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MANAGEMENT'S DISCUSSION AND ANALYSIS



YEAR ENDED DECEMBER 31, 2012

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|Northern Dynasty Minerals Ltd.            
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|Management's Discussion And
      Analysis
|Year ended December 31, 2012              
|                                          

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

1.1
      DATE
      31.2
      OVERVIEW
      41.2.1
      SUMMARY
      41.2.1.1
      PEBBLE PROJECT
      41.2.1.2
      LIMITED PARTNERSHIP ESTABLISHED TO ADVANCE THE PEBBLE PROJECT
      71.2.1.3
      TECHNICAL PROGRAMS
      71.2.1.4
      LEGAL MATTERS
      101.2.1.5
      BRISTOL BAY WATERSHED ASSESSMENT
      111.2.2
      OTHER PROPERTIES
      121.2.2.1
      SOUTH PEBBLE, SP AND KAK CLAIMS
      121.2.2.2
      BIG CHUNK NORTH AND SOUTH
      121.2.3
      MARKET TRENDS
      131.3
      SELECTED ANNUAL INFORMATION
      151.4
      SUMMARY AND DISCUSSION OF QUARTERLY RESULTS
      161.5
      RESULTS OF OPERATIONS
      181.6
      LIQUIDITY
      201.7
      CAPITAL RESOURCES
      211.8
      OFF-BALANCE SHEET ARRANGEMENTS
      211.9
      TRANSACTIONS WITH RELATED PARTIES
      211.10
      FOURTH QUARTER
      221.11
      PROPOSED TRANSACTIONS
      231.12
      CRITICAL ACCOUNTING ESTIMATES
      231.13
      CHANGES IN ACCOUNTING POLICIES INCLUDING INITIAL ADOPTION
      261.14
      FINANCIAL INSTRUMENTS AND OTHER INSTRUMENTS
      271.15
      OTHER MD&A REQUIREMENTS
      301.15.1
      DISCLOSURE OF OUTSTANDING SHARE DATA
      311.15.2
      DISCLOSURE CONTROLS AND PROCEDURES
      311.15.3
      MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL
        REPORTING
      311.15.4
      CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
      321.15.5
      LIMITATIONS OF CONTROLS AND PROCEDURES
      321.15.6
      RISK FACTORS
      32


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|Northern Dynasty Minerals Ltd.      
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|Management's Discussion And Analysis
|Year ended December 31, 2012        
|                                    

1.1      Date

This Managements Discussion and Analysis ("MD&A") should
be read in conjunction with the audited consolidated financial statements of
Northern Dynasty Minerals Ltd. ("Northern Dynasty" or the "Company") for the
year ended December 31, 2012 as publicly filed under the Companys profile on
SEDAR at www.sedar.com.

The Company reports in accordance with International Financial
Reporting Standards as issued by the International Accounting Standards Board
("IASB") and interpretations of the IFRS Interpretations Committee (together,
"IFRS"). The following disclosure and associated consolidated financial
statements are presented in accordance with IFRS. This MD&A is prepared as
of March 27, 2013. All dollar amounts herein are expressed in Canadian dollars,
unless otherwise specified.

This discussion includes certain statements that
          may be deemed "forward-looking statements" or forward looking
          information within the meaning of Canadian and United States securities
          law. All statements in this disclosure, other than statements of historical
          facts, that address permitting, exploration drilling, exploitation activities
          and events or developments that the Company expects are forward-looking
          statements. Although the Company believes the expectations expressed
          in such forward- looking statements are based on reasonable assumptions,
          such statements are not guarantees of future performance and actual
          results or developments may differ materially from those in the forward-looking
          statements. Factors that could cause actual results to differ materially
          from those in forward-looking statements include market prices, exploitation
          and exploration successes, continuity of mineralization, potential environmental
          issues and liabilities associated with exploration, development and
          mining activities, uncertainties related to the ability to obtain necessary
          permits, licenses and title and delays due to third party opposition,
          changes in government policies regarding mining and natural resource
          exploration and exploitation, continued availability of capital and
          financing, and general economic, market or business conditions. Investors
          are cautioned that any such statements are not guarantees of future
          performance and actual results or developments may differ materially
          from those projected in the forward-looking statements. For more information
          on the Company, investors should review the Company's continuous disclosure
          filings that are available under the Companys profile at www.sedar.com.For more information on the Company, Investors
          should review the Companys annual information form and Form 40-F
          filing with the United States Securities and Exchange Commission (the
          "SEC") at www.sec.govand its home jurisdiction filings that
          are available on SEDAR at www.sedar.com.The Company reviews its forward looking statements on an
      ongoing basis and updates this information when circumstances require it.


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

Page 3

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|Northern Dynasty Minerals Ltd.      
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|Management's Discussion And Analysis
|Year ended December 31, 2012        
|                                    

Cautionary Note to Investors
      Concerning Estimates of Measured and Indicated ResourcesThe following section uses the terms "measured resources"
      and "indicated resources". The Company advises investors that although
      those terms are recognized and required by Canadian regulations, the SEC
      does not recognize them. Investors are cautioned not to assume that all
      or any part of mineraldeposits in these categories will ever be
      converted into reserves.


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


1.2     
Overview

1.2.1    Summary

Northern Dynasty is a mineral exploration company which holds
indirect interests in 637 square miles of mineral claims in southwest Alaska,
USA. These claims are part of or in the vicinity of the Pebble
Copper-Gold-Molybdenum Project (the "Pebble Project").

1.2.1.1 Pebble Project

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

Mineralization indicating the presence of the Pebble deposit
was discovered in 1987 by a prior operator. By 1997 an initial outline of a
deposit of copper, gold and molybdenum had been identified.

Northern Dynasty acquired the right to earn an interest in the
Pebble property in late 2001. Over the next 51⁄2 years, the Company explored the
Pebble deposit and surrounding property. This work led to the discovery of a
substantial volume of higher grade mineralization to the east and an overall
expansion of the deposit, as well as the discovery of another porphyry
copper-gold-molybdenum deposit, a porphyry copper zone, a gold-copper skarn
occurrence, and gold showings along the extensive northeast-trending mineralized
system underlying the property. Comprehensive environmental, social and
engineering studies for the Pebble deposit began in 2004.

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|Northern Dynasty Minerals Ltd.      
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|Management's Discussion And Analysis
|Year ended December 31, 2012        
|                                    

In mid-2007, a wholly-owned affiliate of Northern Dynasty and a
wholly-owned subsidiary of Anglo American plc, Anglo American US (Pebble) LLC
("Anglo American") established the Pebble Limited Partnership (the "Pebble
Partnership") to engineer, permit, construct and operate a modern, long-life
mine at the Pebble Project. The 50/50 Pebble Partnership owns the Pebble
Project, which consists of the Pebble deposit and 350 square miles of associated
resource lands, along with a stream of financing being provided by Anglo
American for comprehensive exploration, engineering, environmental and
socioeconomic programs and, if warranted, development of the Pebble Project.
Work programs at Pebble since mid-2007 have been carried out by the Pebble
Partnership. These programs include detailed engineering, environmental and socioeconomic studies toward the
completion of a prefeasibility study for the Pebble Project which will enable
the Pebble Partnership to engage stakeholders in the planning process and
prepare for permitting under the National Environmental Policy Act ("NEPA").

The estimate of the Pebble deposit mineral resources has been
updated several times as exploration advanced. The most recent estimate was
announced in February 2010. At a 0.30% copper equivalent (CuEQ)1
cut-off, the Pebble deposit comprises:

- 5.94 billion tonnes of Measured and Indicated Mineral Resources grading
  0.42% copper, 0.35 g/t gold and 250 ppm molybdenum (0.78% CuEQ), containing 55
  billion pounds of copper, 67 million ounces of gold, and 3.3 billion pounds of
  molybdenum; and
- 4.84 billion tonnes of Inferred Mineral Resources grading 0.24% copper,
  0.26 g/t gold and 215 ppm molybdenum (0.53% CuEQ), containing 25.6 billion
  pounds of copper, 40.4 million ounces of gold, and 2.3 billion pounds of
  molybdenum.

In February 2011, Northern Dynasty announced the results of an
independent Preliminary Assessment of the Pebble Project that it had
commissioned ("2011 PA"). The study was completed by Wardrop, a Tetra Tech
Company ("Wardrop").2

The study describes the potential economic value to three
successive mine development cases comprising 25, 45 and 78 years of open pit
mining and at a nominal processing rate of 200,000 tons per day. The results of
the Preliminary Assessment confirm that the Pebble Project has the potential to
generate substantial annual revenues, with increasingly better returns over
decades of production.

The Pebble Partnership has continued to undertake detailed
engineering, environmental and socioeconomic studies toward the completion of a
prefeasibility report for the Pebble Project, including ongoing programs to
engage project stakeholders in the planning process. The project which is
ultimately put forward by the Pebble Partnership for permitting under NEPA and
the Alaska State Large Mine Permitting Process may differ from those mine models
presented in the Preliminary Assessment.

_____________________________________________1
Mineral resources at February 2010 estimated within a volume or shell defined by
long-term metal price estimates of US$2.50/lb copper, US$900/oz gold and
US$25/lb molybdenum. M+I include 527 million tonnes in the measured category
grading 0.33% copper, 0.35 g/t gold and 178 ppm molybdenum and 5,414 million
tonnes in the indicated category grading 0.43% copper, 0.35 g/t gold and 257 ppm
molybdenum. Copper equivalent calculations used metal prices of US$1.85/lb for
copper, US$902/oz for gold and US$12.50/lb for molybdenum, and metallurgical
recoveries of 85% for copper, 69.6% for gold, and 77.8% for molybdenum in the
Pebble West area and 89.3% for copper, 76.8% for gold, 83.7% for molybdenum in
the Pebble East area. Mineral resources that are not mineral reserves do not
have demonstrated economic viability.

