---



CONSOLIDATEDFINANCIALSTATEMENTS



FORTHEYEARSENDEDDECEMBER31,2013AND2012





(ExpressedinthousandsofCanadianDollars)

---

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of Northern Dynasty Minerals Ltd.

We have audited the internal control over financial reporting of Northern Dynasty Minerals Ltd.and subsidiaries (the “Company”)as of December 31, 2013, based on the criteria established in Internal
  Control—Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company's management is responsible for maintaining effective internal control over financial reporting and for its
  assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company's internal
  control over financial reporting based on our audit.

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

A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's
  board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with International Financial
  Reporting Standards as issued by the International Accounting Standards Board. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
  accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with International
  Financial Reporting Standards as issued by the International Accounting Standards Board, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3)
  provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a
  timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the
  degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2013, based on the criteria established in Internal Control — Integrated Framework (1992)issued by
  the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended December
  31, 2013 of the Company and our report dated March 25, 2014 expressed an unqualified opinion on those financial statements.

(Signed) Deloitte LLP

|Chartered Accountants
|---------------------
|Vancouver, Canada    
|March 25, 2014       

---

MANAGEMENT'SREPORTONINTERNALCONTROLOVERFINANCIALREPORTING

The management of Northern Dynasty Minerals Ltd. ( the
  "Company"), 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"), as defined in Rule 13a-15(f) and Rule 15d-15(f)
  promulgated under the Securities Exchange Act of 1934, as amended (the Exchange
  Act) is a process designed by, or under the supervision of, the Companys
  principal executive and principal financial officers and effected by the
  Companys Board of Directors, management and other personnel, to provide
  reasonable assurance regarding the reliability of financial reporting and the
  preparation of financial statements for external purposes in accordance with
  International Financial Reporting Standards ("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 financial statements.

The Companys management, including its CEO and CFO, believe
  that any system of 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
  control. The design of any system of controls is also based in part upon certain
  assumptions about the likelihood of future events, and there can be no assurance
  that any design will succeed in achieving its stated goals under all potential
  future conditions. Accordingly, because of the inherent limitations in a cost
  effective control system, misstatements due to error or fraud may occur and not
  be detected.

The Companys management, with the participation of the CEO and
  the CFO, assessed the effectiveness of the Companys ICFR as of December 31,
  2013. In making this assessment, it used the criteria set forth in the Internal
  Control-Integrated Framework (1992) issued by the Committee of Sponsoring
  Organizations of the Treadway Commission (COSO). Based on its assessment,
  management has concluded that the Companys ICFR was effective as at December
  31, 2013.

The effectiveness of the Companys internal control over
  financial reporting, as of December 31, 2013, has been audited by Deloitte LLP,
  Independent Registered Public Accounting Firm, who also audited the Companys
  consolidated financial statements as of and for the year ended December 31,
  2013, as stated in their report which appears on the following page.

The Companys management, including its CEO and CFO, has
  evaluated the Companys ICFR to determine whether any changes occurred during
  the period covered by the Companys Consolidated Financial Statements that have
  materially affected, or are reasonably likely to materially affect, the
  Companys ICFR. There have been no changes that occurred during the Companys
  fiscal year ended December 31, 2013 that have materially affected, or are
  reasonably likely to materially affect, the Companys ICFR.

|/s/ RonaldW.Thiessen        | /s/ MarchandSnyman     
|--------------------------- | -----------------------
|                            |                        
|Ronald W. Thiessen          | Marchand Snyman        
|Chief Executive Officer     | Chief Financial Officer
|                            |                        
|                            |                        
|Vancouver, British Columbia
|March 25, 2014              |                        
|                            |                        

---

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of Northern Dynasty
  Minerals Ltd.

We have audited the accompanying consolidated financial
  statements of Northern Dynasty Minerals Ltd. and subsidiaries (the Company),
  which comprise the consolidated statements of financial position as at December
  31, 2013 and December 31, 2012, and the consolidated statements of earnings,
  comprehensive income, cash flows and changes in equity for each of the years in
  the two-year period ended December 31, 2013, and a summary of significant
  accounting policies and other explanatory information.

Management's Responsibility for the Consolidated Financial
  Statements

Management is responsible for the preparation and fair
  presentation of these consolidated financial statements in accordance with
  International Financial Reporting Standards as issued by the International
  Accounting Standards Board, and for such internal control as management
  determines is necessary to enable the preparation of consolidated financial
  statements that are free from material misstatement, whether due to fraud or
  error.

Auditor's Responsibility

Our responsibility is to express an opinion on these
  consolidated financial statements based on our audits. We conducted our audits
  in accordance with Canadian generally accepted auditing standards and the
  standards of the Public Company Accounting Oversight Board (United States).
  Those standards require that we comply with ethical requirements and plan and
  perform the audit to obtain reasonable assurance about whether the consolidated
  financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit
  evidence about the amounts and disclosures in the consolidated financial
  statements. The procedures selected depend on the auditor's judgment, including
  the assessment of the risks of material misstatement of the consolidated
  financial statements, whether due to fraud or error. In making those risk
  assessments, the auditor considers internal control relevant to the entity's
  preparation and fair presentation of the consolidated financial statements in
  order to design audit procedures that are appropriate in the circumstances. An
  audit also includes evaluating the appropriateness of accounting policies used
  and the reasonableness of accounting estimates made by management, as well as
  evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained in our
  audits is sufficient and appropriate to provide a basis for our audit
  opinion.

Opinion

In our opinion, the consolidated financial statements present
  fairly, in all material respects, the financial position of Northern Dynasty
  Minerals Ltd. and subsidiaries as at December 31, 2013 and December 31, 2012,
  and their financial performance and cash flows for each of the years in the
  two-year period ended December 31, 2013 in accordance with International
  Financial Reporting Standards as issued by the International Accounting
  Standards Board.

Other Matter

We have also audited, in accordance with the standards of the
  Public Company Accounting Oversight Board (United States), the Companys
  internal control over financial reporting as of December 31, 2013, based on the
  criteria established in Internal Control  Integrated Framework (1992)issued by the Committee of Sponsoring Organizations of the Treadway
  Commission and our report dated March 25, 2014 expressed an unqualified opinion
  on the Companys internal control over financial reporting.

(Signed) Deloitte LLP

|Chartered Accountants
|---------------------
|Vancouver, Canada    
|March 25, 2014       

---

|NorthernDynastyMineralsLtd.                 
|--------------------------------------------
|ConsolidatedStatementsofFinancialPosition   
|(Expressed in thousands of Canadian Dollars)

|                                             |  |       |  |   | December31 |   |   | December 31 |  
|-------------------------------------------- |  | ----- |  | - | ---------- | - | - | ----------- | -
|                                             |  | Notes |  |   | 2013       |   |   | 2012        |  
|                                             |  |       |  |   |            |   |   |             |  
|ASSETS                                       |  |       |  |   |            |   |   |             |  
|                                             |  |       |  |   |            |   |   |             |  
|Non­currentassets                            |  |       |  |   |            |   |   |             |  
|Investment in the Pebble Limited Partnership |  | 3     |  | $ |           |   | $ | 99,336      |  
|Mineral property, plant and equipment        |  | 4     |  |   | 108,050    |   |   | 1,055       |  
|Totalnon­currentassets                       |  |       |  |   | 108,050    |   |   | 100,391     |  
|                                             |  |       |  |   |            |   |   |             |  
|Currentassets                                |  |       |  |   |            |   |   |             |  
|Amounts receivable from a related party      |  | 8     |  |   |           |   |   | 3           |  
|Amounts receivable and prepaid expenses      |  | 5     |  |   | 6,663      |   |   | 5,003       |  
|Restricted cash                              |  | 6     |  |   | 1,276      |   |   |            |  
|Cash and cash equivalents                    |  | 6     |  |   | 25,795     |   |   | 27,537      |  
|Totalcurrentassets                           |  |       |  |   | 33,734     |   |   | 32,543      |  
|                                             |  |       |  |   |            |   |   |             |  
|                                             |  |       |  |   |            |   |   |             |  
|TotalAssets                                  |  |       |  | $ | 141,784    |   | $ | 132,934     |  
|                                             |  |       |  |   |            |   |   |             |  
|EQUITY                                       |  |       |  |   |            |   |   |             |  
|                                             |  |       |  |   |            |   |   |             |  
|Capitalandreserves                           |  |       |  |   |            |   |   |             |  
|Share capital                                |  | 7     |  | $ | 389,227    |   | $ | 389,189     |  
|Reserves                                     |  |       |  |   | 58,649     |   |   | 51,129      |  
|Deficit                                      |  |       |  |   | (313,948   | ) |   | (311,425    | )
|TotalEquity                                  |  |       |  |   | 133,928    |   |   | 128,893     |  
|                                             |  |       |  |   |            |   |   |             |  
|LIABILITIES                                  |  |       |  |   |            |   |   |             |  
|                                             |  |       |  |   |            |   |   |             |  
|Non­currentliabilities                       |  |       |  |   |            |   |   |             |  
|Deferred income taxes                        |  |       |  |   | 3,803      |   |   | 3,632       |  
|Totalnon­currentliabilties                   |  |       |  |   | 3,803      |   |   | 3,632       |  
|                                             |  |       |  |   |            |   |   |             |  
|Currentliabilities                           |  |       |  |   |            |   |   |             |  
|Payable to a related party                   |  | 8     |  |   | 459        |   |   | 148         |  
|Trade and other payables                     |  | 9     |  |   | 3,594      |   |   | 261         |  
|Totalcurrentliabilities                      |  |       |  |   | 4,053      |   |   | 409         |  
|                                             |  |       |  |   |            |   |   |             |  
|TotalLiabilities                             |  |       |  |   | 7,856      |   |   | 4,041       |  
|                                             |  |       |  |   |            |   |   |             |  
|                                             |  |       |  |   |            |   |   |             |  
|TotalEquityandLiabilities                    |  |       |  | $ | 141,784    |   | $ | 132,934     |  

Theaccompanyingnotesareanintegralpartoftheseconsolidatedfinancialstatements.

