, 2006 and 2005                       
|(Expressed in thousands
      of Canadian Dollars, unless otherwise stated)

| |        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | income (loss) in the period in which they arise, except
        for hedge transactions which qualify for hedge accounting treatment in
        which case gains and losses are recognized in accumulated other comprehensive
        income (loss).                                                                                                                                          
| | ------ | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                                                                                                                                                                                              
| |        | In accordance with this new standard, the
        Company has classified its financial instruments as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                                                                                                                                                                                              
| |        | •                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | Marketable securities are classified as available-for-sale
        securities. Such securities are measured at fair market value in the consolidated
        financial statements with unrealized gains or losses recorded in other
        comprehensive income (loss). At the time securities are sold or otherwise
        disposed of, gains or losses are included in net income (loss).
| |        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                                                                                                                                                                                              
| | (ii)   | Section 3865  Hedges.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                                                                                                                                                                                              
| |        | This new standard specifies the circumstances
        under which hedge accounting is permissible and how hedge accounting may
        be performed. The Company currently does not have any financial instruments
        which qualify for hedge accounting.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                                                                                                                                                                                              
| | (iii)  | Section 1530  Comprehensive Income
        (Loss).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                                                                                                                                                                                              
| |        | Comprehensive income (loss) is the change
        in the Companys shareholders equity that results from transactions,
        events, and circumstances from other than the Companys shareholders
        and includes items that would not normally be included in net income (loss),
        such as unrealized gains or losses on available-for-sale investments.
        This standard requires certain gains and losses that would otherwise be
        recorded as part of net earnings be presented in accumulated other comprehensive
        income (loss) until it is considered appropriate to recognize into
        net income (loss). This standard also mandates the presentation of comprehensive
        income (loss), and its components, with the same prominence as other line
        items in the financial statements.
| |        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                                                                                                                                                                                              
| |        | Accordingly, the Company now reports a consolidated
        statement of comprehensive income and includes the category accumulated
        other comprehensive income in the shareholders equity section
        of the consolidated balance sheet. As at December 31, 2007, the Company
        had accumulated other comprehensive loss of $3, and for the year ended
        December 31, 2007, comprehensive loss was $2 greater than the net loss.                                                                                                                                                                                                                                                                                                                                                                                        
| |        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                                                                                                                                                                                              
| | *(iv)* | Section 1506 - Accounting Changes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |        | This standard establishes criteria for changing
        accounting policies, together with the accounting treatment and disclosure
        of changes in accounting policies, changes in accounting estimates and
        correction of errors. As a result, changes in accounting policies are
        only permitted when required by a primary source of generally accepted
        accounting principles or when the change will result in more reliable
        and more relevant information.                                                                                                                                                                                                                                                                                                                                                

---

|NORTHERN DYNASTY MINERALS LTD.                                             
|---------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                 
|For the years ended December 31, 2007, 2006 and 2005                       
|(Expressed in thousands
      of Canadian Dollars, unless otherwise stated)

|(b) | Accounting Policies Not Yet Adopted
|--- | -----------------------------------
|    |                                    
|    | (i)                                
|    |                                    
|    |                                    
|    |                                    
|    | (ii)                               
|    |                                    
|    |                                    
|    |                                    
|    | (iii)                              
|    |                                    
|    |                                    
|    |                                    
|    | (iv)                               
|    |                                    
|    |                                    

---

|NORTHERN DYNASTY MINERALS LTD.                                             
|---------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                 
|For the years ended December 31, 2007, 2006 and 2005                       
|(Expressed in thousands
      of Canadian Dollars, unless otherwise stated)

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

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

In 2007, the Company received 75,000
  common shares in Solomon Resources Limited (Solomon), a company
  listed on the TSX Venture Exchange, in terms of an exclusive agreement in which
  Solomon has the option to earn a minimum 50% interest in a non core property
  (note 7(b)). To secure the option agreement with Solomon, the Company issued
  15,000 of these shares to an individual in payment for this service.

These shares have been classified as
  available-for-sale securities and have been measured at fair market value being
  the quoted market price. Unrealized gains and losses have been recorded in comprehensive
  income (loss) (note 4(a)(i)).

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

| |                          |   |       |  |   | Accumulated  |  |   |                      | 
| | ------------------------ | - | ----- |  | - | ------------ |  | - | -------------------- | 
| |                          |   | Cost  |  |   | Amortization |  |   | Net Book
      Value | 
| | December 31, 2007        |   |       |  |   |              |  |   |                      | 
| | Buildings                | $ | 312   |  | $ | 76           |  | $ | 236                  | 
| | Furniture and fixtures   |   | 235   |  |   | 133          |  |   | 102                  | 
| | Site equipment           |   | 242   |  |   | 96           |  |   | 146                  | 
| | Vehicles                 |   | 94    |  |   | 59           |  |   | 35                   | 
| | Computer
      equipment |   | 204   |  |   | 49           |  |   | 155                  | 
| |                          | $ | 1,087 |  | $ | 413          |  | $ | 674                  | 
| |                          |   |       |  |   |              |  |   |                      | 
| | December 31, 2006        |   |       |  |   |              |  |   |                      | 
| | Buildings                | $ | 219   |  | $ | 50           |  | $ | 169                  | 
| | Furniture and fixtures   |   | 235   |  |   | 108          |  |   | 127                  | 
| | Site equipment           |   | 279   |  |   | 42           |  |   | 237                  | 
| | Vehicles                 |   | 94    |  |   | 43           |  |   | 51                   | 
| | Computer
      equipment |   | 88    |  |   | 39           |  |   | 49                   | 
| |                          | $ | 915   |  | $ | 282          |  | $ | 633                  | 