2 The economic assessment and other opinions
expressed in the Preliminary Assessment are strictly those of Northern Dynasty
and Wardrop, and do not reflect the views of any other stakeholder in the
project. Additional details can be found in the following documents posted under
the Companys profile at www.sedar.com:

- Technical Report entitled "Preliminary Assessment of the Pebble
  Project, Southwest Alaska, effective date February 15, 2011,"by
  Wardrop. Qualified Persons include Hassan Ghaffari, P.Eng, Robert Morrison,
  P.Geo, Andre de Ruijter, P.Eng, Tysen Hantelmann, P.Eng, Aleksandar Zivkovic,
  P.Eng, and Scott Cowie, MAusIMM; Doug Ramsey, P.R. Bio is author of
  sustainability section. All of these qualified persons are independent of
  Northern Dynasty.
- Northern Dynastys Annual Information Form for fiscal 2010 and fiscal
  2011.

Page 5

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|Northern Dynasty Minerals Ltd.      
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|Management's Discussion And Analysis
|Year ended December 31, 2012        
|                                    

Ongoing Prefeasibility Study and Environmental and
Socioeconomic Work

The Pebble Partnership has assembled an experienced engineering
and permitting team for the Pebble Project, consisting of more than 20 senior
engineers and technical specialists (many of whom are from the Anglo American
group or Northern Dynasty), as well as engineering firms and specialized
consultancies from around the world.

The team has continued to advance engineering and project
design initiatives for the Pebble Project. Public consultation forums in Alaska
are planned to gain input from stakeholders prior to the completion of a
Prefeasibility Study and the submission of permit applications.

In January 2012, the Pebble Partnership publicly released the
Environmental Baseline Document ("EBD") for the Pebble Project, characterizing
existing physical, biological and social conditions in the project area, in
anticipation of initiating project permitting. It contains more than 27,000
pages of scientific data and analyses, characterizing a broad range of
environmental and social conditions in southwest Alaska  including climate,
water quality, wetlands, fish and aquatic habitat, wildlife, land and water use,
socioeconomics and subsistence. The EBD is based primarily on research collected
between 2004 and 2008, although baseline data collecting and monitoring of
environmental and socioeconomic conditions surrounding the Pebble Project
continue today. Public and expert review of the EBD facilitated under the
Keystone initiative (see further details in section 1.2.1.3 below) began in
October 2012. The Pebble Partnership plans to complete its compilation of 2009
to 2012 environmental baseline data reports, and this material will also be
shared with state/federal agencies and the public.

Permitting will be initiated once the Pebble Partnership
submits its Project Description and other documents to the government agencies
which, with the EBD, provides the foundation for an Environmental Impact
Statement ("EIS"). Often prepared by a third-party contractor under the
direction of a lead federal agency, the EIS will assess the proposed projects
potential environmental/socioeconomic effects and development alternatives, and
will provide the basis for federal, state and local government agencies to make
individual permitting decisions.

The board of the Pebble Partnership adopted a budget of
approximately US$107 million for a comprehensive work program in 2012 that
included exploration, geotechnical and metallurgical drilling and
geo-hydrological testing as well as engineering studies to work toward
completion of a Project Description and Prefeasibility Study. The Pebble
Partnership also continued environmental baseline data collection, monitoring
and synthesis, and community engagement and workforce development programs to
advance the project and prepare for permitting under NEPA.

Objectives for 2013 are to focus on finalizing the Project
technical studies, including fish/water mitigation and closure plans. Similar
data collection programs will continue with a focus on monitoring. Permitting
under NEPA is expected to begin in 2013 with a stakeholder engagement program to
precede that process.

Corporate

Northern Dynasty has cash and cash equivalents on hand of $27.5
  million for its operating requirements. With the Pebble Project being financed
  by Anglo American, management believes that the Company has sufficient capital
  resources to cover its short to medium term cash requirements.

Page 6

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|Northern Dynasty Minerals Ltd.      
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|Management's Discussion And Analysis
|Year ended December 31, 2012        
|                                    

1.2.1.2 Limited Partnership Established
to Advance the Pebble Project

On July 26, 2007, the Company converted a wholly-owned general
partnership that held its Pebble property interests into a limited partnership,
the Pebble Partnership. Anglo American, through its wholly-owned affiliate,
subscribed for 50% of the Pebble Partnership's equity effective July 31, 2007.
The Company (through a wholly-owned affiliate) and Anglo American have equal
rights in the Pebble Partnership. To maintain its 50% interest in the Pebble
Partnership, Anglo American is required to commit staged cash investments into
the Pebble Partnership aggregating to US$1.5 billion.

Anglo Americans staged investment requirements include an
initial minimum expenditure of US$125 million (completed in 2008) towards a
prefeasibility report. The prefeasibility report is to be approved by the Board
of the general partner (Pebble Mines Corp.), and is to summarize all previous
prefeasibility studies. The Board of the general partner is also to approve the
alternatives for a final Feasibility Study. Anglo American is required, in order
to retain its 50% interest in the Pebble Partnership, to commit within 90 days
of the later of the receipt of the approved prefeasibility report and the
approved study alternatives, to fund further expenditures which would bring its
total investment to at least US$450 million, with further expenditures towards
producing a final feasibility study and related activities, the completion of
which is expected to take the Pebble Partnership to a production decision. Upon
an affirmative decision by the Pebble Partnership to develop a mine following
approval of a positive Feasibility Study, Anglo American is required to commit
to the remaining portion of the total investment of US$1.5 billion in order to
retain its interest in the Pebble Partnership. Following completion of the
US$1.5 billion expenditure, any further expenditure will be funded by Anglo
American and the Company (through its affiliate) on a 50:50 basis (subject to
dilution for non-contribution). The Pebble Partnership agreement provides for
equal project control rights with no operators fees payable to either
party.

The Company determined in accordance with IAS 31, Interests
in Joint Venturesthat its investment in the Pebble Partnership is an
interest in a jointly controlled entity. The Company applies the equity method
to account for its interest in the Pebble Partnership.

Anglo Americans cash contribution since the formation of the
Pebble Partnership on July 31, 2007 to December 31, 2012 amounts to $523.8
million (US$504.2 million).

The corporate office of the Pebble Partnership is located in
Anchorage, Alaska. The Alaska-based operations are guided by the Board of the
general partner with equal representation from Anglo American and Northern
Dynasty.

1.2.1.3 Technical
Programs

Exploration and Drilling

Site work in 2012 included exploration drilling,
hydrogeochemical sampling surveys to access and prioritize numerous geophysical
exploration targets on the property, soil sampling and geological and alteration
mapping.

The 2012 drilling program began in the second quarter and
continued through the third quarter. A total of 35,760 feet in 81 holes were
drilled in 2012, of which 7,392 feet totaling 17 holes were drilled in the
fourth quarter. In 2012, 17 core holes (8,363.15 feet) were drilled for
exploration purposes; 38 core holes (15,973 feet) were drilled to collect
geotechnical data, and 26 sonic holes (11,424 feet) were drilled for
hydrological investigations.

Page 7

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|Northern Dynasty Minerals Ltd.      
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|Management's Discussion And Analysis
|Year ended December 31, 2012        
|                                    

Engineering

The current phase of the engineering program is designed to
advance toward completion of the prefeasibility study for the Pebble Project.
The work, which commenced in 2011, has continued through 2012 and includes
additional analysis of the open pit, ongoing design of the process plant and
associated infrastructure, and compilation of the designs for the access roads,
port and power plant. The Pebble Partnership continues to evaluate development
options and component alternatives. The Pebble Partnership engineering team is
also making contributions to the development of a Project Description to support
permit applications under NEPA.

Environmental and Socioeconomic Studies

Environmental Baseline Document

The EBD provides information and analysis on baseline physical,
chemical, biological and social conditions based upon ongoing data collection by
the Pebble Project environmental study team from 2004 to 2008. Its purpose is to
provide the public, regulatory agencies and the Pebble Partnership with a
detailed compendium of pre-development environmental and socioeconomic
conditions in the project area.

Research for the Pebble EBD was conducted by more than 40
respected independent research firms, utilizing over 100 scientific experts and
engineering groups, laboratories and support services. Researchers were selected
for their specific areas of expertise and Alaskan experience, with cooperating
government agencies participating in several studies. Information for the EBD
was gathered through field studies, laboratory tests, review of government
records and other third-party sources, and interviews with Alaska residents.

The compilation of environmental studies undertaken in support
of mine development is more commonly presented to regulatory agencies as part of
a broader permitting package, which includes a Project Description. Given its
importance and the public interest in the Pebble Project, the Pebble Partnership
released the EBD to provide stakeholders with additional time to review the
substantial document in advance of project permitting. A Project Description for
the Pebble Project will need to be finalized before permitting commences.

The Pebble Partnership facilitated a four-day workshop with
federal and state regulatory agencies in January 2012 to present the EBD
findings. The workshop was broadcast publicly via the Internet. A series of
public presentations has also been coordinated in more than 20 communities
throughout southwest Alaska and elsewhere around the State to present the EBD
findings. These presentations involved several of the authors of the
document.

Ongoing Programs

Comprehensive environmental and socioeconomic baseline study
programs continue at the Pebble Project site. The 2012 field programs have
primarily focused on surface and groundwater hydrology, water quality and fish
resources. Objectives for 2013 include completion of fish/water mitigation and
closure plans. Similar data collection programs will continue in 2013 with a
focus on monitoring.

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|Northern Dynasty Minerals Ltd.      
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|Management's Discussion And Analysis
|Year ended December 31, 2012        
|                                    

Cultural Resource Studies

Cultural resource studies have been carried out by the Pebble
  Partnership on all areas that might be affected by the Pebble Project, with the
  exception of possible road and port locations. Examination of the potential road and port sites will be undertaken once a
  decision is made regarding the exact location of these project features.

Community Engagement

An active program of stakeholder outreach has continued in
2012, including community meetings, stakeholder visits, presentations and event
appearances, as well as stakeholder tours to the Pebble Project site and to
operating mines in the United States ("US") and Canada. The focus of these
outreach activities is to update stakeholders on the Pebble Project, to receive
feedback on stakeholder priorities and concerns, and to advise participants
about modern mining practices.