These consolidated financial statements are authorized for issue by the Board of Directors
on March 25, 2014.  They are signed on the Company's behalf by:

|/s/RonaldW.Thiessen | /s/PeterMitchell
|------------------- | ----------------
|                    |                 
|Ronald W. Thiessen  | Peter Mitchell  
|Director            | Director        

Page 5

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|NorthernDynastyMineralsLtd.                                               
|--------------------------------------------------------------------------
|ConsolidatedStatementsofComprehensive(Income)Loss                         
|(Expressed in thousands of Canadian Dollars, except for share information)

|                                              |  |       |     |   | Year ended December 31 |  
|--------------------------------------------- |  | ----- | --- | - | ---------------------- | -
|                                              |  | Notes |     |   | 2013                   |  
|                                              |  |       |     |   |                        |  
|Expenses                                      |  |       |     |   |                        |  
|Exploration and evaluation expenses           |  | 11    |     | $ | 1,991                  |  
|General and administrative expenses           |  | 11    |     |   | 6,245                  |  
|Share-based compensation                      |  | 7     | (b) |   | 641                    |  
|Loss from operating activities                |  |       |     |   | 8,877                  |  
|Foreign exchange (gain) loss                  |  |       |     |   | (340                   | )
|Interest income                               |  |       |     |   | (1,136                 | )
|Gain on discontinuance of equity method       |  | 3     | (b) |   | (5,062                 | )
|Loss before tax                               |  |       |     |   | 2,339                  |  
|Deferred Income tax                           |  | 12    |     |   | 184                    |  
|Lossfortheyear                                |  |       |     | $ | 2,523                  |  
|                                              |  |       |     |   |                        |  
|Othercomprehensive(income)loss                |  |       |     |   |                        |  
|Itemsthatmaybereclassifiedsubsequentlytoloss  |  |       |     |   |                        |  
|Foreign exchange translation difference       |  | 3, 7  | (c) |   | (6,874                 | )
|Deferred income tax on investment             |  | 7     | (c) |   | 128                    |  
|Reversal of deferred income tax on investment |  | 7     | (c) |   | (141                   | )
|Othercomprehensive(income)lossfortheyear      |  |       |     | $ | (6,887                 | )
|                                              |  |       |     |   |                        |  
|Totalcomprehensive(income)lossfortheyear      |  |       |     | $ | (4,364                 | )
|                                              |  |       |     |   |                        |  
|Basicanddilutedlosspercommonshare             |  | 10    |     | $ | 0.03                   |  

Theaccompanyingnotesareanintegralpartoftheseconsolidatedfinancialstatements.

Page 6

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|NorthernDynastyMineralsLtd.                 
|--------------------------------------------
|ConsolidatedStatementsofCashFlows           
|(Expressed in thousands of Canadian Dollars)

|                                                                        |  |       |  |   | Year ended December 31 |  
|----------------------------------------------------------------------- |  | ----- |  | - | ---------------------- | -
|                                                                        |  | Notes |  |   | 2013                   |  
|                                                                        |  |       |  |   |                        |  
|Cashflowsfromoperatingactivities                                        |  |       |  |   |                        |  
|Loss for the year                                                       |  |       |  | $ | (2,523                 | )
|Adjustments for items not affecting cash or operating activities:       |  |       |  |   |                        |  
|Foreign exchange (gain) loss                                            |  |       |  |   | (332                   | )
|Interest received on cash held                                          |  |       |  |   | (633                   | )
|Interest receivable on loan                                             |  | 5     |  |   | (503                   | )
|Gain on discontinuance of equity method                                 |  | 3     |  |   | (5,062                 | )
|Deferred income tax recovery                                            |  | 12    |  |   | 184                    |  
|Share-based compensation                                                |  |       |  |   | 641                    |  
|                                                                        |  |       |  |   | (5,705                 | )
|Changes in non-cash working capital items                               |  |       |  |   |                        |  
|Restricted cash                                                         |  | 6     |  |   | (1,269                 | )
|Decrease in amounts receivable and prepaid expenses                     |  |       |  |   | 84                     |  
|Decrease in amounts receivable from a related party                     |  |       |  |   | 3                      |  
|Increase in trade and other payables                                    |  |       |  |   | 1,246                  |  
|Increase in payable to related party                                    |  |       |  |   | 311                    |  
|                                                                        |  |       |  |   | 375                    |  
|                                                                        |  |       |  |   |                        |  
|Net cash used in operating activities                                   |  |       |  |   | (7,853                 | )
|                                                                        |  |       |  |   |                        |  
|Cashflowsfrominvestingactivity                                          |  |       |  |   |                        |  
|Cash contribution to the Pebble Limited Partnership                     |  | 3     |  |   | (1,055                 | )
|Net cash received on assuming control of the Pebble Limited Partnership |  | 3     |  |   | 6,507                  |  
|Interest received on cash held                                          |  |       |  |   | 633                    |  
|Net cash from investing activity                                        |  |       |  |   | 6,085                  |  
|                                                                        |  |       |  |   |                        |  
|Cashflowsfromfinancingactivity                                          |  |       |  |   |                        |  
|Common shares issued for cash on exercise of share purchase options     |  |       |  |   | 30                     |  
|Net cash from financing activity                                        |  |       |  |   | 30                     |  
|                                                                        |  |       |  |   |                        |  
|Netdecreaseincashandcashequivalents                                     |  |       |  |   | (1,738                 | )
|Effect of exchange rate fluctuations on cash held                       |  |       |  |   | (4                     | )
|Cash and cash equivalents at beginning of the year                      |  |       |  |   | 27,537                 |  
|                                                                        |  |       |  |   |                        |  
|Cashandcashequivalentsatendoftheyear                                    |  | 6     |  | $ | 25,795                 |  

Non­cashinvestingandfinancingactivities:

|Assets and
      liabilities held in the Pebble Limited Partnership upon discontinuance of
      equity method and consolidation in these consolidated financial statements
      (note 3)
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Theaccompanyingnotesareanintegralpartoftheseconsolidatedfinancialstatements.

Page 7

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|NorthernDynastyMineralsLtd.                                                
|---------------------------------------------------------------------------
|ConsolidatedStatementsofChangesinEquity                                    
|(Expressed in thousands of  Canadian Dollars, except for share information)

|                                                             |  | Sharecapital |  |   | Reserves |  |   |               |   |   |             |  
|------------------------------------------------------------ |  | ------------ |  | - | -------- |  | - | ------------- | - | - | ----------- | -
|                                                             |  |              |  |   |          |  |   |               |   |   | Foreign     |  
|                                                             |  |              |  |   |          |  |   | Equitysettled |   |   | currency    |  
|                                                             |  |              |  |   |          |  |   | share­based   |   |   | translation |  
|                                                             |  | Numberof     |  |   |          |  |   | payments      |   |   | reserve     |  
|                                                             |  | shares       |  |   | Amount   |  |   | reserve       |   |   | (note 7(c)) |  
|                                                             |  |              |  |   |          |  |   |               |   |   |             |  
|Balance at January 1, 2012                                   |  | 94,978,764   |  | $ | 388,987  |  | $ | 45,664        |   | $ | 2,470       |  
|Shares issued for cash on exercise of share purchase options |  | 21,000       |  |   | 97       |  |   | -             |   |   | -           |  
|Fair value of options allocated to shares issued on exercise |  | -            |  |   | 105      |  |   | (105          | ) |   | -           |  
|Share-based compensation                                     |  | -            |  |   | -        |  |   | 5,225         |   |   | -           |  
|Loss for the year                                            |  | -            |  |   | -        |  |   | -             |   |   | -           |  
|Other comprehensive loss for the year net of tax             |  | -            |  |   | -        |  |   | -             |   |   | (2,123      | )
|BalanceatDecember31,2012                                     |  | 94,999,764   |  | $ | 389,189  |  | $ | 50,784        |   | $ | 347         |  
|                                                             |  |              |  |   |          |  |   |               |   |   |             |  
|Shares issued for cash on exercise of share purchase options |  | 10,100       |  |   | 30       |  |   | -             |   |   | -           |  
|Fair value of options allocated to shares issued on exercise |  | -            |  |   | 8        |  |   | (8            | ) |   | -           |  
|Share-based compensation                                     |  | -            |  |   | -        |  |   | 641           |   |   | -           |  
|Loss for the year                                            |  | -            |  |   | -        |  |   | -             |   |   | -           |  
|Other comprehensive income for the year net of tax           |  | -            |  |   | -        |  |   | -             |   |   | 6,887       |  
|BalanceatDecember31,2013                                     |  | 95,009,864   |  | $ | 389,227  |  | $ | 51,417        |   | $ | 7,234       |  

Theaccompanyingnotesareanintegralpartoftheseconsolidatedfinancialstatements.