---

|NORTHERN DYNASTY MINERALS LTD.                                             
|---------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                 
|For the years ended December 31, 2007, 2006 and 2005                       
|(Expressed in thousands
      of Canadian Dollars, unless otherwise stated)

|7 | MINERAL PROPERTY INTERESTS
|- | --------------------------

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

| |                                                                     |   | Years ended December 31 | 
| | ------------------------------------------------------------------- | - | ----------------------- | 
| |                                                                     |   | 2007                    | 
| | Balance, beginning of the year                                      | $ | 168,222                 | 
| | Changes during the year                                             |   |                         | 
| | Acquisition of 20% carried contractual
      interests held by HDGI |   |                        | 
| | Acquisition
      costs                                             |   |                        | 
| | Balance, end of year                                                | $ | 168,222                 | 

| | (i) | Exploration and Resource Lands
| | --- | ------------------------------

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

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

The Resource Lands Option was extended
  by one year in an agreement dated December 19, 2002 under which the Company
  issued to Teck Cominco 200,000 shares for the extension. Pursuant to the Resource
  Lands Option the Company had the right to purchase the 36 claims of the Resource
  Lands, subject to HDGIs 20% carried interests, by paying Teck Cominco
  US$10 million in cash or shares prior to November 30, 2004, which it did on
  November 23, 2004 by the issuance of 1,772,775 shares to Teck Cominco (total
  value $11.8 million). Teck Cominco had the right for 180 days to elect whether
  to require the Company to manage the resale of these shares (NDM Resource
  Lands shares) in a manner where Teck Cominco would be guaranteed the US$10
  million in resale proceeds net of any excess or deficiency adjustments. The
  actual adjusted amount was US$9.9 million. On May 9, 2005, Teck Cominco elected
  for the Company to guarantee the adjusted amount of US$9.9 million in resale
  proceeds of the 1,772,775 shares. Under the agreement, the Company ensured proceeds
  totalling US$9.9 million by May 22, 2006. The Company sold 473,700 of the 1,772,775
  NDM Resource Lands shares in 2005 for proceeds of US$2.0 million. In 2006 the
  Company managed the sale of 1,277,028 NDM Resource Lands shares for the balance
  of US$7.9 million, thereby completing its commitment regarding the resale

---

|NORTHERN DYNASTY MINERALS LTD.                                             
|---------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                 
|For the years ended December 31, 2007, 2006 and 2005                       
|(Expressed in thousands
      of Canadian Dollars, unless otherwise stated)

of the NDM Resource Lands shares. The
  remaining 22,047 unsold NDM Resource Lands shares relating to this acquisition
  were returned to the Companys treasury.

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

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

Teck Cominco had the right, until August
  24, 2005, to elect whether to require the Company to manage the resale of these
  shares (NDM Exploration Lands shares) in a manner where Teck Cominco
  would be guaranteed US$4 million in resale proceeds by August 24, 2006. On July
  18, 2005, Teck Cominco elected for the Company to guarantee the US$4 million
  in resale proceeds. The Company completed its commitment to Teck Cominco in
  2006 through the sale of 654,502 NDM Exploration Lands shares for proceeds of
  approximately US$4.0 million. The remaining 323,293 unsold NDM Exploration Lands
  shares relating to this acquisition were returned to the Companys treasury.

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

| | (ii) | HDGI 20% carried contractual interest
| | ---- | -------------------------------------

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

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

---

|NORTHERN DYNASTY MINERALS LTD.                                             
|---------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                 
|For the years ended December 31, 2007, 2006 and 2005                       
|(Expressed in thousands
      of Canadian Dollars, unless otherwise stated)

the acquisition transaction. The results
  of HDGIs operations have been included in the consolidated financial statements
  since the date of acquisition. The following table summarizes the assets acquired
  and liabilities assumed on the date of acquisition:

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

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

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

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

| | Balance, beginning of year                           | $ |       | 
| | ---------------------------------------------------- | - | ------ | 
| | Contributions by Anglo
      American to Partnership |   | 35,552 | 
| | Balance, end of year                                 | $ | 35,552 | 

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

The purpose of the strategic Partnership
  is to engineer, permit, construct and operate a modern, long-life mine at the
  Pebble Project. The transaction agreements lay out a schedule to accomplish
  this goal, targeting completion of a pre-feasibility study by December 2008,
  a feasibility study by 2011 and commencement of commercial production by 2015.