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

|1. | The Pebble Fund for Sustainable Bristol Bay Fisheries
      & Communities Established in 2008 with a five-year, US$5 million
      commitment, with the goal of enhancing the health and sustainability of
      regional fisheries and the communities they support. Grants are determined
      based on criteria and selections made by an advisory board comprised of
      citizens from communities throughout the Bristol Bay region. In 2012, 36
      grants totaling approximately US$2 million have funded community-based
      projects throughout southwest Alaska. Grants totaling more than US$4.7
      million have been awarded to date, leveraging nearly US$13 million in
      matching funds from other organizations.                                                                                                                                                                                                                               
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | The Bristol Bay Marketplace Business Idea Competition for
      residents of Bristol Bay communities was introduced in 2011. The
      competition, sponsored by the Pebble Partnership and the Pebble Fund,
      provides the opportunity for local entrepreneurs to compete for funding to
      start or expand Bristol Bay-based businesses. In 2012, awards totaling
      US$235,000 were disbursed for the period January to April 2012. A second
      grant cycle for 2012 included 19 awards, totaling $730,519, with matching
      funds totaling $776,193.                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | The 2012 award winners were also invited to a two-day
      workshop held in Anchorage on August 16 and 17 where local entrepreneurs
      and CEOs offered general small business success tips and basic training in
      accounting, management and marketing.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|2. | An independent stakeholder dialogue process concerning
      the Pebble Project was initiated in late 2010 by the Keystone Center  a
      non-profit organization specializing in facilitating stakeholder- driven
      consultation processes concerning contentious, science-based issues.
      Independent Science Panels ("ISP"), consisting of respected experts in a
      range of technical, scientific and sociological fields, were assembled to
      review environmental and socioeconomic data compiled by the Pebble
      Partnership for the purpose of project engineering and permitting, while
      providing expert insight to Pebble Project stakeholders. The process is
      designed to address: geology and geochemistry; hydrology and water
      quality; fish, wildlife and habitat; and social, economic and cultural
      dynamics. Four ISP events were held in October 2012 and one session is
      planned for the spring of 2013.

In 2012, 67 site tours have been provided to share project
updates with a total of 312 stakeholders from across the region and Alaska. In
addition, the Pebble Partnership continues to host regional stakeholders at
tours of operating mines, including the Bingham Canyon Mine in Utah, Gibraltar
Mine in British Columbia and the Fort Knox Mine in Alaska.

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|Northern Dynasty Minerals Ltd.      
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|Management's Discussion And Analysis
|Year ended December 31, 2012        
|                                    

In order to increase stakeholder understanding of the Pebble
  Project, the Pebble Partnership has commissioned a National Economic Impact
  Study to be released in the coming months. As the Pebble Project advances toward
  the completion of a prefeasibility study and preparation for project permitting
  under NEPA, it is expected that the Pebble Partnership will initiate a broad-based
  stakeholder engagement program to involve stakeholders in the process by which
  the project is being designed.

Employment and Workforce Development

The Pebble Partnership is one of the most important private
sector employers in southwest Alaska. In 2012, Pebble had 79 direct employees
(34 in Anchorage, 39 on site, and six community associates), along with 260
contractors (258 at site and two in Anchorage).

Employee training and workforce development initiatives
continue to expand. Workforce development initiatives at the Pebble Project
include the provision of training in the areas of equipment operations, health,
safety and environment. Working with the U.S. and Alaska Departments of Labor,
the Pebble Partnership has established the first-ever registered apprenticeship
training program to help local drill helpers become certified drillers. The
Company is also investing in programs to train local workers to become
environmental technicians, emergency medical technicians and bear guards. In
addition, scholarships are available to high school students from the Bristol
Bay region who are interested in pursuing studies at college and
vocational/technical schools in the fields of project management, operations,
geology, science, engineering and other disciplines related to responsible
resource development. In 2012, 44 students have been supported through
scholarships totaling $186,000. Some $336,500 has been awarded since the
scholarship program was established in 2010.

1.2.1.4 Legal Matters

On February 23, 2011, the Company issued a news release
announcing that it was in receipt of a new independent Preliminary Assessment of
the Pebble Project, which is based on the information generated and provided by
the Pebble Partnership and Northern Dynasty. The information provided by the
Pebble Partnership and the Preliminary Assessment constitute a material change
in the affairs of the Company because it changed the technical parameters and
provided an estimated net present value of the property that deviated by
billions of dollars from the last such assessment done in 2004. Anglo American,
the Companys 50% partner in the Pebble Partnership, has asserted that the news
release contained confidential information which is the property of the Pebble
Partnership and was not authorized to be released, and Anglo American reserves
all rights to claim that the release has damaged Anglo American and/or the
Pebble Partnership. The Company has received legal advice that the news release
was a permitted disclosure under the various agreements with Anglo American, and
its issuance was a mandatory requirement under Canadian and US regulatory
requirements. The Company does not believe that Anglo Americans allegations
have any merit; however, it cannot give assurances about future events or
actions by Anglo American.

In October 2011, a lawsuit filed in July 2009 by the Trustees
for Alaska (an environmental law firm) on behalf of Nunamta Aulukestai  an
organization established and funded to oppose development of the Pebble Project
- was rejected by the Anchorage Superior Court. The lawsuit alleged that the
Alaska Department of Natural Resources ("DNR") had violated the state
constitution by granting exploration and temporary water use permits to the
Pebble Partnership, and exploration activities had caused harm to vegetation,
water, fish and wildlife. The Pebble Partnership actively participated in the
trial proceedings after being granted intervener status. Superior Court Judge
Aarseth denied each of the allegations made by Nunamta Aulukestai, and ruled
that no evidence of environmental harm was presented. The plaintiffs have filed
an appeal that is now pending before the Alaska Supreme Court.

Page 10

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|Northern Dynasty Minerals Ltd.      
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|Management's Discussion And Analysis
|Year ended December 31, 2012        
|                                    

In November 2011, by a narrow 280  246 (53%  47%) margin,
voters in Southwest Alaskas Lake & Peninsula Borough supported a ballot
measure sponsored by anti-Pebble activists that, if upheld by the courts, might
restrict future development that affects more than one square mile of land
within the 31,000 square mile borough.

The initiative was opposed by a broad spectrum of Alaska
interests, including a group of four Alaska Native village corporations
representing seven Lake & Peninsula Borough communities whose private land
holdings would be affected by the ordinance, the State of Alaska and the Pebble
Partnership. It was also opposed by the Resource Development Council for Alaska,
the Alaska State Chamber of Commerce, the Alaska Miners Association, Council of
Alaska Producers, the Alaska Oil and Gas Association and the Alaska Industry
Support Alliance, among others.

The Pebble Partnership and the State of Alaska view the
initiative as unconstitutional and unenforceable because it seeks to restrict
development of state-owned resources on state lands through a municipal
ordinance. The State of Alaska and the Pebble Partnership have filed legal
challenges in the Alaska Superior Court, which will hear summary judgment
motions from both parties in April 2013. A trial on the issue is scheduled for
December 2013.

1.2.1.5 Bristol Bay Watershed Assessment

In February 2011, the US Environmental Protection Agency
("EPA") announced it would undertake a Bristol Bay Watershed Assessment study
focusing on the potential effects of large-scale mine development in all of the
Bristol Bay area, subsequently narrowed to the Nushagak and Kvichak drainages.
This process was initiated in response to calls from persons and groups opposing
the Pebble Project for the EPA to pre-emptively use its asserted authority under
Section 404(c) of the Clean Water Act to prohibit discharges of dredged or fill
material in waters of the US within these drainages. Rather than acceding to
this request, the EPA embarked on a scientific study to assess potential impacts
of hard rock mining in the two drainages.

The EPAs draft Bristol Bay Watershed Assessment ("BBWA")
report was released on May 18, 2012. The draft report is a fundamentally flawed
document. By the EPAs own admission, it has evaluated the effects of a
hypothetical project  a project that has not been defined or proposed  and
for which key environmental mitigation strategies are not known. The assessment
was rushed  it is based on studies conducted over only one year in an area of
20,000 square miles. In comparison, the Pebble Partnership has studied the
ecological and social environment surrounding Pebble for more than eight years.
The EPA also failed to fully consider the data that the Pebble Partnership
provided as part of its 27,000-page Environmental Baseline Document.

The EPA called for public comment on the quality and
sufficiency of scientific information presented in the draft BBWA report. In
response, Northern Dynasty made a presentation highlighting these shortcomings
at the public hearings held in Seattle, Washington, on May 31, 2012 and in
Anchorage, Alaska, on August 7, 2012. In July 2012, the Company also submitted a
635-page critique of the draft report in response to the EPAs call for public
comment, and has called upon the EPA to cease action on the watershed assessment
until such time as the Pebble Partnership submits a definitive proposal for the
development of the Pebble deposit. Additional information on Northern Dynastys
submission to the EPA and the Companys critique of the BBWA report, see
http://www.northerndynastyminerals.com/ndm/BristolBay.asp.

Concerns about the reasonableness of the basis of risk
assessment in the draft EPA report were stated by many of the independent
experts on the peer review panel assembled to review the BBWA in a report
entitled 'External Peer Review of EPA's Draft Document: An Assessment of
Potential Mining Impacts on

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|Northern Dynasty Minerals Ltd.      
|------------------------------------
|Management's Discussion And Analysis
|Year ended December 31, 2012        
|                                    

Salmon Ecosystems of Bristol Bay, Alaska"released in
November 2012. In a wide-ranging critique of the draft report's methodology and
findings, many peer review panelists called the EPA's effort to evaluate the
effects of a 'hypothetical mining scenario' on the water, fish, wildlife and
cultural resources of Southwest Alaska "inadequate", "premature","unreasonable", suspect" and "misleading". The full peer review
report can be found at: http://www.epa.gov/ncea/pdfs/bristolbay/Final-Peer-Review-Report-Bristol-Bay.pdf.

"The authors have attempted to develop a hypothetical mine and
attempted to assess possible environmental effects associated with mine
development, operation, and closure," said Dr. William Stubblefield, a senior
professor at Oregon State University and an expert in environmental toxicology.
"Although interesting, the potential reality of the assessment is somewhat
questionable. It is also unclear why EPA undertook this evaluation, given that a
more realistic assessment could probably have been conducted once an actual mine
was proposed and greater detail about operational parameters available."

The EPA states it is now working to complete a revised draft
BBWA by spring 2013 for an additional round of public comment and review by the
original peer review panel, to be followed by report completion toward the end
of 2013.