Page  8

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|Northern Dynasty Minerals Ltd.                                                                               
|-------------------------------------------------------------------------------------------------------------
|Notes to the Consolidated Financial
      Statements                                                         
|For the years ended December 31, 2013 and 2012                                                               
|(Expressed in
      thousands of Canadian Dollars, unless otherwise stated, except per share
      or option)

|1. | NATURE AND CONTINUANCE OF
      OPERATIONS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | Northern Dynasty Minerals Ltd. (the "Company") is
      incorporated under the laws of the Province of British Columbia, Canada,
      and its principal business activity is the exploration of mineral
      properties. The Company is listed on the Toronto Stock Exchange ("TSX")
      under the symbol "NDM" and on the New York Stock Exchange-MKT ("NYSE-MKT")
      under the symbol "NAK". The Companys corporate office is located at 1040
      West Georgia Street, 15thfloor, Vancouver, British
      Columbia.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | The consolidated financial statements ("Financial
      Statements") of the Company as at and for the year ended December 31,
      2013, include financial information for the Company and its subsidiaries
      (note 2(c)) (together referred to as the "Group" and individually as
      "Group entities"). The Company is the ultimate parent. At December 31,
      2013, the Group retained a 100% interest in the Pebble Limited Partnership
      (the "Pebble Partnership") (note 3), which owns the Pebble
      Copper-Gold-Molybdenum Project (the "Pebble Project") located in Alaska,
      United States of America ("USA" or "US").                                                                                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | The Group is in the process of exploring and developing
      the Pebble Project and has not yet determined whether the Pebble Project
      contains mineral reserves that are economically recoverable. The Groups
      continuing operations and the underlying value and recoverability of the
      amounts shown for the Groups mineral property interests, is entirely
      dependent upon the existence of economically recoverable mineral reserves;
      the ability of the Group to obtain financing to complete the exploration
      and development of the Pebble Project; the Group obtaining the necessary
      permits to mine; and future profitable production or proceeds from the
      disposition of the Pebble Project.                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | As at December 31, 2013, the Group has $25.8 million in
      cash and cash equivalents for its operating requirements. The Group has
      reviewed all programs, timelines and budgets and prioritized the
      allocation of available financial resources to advance the Pebble Project
      in the most efficient manner. The Group believes it will be able to meet
      corporate expenditure requirements and activities at the Pebble Project
      for the foreseeable future. Additional financing, which may include debt,
      equity or reliance on new joint venture partners, will be required to fund
      further exploration or development programs at the Pebble Project. There
      can be no assurances that the Group will be successful in obtaining
      additional financing. If the Group is unable to raise the necessary
      capital resources and generate sufficient cash flows to meet obligations
      as they come due, the Group may have to reduce or curtail its
      operations.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|2. | SIGNIFICANT ACCOUNTING POLICIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | (a) Statement of Compliance                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | These Financial Statements have been prepared in
      accordance with International Financial Reporting Standards ("IFRS") as
      issued by the International Accounting Standards Board ("IASB") and
      interpretations issued by the IFRS Interpretations Committee ("IFRIC"s)
      that are effective for the Groups reporting year ended December 31,
      2013.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

Page 9

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|Northern Dynasty Minerals Ltd.                                                                               
|-------------------------------------------------------------------------------------------------------------
|Notes to the Consolidated Financial
      Statements                                                         
|For the years ended December 31, 2013 and 2012                                                               
|(Expressed in
      thousands of Canadian Dollars, unless otherwise stated, except per share
      or option)

|(b) | Basis of Preparation                                                                                                                                                                                                                                                               
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                    
|    | These Financial Statements have been prepared on a
      historical cost basis using the accrual basis of accounting, except for
      cash flow information and for financial instruments classified as
      available-for-sale, which are stated at their fair value (note
  f).
|    |                                                                                                                                                                                                                                                                                    
|    | The accounting policies set out below have been applied
      consistently to all periods presented in these Financial
  Statements.                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                    
|(c) | Basis of Consolidation                                                                                                                                                                                                                                                             
|    |                                                                                                                                                                                                                                                                                    
|    | The Group has determined that the adoption of IFRS 10,
      Consolidated Financial Statements,does not affect the
      consolidation status of any of its subsidiaries or investees.                                                                                             
|    |                                                                                                                                                                                                                                                                                    
|    | These Financial Statements incorporate the financial
      statements of the Company, the Companys subsidiaries and entities
      controlled by the Company and its subsidiaries listed
  below:                                                                                 

OwnershipName of Subsidiary
    
    Place
      of Incorporation
    
    
    Interest
    
    
    Principal ActivityU5 Resources Inc.10796412
      BC Ltd.
    
    Nevada, USA British
      Columbia, Canada
    
    
    100% 100%
    
    
    Holding Company Not active3537137 Canada Inc.
    
    Canada
    
    
    100%
    
    
    Holds 20% of NDP
    (5)Northern Dynasty Partnership ("NDP")
    
    Alaska, USA
    
    
    100%
    
    
    Holds 99.9% of PLP and
      100% of PMCPebble Mines Corp. ("PMC")
    
    Delaware, USA
    
    
    100%
    
    
    General Partner, holds 0.1% of PLPPebble Limited Partnership
      ("PLP")4
    
    Alaska, USA
    
    
    100%
    
    
    Holding Company and
      Exploration of the Pebble ProjectPebble West Claims Corporation2
    
    Alaska, USA
    
    
    100%
    
    
    Holding CompanyPebble East Claims Corporation2
    
    Alaska, USA
    
    
    100%
    
    
    Holding CompanyKaskanak Copper LLC
    
    Delaware, USA
    
    
    100%
    
    
    Holds 100% of Kaskanak Inc.Kaskanak Inc.3
    
    Alaska, USA
    
    
    100%
    
    
    Holding Company


| | 1  | Holds the claims purchased from Liberty Star (note
    4).                                            
| | -- | ------------------------------------------------------------------------------------------------------
| | 2. | Holds the Pebble Project claims.                                                                      
| | 3. | Holds the South Pebble, KAK and SP claims.                                                            
| | 4. | Holds 100% interest in Pebble East Corporation, Pebble
      West Corporation and Kaskanak Copper LLC.
| | 5. | The Company holds 80% of NDP.                                                                         

Control is achieved when the Group is
exposed, or has rights, to variable returns from its involvement with the
investee and has the ability to affect those returns through its power over the
investee. Specifically, the Group controls an investee if, and only if, the
Company has power over the investee (i.e. existing rights that give it the
current ability to direct the relevant activities of the investee); exposure, or
rights, to variable returns from its involvement with the investee; and the
ability to use its power over the investee to affect its returns.

Intra-Group balances and transactions,
including any unrealized income and expenses arising from intraGroup
transactions, are eliminated in preparing the Financial Statements. Unrealized
gains arising from transactions with equity accounted investees are
      eliminated against the investment to the extent of the Groups interest in
      the investee. Unrealized losses are eliminated in the same way as
      unrealized gains, but only to the extent that there is no evidence of
      impairment.

Page 10

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|Northern Dynasty Minerals Ltd.                                                                               
|-------------------------------------------------------------------------------------------------------------
|Notes to the Consolidated Financial
      Statements                                                         
|For the years ended December 31, 2013 and 2012                                                               
|(Expressed in
      thousands of Canadian Dollars, unless otherwise stated, except per share
      or option)

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(d) | Investment in Joint Ventures                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    | A joint venture is a joint arrangement whereby the
      parties that have joint control of the arrangement have rights to the net
      assets of the joint arrangement. Joint control is the contractually agreed
      sharing of control of an arrangement, which exists only when decisions
      about the relevant activities require unanimous consent of the parties
      sharing control.                                                                                                                                                                                                                                                              
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    | An investment in a joint venture is accounted for using
      the equity method. Under the equity method, an investment in a joint
      venture is initially recognized in the consolidated statement of financial
      position at cost and adjusted thereafter to recognize the Groups share of
      changes in net assets of the joint venture attributable to the Group. An
      investment is accounted for using the equity method from the date on which
      the investee becomes a joint venture.                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|(e) | Foreign Currencies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    | The functional currency is the currency of the primary
      economic environment in which the entity operates and has been determined
      for each entity within the Group. The functional currency of the Pebble
      Partnership, its subsidiaries and Pebble Mines Corp. is US dollars and for
      all other entities within the Group, the functional currency is Canadian
      dollars. The functional currency determinations were conducted through an
      analysis of the consideration factors identified in IAS 21, The Effects
      of Changes in Foreign Exchange Rates.                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    | Transactions in currencies other than the functional
      currency are recorded at the rates of exchange prevailing on dates of
      transactions. At the end of each reporting period, monetary assets and
      liabilities that are denominated in foreign currencies are translated at
      the rates prevailing at that date. Non-monetary assets and liabilities
      carried at fair value that are denominated in foreign currencies are
      translated at rates prevailing at the date when the fair value was
      determined. Non-monetary items that are measured in terms of historical
      cost in a foreign currency are not retranslated.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    | The Pebble Partnerships functional currency is the US
      dollar. Before assuming control of the Pebble Partnership (note 3), the
      Groups investment in the Pebble Partnership joint venture (note 3) was
      translated at the end of each reporting period and exchange differences
      arising on translation of the US denominated investment were recognized
      directly in the foreign currency translation reserve through other
      comprehensive income or loss.                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    | The results and financial position of entities within the
      Group which have a functional currency different from that of the Group
      are translated into Canadian dollars as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

- assets and liabilities for each statement of
  financial position are translated at the closing exchange rate at that date;
- income and expenses for each income statement are
  translated at average exchange rates for the period; and
- the resulting exchange differences are included in
  the foreign currency translation reserve within equity.