Anglos staged investment includes
  a committed expenditure of US$125 million to complete a pre-feasibility study
  targeted at the end of 2008. After the completion of the pre-feasibility study,
  Anglo must, in order to retain its 50% interest, elect to commit to a further
  US$325 million for a feasibility study, the completion and approval of which
  is targeted for 2011, and this is expected to take the Partnership to a production
  decision. Upon the decision to develop a mine, Anglo must elect to commit to
  the next US$975 million of expenditures to retain its 50% interest,

---

|NORTHERN DYNASTY MINERALS LTD.                                             
|---------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                 
|For the years ended December 31, 2007, 2006 and 2005                       
|(Expressed in thousands
      of Canadian Dollars, unless otherwise stated)

|    | completion of which will meet the US$1.425
        billion requirement. If the feasibility study is completed after 2011,
        Anglos overall funding requirement increases to US$1.5 billion.
        The Partnership agreement provides for equal project control rights for
        both partners, with no operators fees payable to either party. After
        Anglos staged contribution is completed, both partners will be equally
        responsible to fund the Partnership operations in connection with the
        Pebble Project going forward.                                                                                                                                                                                                                                                                                                                                                      
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | The Company has accounted for the Partnership
        as a VIE (note 3(n)). Expenditures incurred since August 1, 2007 on the
        Pebble Project have been incurred through the Partnership and are included
        in the Companys consolidated statement of operations. Anglos
        contributions to the Partnership from August 1, 2007 to December 31, 2007
        amounted to $35.5 million (US$35.9 million) and have been recorded as
        a non-controlling interest in the Partnership. Under the Partnership agreement
        and applicable tax regulations, neither the Company nor its affiliated
        general partnership will be entitled to the benefits for tax purposes
        of the expenditures incurred by the Partnership from Anglos investment,
        as these benefits accrue exclusively to Anglo under the Partnership agreement
        and applicable tax regulations.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|(b) | Pickle Lake Joint Venture                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | The Company holds a 37.5% participating joint
        venture interest, subject to a 2.5% net profits interest ("NPI") held
        by the original owners, in certain mineral properties which are non core
        to the Company, in northwestern Ontario under the Pickle Lake Joint Venture.
        The remaining 62.5% joint venture interest is held by Energold Minerals
        Inc. (Energold) (together jointly with the Company, the Partners).
        The Company continues to maintain these claims in good standing.                                                                                                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | In October 2006, the Partners entered into
        an option agreement with Solomon Resources Limited (Solomon)
        whereby Solomon will have the right to earn up to a 60% interest in the
        Eyapamikama Lake property (formerly Arseno Lake), located 170 kilometres
        north of Pickle Lake. Under the option agreement, Solomon is granted an
        exclusive option to earn a minimum 50% interest in the property by funding
        an initial exploration program of $25 (completed). During 2007, Solomon
        notified the Partners of its intent to exercise the option to earn a 50%
        interest and opted in terms of the option agreement to issue to the Partners
        a total of 200,000 common shares of Solomon (Solomon shares)
        of which 75,000 were issued to the Company (note 5) and 125,000 to Energold.                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | Under the option agreement to earn its 50%
        interest, Solomon must in addition:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

---

|NORTHERN DYNASTY MINERALS LTD.                                             
|---------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                 
|For the years ended December 31, 2007, 2006 and 2005                       
|(Expressed in thousands
      of Canadian Dollars, unless otherwise stated)

|    | Solomon has the option to increase
        its interest to 60% by issuing to the Partners 300,000 Solomon shares
        and making a cash payment of $100 by January 31, 2009 and incurring additional
        $1 million in exploration expenditures by January 31, 2010.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|(c) | Little Bald Mountain                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    | The Company holds an 8.1% net
        profits interest in the Little Bald Mountain property in Nevada, USA.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|8.  | SHARE CAPITAL                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|(a) | Authorized share capital                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    | The Company's authorized share
        capital consists of an unlimited number of common shares, without par
        value.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|(b) | Issued and outstanding common
        shares (refer to Consolidated Statements of ShareholdersEquity
        and Deficit)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    | In July 2006, the Company issued
        8,745,845 common shares in connection with a share purchase agreement
        with Kennecott Canada Exploration Inc. (Kennecott), a subsidiary
        of Rio Tinto plc, for $10.00 per share. Kennecott has a right of first
        refusal to participate in up to 50% of future share placements by the
        Company, subject to customary exceptions, until Kennecott reached 19.9%
        of the Companys outstanding share capital. The right thereafter
        continues as a 19.9% right until Kennecott either fails to take up any
        offered allotment or the fifth anniversary of the agreement, whichever
        occurs first. In early 2007, Rio Tinto, through its subsidiary QIT-Fer
        Et Titane Inc., purchased 9.4 million common shares of Northern Dynasty
        from a significant shareholder of the Company to bring its share ownership
        to approximately 19.6%.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|(c) | Share purchase warrants                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    | The continuity of share purchase
        warrants (each warrant exercisable into one common share) for the year
        ended December 31, 2006 and 2007 is as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

| |                                 |   |          |      |  |           |   |  |        |      |  |            |   |  |           |   |  | Dec 31   | 
| | ------------------------------- | - | -------- | ---- |  | --------- | - |  | ------ | ---- |  | ---------- | - |  | --------- | - |  | -------- | 
| |                                 |   | Exercise |      |  | Dec 31    |   |  |        |      |  |            |   |  | Expired/  |   |  | 2006 and | 
| | Expiry date                     |   | price    |      |  | 2005      |   |  | Issued |      |  | Exercised  |   |  | cancelled |   |  | 2007     | 
| | Sept. 18, 2006                  | $ | 5.00     |      |  | 6,985,344 |   |  |       |      |  | (6,985,344 | ) |  |          |   |  |         | 
| |                                 |   |          |      |  |           |   |  |        |      |  |            |   |  |           |   |  |          | 
| | Weighted average exercise price |   | $        | 5.00 |  | $         |  |  | $      | 5.00 |  | $          |  |  | $         |  | 