1.2.2    Other Properties

1.2.2.1 South Pebble, SP and KAK
Claims

Agreement between Full Metal Minerals and the Pebble
Partnership

On January 31, 2012, the Pebble Partnership entered into a
Limited Liability Company Agreement (the "FMM Agreement") of Kaskanak Copper LLC
(the "LLC") with Full Metal Minerals (USA) Inc. ("FMMUSA"), a wholly-owned
subsidiary of Full Metal Minerals Corp. Under the FMM Agreement, the Pebble
Partnership can earn a 60% interest in the LLC which owns 100% of FMMs South
Pebble Claims (the "FMM Properties"), by incurring exploration expenditures of
at least US$3 million and making annual payments of US$50,000 to FMMUSA over a
period ending on December 31, 2013. The Pebble Partnership has been appointed as
the manager of the LLC and will continue as manager until it resigns or is
deemed to resign in certain defined circumstances which include a reduction of
its ownership interest in the LLC to below 50%.

For the duration of the earn-in period and the term of the
Pebble Partnerships membership in the LLC, the Pebble Partnership will have an
option to select and purchase claims that form part of the FMM Properties (the
"Purchased Claims") at a price of US$25 per acre payable to FMMUSA, provided
that the Purchased Claims are declared or agreed to be outside of the current
scope of operations of the LLC, constitute no more than 20,000 acres, constitute
a continuous block of claims and are located outside an "Exclusion Area"
specified in the FMM Agreement.

The FMM Properties total 542 claims covering approximately 135
square miles located west of the ground held 100% by the Pebble Partnership; 99
of these claims, covering an area of 24.3 square miles, form the "Exclusion
Area".

1.2.2.2 Big Chunk North and
South

Northern Dynastys Purchase and Option Agreement with
Liberty Star

On June 29, 2010, Northern Dynasty entered into an agreement
with Liberty Star Uranium and Metals Corp. and its subsidiary, Big Chunk Corp.
(together, "Liberty Star"), pursuant to which Liberty Star sold

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|Northern Dynasty Minerals Ltd.      
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|Management's Discussion And Analysis
|Year ended December 31, 2012        
|                                    

23.8 square miles of claims (the "Purchased Claims") to a US
subsidiary of Northern Dynasty in consideration for both a US$1 million cash
payment and a secured convertible loan from Northern Dynasty in the amount of
US$3 million which accrues interest at 10% per annum compounded monthly and
which is repayable 45 days after it is called (the "Loan"). The parties agreed,
through various amendments to the original agreement, to increase the principal
amount of the Loan by US$730,174 (the "Additional Loan Amount"), being the
amounts expended by Northern Dynasty on annual assessment work, rental and
related fees relating to the maintenance of Liberty Stars claims in Alaska.
Northern Dynasty called for the repayment of the Loan in October 2012 and, after
failure by Liberty Star to make any repayment, Northern Dynasty agreed to accept
transfer of 199 claims (the "Settlement Claims") covering 47.9 square miles
located north of the ground held 100% by the Pebble Partnership in settlement of
the Loan. Prior to transfer of the Settlement Claims to Northern Dynasty, a
third party purported to register a lien on the Settlement Claims in respect of
a debt allegedly owed by Liberty Star, which Liberty Star disputes. Liberty Star
has filed a claim against the third party, who has in turn filed a counterclaim
against Liberty Star and has sought to join Northern Dynasty as a party to the
lawsuit. Northern Dynasty intends to tender its defense of such counterclaim to
Liberty Star, which is obligated to indemnify Northern Dynasty from any losses
arising from the failure of Liberty Star to transfer clear title to the
Settlement Claims.

The total area of the properties is 71.6 square miles, and
includes 95 Purchased Claims and 199 Settlement Claims. All of these claims are
located in the vicinity of Pebble. Northern Dynasty carried out initial
exploration surveys in 2010.

1.2.3    Market
Trends

Copper prices showed a significant increase between late 2003
and mid-2008, and after a steep decline in late 2008 and early 2009, steadily
increased until late 2011. The price of copper has been variable in 2012 and so
far in 2013, ranging between US$3.32/lb and $3.93/lb.

Although gold prices have dropped from time to time, over the
past five years the average annual price has steadily increased. This overall
trend continued in 2013.

Molybdenum prices have been more volatile than gold or copper,
beginning an upward trend in 2003 that reached a peak of US$34/lb in October
2005, decreasing through 2006, then rising in 2007 until the latter part of
2008, when they dropped significantly. This decrease continued until May 2009.
Prices improved, but were variable in 2010 and 2011. The average price increased
to US$15.00/lb in early April 2012 but has decreased since that time.

Average annual prices as well as the average price so far in
2013 for copper, gold and molybdenum are shown in the table below:

Page 13

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|Northern Dynasty Minerals Ltd.      
|------------------------------------
|Management's Discussion And Analysis
|Year ended December 31, 2012        
|                                    

Year
    
    Average metal price
      (US$)Copper
    Gold
    Molybdenum2008
    3.16/lb
    871/oz
    29.70/lb2009
    2.34/lb
    974/oz
    11.29/lb2010
    3.42/lb
    1,228/oz
    15.87/lb2011
    4.00/lb
    1,572/oz
    15.41/lb2012
    3.61/lb
    1,669/oz
    12.81/lb2013 (to the date of this
      MD&A)
    3.61/lb
    1,364/oz
    11.47/lb


Source: LME Official Cash Price as provided at
www.metalprices.com

Page 14

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|Northern Dynasty Minerals Ltd.      
|------------------------------------
|Management's Discussion And Analysis
|Year ended December 31, 2012        
|                                    

1.3     
Selected Annual Information

The following selected annual information is from the audited
consolidated financial statements which have been prepared in accordance with
IFRS. All figures are expressed in thousands of Canadian dollars unless
otherwise stated except per share amounts.

|                                                   |   | December 31 |  |   | December 31 |  |   | December 31 | 
|-------------------------------------------------- | - | ----------- |  | - | ----------- |  | - | ----------- | 
|Statements of Financial Position                   |   | 2012        |  |   | 2011        |  |   | 2010        | 
|Investment in the Pebble
      Partnership ("PLP") | $ | 99,336      |  | $ | 101,542     |  | $ | 99,306      | 
|Exploration and evaluation assets                  |   | 1,055       |  |   | 1,055       |  |   | 1,055       | 
|Current assets                                     |   | 32,543      |  |   | 42,644      |  |   | 43,886      | 
|Total assets                                       |   | 132,934     |  |   | 145,241     |  |   | 144,247     | 
|Shareholders equity                               |   | 128,893     |  |   | 141,356     |  |   | 140,060     | 
|Other liabilities                                  |   | 3,632       |  |   | 3,715       |  |   | 3,633       | 
|Current liabilities                                |   | 409         |  |   | 170         |  |   | 554         | 
|Total shareholders equity and liabilities         |   | 132,934     |  |   | 145,241     |  |   | 144,247     | 
|Working capital                                    | $ | 32,134      |  | $ | 42,474      |  | $ | 43,332      | 

|                                                     |   | Year ended  |   |   | Year ended  |   |   | Year ended  |  
|---------------------------------------------------- | - | ----------- | - | - | ----------- | - | - | ----------- | -
|                                                     |   | December 31 |   |   | December 31 |   |   | December 31 |  
|Expenses (income)                                    |   | 2012        |   |   | 2011        |   |   | 2010        |  
|Exploration and evaluation                           | $ | 4,461       |   | $ | 819         |   | $ | 1,800       |  
|General and administrative                           |   | 6,780       |   |   | 6,168       |   |   | 4,318       |  
|Share-based compensation                             |   | 5,225       |   |   | 14,205      |   |   | 8,373       |  
|Exchange loss (gain)                                 |   | 83          |   |   | (58         | ) |   | 138         |  
|Interest income                                      |   | (887        | ) |   | (944        | ) |   | (544        | )
|Loss before tax                                      |   | 15,662      |   |   | 20,190      |   |   | 14,085      |  
|Income tax (recovery) expense                        |   |            |   |   | (51         | ) |   | 30          |  
|Loss for the year                                    | $ | 15,662      |   | $ | 20,139      |   | $ | 14,115      |  
|                                                     |   |             |   |   |             |   |   |             |  
|Basic and diluted loss per common share              | $ | 0.16        |   | $ | 0.21        |   | $ | 0.15        |  
|Weighted average number of common shares outstanding |   | 94,995      |   |   | 94,852      |   |   | 93,779      |  

Page 15

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|Northern Dynasty Minerals Ltd.      
|------------------------------------
|Management's Discussion And Analysis
|Year ended December 31, 2012        
|                                    

1.4     
Summary and Discussion of Quarterly Results

All monetary amounts are expressed in thousands of dollars
except per share amounts and where otherwise indicated. Minor differences are
due to rounding.