Page 11

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|Northern Dynasty Minerals Ltd.                                                                               
|-------------------------------------------------------------------------------------------------------------
|Notes to the Consolidated Financial
      Statements                                                         
|For the years ended December 31, 2013 and 2012                                                               
|(Expressed in
      thousands of Canadian Dollars, unless otherwise stated, except per share
      or option)

|(f) | Financial Instruments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    | Non-derivative financial assets:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    | The Group has the following non-derivative financial
      assets: available-for-sale financial assets (currently only of nominal
      value), and loans and receivables.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    | Available-for-sale financial assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    | Available-for-sale ("AFS") financial assets are
      non-derivatives that are either designated as AFS or are not classified as
      (i) loans and receivables, (ii) held-to-maturity investments or (iii)
      financial assets at fair value through profit and loss. The Groups
      investments in marketable securities are classified as AFS financial
      assets. Subsequent to initial recognition, they are measured at fair value
      and changes therein, other than impairment losses, are recognized in other
      comprehensive income or loss and accumulated in the investment revaluation
      reserve within equity. When an investment is derecognized, the cumulative
      gain or loss in the investment revaluation reserve is transferred to
      profit or loss. At December 31, 2013, the Groups AFS financial assets
      have nominal fair value.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    | The fair value of AFS monetary assets denominated in a
      foreign currency is determined in that foreign currency and translated at
      the spot rate at the end of the reporting period. The change in fair value
      attributable to translation differences that result from the amortized
      cost of the monetary asset is recognized within other comprehensive income
      or loss. The change in fair value of AFS equity investments is recognized
      in other comprehensive income or loss.                                                                                                                                                                                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    | Loans and receivables currently comprise (i) amounts
      receivable including the loan receivable from Liberty Star (note 5), (ii)
      amounts receivable from a related party ($nil in current year), (iii) cash
      and cash equivalents and restricted cash (discussed further in note
      6(b)).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    | Cash and cash equivalents and restricted
    cash                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    | Cash and cash equivalents and restricted cash 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 Groups cash and cash equivalents and restricted cash
      are invested in business and savings accounts and guaranteed investment
      certificates which are available on demand by the Group for its
      programs.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

Page 12

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|Northern Dynasty Minerals Ltd.                                                                               
|-------------------------------------------------------------------------------------------------------------
|Notes to the Consolidated Financial
      Statements                                                         
|For the years ended December 31, 2013 and 2012                                                               
|(Expressed in
      thousands of Canadian Dollars, unless otherwise stated, except per share
      or option)

Non-derivative financial
liabilities:

The Groups non-derivative financial
liabilities comprise amounts payable which are only trade and other payables
(note 9) and a payable to a related party.

All financial liabilities fall within
the classification of other financial liabilities versus financial liabilities
through profit and loss and 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.

Impairment of financial assets:

When an AFS financial asset is
considered to be impaired, cumulative gains or losses previously recognized in
other comprehensive income or loss are reclassified to profit or loss in the
period. Financial assets are assessed for indicators of impairment at the end of
each reporting period. Financial assets are impaired when there is objective
evidence that, as a result of one or more events that occurred after the initial
recognition of the financial assets, the estimated future cash flows of the
investments have been impacted. For marketable securities classified as AFS, a
significant or prolonged decline in the fair value of the securities below their
cost is considered to be objective evidence of impairment.

For all other financial assets
objective evidence of impairment could include:

- significant financial difficulty of the issuer or
  counterparty; or
- default or delinquency in interest or principal
  payments; or
- it becoming probable that the borrower will enter
  bankruptcy or financial re-organization.

For certain categories of financial
assets, such as amounts receivable, assets that are assessed not to be impaired
individually are subsequently assessed for impairment on a collective basis. The
carrying amount of financial assets is reduced by the impairment loss directly
for all financial assets with the exception of amounts receivable, where the
carrying amount is reduced through the use of an allowance account. When an
amount receivable is considered uncollectible, it is written off against the
allowance account. Subsequent recoveries of amounts previously written off are
credited against the allowance account. Changes in the carrying amount of the
allowance account are recognized in profit or loss.

With the exception of AFS equity
instruments, if, in a subsequent period, the amount of the impairment loss
decreases and the decrease can be related objectively to an event occurring
after the impairment was recognized, the previously recognized impairment loss
is reversed through profit or loss to the extent that the carrying amount of the
investment at the date the impairment is reversed does not exceed what the
amortized cost would have been had the impairment not been recognized. In
respect of AFS equity securities, impairment losses previously recognized
through profit or loss are not reversed through profit or loss. Any increase in
fair value subsequent to an impairment loss is recognized directly in
equity.

When an AFS financial asset is
considered to be impaired, cumulative gains or losses previously recognized in
other comprehensive income are reclassified to profit or loss in the period.

Page 13

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|Northern Dynasty Minerals Ltd.                                                                               
|-------------------------------------------------------------------------------------------------------------
|Notes to the Consolidated Financial
      Statements                                                         
|For the years ended December 31, 2013 and 2012                                                               
|(Expressed in
      thousands of Canadian Dollars, unless otherwise stated, except per share
      or option)

|    | Derivative financial assets and
  liabilities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | The Group has no derivative financial assets or
      liabilities. Although the loan receivable from Liberty Star has an equity
      conversion option, it is not exercisable as the Group has not met the
      terms as laid out in the letter agreement (note 5).                                                                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|(g) | Exploration and Evaluation Expenditure                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | Exploration and evaluation expenditures include the costs
      of acquiring licenses, costs associated with exploration and evaluation
      activity, and the acquisition date fair value of exploration and
      evaluation assets acquired in a business combination or an asset
      acquisition. Exploration and evaluation expenditures are expensed as
      incurred except for expenditures associated with the acquisition of
      exploration and evaluation assets through a business combination or an
      asset acquisition. Costs incurred before the Group has obtained the legal
      rights to explore an area are expensed.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | Acquisition costs, including general and administrative
      costs, are only capitalized to the extent that these costs can be related
      directly to operational activities in the relevant area of interest where
      it is considered likely to be recoverable by future exploitation or sale
      or where the activities have not reached a stage which permits a
      reasonable assessment of the existence of reserves.                                                                                                                                                                                                              
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | Exploration and evaluation ("E&E") assets are
      assessed for impairment only when facts and circumstances suggest that the
      carrying amount of an E&E asset may exceed its recoverable amount and
      when the Group has sufficient information to reach a conclusion about
      technical feasibility and commercial viability.                                                                                                                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | Industry-specific indicators for an impairment review
      arise typically when one of the following circumstances
  applies:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

- Substantive expenditure on further exploration and
  evaluation activities is neither budgeted nor planned;
- title to the asset is compromised;
- adverse changes in the taxation and regulatory
  environment;
- adverse changes in variations in commodity prices
  and markets; and
- variations in the exchange rate for the currency of
  operation.

|    | Once the technical feasibility and commercial viability
      of the extraction of mineral resources in an area of interest are
      demonstrable, exploration and evaluation assets attributable to that area
      of interest are first tested for impairment and then reclassified to
      mining property and development assets within property, plant and
      equipment.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                    
|    | Recoverability of the carrying amount of any exploration
      and evaluation assets is dependent on successful development and
      commercial exploitation, or alternatively, sale of the respective areas of
      interest.                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                    
|(h) | Property, Plant and Equipment                                                                                                                                                                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                    
|    | Property, plant and equipment ("PPE") are carried at
      cost, less accumulated depreciation and accumulated impairment
    losses.                                                                                                                                                                                                                                              

Page 14

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|Northern Dynasty Minerals Ltd.                                                                               
|-------------------------------------------------------------------------------------------------------------
|Notes to the Consolidated Financial
      Statements                                                         
|For the years ended December 31, 2013 and 2012                                                               
|(Expressed in
      thousands of Canadian Dollars, unless otherwise stated, except per share
      or option)

|    | The cost of an item of PPE consists of the purchase
      price, any costs directly attributable to bringing the asset to the
      location and condition necessary for its intended use and an initial
      estimate of the costs of dismantling and removing the item and restoring
      the site on which it is located.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    | Depreciation is provided at rates calculated to write off
      the cost of PPE, less their estimated residual value, using the declining
      balance method at various rates ranging from 20% - 30% per
annum.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    | An item of PPE is derecognized upon disposal or when no
      future economic benefits are expected to arise from the continued use of
      the asset. Any gain or loss arising on disposal of the asset, determined
      as the difference between the net disposal proceeds and the carrying
      amount of the asset, is recognized in profit or loss.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    | Where an item of plant and equipment consists of major
      components with different useful lives, the components are accounted for
      as separate items of plant and equipment. Expenditures incurred to replace
      a component of an item of PPE that is accounted for separately, including
      major inspection and overhaul expenditures, are capitalized.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    | Residual values and estimated useful lives are reviewed
      at least annually.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|(i) | Impairment of Non-Financial Assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    | At the end of each reporting period the carrying amounts
      of the Groups assets are reviewed to determine whether there is any
      indication that those assets are impaired. If any such indication exists,
      the recoverable amount of the asset is estimated in order to determine the
      extent of the impairment loss, if any. Where it is not possible to
      estimate the recoverable amount of an individual asset, the Group
      estimates the recoverable amount of the cash-generating unit to which the
      asset belongs. The recoverable amount is the higher of fair value less
      costs to sell and value in use. Fair value is determined as the amount
      that would be obtained from the sale of the asset in an arms length
      transaction between knowledgeable and willing parties. 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 profit or loss
      for the period. 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.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    | Where an impairment loss subsequently reverses, the
      carrying amount of the asset (or cash-generating unit) is increased to the
      revised estimate of its recoverable amount. This increase in the carrying
      amount is limited to the carrying amount that would have been determined
      had no impairment loss been recognized for the asset (or cash-generating
      unit) in prior years. A reversal of an impairment loss is recognized
      immediately in profit or loss.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    | The Group has not recorded any impairment charges in the
      years presented.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