---

|NORTHERN DYNASTY MINERALS LTD.                                             
|---------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                 
|For the years ended December 31, 2007, 2006 and 2005                       
|(Expressed in thousands
      of Canadian Dollars, unless otherwise stated)

|(d) | Share purchase option compensation plan                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    | The Company has a share option plan approved by the
        shareholders that allows it to grant options, subject to regulatory terms
        and approval, to its officers, directors, employees, and service providers.
        The share option plan (the "2007 Rolling Option Plan") is based on the
        maximum number of eligible shares equaling a rolling percentage of up
        to 10% of the Company's outstanding common shares, calculated from time
        to time. Pursuant to the 2007 Rolling Option Plan, if outstanding options
        are exercised, or expire, and/or the number of issued and outstanding
        common shares of the Company increases, then the options available to
        grant under the plan increase proportionately. The exercise price of each
        option is set by the Board of Directors at the time of grant but cannot
        be less than the market price (less permissible discounts). Options can
        have a maximum term of ten years and typically terminate 90 days following
        the termination of the optionees employment or engagement, except
        in the case of retirement or death. Vesting of options is at the discretion
        of the Board of Directors at the time the options are granted.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    | The continuity of share purchase options for the year
        ended December 31, 2007 is:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

| |                                       |   | Exercise |      |  | Dec 31    |       |  |           |      |  |           |      |  | Expired / |      |  | Dec 31    | 
| | ------------------------------------- | - | -------- | ---- |  | --------- | ----- |  | --------- | ---- |  | --------- | ---- |  | --------- | ---- |  | --------- | 
| | Expiry date                           |   | price    |      |  | 2006      |       |  | Granted   |      |  | Exercised |      |  | cancelled |      |  | 2007      | 
| | September 28, 2007                    | $ | 5.40     |      |  | 85,067    |       |  |          |      |  | (68,400   | )    |  | (16,667   | )    |  |          | 
| | November 30, 2007                     | $ | 4.50     |      |  | 150,068   |       |  |          |      |  | (150,068  | )    |  |          |      |  |          | 
| | November 30, 2007                     | $ | 5.31     |      |  | 515,066   |       |  |          |      |  | (515,066  | )    |  |          |      |  |          | 
| | December 14, 2007                     | $ | 5.37     |      |  | 15,000    |       |  |          |      |  | (15,000   | )    |  |          |      |  |          | 
| | April 30, 2009                        | $ | 7.25     |      |  | 410,670   |       |  |          |      |  | (45,436   | )    |  | (5,834    | )    |  | 359,400   | 
| | April 30, 2009                        | $ | 9.81     |      |  | 62,500    |       |  |          |      |  | (2,500    | )    |  | (10,000   | )    |  | 50,000    | 
| | April 30, 2009                        | $ | 10.32    |      |  |          |       |  | 613,000   |      |  | (1,650    | )    |  | (15,000   | )    |  | 596,350   | 
| | April 30, 2011                        | $ | 7.25     |      |  | 1,125,000 |       |  |          |      |  | (60,000   | )    |  | (120,000  | )    |  | 945,000   | 
| | February 12, 2012                     | $ | 10.95    |      |  |          |       |  | 828,000   |      |  |          |      |  |          |      |  | 828,000   | 
| |                                       |   |          |      |  | 2,363,371 |       |  | 1,441,000 |      |  | (858,120  | )    |  | (167,501  | )    |  | 2,778,750 | 
| |                                       |   |          |      |  |           |       |  |           |      |  |           |      |  |           |      |  |           | 
| | Weighted
      average exercise price |   | $        | 6.64 |  | $         | 10.68 |  | $         | 5.44 |  | $         | 7.49 |  | $         | 9.06 | 

The continuity of share purchase options
  for the year ended December 31, 2006 is:

| |                                       |   | Exercise |      |  | Dec 31    |      |  |           |      |  |            |      |  | Expired / |      |  | Dec 31    | 
| | ------------------------------------- | - | -------- | ---- |  | --------- | ---- |  | --------- | ---- |  | ---------- | ---- |  | --------- | ---- |  | --------- | 
| | Expiry date                           |   | price    |      |  | 2005      |      |  | Granted   |      |  | Exercised  |      |  | cancelled |      |  | 2006      | 
| | November 30, 2006                     | $ | 4.65     |      |  | 100,000   |      |  |          |      |  | (100,000   | )    |  |          |      |  |          | 
| | November 30, 2006                     | $ | 5.00     |      |  | 1,897,500 |      |  |          |      |  | (1,897,500 | )    |  |          |      |  |          | 
| | September 28, 2007                    | $ | 5.40     |      |  | 150,000   |      |  |          |      |  | (64,933    | )    |  |          |      |  | 85,067    | 
| | November 30, 2007                     | $ | 4.50     |      |  | 170,000   |      |  |          |      |  | (19,932    | )    |  |          |      |  | 150,068   | 
| | November 30, 2007                     | $ | 5.31     |      |  | 641,666   |      |  |          |      |  | (99,932    | )    |  | (26,668   | )    |  | 515,066   | 
| | December 14, 2007                     | $ | 5.37     |      |  | 15,000    |      |  |          |      |  |           |      |  |          |      |  | 15,000    | 
| | April 30, 2009                        | $ | 7.25     |      |  |          |      |  | 471,500   |      |  | (22,498    | )    |  | (38,332   | )    |  | 410,670   | 
| | April 30, 2009                        | $ | 9.81     |      |  |          |      |  | 62,500    |      |  |           |      |  |          |      |  | 62,500    | 
| | April 30, 2011                        | $ | 7.25     |      |  |          |      |  | 1,125,000 |      |  |           |      |  |          |      |  | 1,125,000 | 
| |                                       |   |          |      |  | 2,974,166 |      |  | 1,659,000 |      |  | (2,204,795 | )    |  | (65,000   | )    |  | 2,363,371 | 
| |                                       |   |          |      |  |           |      |  |           |      |  |            |      |  |           |      |  |           | 
| | Weighted
      average exercise price |   | $        | 5.05 |  | $         | 7.35 |  | $         | 5.03 |  | $          | 6.45 |  | $         | 6.64 | 

---

|NORTHERN DYNASTY MINERALS LTD.                                             
|---------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                 
|For the years ended December 31, 2007, 2006 and 2005                       
|(Expressed in thousands
      of Canadian Dollars, unless otherwise stated)

Options outstanding and exercisable at
  December 31, 2007 were as follows:

| |                                 |   | Exercise |  |  | Options     |      |  | Number of      |  |  | Contractual Life  | 
| | ------------------------------- | - | -------- |  |  | ----------- | ---- |  | -------------- |  |  | ----------------- | 
| | Expiry date                     |   | price    |  |  | outstanding |      |  | options vested |  |  | remaining (years) | 
| | April 30, 2009                  | $ | 7.25     |  |  | 359,400     |      |  | 359,400        |  |  | 1.33              | 
| | April 30, 2009                  | $ | 9.81     |  |  | 50,000      |      |  | 15,000         |  |  | 1.33              | 
| | April 30, 2009                  | $ | 10.32    |  |  | 596,350     |      |  | 197,685        |  |  | 1.33              | 
| | April 30, 2011                  | $ | 7.25     |  |  | 945,000     |      |  | 945,000        |  |  | 3.33              | 
| | February 12, 2012               | $ | 10.95    |  |  | 828,000     |      |  | 276,000        |  |  | 4.14              | 
| | Total                           |   |          |  |  | 2,778,750   |      |  | 1,793,085      |  |  |                   | 
| | Weighted average exercise price |   |          |  |  | $           | 8.18 |  |                |  | 

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

| |                                                   |   | Years ended December 31 | 
| | ------------------------------------------------- | - | ----------------------- | 
| |                                                   |   | 2007                    | 
| | Exploration                                       |   |                         | 
| | Engineering                                       | $ | 1,389                   | 
| | Environmental, socioeconomic and land             |   | 916                     | 
| | Geological                                        |   | 2,339                   | 
| |                                                   |   | 4,644                   | 
| | Operations and administration                     |   | 6,489                   | 
| | Total compensation cost recognized in             |   |                         | 
| | operations, credited
      to contributed surplus | $ | 11,133                  | 

The grant date fair value of options
  granted during the year ended December 31, 2007 was $5.51 (2006  $3.43)
  .

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

| |                         |  | 2007          |  |  | 2006          |  |  | 2005          | 
| | ----------------------- |  | ------------- |  |  | ------------- |  |  | ------------- | 
| | Risk-free interest rate |  | 4%            |  |  | 4%            |  |  | 3%            | 
| | Expected life           |  | 3.8 years     |  |  | 4.4 years     |  |  | 2.5 years     | 
| | Vesting period          |  | 0  24 months |  |  | 0  24 months |  |  | 0  18 months | 
| | Expected volatility     |  | 64%           |  |  | 52%           |  |  | 60%           | 
| | Expected dividend yield |  | nil           |  |  | nil           |  |  | nil           | 

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

---

|NORTHERN DYNASTY MINERALS LTD.                                             
|---------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                 
|For the years ended December 31, 2007, 2006 and 2005                       
|(Expressed in thousands
      of Canadian Dollars, unless otherwise stated)

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

| |                                           |   | Years ended December 31 | 
| | ----------------------------------------- | - | ----------------------- | 
| | Transactions                              |   | 2007                    | 
| | Services rendered and expenses reimbursed |   |                         | 
| | Hunter Dickinson Inc. (a)                 | $ | 5,386                   | 
| | Hunter Dickinson Group Inc. (b)           |   |                        | 
| | Sidev Holdings Ltd. (c)                   |   | 208                     | 
| | CEC Engineering Ltd. (d)                  |   | 19                      | 
| | Galahad Gold plc (e)                      |   |                        | 
| | Shambala Gold plc (e)                     |   |                        | 
| | Beattie
      Consulting Ltd. (f)         |   |                        | 