|Statements of Financial                         |   | Dec 31  |   |   | Sep 30  |   |   | Jun 30  |   |   | Mar 31  |   |   | Dec 31  |   |   | Sep 30  |   |   | June 30 |   |   | Mar 31  |  
|----------------------------------------------- | - | ------- | - | - | ------- | - | - | ------- | - | - | ------- | - | - | ------- | - | - | ------- | - | - | ------- | - | - | ------- | -
|Position                                        |   | 2012    |   |   | 2012    |   |   | 2012    |   |   | 2012    |   |   | 2011    |   |   | 2011    |   |   | 2011    |   |   | 2011    |  
|Exploration and
      evaluation assets         | $ | 1,055   |   | $ | 1,055   |   | $ | 1,055   |   | $ | 1,055   |   | $ | 1,055   |   | $ | 1,055   |   | $ | 1,055   |   | $ | 1,055   |  
|Investment in PLP                               |   | 99,336  |   |   | 98,168  |   |   | 101,652 |   |   | 99,595  |   |   | 101,542 |   |   | 104,658 |   |   | 96,301  |   |   | 96,810  |  
|Current assets                                  |   | 32,543  |   |   | 35,623  |   |   | 38,605  |   |   | 40,811  |   |   | 42,644  |   |   | 43,792  |   |   | 44,925  |   |   | 45,302  |  
|Total assets                                    |   | 132,934 |   |   | 134,846 |   |   | 141,312 |   |   | 141,461 |   |   | 145,241 |   |   | 149,505 |   |   | 142,281 |   |   | 143,167 |  
|                                                |   |         |   |   |         |   |   |         |   |   |         |   |   |         |   |   |         |   |   |         |   |   |         |  
|Equity                                          |   | 128,893 |   |   | 130,214 |   |   | 137,191 |   |   | 137,282 |   |   | 141,356 |   |   | 145,550 |   |   | 138,566 |   |   | 139,261 |  
|Deferred income
      tax                       |   | 3,632   |   |   | 3,589   |   |   | 3,719   |   |   | 3,643   |   |   | 3,715   |   |   | 3,829   |   |   | 3,523   |   |   | 3,542   |  
|Current liabilities                             |   | 409     |   |   | 1,043   |   |   | 402     |   |   | 536     |   |   | 170     |   |   | 126     |   |   | 192     |   |   | 364     |  
|Total shareholders equityand
      liabilities |   | 132,934 |   |   | 134,846 |   |   | 141,312 |   |   | 141,461 |   |   | 145,241 |   |   | 149,505 |   |   | 142,281 |   |   | 143,167 |  
|Working capital                                 |   | 32,134  |   |   | 34,580  |   |   | 38,203  |   |   | 40,275  |   |   | 42,474  |   |   | 43,666  |   |   | 44,733  |   |   | 44,938  |  
|                                                |   |         |   |   |         |   |   |         |   |   |         |   |   |         |   |   |         |   |   |         |   |   |         |  
|Comprehensive (Income)Loss                      |   |         |   |   |         |   |   |         |   |   |         |   |   |         |   |   |         |   |   |         |   |   |         |  
|Expenses                                        |   |         |   |   |         |   |   |         |   |   |         |   |   |         |   |   |         |   |   |         |   |   |         |  
|Exploration and evaluation                      |   | 663     |   |   | 1,255   |   |   | 1,274   |   |   | 1,269   |   |   | (86     | ) |   | 448     |   |   | 141     |   |   | 316     |  
|General and
      administrative                |   | 2,076   |   |   | 2,472   |   |   | 1,136   |   |   | 1,096   |   |   | 1,497   |   |   | 1,143   |   |   | 2,129   |   |   | 1,399   |  
|Share-based compensation                        |   | 486     |   |   | 1,260   |   |   | 1,702   |   |   | 1,777   |   |   | 2,170   |   |   | 2,752   |   |   | 2,782   |   |   | 6,501   |  
|Exchange (gain)
      loss                      |   | (48     | ) |   | 136     |   |   | (87     | ) |   | 82      |   |   | 118     |   |   | (272    | ) |   | 17      |   |   | 79      |  
|Interest income                                 |   | (233    | ) |   | (240    | ) |   | (251    | ) |   | (163    | ) |   | (270    | ) |   | (252    | ) |   | (225    | ) |   | (197    | )
|Loss before tax                                 |   | 2,944   |   |   | 4,883   |   |   | 3,774   |   |   | 4,061   |   |   | 3,429   |   |   | 3,819   |   |   | 4,844   |   |   | 8,098   |  
|Income tax loss (recovery)                      |   | 2       |   |   | (2      | ) |   |        |   |   |        |   |   | (51     | ) |   |        |   |   |        |   |   |        |  
|Loss for the quarter                            |   | 2,946   |   |   | 4,881   |   |   | 3,774   |   |   | 4,061   |   |   | 3,378   |   |   | 3,819   |   |   | 4,844   |   |   | 8,098   |  
|Loss on marketable securities                   |   |        |   |   |        |   |   |        |   |   |        |   |   | 1       |   |   |        |   |   |        |   |   |        |  
|Exchange
      difference on translation of PLP |   | (1,168  | ) |   | 3,484   |   |   | (2,057  | ) |   | 1,947   |   |   | 3,116   |   |   | (8,357  | ) |   | 509     |   |   | 2,496   |  
|Deferred income tax                             |   | 41      |   |   | (128    | ) |   | 76      |   |   | (72     | ) |   | (114    | ) |   | 306     |   |   | (19     | ) |   | (91     | )
|Comprehensive loss(income)                      | $ | 1,819   |   | $ | 8,237   |   | $ | 1,793   |   | $ | 5,936   |   | $ | 6,381   |   | $ | (4,232  | ) | $ | 5,334   |   | $ | 10,503  |  
|                                                |   |         |   |   |         |   |   |         |   |   |         |   |   |         |   |   |         |   |   |         |   |   |         |  
|Basic and diluted loss per common share         | $ | 0.03    |   | $ | 0.05    |   | $ | 0.04    |   | $ | 0.04    |   | $ | 0.04    |   | $ | 0.04    |   | $ | 0.05    |   | $ | 0.09    |  

Page 16

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|Northern Dynasty Minerals Ltd.      
|------------------------------------
|Management's Discussion And Analysis
|Year ended December 31, 2012        
|                                    

Discussion of Quarterly Trends

The Companys investment in the Pebble Partnership is carried
in US dollars. Exchange differences arising from the translation of the
Companys investment in the Pebble Partnership are taken directly to the foreign
currency translation reserve through other comprehensive loss. The Company has
recorded translation losses in five quarters as a result of appreciation of the
Canadian dollar relative to the US dollar and gains in three quarters as a
result of the depreciation of the Canadian dollar relative to the US dollar. The
following table summarizes the movement in the US dollar to the Canadian dollar
and the resulting exchange differences recognized in each quarter:

1CAD for 1USDPeriod
      USD movement to CAD
      Start
      End
      Recognized (gain) lossQ1 2011
      Depreciation
      $0.99
      $0.97
      $ 2.5 millionQ2 2011
      Depreciation
      $0.97
      $0.96
      $ 0.5 millionQ3 2011
      Appreciation
      $0.96
      $1.05
      $ (8.4) millionQ4 2011
      Depreciation
      $1.05
      $1.02
      $ 3.1 millionQ1 2012
      Depreciation
      $1.02
      $1.00
      $ 1.9 millionQ2 2012
      Appreciation
      $1.00
      $1.02
      $ (2.1) millionQ3 2012
      Depreciation
      $1.02
      $0.98
      $ 3.5 millionQ4 2012
      Appreciation
      $0.98
      $0.99
      $ (1.1) millionFY 2011
      Appreciation
      $0.99
      $1.02
      $ (2.2) millionFY 2012
      Depreciation
      $1.02
      $0.99
      $ 2.2 million


Share-based compensation expense has fluctuated due to the
timing of share purchase option grants and the vesting periods associated with
these grants. The fair value of share purchase options is determined at the
grant date and the compensation expense for each tranche is recognized over the
period during which the share purchase options vest. The Company granted share
purchase options in Q2 of 2012 and Q1 of 2011. This resulted in an increase in
share-based compensation recognized in Q1 of 2011. In Q2 of 2012 however,
share-based compensation did not increase notwithstanding the vesting of
one-half of the share purchase options granted, as the fair value of share
purchase options granted was $0.87 per option as compared to $6.56 per option
for the Q1 2011 grant. From Q2 to Q4 of 2011, and Q1 and Q4 of 2012 share-based
compensation related to the amortization of share-based compensation on share
purchase options that were still vesting. In Q3 of 2012, the directors of the
Company voluntarily agreed to cancel 861,000 of their options with an exercise
price of $15.44 of which two-thirds had vested. The impact of the cancellation
was the acceleration of vesting of one-third of these options that had not
vested which resulted in the Company recognizing an additional $458,000 in
share-based compensation.

Exploration and evaluation expenses have fluctuated from
quarter to quarter. In 2011, the Company completed and announced the results of
the 2011 PA, conducted further ongoing analysis thereof and paid annual fees and
rentals on Liberty Star claims. In Q4 of 2011, the Company agreed to treat
certain of the 2011 and 2010 payments in respect to Liberty Star claims as an
advance and increased the principal amount of the loan outstanding from Liberty
Star resulting in a credit in exploration costs for the quarter. In Q1 through
Q4 of 2012, the Company commenced and focused on a further technical study to
advance work completed since the issue of the 2011 PA.

Page 17

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|Northern Dynasty Minerals Ltd.      
|------------------------------------
|Management's Discussion And Analysis
|Year ended December 31, 2012        
|                                    

1.5     
Results of Operations

The following financial data has been prepared in accordance
with IFRS effective for the year ended December 31, 2012 and are expressed in
Canadian dollars unless otherwise stated.

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

1.5.1    Results of
Operations for the Year Ended December 31, 2012 vs. 2011

The Company recorded a total comprehensive loss of $17.8
million for the current year as compared to $18.0 million in 2011. The decrease
was mainly attributable to lower share-based compensation being recognized in
the current year which was offset by an increase in exploration and evaluation
expenses ("E&E") in 2012 and recording of an exchange loss on translation of
the equity investment in the Pebble Partnership (as opposed to a gain in
2011).

The Company recorded E&E of $4.5 million in 2012 as
compared to $0.8 million in 2011 as the Company commenced work on a technical
study that advances work that was undertaken since the issue of the 2011 PA.

General and administrative expenses ("G&A") increased to
$6.8 million in 2012 from $6.2 million in 2011. The increase was due mainly to
retaining US political and scientific representatives to assist and represent
the Company and evaluate the EPAs draft Bristol Bay Watershed Assessment report
(refer 1.2.1.4 Legal Matters). In 2011, costs were impacted by a donation
of the Companys shares.

The following table provides a breakdown of G&A incurred,
expressed in thousands of dollars:

|G&A                         |   | 2012  |  |   | 2011  | 
|--------------------------- | - | ----- |  | - | ----- | 
|Conference and travel       | $ | 566   |  | $ | 525   | 
|Consulting                  |   | 1,761 |  |   |      | 
|Donations                   |   |      |  |   | 866   | 
|Insurance                   |   | 343   |  |   | 296   | 
|Legal, accounting and audit |   | 255   |  |   | 328   | 
|Office costs                |   | 702   |  |   | 980   | 
|Salaries                    |   | 2,593 |  |   | 2,334 | 
|Shareholder communication   |   | 332   |  |   | 517   | 
|Trust and filing            |   | 228   |  |   | 322   | 
|Total                       | $ | 6,780 |  | $ | 6,168 | 

The Company incurred consulting fees as it retained US
political and scientific representatives to assist and represent the Company and
evaluate the EPAs draft BBWA report (refer 1.2.1.5 Bristol Bay Watershed
Assessment). Salaries were slightly higher in the year due in part to
increased support for the aforementioned corporate activities to respond to the
EPAs initiative and other corporate activities including public affairs.