Page 15

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|Northern Dynasty Minerals Ltd.                                                                               
|-------------------------------------------------------------------------------------------------------------
|Notes to the Consolidated Financial
      Statements                                                         
|For the years ended December 31, 2013 and 2012                                                               
|(Expressed in
      thousands of Canadian Dollars, unless otherwise stated, except per share
      or option)

|(j) | Share Capital                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    | Common shares are classified as equity. Transaction costs
      directly attributable to the issue of common shares and share purchase
      options are recognized as a deduction from equity, net of any tax
      effects.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|(k) | Share-based Payment Transactions                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    | Equity-settled share-based payments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    | The Group operates an equity-settled share-based option
      plan for its employees and service providers (note 7(b)). The fair value
      of share purchase options granted is recognized as an employee or
      consultant expense with a corresponding increase in the equity-settled
      share-based payments reserve in equity. An individual is classified as an
      employee when the individual is an employee for legal or tax purposes
      ("direct employee") or provides services similar to those performed by a
      direct employee.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    | The fair value is measured at grant date for each tranche
      which is expensed on a straight line basis over the vesting period with a
      corresponding increase in the equity-settled share-based payments
      reservein equity. The fair value of the share purchase options
      granted is measured using the Black-Scholes option pricing model taking
      into account the terms and conditions upon which the share purchase
      options were granted and forfeiture rates as appropriate. At the end of
      each reporting period, the amount recognized as an expense is adjusted to
      reflect the actual number of share purchase options that are expected to
      vest.                                                                                                                                                                                                                                                                                                                                        
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|(l) | Income Taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    | Income tax on the profit or loss for the years presented
      comprises current and deferred tax. Income tax is recognized in profit or
      loss except to the extent that it relates to items recognized in other
      comprehensive income or loss or directly in equity, in which case it is
      recognized in other comprehensive income or loss or equity.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    | Current tax expense is the expected tax payable on the
      taxable income for the year, using tax rates enacted or substantively
      enacted at year end, adjusted for amendments to tax payable with regards
      to previous years.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    | Deferred tax is provided using the balance sheet
      liability method, providing for unused tax loss carry forwards and
      temporary differences between the carrying amounts of assets and
      liabilities for financial reporting purposes and the amounts used for
      taxation purposes. The following temporary differences are not provided
      for: goodwill not deductible for tax purposes; the initial recognition of
      assets or liabilities that affect neither accounting nor taxable profit;
      and differences relating to investments in subsidiaries, associates, and
      joint ventures to the extent that they will probably not reverse in the
      foreseeable future. The amount of deferred tax provided is based on the
      expected manner of realization or settlement of the carrying amount of
      assets and liabilities, using tax rates enacted or substantively enacted
      at the end of the reporting period applicable to the period of expected
      realization or settlement.

Page 16

---

|Northern Dynasty Minerals Ltd.                                                                               
|-------------------------------------------------------------------------------------------------------------
|Notes to the Consolidated Financial
      Statements                                                         
|For the years ended December 31, 2013 and 2012                                                               
|(Expressed in
      thousands of Canadian Dollars, unless otherwise stated, except per share
      or option)

|    | A deferred tax asset is recognized only to the extent
      that it is probable that future taxable profits will be available against
      which the asset can be utilized.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    | Additional income taxes that arise from the distribution
      of dividends are recognized at the same time as the liability to pay the
      related dividend.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    | Deferred tax assets and liabilities are offset when there
      is a legally enforceable right to set off current tax assets against
      current tax liabilities and when they relate to income taxes levied by the
      same taxation authority and the Group intends to settle its current tax
      assets and liabilities on a net basis.                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|(m) | Restoration, Rehabilitation, and Environmental
      Obligations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    | An obligation to incur restoration, rehabilitation and
      environmental costs arises when environmental disturbance is caused by the
      exploration or development of a mineral property interest. Such costs
      arising from the decommissioning of plant and other site preparation work,
      discounted to their net present value, are provided for and capitalized at
      the start of each project to the carrying amount of the asset, along with
      a corresponding liability as soon as the obligation to incur such costs
      arises. The timing of the actual rehabilitation expenditure is dependent
      on a number of factors such as the life and nature of the asset, the
      operating license conditions and, when applicable, the environment in
      which the mine operates.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    | Discount rates using a pre-tax rate that reflects 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 Group have been, and may in the
      future be, affected from time to time in varying degree by changes in
      environmental regulations, including those for site restoration costs.
      Both the likelihood of new regulations and their overall effect upon the
      Group are not predictable.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    | The Group has no material restoration, rehabilitation and
      environmental obligations as the disturbance to date is
  immaterial.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|(n) | Loss per Share                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    | The Group presents basic and diluted loss per share data
      for its common shares, calculated by dividing the loss attributable to
      common shareholders of the Group by the weighted average number of common
      shares outstanding during the year. Diluted loss per share does not adjust
      the loss attributable to common shareholders or the weighted average
      number of common shares outstanding when the effect is
    anti-dilutive.                                                                                                                                                                                                                                                                                                                                                       

Page 17

---

|Northern Dynasty Minerals Ltd.                                                                               
|-------------------------------------------------------------------------------------------------------------
|Notes to the Consolidated Financial
      Statements                                                         
|For the years ended December 31, 2013 and 2012                                                               
|(Expressed in
      thousands of Canadian Dollars, unless otherwise stated, except per share
      or option)

|(o) | Segment Reporting                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    | The Group operates in a single reportable operating
      segment  the acquisition, exploration and development of mineral
      properties. The Groups core asset is the Pebble Project, which is located
      in Alaska, USA.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|(p) | Significant Accounting Estimates and
    Judgments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    | The preparation of these Financial Statements requires
      management to make certain estimates, judgments and assumptions that
      affect the reported amounts of assets and liabilities at the date of the
      Financial Statements and reported amounts of expenses during the reporting
      period. Actual outcomes could differ from these estimates. These Financial
      Statements include estimates which, by their nature, are uncertain. The
      impacts of such estimates are pervasive throughout the Financial
      Statements, and may require accounting adjustments based on future
      occurrences. Revisions to accounting estimates are recognized in the
      period in which the estimate is revised and future periods if the revision
      affects both current and future periods. 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.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    | Sources of estimation uncertainty                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    | Significant assumptions about the future and other
      sources of estimation uncertainty that management has made 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, relate to, but are not limited to,
      the following:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    | i.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    | ii.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    | iii.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

Page 18

---

|Northern Dynasty Minerals Ltd.                                                                               
|-------------------------------------------------------------------------------------------------------------
|Notes to the Consolidated Financial
      Statements                                                         
|For the years ended December 31, 2013 and 2012                                                               
|(Expressed in
      thousands of Canadian Dollars, unless otherwise stated, except per share
      or option)

Critical accounting judgments

These include:

| | i.   | In terms of IFRS 6, Exploration and Evaluation of
      Mineral Resources,the Group used judgment in determining whether
      there are facts and circumstances suggesting that the carrying amount of
      the Groups exploration and evaluation assets ("E&E assets") may
      exceed their recoverable amount.                                                                                                                                                                                                                                                                                                                                                                                                          
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | ii.  | IAS 21, The Effects of Changes in Foreign Exchange
      Rates("IAS 21") defines the functional currency as the currency of
      the primary economic environment in which an entity operates. IAS 21
      requires the determination of functional currency to be performed on an
      entity by entity basis, based on various primary and secondary factors. In
      identifying the functional currency of the parent and of its subsidiaries,
      management considered the currency in which financing activities are
      denominated and the currency that mainly influences the cost of
      undertaking the business activities in each jurisdiction in which the
      Group operates.                      
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | iii. | The Group applied judgment in determining the
      classification of its interests in other entities. In particular, the
      Group determined the level of control or joint control and whether the
      Group has rights to assets and liabilities or to net assets of the
      arrangement based on the legal structure and contractual terms of the
      arrangement and, when relevant, other facts and circumstances . The Group
      concluded that its previous 50% interest in the Pebble Partnership that
      the Group held until December 10, 2013, was a joint venture in accordance
      with IFRS 11.                                                                                                  
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | iv.  | The Group used judgment in determining that the
      acquisition of 50% of the Pebble Partnership should be treated as an asset
      acquisition and not a business combination under IFRS 3, Business
      Combinations,and hence the transaction was outside the scope of IFRS
      3. The Group considered the current stage of the Pebble Project which has
      no proven or probable reserves and the fact that the projects technical
      feasibility and economic viability has still to be determined or
      demonstrated.                                                                                                                                                                                  
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | v.   | The Group has employed judgement that going concern was
      still an appropriate basis for the preparation of the Financial
      Statements. Although the Group no longer has access to a stream of
      financing for the development of the Pebble Project with the withdrawal of
      Anglo American from the Pebble Partnership and Pebble Project, the Group
      has reviewed all programs, timelines and budgets and prioritized the
      allocation of available financial resources to advance the Pebble Project
      in the most efficient manner and believes it will be able to meet
      corporate expenditure requirements and activities at the Pebble Project
      for the next year (refer note 1).

|(q) | Amendments, Interpretations, Revised and New Standards
      Adopted by the Group                                                            
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                              
|    | Effective January 1, 2013 the Group adopted several new
      and revised standards, which are described as follows:                         
|    |                                                                                                                                              
|    | Interest in other entities                                                                                                                   
|    |                                                                                                                                              
|    | On January 1, 2013, the Group adopted a package of five
      new and revised standards relating to interests in other entities
      namely:
|    |                                                                                                                                              
|    |                                                                                                                                              
|    |                                                                                                                                              
|    |                                                                                                                                              
|    |                                                                                                                                              
|    |                                                                                                                                              

Page 19

---

|Northern Dynasty Minerals Ltd.                                                                               
|-------------------------------------------------------------------------------------------------------------
|Notes to the Consolidated Financial
      Statements                                                         
|For the years ended December 31, 2013 and 2012                                                               
|(Expressed in
      thousands of Canadian Dollars, unless otherwise stated, except per share
      or option)

IFRS 10 replaces parts of IAS 27,
Consolidated and Separate Financial Statements that deal with
consolidated financial statements, and SIC 12, Consolidation  Special
Purpose Entities. IFRS 10 establishes control as the basis for determining
which entities are consolidated in an entitys financial statements. An investor
controls an investee when it is exposed, or has rights, to variable returns from
its involvement with the investee and has the ability to affect those returns
through its power over the investee. IFRS 10 sets out principles for the
presentation and preparation of consolidated financial statements when an entity
controls one or more other investees.