| | Balances receivable                                       |   | At December 31, 2007 |  |   | At December 31, 2006 | 
| | --------------------------------------------------------- | - | -------------------- |  | - | -------------------- | 
| | Hunter Dickinson Inc. (a)                                 | $ | 27                   |  | $ | 192                  | 
| | Northern
      Dynasty directors and service provider (g) |   |                     |  |   | 3,740                | 
| |                                                           | $ | 27                   |  | $ | 3,932                | 

| | Balances payable        |   | At December 31, 2007 |  |   | At December 31, 2006 | 
| | ----------------------- | - | -------------------- |  | - | -------------------- | 
| | Sidev Holdings Ltd. (c) | $ | 21                   |  | $ |                     | 
| |                         | $ | 21                   |  | $ |                     | 

| | (a) | Hunter Dickinson Inc. ("HDI") is a private company owned
        equally by eight public companies, one of which is Northern Dynasty. HDI
        has certain directors in common with the Company and provides geological,
        corporate development, administrative and management services to, and
        incurs third party costs on behalf of, the Company and its subsidiaries
        on a full cost recovery basis pursuant to an agreement dated December
        31, 1996. Balances receivable from HDI result from advances to HDI by
        the Company for services to be rendered subsequent to the period reported.
        Included in the total of services provided by HDI for the year ended December
        31, 2007 is $1,483 invoiced to the Pebble Limited Partnership for services
        from August 1, 2007.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | (b) | Hunter Dickinson Group Inc. (HDGI) was a
        private company with certain directors in common that provided consulting
        services to the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |     | In October 2001, the Company was assigned an 80% interest
        in two options granted by Teck Cominco to HDGI in respect of Teck Comincos
        "Pebble" gold-copper- molybdenum property in southwestern Alaska (note
        7(a)(i)).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |     | In May 2006, the Company completed the acquisition of
        the 20% remaining contractual interest in the Pebble Property from HDGI
        (note 7(a)(ii)).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | (c) | Sidev Holdings Ltd., is a private company controlled
        by a director of Pebble East Corp. (formerly Northern Dynasty Mines Inc.),
        a wholly-owned private US subsidiary of the Company until July 31, 2007
        and the Pebble Limited Partnership from August 1, 2007 onwards, and provides
        project management services at market rates.                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

---

|NORTHERN DYNASTY MINERALS LTD.                                             
|---------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                 
|For the years ended December 31, 2007, 2006 and 2005                       
|(Expressed in thousands
      of Canadian Dollars, unless otherwise stated)

| | (d) | CEC Engineering Ltd. is a private company owned by a
        director that provides engineering and project management services to
        the Company based on the fair market value of these services.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | (e) | Galahad Gold plc (Galahad) was previously
        a significant shareholder of the Company, with a director in common, which
        charged the Company for travel expenses incurred. Shambala Gold plc, a
        subsidiary of Galahad, provided engineering and project management services
        to the Company at market rates.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | (f) | Beattie Consulting Ltd., is a private company controlled
        by a former director of Northern Dynasty Minerals Ltd. that provided project
        management services to the Company at market rates.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | (g) | On November 30, 2006, the Company received irrevocable
        notifications of exercise from holders of 748,000 common share purchase
        options. Under the Company's incentive option plan, as amended, the persons
        exercising these options were permitted to defer paying to the Company
        the required exercise proceeds of $5.00 per share for a period up until
        10 days after an internally imposed share trading blackout period applicable
        to these persons had been lifted (but within 90 days in any event unless
        a regulatory approval for a further extension was obtained). The blackout
        was imposed on account of their involvement in certain sensitive negotiations.
        The common share certificates in respect of these exercised options were
        held by the Company and were not released until the required cash payment
        was received. In February 2007, the blackout was lifted and the said cash
        payment of $3,740 was received by the Company.

|10. | INCOME TAXES
|--- | ------------

As at December 31, 2007 the tax effect
  of the significant components within the Companys future tax asset (liability)
  were as follows:

| |                                                               |   | December 31 |   |   | December 31 |  
| | ------------------------------------------------------------- | - | ----------- | - | - | ----------- | -
| |                                                               |   | 2007        |   |   | 2006        |  
| | Future income tax assets (liabilities)                        |   |             |   |   |             |  
| | Resource pools                                                | $ | 75,878      |   | $ | 56,888      |  
| | Loss carry forwards                                           |   | 5,969       |   |   | 3,800       |  
| | Equipment                                                     |   | 105         |   |   | 110         |  
| | Other                                                         |   | 1           |   |   |            |  
| | Subtotal                                                      |   | 81,953      |   |   | 60,798      |  
| | Valuation allowance                                           |   | (76,772     | ) |   | (59,432     | )
| | Net future income tax asset                                   |   | 5,181       |   |   | 1,366       |  
| |                                                               |   |             |   |   |             |  
| | Acquisition of HDGI  Excess of book value
      of mineral   |   |             |   |   |             |  
| | property over tax
      value                                 |   | (62,239     | ) |   | (62,239     | )
| | Sale of NDM Exploration and Resource Lands shares
           |   |             |   |   |             |  
| | Excess of book value of mineral
      property over tax value |   | (728        | ) |   | (728        | )
| | Net future income
      tax liability                         | $ | (57,786     | ) | $ | (61,601     | )