Page 18

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|Northern Dynasty Minerals Ltd.      
|------------------------------------
|Management's Discussion And Analysis
|Year ended December 31, 2012        
|                                    

Share-based compensation decreased to $5.2 million from $14.2
million in 2011. In 2012, the lower fair value estimated for share purchase
options ($0.87 per option) reduced the amount of amortization of share-based
compensation on share-purchase options vesting in the year as compared to 2011
($6.34 per option).

Other comprehensive loss was $2.1 million in the year as
compared to other comprehensive income of $2.2 million in 2011. The turnaround
is due to the Company recording a $2.2 million exchange loss on translation of
the investment in the Pebble Partnership in 2012 as compared to a gain of $2.2
million in 2011. As the Pebble Partnership has a US dollar functional currency,
the Company is impacted by movements in the US / Canadian dollar exchange rate
(see 1.4, Discussion of Quarterly Trends).

1.5.2    Cash Flows for
the Year Ended December 31, 2012 vs. 2011

Net cash used in operations increased to $10.5 million in the
current year from $7.5 million in the prior year. The increase was due in part
to the increase in G&A costs and the increase in exploration and evaluation
expenses incurred (as discussed in section 1.5.1) .

The Company received $0.4 million in interest on cash balances
which was lower than in 2011 ($0.6 million) due to lower average cash balances
held.

The Company received $97,000 in 2012 on the exercise of share
purchase options as compared to $4.2 million received from the exercise of
options in 2011.

1.5.3    Financial
position as at December 31, 2012 vs. December 31, 2011

The Companys total assets decreased to $132.9 million from
$145.2 million. The decrease was due to the decrease in current assets of $10.1
million and a decrease of $2.2 million in the carrying value of the Companys
investment in the Pebble Partnership as a result of the exchange loss recognized
on translation (refer 1.5.1) . The decrease in current assets is due mainly to
the $9.9 million decrease in cash and cash equivalents as the Company utilized
$10.5 million of its cash in its operations and received inflows of $0.5 million
from the exercise of share purchase options and interest on cash balances. Other
changes in current assets included a decrease in related party receivables of
$0.5 million due to the utilization of services from the related party by the
Company and an increase of $0.4 million in amounts receivable and other assets
due mainly to accrued interest.

1.5.5    Investment in
the Pebble Partnership

As indicated in section 1.2.1.2, the Company has determined
that, in accordance with IFRS, it has joint control of the Pebble Partnership
and applies the equity method to account for its investment in the Pebble
Partnership.

Expenditures incurred by the Pebble Partnership on the Pebble
Project are being funded 100% by Anglo American. Anglo Americans total
contributions from inception to December 31, 2012 total $523.8 million (US$504.2
million). For the year ended December 31, 2012, the Pebble Partnership incurred
losses of $102.9 million (2011  $84.5 million). E&E costs increased to
$93.3 million from $78.0 million in the previous year as the Pebble Partnership
focused on various programs to advance the completion of a prefeasibility study
for the Pebble Project, the development of a Project Description and the release
of the EBD in January 2012. The main E&E costs during the year ended
December31, 2012, were for:

- engineering (2012  $19.1 million; 2011  $20.0 million);

Page 19

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|Northern Dynasty Minerals Ltd.      
|------------------------------------
|Management's Discussion And Analysis
|Year ended December 31, 2012        
|                                    

- environmental planning and testing (2012  $20.0 million; 2011  $12.8
  million);
- site activities (2012  $36.6 million; 2011  $32.1 million);
- corporate affairs (2012  $16.5 million; 2011  $12.3 million); and
- business development (2012  $1.1 million; 2011 - $nil).

For further discussion on exploration activities and the
technical programs underway on the Pebble Project, see section 1.2.1.3,
Technical Programs.

1.6     
Liquidity

Historically, the Company's sole source of funding has been the
issuance of equity securities for cash, primarily through private placements to
sophisticated investors and institutions. In 2008, the Company completed its
last private placement financing and since then has continued each year to see
inflows to the treasury through the issue of common shares pursuant to the
exercise of share purchase options. The Company's access to financing is always
uncertain. There can be no assurance of continued access to significant equity
funding.

The funding of expenditures on the Pebble Project held through
the Pebble Partnership is currently being provided by Anglo American (described
below). Excluding cash and cash equivalents in the Pebble Partnership, Northern
Dynasty has $27.5 million in cash and cash equivalents for its own operating
requirements. With the Pebble Project funded by Anglo American, the Company
believes it has sufficient resources to cover its short to medium term cash
requirements.

As discussed in section 1.2.1.2, the Company is in a 50:50
limited partnership with Anglo American. To maintain its 50% interest in the
Pebble Partnership, Anglo American is required to make staged cash investments
into the Pebble Partnership aggregating to US$1.5 billion (refer 1.2.1.2) . On
completion of the US$1.5 billion investment by Anglo American, any further
expenditure will need to be funded by the Company and Anglo American on a 50:50
basis. The Company currently does not have the required funding to meet these
long term obligations should they arise.

At December 31, 2012, the Company had working capital of
approximately $32.1 million as compared to $42.5 million at December 31,
2011.

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

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

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

The Company is responsible for all maintenance payments on the
Purchased Claims (refer 1.2.2.2) .

Page 20

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|Northern Dynasty Minerals Ltd.      
|------------------------------------
|Management's Discussion And Analysis
|Year ended December 31, 2012        
|                                    

1.7     
Capital Resources

The Company has no long-term debt and had 94,999,764 common
shares issued and outstanding at December 31, 2012.

The Company had no commitments for material capital
expenditures as of December 31, 2012.

The Pebble Partnership, which is being funded by Anglo
American, has an approximate US$0.3 million commitment to the Pebble Fund for
Sustainable Bristol Bay Fisheries & Communities until 2013 (refer to
Community Engagementin 1.2.1.3) .

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

1.8     
Off-Balance Sheet Arrangements

None.

1.9     
Transactions with Related Parties

The Company and its subsidiaries transact with Hunter Dickinson
Services Inc. ("HDSI"), a private company which has certain directors and other
key management personnel and whom are close business associates who are also key
management personnel of the Company. Pursuant to a management services agreement
with HDSI, HDSI provides geological, corporate development, administrative and
management services to the Company at annually set rates and incurs third party
costs on behalf of the Company which are reimbursed by the Company at cost. The
following summarizes the transactions with HDSI expressed in thousands of
dollars:

|                                                       |   | Year ended
      December 31 | 
|------------------------------------------------------ | - | ---------------------------- | 
|Transactions                                           |   | 2012                         | 
|Services rendered by HDSI                              | $ | 3,531                        | 
|Reimbursement of third party expenses incurred by HDSI |   | 1,129                        | 
|Total paid by the Company                              | $ | 4,660                        | 

The Company continues to use resources provided by HDSI to
assist with ongoing administration and management of the Company including
continuous disclosure obligations, shareholder communications and investor
relations, as well as assisting with the Companys role as partner in the Pebble
Partnership.

Other related party transactions include compensation paid to
key management personnel (directors and senior management including the Senior
Vice President, Corporate Development; Vice President ("VP"), Corporate
Communication, VP, Engineering and VP, Public Affairs). For the year ended
December 31 2012, this comprised salaries of $2.2 million (2011  $1.8 million)
and share-based compensation of $2.8 million (2011  $7.9 million).

During the year, the Company also paid for services that were
provided to the Pebble Partnership totaling $25,000 which were reimbursed at
cost by the Pebble Partnership.

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|Northern Dynasty Minerals Ltd.      
|------------------------------------
|Management's Discussion And Analysis
|Year ended December 31, 2012        
|                                    

1.10    Fourth Quarter

The Company recorded a total comprehensive loss of $2.9 million
for the current quarter as compared to $3.4 million in the same period in 2011.
The decrease was mainly attributable to a decrease in share-based compensation
in the current quarter which more than offset the increase in E&E and
G&A as compared to the 2011 comparative period.

The Company recorded E&E of $0.7 million as compared to a
recovery of ($0.1) million in 2011. In 2012, the Company continued working on a
technical study to advance work since the issue of the 2011 PA. In 2011, the
Company agreed to increase the loan advanced to Liberty Star by approximately
$726,000 in respect to certain 2011 and 2010 payments made on Liberty Star
claims which resulted in a recovery in E&E recognized in the quarter.

G&A increased to $2.1 million in 2012 from $1.6 million in
2011. The following table provides a breakdown of expenses incurred, expressed
in thousands of dollars:

|                            |   | Three months
      ended December 31 | 
|--------------------------- | - | ------------------------------------ | 
|G&A                         |   | 2012                                 | 
|Conference and travel       | $ | 230                                  | 
|Consulting                  |   | 564                                  | 
|Insurance                   |   | 89                                   | 
|Legal, accounting and audit |   | 175                                  | 
|Office costs                |   | 147                                  | 
|Salaries                    |   | 808                                  | 
|Shareholder communication   |   | 58                                   | 
|Trust and filing            |   | 5                                    | 
|Total                       | $ | 2,076                                | 

The Company incurred consulting fees as it retained US
political and scientific representatives to assist and represent the Company and
to evaluate the EPAs draft BBWA report (refer 1.2.1.5 Bristol Bay Watershed
Assessment). Salaries were higher in the current quarter due in part to
increased support for the aforementioned corporate activities to respond to the
EPAs initiative and other corporate activities, including public affairs.

Share-based compensation decreased to $0.5 million from $2.2
million in 2011. In 2012, the lower fair value estimated for share purchase
options ($0.87 per option) reduced the amount of amortization of share-based
compensation on share-purchase options vesting in the quarter as compared to the
comparative quarter of 2011 ($6.34 per option).