IFRS 11 replaces IAS 31, Interests
in Joint Venturesand SIC-13, Jointly Controlled Entities  Non-Monetary
Contributions by Venturers.Accordingly, the Group has amended its
accounting policy (note 2(d)) for the classification of arrangements which are
subject to joint control. The Group now classifies any such arrangement as a
joint operation or joint venture depending on the rights and obligations of the
parties to the joint arrangement. For the arrangement to be classified as a
joint operation, the parties that have joint control (referred to as "joint
operators") have rights to the assets and obligations for the liabilities
relating to the arrangement. In such circumstances the Group as a joint operator
recognizes its portion of assets, liabilities, revenues and expenses in
accordance with the contractual arrangement. For the arrangement to be
classified a joint venture, the parties that have joint control (referred to as
"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. When the Group is a joint venturer, it recognizes the joint
venture using the equity method of accounting in accordance with IAS 28,
Investments in Associates and Joint Ventures (as revised in 2011).

The Group reviewed and assessed the
structure and legal form, the terms of the contractual arrangement, and other
facts and circumstances in relation to its 50% interest in the Pebble
Partnership and determined that, under IFRS 11, the interest was a joint venture
and hence continued to employ the equity method of accounting until the Group
assumed control of the Pebble Partnership in December 2013 (note 3). The
investment was carried in the statement of financial position at cost and
adjusted by post-acquisition changes in the Groups share of the net assets of
the joint venture, less any impairment losses. As the Groups investment is
carried in US dollars, the investment was translated at the end of each
reporting period (note 3).

IFRS 12 contains enhanced disclosure
requirements to help financial statement users evaluate the nature of, and risks
associated with, its interests in subsidiaries and other entities and the
effects of those interests on its financial statements. Except for additional
disclosures, if any, the adoption of IFRS 12 did not have any impact on the
Financial Statements.

Presentation of financial
statements

The Group adopted the amendments to IAS
1, Presentation of Financial Statements, which require the separate
grouping of items of other comprehensive income into: (i) items that may be
reclassified subsequently to profit or loss and (ii) items that will not be
reclassified to profit or loss in future periods. If items of other
comprehensive income are presented before tax, then income tax is allocated to
each respective group. The Groups Consolidated Statements of Comprehensive
(Income) Loss has been reorganized to comply with the required groupings.

Page 20

---

|Northern Dynasty Minerals Ltd.                                                                               
|-------------------------------------------------------------------------------------------------------------
|Notes to the Consolidated Financial
      Statements                                                         
|For the years ended December 31, 2013 and 2012                                                               
|(Expressed in
      thousands of Canadian Dollars, unless otherwise stated, except per share
      or option)

Other new and revised standards

The following other new and revised
standards were effective January 1, 2013 for the Group:

- IFRS 13, Fair Value Measurement The
  standard did not require any additional disclosure or adjustment to fair value
  measurement techniques used by the Group;
- IFRIC 20, Stripping Costs in the Production
  Phase of a Surface Mine not applicable to the Group as the Pebble
  Project is not in production; and
- Amendment to IFRS 7, Financial Instruments:
  Disclosures The amendment had no impact as the Group has no financial
  assets and liabilities which were offset on the Statement of Financial
  Position or were subject to a master netting arrangement.

|(r) | Accounting Standards, Amendments and Revised Standards
      Not Yet Effective                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | Effective for the Groups financial years commencing
      on January 1, 2014                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | Amendments to IAS 32, Financial Instruments:
      Presentation("IAS 32"),clarify existing application issues
      relating to the offset of financial assets and financial liabilities
      requirements. Specifically, the amendments clarify the meaning of
      "currently has a legal enforceable right of set-off" and "simultaneous
      realization and settlement". The amendments apply to annual periods
      beginning on or after January 1, 2014.                                                                                                                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | Amendments to IAS 36, Impairment of Assets("IAS
      36"), clarify the recoverable amount disclosures for non-financial assets,
      including additional disclosures about the measurement of the recoverable
      amount of impaired assets when the recoverable amount was based on fair
      value less costs of disposal. The amendments apply retrospectively for
      annual periods beginning on or after 1 January 2014. Earlier application
      is permitted except an entity shall not apply those amendments in periods
      (including comparative periods) in which it does not also apply IFRS
      13.                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | IFRIC 21, Levies("IFRIC 21"), provides guidance
      on accounting for levies in accordance with the requirements of IAS 37,
      Provisions, Contingent Liabilities and Contingent Assets. The
      Interpretation defines a levy as an outflow from an entity imposed by a
      government in accordance with legislation. IFRIC 21 explicitly excludes
      from its scope, outflows related to IAS 12, Income Taxes,fines and
      penalties and liabilities arising from emission trading schemes. IFRIC 21
      clarifies that a liability be recognized only when the triggering event
      specified in the legislature occurs and not before. IFRIC 21 is effective
      retrospectively for annual periods beginning on or after January 1,
      2014.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | Effective date to be determined                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | IFRS 9, Financial Instruments, Classification and
      Measurement("IFRS 9"), is the first phase of three phases to replace
      IAS 39, Financial Instruments: Recognition and Measurement, in its
      entirety. In July 2013, the IASB tentatively decided to defer the
      mandatory effective date and leave that date open pending the finalization
      of other phases of IFRS 9.                                                                                                                                                                                                                                                                                                                                                                           

Page 21

---

|Northern Dynasty Minerals Ltd.                                                                               
|-------------------------------------------------------------------------------------------------------------
|Notes to the Consolidated Financial
      Statements                                                         
|For the years ended December 31, 2013 and 2012                                                               
|(Expressed in
      thousands of Canadian Dollars, unless otherwise stated, except per share
      or option)

The Group anticipates that the adoption
of the amendments to IAS 32 and IFRS 9 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. Given that the Group is not
subject to levies as defined, the Group does not anticipate the adoption of
IFRIC 21 to have a significant impact on the consolidated financial statements.
The amendment to IAS 36 will result in additional disclosure if and when the
Group impairs non-financial assets.

|3. | INVESTMENT UNDER EQUITY METHOD AND DISCONTINUANCE OF
      EQUITY METHOD
|-- | ------------------------------------------------------------------------

|    | On July 26, 2007, the Group converted a wholly-owned
      general partnership that held its Pebble Property interest into a limited
      partnership, the Pebble Partnership. Anglo American plc ("Anglo American")
      through a wholly-owned subsidiary subscribed for 50% of the Pebble
      Partnership's equity effective July 31, 2007. To maintain its 50% interest
      in the Pebble Partnership, Anglo American was required to commit staged
      cash investments into the Pebble Partnership aggregating to US$1.5 billion
      to fund comprehensive exploration, engineering, environmental and
      socioeconomic programs and, if warranted, development of the Pebble
      Project. The Pebble Partnership agreement provided for equal project
      control rights (joint control) for both partners. The Group determined
      that its 50% interest in the Pebble Partnership was a joint venture and
      applied the equity method in accounting for this interest (note
    2(q)).
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    | Effective December 10, 2013 (the "Transition Date"),
      following the withdrawal of Anglo American from the Pebble Partnership,
      the Groups ownership in the Pebble Partnership and the Pebble Project
      increased to 100% as the Pebble Partnership became a wholly-owned
      subsidiary of the Group. The Group has consolidated the Pebble Partnership
      in these Financial Statements from the Transition Date.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|(a) | The Pebble Limited Partnership under Joint
      Venture                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    | Since the inception of the Pebble Partnership, the Group
      has not recognized any share of the losses in the Pebble Partnership as
      the Group had no obligation in respect to these losses as the agreement
      with Anglo American stated that the distribution of losses funded by Anglo
      American were to be allocated 100% to Anglo American until satisfaction of
      Anglo Americans earn-in expenditures.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    | The Groups investment in the Pebble Partnership was
      carried in US dollars. Exchange differences arising from the translation
      of the Groups investment in the Pebble Partnership were recognized
      directly in the foreign currency translation reserve through other
      comprehensive income or loss (note 7(c)). The following summarizes the
      movement in the carrying value of the investment in the Pebble Partnership
      under joint venture:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

Page 22

---

|Northern Dynasty Minerals Ltd.                                                                               
|-------------------------------------------------------------------------------------------------------------
|Notes to the Consolidated Financial
      Statements                                                         
|For the years ended December 31, 2013 and 2012                                                               
|(Expressed in
      thousands of Canadian Dollars, unless otherwise stated, except per share
      or option)

| | Investment in the Pebble Partnership                                                     |   | December 31 |   |   | December 31 |  
| | ---------------------------------------------------------------------------------------- | - | ----------- | - | - | ----------- | -
| |                                                                                          |   | 2013        |   |   | 2012        |  
| | Carrying value at the beginning of the year                                              | $ | 99,336      |   | $ | 101,542     |  
| | Cash contribution to Pebble
      Partnership                                            |   | 1,055       |   |   |            |  
| | Gain on increase in net assets
      of Pebble Partnership attributable to the Group     |   | 5,062       |   |   |            |  
| | Exchange difference on
      translation of investment in Pebble Partnership (note 7(c)) |   | 6,736       |   |   | (2,206      | )
| | Discontinuance of equity method (note 3(b))                                              |   | (112,189    | ) |   |            |  
| | Carrying value at the end of the year                                                    | $ |            |   | $ | 99,336      |  

Summary financial information for the
equity accounted investee on a 100% basis is as follows:

| | Assets and Liabilities |   | December 10 |  |   | December 31 | 
| | ---------------------- | - | ----------- |  | - | ----------- | 
| |                        |   | 2013        |  |   | 2012        | 
| | Non-current assets     | $ | 106,758     |  | $ | 101,344     | 
| | Current assets         |   | 7,509       |  |   | 11,890      | 
| | Total assets           | $ | 114,267     |  | $ | 113,234     | 
| | Current liabilities    |   | 2,078       |  |   | 9,902       | 
| | Total liabilities      | $ | 2,078       |  | $ | 9,902       | 

| | Losses                  |   | Period       |  |   |             | 
| | ----------------------- | - | ------------ |  | - | ----------- | 
| |                         |   | January 1 to |  |   | Year Ended  | 
| |                         |   | December 10  |  |   | December 31 | 
| |                         |   | 2013         |  |   | 2012        | 
| | Net loss for the period | $ | 68,803       |  | $ | 102,863     | 
| | Net cumulative losses   | $ | 590,913      |  | $ | 522,110     | 

|    | Since inception and up to the Transition Date, the Group
      has not recognized net loss and net cumulative losses of the Pebble
      Partnership in the Financial Statements of the Group.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|(b) | Discontinuance of Equity Method                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    | On the Transition Date, pursuant to the terms of the
      Pebble Partnership agreement, Anglo Americans ownership share in the
      Pebble Partnership reverted to the Group for a nominal consideration.
      Commencing from the Transition Date, the Group has consolidated all
      entities that comprised the Pebble Partnership (note 2(c)). The Group has
      determined that as the Pebble Partnership did not meet the definition of a
      business under IFRS 3 Business Combinations,the change in control
      of the Pebble Partnership has been accounted for as an asset acquisition
      in these Financial Statements. On the Transition Date, being the effective
      date of withdrawal of Anglo American, the Group has allocated the carrying
      amount of its investment in the Pebble Partnership to assets and
      liabilities of the Pebble Partnership.