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

---

|NORTHERN DYNASTY MINERALS LTD.                                             
|---------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                 
|For the years ended December 31, 2007, 2006 and 2005                       
|(Expressed in thousands
      of Canadian Dollars, unless otherwise stated)

| |                                          |   | December 31 |   |   | December 31 |   |   | December 31 |  
| | ---------------------------------------- | - | ----------- | - | - | ----------- | - | - | ----------- | -
| |                                          |   | 2007        |   |   | 2006        |   |   | 2005        |  
| | Combined Canadian federal and provincial |   |             |   |   |             |   |   |             |  
| | statutory rate                           |   | 34.12%      |   |   | 34.12%      |   |   | 34.87%      |  
| |                                          |   |             |   |   |             |   |   |             |  
| | Income tax at statutory rates            | $ | (36,789     | ) | $ | (20,138     | ) | $ | (17,546     | )
| | Non-deductible items                     |   | 3,809       |   |   | 2,098       |   |   | 1,435       |  
| | Partnership losses not deductible        |   | 14,081      |   |   |            |   |   |            |  
| | Reduction in statutory tax rates         |   | 1,092       |   |   | 360         |   |   | 126         |  
| | Difference in foreign tax rates          |   | (3,270      | ) |   | (3,620      | ) |   | (2,734      | )
| | Change in valuation allowance            |   | 17,340      |   |   | 20,131      |   |   | 18,991      |  
| | Other                                    |   | (78         | ) |   | 532         |   |   | (272        | )
| | Income tax recovery                      | $ | (3,815      | ) | $ | (637        | ) | $ |            |  

At December 31, 2007, the Company had
  available losses for income tax purposes in Canada totaling approximately $18,200
  (2006  $9,400), expiring in various years from 2008 to 2027.

The Company has capital losses available
  of $160 (2006  $157), which can be used to offset future capital gains.

The Company has approximately $187,700
  (2006  $151,900) of resource tax pools available in Canada, which, when
  available, may be carried forward and utilized to reduce future taxes related
  to certain resource income. In addition, the Company has approximately $185,600
  (2006 $148,900) of resource tax pools available, which may be used to
  shelter certain resource income in the United States.

---

|NORTHERN DYNASTY MINERALS LTD.                                             
|---------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                 
|For the years ended December 31, 2007, 2006 and 2005                       
|(Expressed in thousands
      of Canadian Dollars, unless otherwise stated)

|11. | DIFFERENCES BETWEEN CANADIAN AND UNITED STATES
      GENERALLYACCEPTED ACCOUNTING PRINCIPLES (GAAP)
|--- | ---------------------------------------------------------------------------------------------------

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

| | Total assets                                                           |   | 2007     |  |   | 2006    | 
| | ---------------------------------------------------------------------- | - | -------- |  | - | ------- | 
| | Total assets under US and Canadian GAAP                                | $ | 210,277  |  | $ | 266,967 | 
| |                                                                        |   |          |  |   |         | 
| | Total liabilities                                                      |   | 2007     |  |   | 2006    | 
| | Total liabilities under US and Canadian GAAP                           | $ | 100,966  |  | $ | 69,440  | 
| |                                                                        |   |          |  |   |         | 
| | Total share capital and contributed surplus                            |   | 2007     |  |   | 2006    | 
| | Total share capital and contributed surplus
      under US and         |   | Canadian |  |   |         | 
| | GAAP                                                                   | $ | 383,220  |  | $ | 367,426 | 
| |                                                                        |   |          |  |   |         | 
| | Total accumulated other comprehensive loss                             |   | 2007     |  |   | 2006    | 
| | Total accumulated other comprehensive
      loss under US and Canadian |   |          |  |  
| | GAAP                                                                   | $ | 3        |  | $ |        | 
| |                                                                        |   |          |  |   |         | 
| | Total deficit                                                          |   | 2007     |  |   | 2006    | 
| | Total deficit under US and Canadian GAAP                               | $ | 273,906  |  | $ | 169,899 | 

| | Consolidated Statements
      of Operations         |   | 2007     |   |   | 2006    |   |   | 2005    |  
| | --------------------------------------------------- | - | -------- | - | - | ------- | - | - | ------- | -
| | Loss for the year under Canadian GAAP, being        |   |          |   |   |         |   |   |         |  
| | comprehensive loss in 2007                          | $ | (104,010 | ) | $ | (58,383 | ) | $ | (50,318 | )
| | Other comprehensive income                          |   |          |   |   |         |   |   |         |  
| | Realization on prior year mark-to-market            |   |          |   |   |         |   |   |         |  
| | adjustment
      (a)                                |   |         |   |   |        |   |   | (169    | )
| | Comprehensive loss
      for the year under US GAAP | $ | (104,010 | ) | $ | (58,383 | ) | $ | (50,487 | )
| |                                                     |   |          |   |   |         |   |   |         |  
| | Loss per share under
      US GAAP                  | $ | (1.13    | ) | $ | (0.75   | ) | $ | (0.90   | )
| |                                                     |   |          |   |   |         |   |   |         |  
| | Comprehensive loss
      per share under US GAAP    | $ | (1.13    | ) | $ | (0.75   | ) | $ | (0.90   | )

There are no material differences between
  Canadian GAAP and US GAAP in the consolidated statements of cash flows for the
  years ended December 31, 2007, 2006, and 2005.