The Company recorded other comprehensive gain of $1.1 million
in the quarter as compared to a comprehensive loss of $3.0 million in Q4 2011.
The Company recorded a $1.1 million exchange gain on translation of the
investment in the Pebble Partnership in the current quarter as compared to a
loss of $3.1 million in Q4 of 2011. As the Pebble Partnership has a US dollar
functional currency, the Company is impacted by movements in the US / Canadian
dollar exchange rate (see 1.4, Discussion of Quarterly Trends).

Page 22

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|Northern Dynasty Minerals Ltd.      
|------------------------------------
|Management's Discussion And Analysis
|Year ended December 31, 2012        
|                                    

1.11    Proposed
Transactions

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

1.12    Critical
Accounting Estimates

The Company's significant accounting policies are presented in
Note 2 in the notes to the consolidated financial statements for the year ended
December 31, 2012. The preparation of the consolidated financial statements
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the end of the reporting period presented
and reported amounts of expenses during said reporting period. Actual outcomes
could differ from these estimates. The consolidated financial statements include
estimates which, by their nature, are uncertain. The impacts of such estimates
are pervasive throughout the consolidated financial statements, and may require
accounting adjustments based on future occurrences. Revisions to accounting
estimates are recognized in the year in which the estimate is revised and future
years if the revision affects both current and future years. These estimates are
based on historical experience, current and future economic conditions and other
factors, including expectations of future events that are believed to be
reasonable under the circumstances.

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

|i.   | The Company uses the Black-Scholes Option Pricing Model
      to calculate the fair value of share purchase options granted for
      determining share-based compensation included in the loss for the year.
      Inputs used in this model require subjective assumptions including the
      expected price volatility from three to five years. Changes in the
      subjective input assumptions can affect the fair value estimate, and
      therefore the existing models do not necessarily provide a reliable single
      measure of the fair value of the Companys share purchase options. The
      weighted average assumptions applied are disclosed in 1.12.4.
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|ii.  | The loan receivable from Liberty Star Uranium &
      Metals Corp (refer Note 5(a) in the Notes to the Consolidated Financial
      Statements), which is secured by certain mineral claims, was past due at
      the end of the reporting period however the Company has not recognized an
      allowance for doubtful debts because the Company has a reasonable
      expectation that the loan will be settled by the transfer of the
      underlying mineral claims by the debtor.                                                                                                                                                                                      
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|iii. | Provision for the deferred income tax expense included in
      the loss for the year (nil for the current year) and the composition of
      deferred income tax liabilities included in the Statement of Financial
      Position in the Consolidated Financial Statements.                                                                                                                                                                                                                                                                                                                                                                                                   

1.12.1 Mineral resources and the
carrying value of the Companys investment in the Pebble Partnership

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

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|Northern Dynasty Minerals Ltd.      
|------------------------------------
|Management's Discussion And Analysis
|Year ended December 31, 2012        
|                                    

1.12.2 Impairment analysis of assets

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

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

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

At December 31, 2012, the Company reviewed the carrying value
of its assets and determined that there were no indicators of impairment.

1.12.3 Restoration, rehabilitation, and
environmental obligations

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

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

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

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

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|Northern Dynasty Minerals Ltd.      
|------------------------------------
|Management's Discussion And Analysis
|Year ended December 31, 2012        
|                                    

At December 31, 2012, the Company has no material restoration,
rehabilitation and environmental obligations as the disturbance to date is
minimal.

1.12.4 Share-based compensation expense

As indicated in 1.12 (i) the Company uses the Black-Scholes
option pricing model to estimate the fair value of share purchase options
granted through its Board of Directors, to directors, employees and service
providers. During the year the Company granted 2.2 million share purchase
options (2011  2.3 million). The weighted average fair value of share purchase
options granted was estimated at $0.87 per option (2011 - $6.34 per option)
based on the following weighted average assumptions and inputs:

|                              | 2012       | 2011      
|----------------------------- | ---------- | ----------
|Risk-free interest
      rate | 1.11%      | 2.25%     
|Expected life                 | 3.43 years | 4.20 years
|Expected
      volatility     | 60%        | 64%       
|Grant date share price        | $2.38      | $13.37    
|Expected dividend yield       | Nil        | Nil       

Changes in any of these inputs could cause a significant change
in the share-based compensation expense charged in a period.

1.12.5 Income Taxes

The Company uses the asset and liability method of accounting
for income taxes. Under this method, deferred income tax assets and liabilities
are computed based on differences between the carrying amounts of assets and
liabilities on the statements of financial position and their corresponding tax
values, generally using the substantively enacted or enacted income tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Deferred income tax assets
also result from unused loss carry forwards, resource-related pools and other
deductions. A deferred tax asset is only recognized to the extent that it is
probable that future taxable profits will be available against which the asset
can be utilized.

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

Page 25

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|Northern Dynasty Minerals Ltd.      
|------------------------------------
|Management's Discussion And Analysis
|Year ended December 31, 2012        
|                                    

1.13    Changes in
Accounting Policies including Initial Adoption

Accounting Standards, Amendments and Revised Standards Not
Yet Effective

Effective for the Companys financial year commencing on
January 1, 2013

Consolidation, joint arrangements, associates, disclosures
and other

In May 2011, the IASB issued new and revised standards on
consolidation, joint arrangements, associates and disclosures: IFRS 10,
Consolidated Financial Statements;IFRS 11, Joint Arrangements;
IFRS 12, Disclosure of Interests in Other Entities;IAS 27, Separate
Financial Statements(as revised in 2011) and IAS 28, Investments in
Associates and Joint Ventures(as revised in 2011). In June 2011, IAS 1,
Presentation of Financial Statements,was amended. In October 2011, IFRIC
20, Stripping Costs in the Production Phase of a Surface Mine,was
issued. In December 2011, amendments to IFRS 7, Financial Instruments:
Disclosuresrelating to disclosures around information about rights of
offset and related arrangementswere issued.

The Company has not early adopted these new or revised
standards, interpretation and amendments. Based upon its current facts and
circumstances, the Company does not expect these new and revised standards to
have a material impact on its consolidated financial statements except for
change in disclosure and presentation.

The Pebble Partnership

IFRS 11 replaces IAS 31, Interests in Joint Ventures and
SIC-13, Jointly Controlled Entities  Non-Monetary Contributions by Venturers.
Under IFRS 11, an entitys interest in an arrangement subject to joint control
is classified based on the rights and obligations of the parties to the joint
arrangement rather than its legal form as follows:

- A joint operation is a joint arrangement whereby the parties that have
  joint control of the arrangement ("joint operators") have rights to the assets
  and obligations for the liabilities relating to the arrangement. IFRS 11
  requires that a joint operator recognize its portion of assets, liabilities,
  revenues and expenses of the joint arrangement.
- A joint venture is a joint arrangement whereby the parties that have joint
  control of the arrangement ("joint venturers") have rights to the net assets
  of the arrangement, which is determined by considering the structure and form
  of the arrangement, the terms agreed by the parties in the contractual
  arrangement and other facts and circumstances. A joint venturer recognizes its
  investment in a joint arrangement using the equity method.

The Companys interest in the Pebble Partnership was classified
as a jointly controlled entity under IAS 31 and was accounted for using the
equity method (refer note 2(e) in the notes to the audited consolidated
financial statements). As required under IFRS 11, the Company has reviewed and
assessed the structure and legal form, the terms of the contractual
arrangements, and other facts and circumstances in relation to its interest in
the Pebble Partnership. The Company has concluded that, under IFRS 11, its
interest in the Pebble Partnership will be classified as a joint venture and,
hence, will continue to be accounted for under the equity method.

Page 26

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|Northern Dynasty Minerals Ltd.      
|------------------------------------
|Management's Discussion And Analysis
|Year ended December 31, 2012        
|                                    

Fair value measurement

In May 2011, the IASB issued IFRS 13, Fair Value Measurement.
  This standard defines fair value, sets out a single IFRS framework for measuring
  fair value and outlines disclosure requirements about fair value measurements. IFRS 13 defines fair value as the price
  that would be received to sell an asset or paid to transfer a liability in an
  orderly transaction between market participants at the measurement date. Fair
  value is a market-based measurement, not an entity-specific measurement, so
  assumptions that market participants would use should be applied in measuring
  fair value.

IFRS 13 is effective for annual periods on or after January 1,
2013, with earlier application permitted. This standard is to be applied
prospectively as of the beginning of the annual period in which it is initially
applied and the disclosure requirements do not need to be applied in comparative
periods before initial application. The Company anticipates that the application
of the new standard may result in more extensive disclosures in the future.

Effective for the Companys financial year commencing on
January 1, 2014 and 2015

Amendments to IAS 32, Financial Instruments: Presentation,
issued in December 2011 which clarify existing application issues relating to
the offset of financial assets and financial liabilities requirements applies to
annual periods beginning on or after January 1, 2014.

IFRS 9, Financial Instruments, Classification and
Measurement,originally issued in November 2009 and reissued in October
2010, applies to annual periods beginning on or after January 1, 2015. IFRS 9 is
the first phase of three phases to replace IAS 39, Financial Instruments:
Recognition and Measurement,in its entirety. The Company has not early
adopted this standard.

The Company anticipates that the adoption of the amendments and
standard will have no material impact on its consolidated financial statements
given the extent of its use of financial instruments in the ordinary course of
business.

1.14    Financial
Instruments and Other Instruments

The Company has no derivative financial assets or liabilities.
The loan receivable from Liberty Star which the Company continues to record in
its consolidated financial statements has an equity conversion option however,
it is not exercisable as the Company has not meet the terms as laid out in the
letter agreement (refer note 5(a) in the Notes to audited consolidated financial
statements).

1.14.1 Non-derivative financial
assets:

The Company has the following non-derivative financial assets:
available-for-sale financial assets and loans and receivables.

Available-for-sale ("AFS")financial assets

The Company has marketable securities which are classified as
AFS financial assets and are measured at fair value with changes therein, other
than impairment losses recognized in other comprehensive income or loss. At the
reporting date these securities had a nominal value.

Loans and receivables

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

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|Northern Dynasty Minerals Ltd.      
|------------------------------------
|Management's Discussion And Analysis
|Year ended December 31, 2012        
|                                    

Loans and receivables comprise amounts receivable including the
Liberty Star loan receivable, amounts receivable from a related party and cash
and cash equivalents (see below).