Page 23

---

|Northern Dynasty Minerals Ltd.                                                                               
|-------------------------------------------------------------------------------------------------------------
|Notes to the Consolidated Financial
      Statements                                                         
|For the years ended December 31, 2013 and 2012                                                               
|(Expressed in
      thousands of Canadian Dollars, unless otherwise stated, except per share
      or option)

| |                                                                                              |   | Carrying |  
| | -------------------------------------------------------------------------------------------- | - | -------- | -
| |                                                                                              |   | value    |  
| |                                                                                              |   |          |  
| | Carrying amount of investment in Pebble Partnership on the
      Transition Date (note 3(a)) | $ | 112,189  |  
| |                                                                                              |   |          |  
| | Net assets of Pebble Partnership on the
      Transition Date                                |   |          |  
| | Mineral property, plant and equipment                                                        | $ | 106,758  |  
| | Current assets                                                                               |   | 7,509    |  
| | Current Liabilities                                                                          |   | (2,078   | )
| | Total                                                                                        | $ | 112,189  |  

Subsequent to the Transition Date, the
Group recognized $401 (US$377) in expenditures incurred by the Pebble
Partnership which has been included in the consolidated statement of
comprehensive (income) loss in these Financial Statements.

|4. | MINERAL PROPERTY, PLANT AND
  EQUIPMENT                                            
|-- | -----------------------------------------------------------------------------------
|   |                                                                                    
|   | The Groups exploration and evaluation assets are
      comprised of the following:

| |                                         |   | Mineral Property |  |   | Plant and |  |   | Total   | 
| | --------------------------------------- | - | ---------------- |  | - | --------- |  | - | ------- | 
| |                                         |   | interest         |  |   | equipment |  |   |         | 
| | Cost                                    |   |                  |  |   |           |  |   |         | 
| | Beginning balance                       | $ | 1,055            |  | $ |          |  | $ | 1,055   | 
| | Additions during the period (note 3(b)) |   | 105,642          |  |   | 1,222     |  |   | 106,864 | 
| | Ending balance                          | $ | 106,697          |  | $ | 1,222     |  | $ | 107,919 | 
| |                                         |   |                  |  |   |           |  |   |         | 
| | Foreign currency translation difference |   | 130              |  |   | 1         |  |   | 131     | 
| |                                         |   |                  |  |   |           |  |   |         | 
| | Net carrying value  Ending balance     | $ | 106,827          |  | $ | 1,223     |  | $ | 108,050 | 
| |                                         |   |                  |  |   |           |  |   |         | 
| | Net carrying value  Beginning balance  | $ | 1,055            |  | $ |          |  | $ | 1,055   | 

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. Mineral rights in Pebble were acquired by the Group in
2001.

The Groups mineral property interest
include mineral claims located to the west of the Pebble Project mineral claims
acquired by the Group in 2010 in consideration for a US$1,000,000 ($1,055) cash
payment to Liberty Star Uranium & Metals Corp. and its subsidiary, Big Chunk
Corp. (together, "Liberty Star"). Additionally, the Group advanced an aggregate
amount of approximately $4 million to Liberty Star, which is secured by
additional adjacent mineral claims owned by Liberty Star (note 5).

Page 24

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|Northern Dynasty Minerals Ltd.                                                                               
|-------------------------------------------------------------------------------------------------------------
|Notes to the Consolidated Financial
      Statements                                                         
|For the years ended December 31, 2013 and 2012                                                               
|(Expressed in
      thousands of Canadian Dollars, unless otherwise stated, except per share
      or option)

|5. | AMOUNTS RECEIVABLE AND
      PREPAID EXPENSES
|-- | ---------------------------------------------

| |                      |   | December 31 |  |   | December 31 | 
| | -------------------- | - | ----------- |  | - | ----------- | 
| |                      |   | 2013        |  |   | 2012        | 
| | Sales tax receivable | $ | 94          |  | $ | 177         | 
| | Amounts receivable   |   | 217         |  |   |            | 
| | Loan receivable      |   | 5,479       |  |   | 4,639       | 
| | Prepaid expenses     |   | 873         |  |   | 187         | 
| | Total                | $ | 6,663       |  | $ | 5,003       | 

Loan Receivable

The loan receivable comprises the
amount advanced to Liberty Star in cash, expenditures incurred by the Group in
relation to Liberty Stars mineral claims in Alaska and interest accrued thereon
(together, the "Loan") pursuant to a letter agreement dated June 2010 and
subsequent amendments thereof (together, the "Letter Agreement"). The Loan is
repayable in cash upon demand by the Group. The Loan accrues interest at 10% per
annum, compounded monthly, and is secured by assets and mining claims owned by
Liberty Star in Alaska, USA.

The principal amount and accrued
interest relating to the Loan are as follows:

| |                                                                             |   | December 31 |  |   | December 31 | 
| | --------------------------------------------------------------------------- | - | ----------- |  | - | ----------- | 
| |                                                                             |   | 2013        |  |   | 2012        | 
| | Balance of the principal amount:                                            |   |             |  |   |             | 
| | Cash advance (US$3,000,000)                                                 | $ | 3,191       |  | $ | 2,985       | 
| | Expenses incurred on behalf of Liberty Star
      (US$730,174)              |   | 776         |  |   | 726         | 
| | Total principal amount receivable
      (US$3,730,174)                      |   | 3,967       |  |   | 3,711       | 
| | Accumulated accrued interest (2013 - US$1,421,306; 2012 -
      US$933,012) |   | 1,512       |  |   | 928         | 
| | Balance at end of year(2013 - US$5,151,480; 2012 -
      US$4,663,186)      | $ | 5,479       |  | $ | 4,639       | 

The Loan was advanced in conjunction
with and in anticipation of the acquisition of a mineral property interest,
pursuant to the Letter Agreement, which is summarized as follows:

| | (i)  | the Group acquired certain mineral claims from Liberty
      Star in the vicinity of the Pebble Project mineral claims (note (4));
      and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | (ii) | the Group and Liberty Star agreed to enter into a joint
      venture arrangement whereby the Group, subject to an earn-in expenditure
      requirement, may acquire a 60% interest in certain of Liberty Stars
      mineral claims adjacent to the mineral claims acquired in (i) above.
      Liberty Stars assets held as collateral for the Loan include, but are not
      limited to, these mineral claims. The Letter Agreement provides that, in
      the event of execution of the joint venture agreement, the Group at its
      sole election can deem all or any part of the Loan to constitute part of
      the Groups contribution to the earn-in expenditure requirement or can
      convert the Loan into Liberty Stars common shares upon completion of a
      certain amount of minimum earn-in expenditure.

Page 25

---

|Northern Dynasty Minerals Ltd.                                                                               
|-------------------------------------------------------------------------------------------------------------
|Notes to the Consolidated Financial
      Statements                                                         
|For the years ended December 31, 2013 and 2012                                                               
|(Expressed in
      thousands of Canadian Dollars, unless otherwise stated, except per share
      or option)

In October 2012, as the joint venture
agreement contemplated in the Letter Agreement was not executed, the Group
delivered a notice of repayment of the Loan to Liberty Star. In November 2012,
the Group and Liberty Star negotiated a loan settlement agreement and an
amendment thereto (together; the "Loan Settlement Agreement") whereby the Group
agreed to extinguish the Loan in consideration for receiving title to certain of
Liberty Stars mineral claims which were held as collateral for the Loan. At
December 31, 2013, Liberty Star had not completed valid transfer of these claims
to the Group and in accordance with the terms of the Loan Settlement Agreement,
the Loan Settlement Agreement had not closed and the Group retained all its
rights under the Letter Agreement. Accordingly, the Group has continued to
recognize the Loan as a financial asset in these Financial Statements.

The Group believes that, at December
31, 2013, although the Loan was past due 405 days, the Group does not consider
it impaired as the Group is awaiting court judgment on the valid transfer of the
Settlement Claims in settlement of the loan. Notwithstanding, the Group has
reasonable expectation that it will recover the carrying amount of the Loan by
enforcing the legal rights conferred by the 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.

|6. | CASH AND CASH EQUIVALENTS AND RESTRICTED
      CASH
|-- | ---------------------------------------------------

|(a) | Cash and Cash
Equivalents
|--- | -------------------------

| |                                    |   | December 31 |  |   | December 31 | 
| | ---------------------------------- | - | ----------- |  | - | ----------- | 
| |                                    |   | 2013        |  |   | 2012        | 
| | Business and savings accounts      | $ | 7,334       |  | $ | 5,921       | 
| | Guaranteed investment certificates |   | 18,461      |  |   | 21,616      | 
| | Total                              | $ | 25,795      |  | $ | 27,537      | 

|(b) | Restricted Cash                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | At December 31, 2013, restricted cash in the amount of
      $1,276 (December 31, 2012  $nil) was held in the Pebble Partnership for
      certain equipment demobilization expenses relating to its activities
      undertaken when it was subject to joint control (note 3(a)). This cash is
      not available for general use by the Group. As per the terms of Anglo
      Americans withdrawal from the Pebble Partnership, the Group has a current
      obligation (note 9) to refund any unutilized balance after a stipulated
      time period.

|7. | CAPITAL AND
RESERVES
|-- | --------------------

|(a) | Authorized Share Capital                                                                                                                                                             
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                      
|    | At December 31, 2013, the authorized share capital
      comprised an unlimited (2012  unlimited) number of common shares with no
      par value. All issued shares are fully paid.