---

|NORTHERN DYNASTY MINERALS LTD.                                             
|---------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                 
|For the years ended December 31, 2007, 2006 and 2005                       
|(Expressed in thousands
      of Canadian Dollars, unless otherwise stated)

|(a) | Available-for-sale securities                                                                                                                                                                                                                                                                                                                 
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                               
|    | In the year ended December 31, 2005, under
        US GAAP, the Company realized a prior year mark- to-market adjustment
        on the disposal of the Company's investment in marketable securities,
        namely its holdings of common shares of Taseko Mines Limited. No such
        adjustment would be recorded under Canadian GAAP.
|    |                                                                                                                                                                                                                                                                                                                                               
|    | During the current fiscal year, this difference
        in accounting treatment has been eliminated due to the Companys
        adoption of the new CICA accounting standards pertaining to financial
        instruments (note 4).                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                               
|(b) | Impact of recent United States accounting
        pronouncements                                                                                                                                                                                                                                                                              
|    |                                                                                                                                                                                                                                                                                                                                               
|    | (i)                                                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                               
|    | (ii)                                                                                                                                                                                                                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                               
|    | (iii)                                                                                                                                                                                                                                                                                                                                         

---

|NORTHERN DYNASTY MINERALS LTD.                                             
|---------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                 
|For the years ended December 31, 2007, 2006 and 2005                       
|(Expressed in thousands
      of Canadian Dollars, unless otherwise stated)

| | (iv)  | In June 2005, the FASB issued SFAS No. 154,
        Accounting Changes and Error Corrections, a replacement of APB
        Opinion No. 20, Accounting Changes, and FASB Statement No. 3, Reporting
        Accounting Changes in Interim Financial Statements. SFAS 154 requires
        retrospective application to prior periods financial statements
        of a change in accounting principle unless it is impracticable to do so.
        This is a change from the existing practice that requires most accounting
        changes to be accounted for by including in net income in the period of
        the change the cumulative effect of changing to the new accounting principle.
        SFAS 154 will be effective for accounting changes and corrections of errors
        made in fiscal years beginning after December 15, 2005. The impact of
        SFAS 154 cannot be determined until such time as the Company makes a change
        in accounting policy.                                                                                                             
| | ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | (v)   | In June 2006, the FASB issued Financial Interpretation
        No. 48, Accounting for Uncertainty in Income Taxes - An Interpretation
        of SFAS Statement No. 109 (Accounting for Income Taxes) (FIN
        48). The interpretation was issued to create a single model to address
        accounting for uncertainty in tax positions. FIN 48 clarifies the accounting
        for income taxes by prescribing a minimum recognition threshold a tax
        position is required to meet before being recognized in the financial
        statements. FIN 48 is effective for fiscal years beginning after December
        15, 2006.                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |       | Under US GAAP effective January 1, 2007, the
        Company adopted the provisions of FIN 48 that prescribe a recognition
        threshold and measurement attribute for the financial statement recognition
        and measurement of a tax position taken or expected to be taken in a tax
        return. The interpretation requires that the Company recognize the impact
        of a tax position in the financial statements if the position is more
        likely than not of being sustained on audit, based on the technical merits
        of the position. FIN 48 also provides guidance on de-recognition, classification,
        interest and penalties, accounting in interim periods and disclosure.
        In accordance with the provisions of FIN 48, any cumulative effect resulting
        from the change in accounting principle is to be recorded as an adjustment
        to the opening balance of deficit. The adoption of FIN 48 did not result
        in a material impact on the Companys consolidated financial position
        or results of operations.
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | (vi)  | In September 2006, the FASB issued SFAS No.
        157, Fair Value Measurements. This statement is intended to increase
        the consistency and comparability of fair value measurements and eliminate
        different definitions of fair value under various US standards. It establishes
        a framework for measuring fair value and expands disclosures about fair
        value measurements. The adoption of these recommendations is not expected
        to have a material impact on the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | (vii) | In February 2007, the FASB issued SFAS No.
        159, The Fair Value Option for Financial Assets and Financial Liabilities.
        This statement provides an option to measure eligible financial instruments
        at fair value, with changes in fair value recognized in income. Upon adoption,
        the first re-measurement to fair value would be reported as a cumulative-
        effect adjustment to opening balance of retained income. This statement
        will be effective for the Companys 2008 fiscal year. The Company
        currently does not expect this statement to have a material impact on
        the Companys results of operations or financial position.                                                                                                                                                                                                                                                                                                                                                                                              

---

|NORTHERN DYNASTY MINERALS LTD.                                             
|---------------------------------------------------------------------------
|Notes to Consolidated Financial Statements                                 
|For the years ended December 31, 2007, 2006 and 2005                       
|(Expressed in thousands
      of Canadian Dollars, unless otherwise stated)

| | (viii) | In December 2007, the FASB issued SFAS No. 141R, Business
        Combinations,which requires recognition of the assets acquired, liabilities
        assumed and non-controlling interest arising in a business combination
        at their fair value as of the acquisition date. In addition, the costs
        of acquisition must be recognized separately from the business combination.
        This statement will be effective for the Companys 2009 fiscal year.
| | ------ | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---