Cash and cash equivalents

Cash and cash equivalents in the statement of financial
position comprise cash and investments held at major financial institutions that
are readily convertible into a known amount of cash and which are only subject
to an insignificant risk of change in value, and are measured at amortized
cost.

The Companys cash and cash equivalents are invested in
business and savings accounts and guaranteed investment certificates which are
available on demand by the Company for its programs.

1.14.2 Non-derivative financial liabilities:

The Company has the following non-derivative financial
liabilities: trade and other payables and a payable to a related party.

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

1.14.3 Financial Risk Management

The Company is exposed in varying degrees to a variety of
financial instrument related risks. The Board approves and monitors the risk
management processes, inclusive of documented investment policies, counterparty
limits, and controlling and reporting structures. The type of risk exposure and
the way in which such exposure is managed is provided as follows:

Credit Risk

Credit risk is the risk of potential loss to the Company if a
counterparty to a financial instrument fails to meet its contractual
obligations. The Companys credit risk is primarily attributable to its liquid
financial assets, including cash and cash equivalents, amounts receivable which
includes the Companys loan receivable from Liberty Star and any amounts
receivable from related parties. There has been no change in the Companys
objectives and policies for managing this risk except for changes in the
carrying amounts of financial assets exposed to credit risk, and there was no
significant change to the Companys exposure to credit risk during the year
ended December 31, 2012. Management has concluded that there is no objective
evidence of impairment to its amounts receivable at December 31, 2012 which
included assessing the recoverability of the loan receivable from Liberty Star
(see discussion below).

Management assesses the recoverability of the loan receivable
from Liberty Star as at the end of each reporting period based on financial
information available. In October 2012 the Company delivered notice to Liberty
Star for repayment of the loan and interest. In November 2012, the Company and
Liberty Star negotiated a loan settlement agreement in which Liberty Star was to
transfer certain Alaska mineral claims held as collateral for the loan
receivable in payment of the loan including accrued interest. As of December 31,
2012 and the date of this MD&A, as Liberty Star had not completed the valid
transfer of the claims to the Company as per the loan settlement agreement, the
loan settlement agreement had not closed and accordingly the Company continues
to retain its rights under the original loan letter agreement. The Company has a
reasonable expectation that it will recover the carrying amount of the loan
receivable by enforcing the legal rights conferred by the original loan letter
agreement and/or the loan settlement agreement including, but not limited to, the right to receive
all or any portion of the mineral claims held as collateral for the loan
receivable.

Page 28

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|Northern Dynasty Minerals Ltd.      
|------------------------------------
|Management's Discussion And Analysis
|Year ended December 31, 2012        
|                                    

Liquidity Risk

Liquidity risk is the risk that the Company will not be able to
meet its financial obligations when they become due. There has been no change in
the Companys objectives and policies for managing this risk. The Companys
liquidity position has been discussed in Section 1.6 Liquidity.

Foreign Exchange Risk

The Company is subject to both currency transaction risk and
currency translation risk: its loan receivable from Liberty Star is denominated
in US dollars; the Companys equity investment in the Pebble Partnership has a
US dollar functional currency; and certain of the Companys corporate expenses
are incurred in US dollars. As the Companys functional currency is the Canadian
dollar, the fluctuation of the US dollar in relation to the Canadian dollar will
consequently have an impact upon the losses incurred by the Company as well as
the value of the Companys assets (as noted above) and total shareholders
equity. The Company has not entered into any agreements or purchased any
instruments to hedge possible currency risks at this time.

The exposure of the Company's financial assets to foreign
exchange risk is as follows:

|Currency                            |   | December 31, 2012 |  |   | December 31, 2011 | 
|----------------------------------- | - | ----------------- |  | - | ----------------- | 
|                                    |   | Foreign           |  |   | Amount in         | 
|                                    |   | currency          |  |   | Canadian          | 
|US dollars 
      Financial assets |   | amount            |  |   | dollars           | 
|                                    |   |                   |  |   |                   | 
|Amounts receivable                  | $ | 4,663             |  | $ | 4,639             | 
|Cash and cash equivalents           |   | 45                |  |   | 45                | 
|Total exposed to currency risk      | $ | 4,708             |  | $ | 4,684             | 

The exposure of the Company's financial liabilities to foreign
exchange risk is as follows:

|Currency                                 |   | December 31, 2012 |  |   | December 31, 2011 | 
|---------------------------------------- | - | ----------------- |  | - | ----------------- | 
|                                         |   | Foreign           |  |   | Amount in         | 
|                                         |   | currency          |  |   | Canadian          | 
|US dollars 
      Financial liabilities |   | amount            |  |   | dollars           | 
|                                         |   |                   |  |   |                   | 
|Trade and other payables                 | $ | 40                |  | $ | 40                | 
|Total exposed
      to currency risk     | $ | 40                |  | $ | 40                | 

A 10% depreciation of the Canadian dollar relative to the
United States dollar at December 31, 2012 would have decreased loss by $465
(2011 - $433). This analysis assumes that all other variables, in particular
interest rates, remain constant.

There has been no change in the Companys objectives and
policies for managing this risk, except for the changes in the carrying amounts
of financial assets exposed to foreign exchange risk, and there was no
significant change to the Companys exposure to foreign exchange risk during the
year ended December 31, 2012.

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|Northern Dynasty Minerals Ltd.      
|------------------------------------
|Management's Discussion And Analysis
|Year ended December 31, 2012        
|                                    

Interest rate risk

The Company is subject to interest rate risk with respect to
its investments in cash and cash equivalents. There has been no change in the
Companys objectives and policies for managing this risk and no significant
change to the Companys exposure to interest rate risk during the year ended
December 31, 2012.

Assuming that all variables remain constant, a 100 basis points
change in a decrease or increase in interest rates would have resulted in a
decrease or increase in interest income of approximately $325 (2011 - $389).

Commodity price risk

While the value of the Companys core mineral resource
property, held through its 50% interest in the Pebble Partnership, is related to
the price of gold, copper and molybdenum and the outlook for these minerals, the
Company currently does not have any operating mines and hence does not have any
hedging or other commodity based risks in respect of its operational
activities.

Gold, copper, and molybdenum prices have fluctuated widely
historically and are affected by numerous factors outside of the Company's
control, including, but not limited to, industrial and retail demand, central
bank lending, forward sales by producers and speculators, levels of worldwide
production, short-term changes in supply and demand because of speculative
hedging activities, and certain other factors related specifically to gold.

Capital Management

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

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

1.15 Other MD&A Requirements

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

Page 30

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|Northern Dynasty Minerals Ltd.      
|------------------------------------
|Management's Discussion And Analysis
|Year ended December 31, 2012        
|                                    

1.15.1 Disclosure of Outstanding Share
Data

The capital structure of the Company is shown in the following
table:

| | Common shares issued
      and outstanding               |           
| | -------------------------------------------------------- | ----------
| | As of March 27, 2013                                     | 94,999,764
| | As of December 31, 2012                                  | 94,999,764
| | Share options  as of March 27, 2013                     | 7,578,630 
| | (Weighted average
      exercise price per share: $7.00) |           

1.15.2 Disclosure Controls and
Procedures

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

1.15.3 Managements Report on Internal
Control over Financial Reporting

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

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

The Companys management assessed the effectiveness of the
Companys internal control over financial reporting as of December 31, 2012. In
making the assessment, it used the criteria set forth in the Internal
Control-Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission ("COSO"). Based on their assessment, management has
concluded that, as of December 31, 2012, the Companys internal control over
financial reporting was effective based on those criteria.

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|Northern Dynasty Minerals Ltd.      
|------------------------------------
|Management's Discussion And Analysis
|Year ended December 31, 2012        
|                                    

The Companys internal control over financial reporting as of
December 31, 2012, has been audited by Deloitte & Touche LLP, Independent
Registered Chartered Accountants who also audited the Companys consolidated
financial statements for the year ended December 31, 2012. Deloitte & Touche
LLP as stated in their report that immediately precedes the Company's
audited consolidated financial statements for the year ended December 31, 2012,
expressed an unqualified opinion on the effectiveness of the Companys internal
control over financial reporting.

1.15.4 Changes in Internal Control over
Financial Reporting

There has been no change in the design of the Companys ICFR
that has materially affected, or is reasonably likely to materially affect, the
Companys ICFR during the period covered by this MD&A.

1.15.5 Limitations of Controls and
Procedures

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

1.15.6 Risk Factors

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

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

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



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|Northern Dynasty Minerals Ltd.      
|------------------------------------
|Management's Discussion And Analysis
|Year ended December 31, 2012        
|                                    

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

Volatility in Metal Prices

The project has been evaluated using projected long-term price
levels for copper, gold and molybdenum. Prices for these commodities are
historically volatile, and neither the Company nor the Pebble Partnership has
control of or influence on those prices, all of which are determined in
international markets. The level of interest rates, the rate of inflation, the
world supplies of and demands for copper, gold and molybdenum and the stability
of exchange rates can all cause fluctuations in these prices. Such external
economic factors are influenced by changes in international investment patterns
and monetary systems and political developments. There can be no assurance that
the prices of these commodities will continue at current levels or that they
will not decline below the projected prices. The prices of copper, gold and
molybdenum have fluctuated in recent years and they have shown an upward trend
of late. Future significant price declines could cause unfavorable changes in
the economics of the project and may result in investors being unwilling to
finance mineral projects, with the result that the Company may not be able to
obtain sufficient financing to fund its exploration and, if warranted,
development activities.

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

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

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

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

Page 33

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|Northern Dynasty Minerals Ltd.      
|------------------------------------
|Management's Discussion And Analysis
|Year ended December 31, 2012        
|                                    

Refer further discussion in 1.2.1.5 Bristol Bay Watershed
Assessment.

General Mining Risks

Mining is an inherently risky business with large capital
expenditures and cyclical metals markets. Although the Company and the Pebble
Partnership maintain high environmental standards for their project, like most
major mining projects, there are almost always public concerns about new mining
projects. The opponents of the Pebble Project are well organized and are trying
to bring public and political pressure against the Pebble Project. If
successful, the opponents could delay or prevent the commercialization of the
Pebble Project even if it is found to be economically viable and technically and
legally permittable.

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

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

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