Page 26

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|Northern Dynasty Minerals Ltd.                                                                               
|-------------------------------------------------------------------------------------------------------------
|Notes to the Consolidated Financial
      Statements                                                         
|For the years ended December 31, 2013 and 2012                                                               
|(Expressed in
      thousands of Canadian Dollars, unless otherwise stated, except per share
      or option)

|(b) | Share Purchase Option Compensation Plan                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    | The Group has a share purchase option plan approved by
      the Groups shareholders that allows the Board of Directors to grant share
      purchase options, subject to regulatory terms and approval, to its
      officers, directors, employees, and service providers. The share purchase
      option plan (the "2011 Rolling Option Plan") is based on the maximum
      number of eligible shares equaling a rolling percentage of 10% of the
      Group's outstanding common shares, calculated from time to time. Pursuant
      to the 2011 Rolling Option Plan, if outstanding share purchase options are
      exercised and the number of issued and outstanding common shares of the
      Group increases, then the share purchase options available to grant under
      the plan increase proportionately. The exercise price of each share
      purchase option is set by the Board of Directors at the time of grant but
      cannot be less than the market price, being the 5-day volume weighted
      average trading price calculated the day before the grant. Share purchase
      options can have a maximum term of ten years (although share purchase
      options have generally been granted with terms of three or five years) and
      typically terminate 90 days following the termination of the optionees
      employment or engagement. In the case of death or retirement, any
      outstanding vested share purchase options will expire the earlier of the
      expiry date or one year from date of death or retirement. The vesting
      period for share purchase options is at the discretion of the Board of
      Directors at the time the share purchase options are granted.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    | The following reconciles the Groups share purchase
      options outstanding at the beginning and end of the
year:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

| |                              |  | 2013           |   |  | 2012           | 
| | ---------------------------- |  | -------------- | - |  | -------------- | 
| |                              |  |                |   |  |                | 
| |                              |  |                |   |  | Weighted       | 
| |                              |  | Number of      |   |  | average        | 
| |                              |  | share purchase |   |  | exercise price | 
| | Continuity of share options  |  | options        |   |  | ($/option)     | 
| | Balance at beginning of year |  | 7,611,530      |   |  | 7.00           | 
| | Granted                      |  |               |   |  |               | 
| | Exercised                    |  | (10,100        | ) |  | 3.00           | 
| | Expired                      |  | (1,800,830     | ) |  | 7.79           | 
| | Forfeited                    |  | (64,000        | ) |  | 4.26           | 
| | Cancelled                    |  | (2,000,900     | ) |  | 11.76          | 
| | Balance at end of year       |  | 3,735,700      |   |  | 4.13           | 

The following table summarizes share
purchase options exercised in 2013:

| |               |  |                   |  |  | Weighted average |  |  | Weighted average   | 
| | ------------- |  | ----------------- |  |  | ---------------- |  |  | ------------------ | 
| |               |  | Share purchase    |  |  | exercise price   |  |  | market share price | 
| | Date          |  | options exercised |  |  | ($/option)       |  |  | on exercise ($)    | 
| | April 1, 2013 |  | 10,100            |  |  | 3.00             |  |  | 3.15               | 

The following table summarizes share
purchase options exercised in 2012:

Page 27

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|Northern Dynasty Minerals Ltd.                                                                               
|-------------------------------------------------------------------------------------------------------------
|Notes to the Consolidated Financial
      Statements                                                         
|For the years ended December 31, 2013 and 2012                                                               
|(Expressed in
      thousands of Canadian Dollars, unless otherwise stated, except per share
      or option)

| |                  |  |                   |  |  | Weighted average |  |  | Weighted average      | 
| | ---------------- |  | ----------------- |  |  | ---------------- |  |  | --------------------- | 
| |                  |  | Share purchase    |  |  | exercise price   |  |  | market share price    | 
| | Date             |  | options exercised |  |  | ($/option)       |  |  | on
      exercise ($) | 
| | January 27, 2012 |  | 17,000            |  |  | 5.00             |  |  | 7.85                  | 
| | October 5, 2012  |  | 4,000             |  |  | 3.00             |  |  | 4.45                  | 
| |                  |  | 21,000            |  |  | 4.62             |  |  | 7.23                  | 

For share purchase options granted in
2012, the weighted average fair value was estimated at $0.87 per option and was
based on the Black-Scholes option pricing model using the following assumptions:

AssumptionsRisk-free interest rate
    
    1.11%Expected life
    
    3.43 yearsExpected volatility
    
    60%Grant date share price
    $
    2.38Expected dividend yield
    
    Nil


The following table summarizes
information about the Groups share purchase options outstanding at the end of
the year:

| |             |  | Share purchase options outstanding |  |  | Share purchase options exercisable | 
| | ----------- |  | ---------------------------------- |  |  | ---------------------------------- | 
| |             |  |                                    |  |  |                                    | 
| |             |  |                                    |  |  | Weighted                           | 
| |             |  | Number of                          |  |  | average                            | 
| |             |  | share                              |  |  | exercise                           | 
| | Exercise    |  | purchase options                   |  |  | price                              | 
| | prices ($)  |  | outstanding                        |  |  | ($/option)                         | 
| | 3.00        |  | 2,017,700                          |  |  | 3.00                               | 
| | 5.00  5.35 |  | 1,643,000                          |  |  | 5.01                               | 
| | 15.44       |  | 75,000                             |  |  | 15.44                              | 
| |             |  | 3,735,700                          |  |  | 4.13                               | 

|(c) | Foreign Currency Translation
  Reserve
|--- | --------------------------------------

| |                                                                                                                             |   | Year ended December 31 |  
| | --------------------------------------------------------------------------------------------------------------------------- | - | ---------------------- | -
| |                                                                                                                             |   | 2013                   |  
| | Balance at beginning of year                                                                                                | $ | 347                    |  
| | Foreign exchange translation differences                                                                                    |   |                        |  
| | Exchange gain (loss) on
      translation of the investment in the Pebble Partnership under joint
      venture (note 3(a)) |   | 6,736                  |  
| | Exchange gain on translation of the Pebble
      Partnership as a foreign subsidiary (note 3(b))                            |   | 138                    |  
| | Total foreign exchange translation
      difference for the year                                                            |   | 6,874                  |  
| | Deferred income tax on investment                                                                                           |   | (128                   | )
| | Reversal of deferred income tax on investment                                                                               |   | 141                    |  
| | Balance at the end of year                                                                                                  | $ | 7,234                  |  

Page 28

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|Northern Dynasty Minerals Ltd.                                                                               
|-------------------------------------------------------------------------------------------------------------
|Notes to the Consolidated Financial
      Statements                                                         
|For the years ended December 31, 2013 and 2012                                                               
|(Expressed in
      thousands of Canadian Dollars, unless otherwise stated, except per share
      or option)

The foreign currency translation
reserve represents accumulated exchange differences arising on the translation
of the Pebble Partnership, which has a US dollar functional currency.

The Company has not reallocated the
accumulated foreign exchange translation reserve attributable to the translation
of the Pebble Partnership under joint arrangement upon discontinuance of the
equity method (note 3(b)), as the transition from joint control to the Groups
control was accounted for using the historical cost of the investment.

|8. | RELATED PARTY BALANCES AND
    TRANSACTIONS
|-- | -------------------------------------------

|    | Balances and transactions between the Company and its
      subsidiaries, which are related parties of the Company, have been
      eliminated on consolidation (note 2(b)). Details between the Group and
      other related parties are disclosed below:                                          
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                      
|(a) | Transactions and Balances with Key Management
      Personnel                                                                                                                                                                                                                                        
|    |                                                                                                                                                                                                                                                                                                      
|    | The aggregate value of transactions with key management
      personnel, being directors and senior management including the Senior Vice
      President, Corporate Development; Vice President ("VP") Corporate
      Communications, VP, Engineering and VP, Public Affairs, were as
      follows:

| |                                  |   | Year ended December 31 | 
| | -------------------------------- | - | ---------------------- | 
| | Compensation                     |   | 2013                   | 
| | Short-term employee benefits (i) | $ | 2,517                  | 
| | Share-based compensation         |   | 230                    | 
| | Total                            | $ | 2,747                  | 

| | (i) | Short-term employee benefits include salaries and
      directors fees.
| | --- | -----------------------------------------------------------------------

|(b) | Transactions and Balances with other Related
      Parties                                                    
|--- | --------------------------------------------------------------------------------------------------------------
|    |                                                                                                               
|    | The aggregate value of transactions and outstanding
      balances with other related parties were as
follows:

| |                                                                             |   | Year ended December 31 |  
| | --------------------------------------------------------------------------- | - | ---------------------- | -
| | Transactions                                                                |   | 2013                   |  
| | Entity with significant influence(a)                                        |   |                        |  
| | Services rendered to the Group                                              | $ | 4,181                  |  
| | Reimbursement of third party expenses incurred on
      behalf of the Group |   | 829                    |  
| | Total paid by the Group                                                     | $ | 5,010                  |  
| | Jointly controlled entity(b)                                                |   |                        |  
| | Reimbursement of third party expenses incurred by the
      Group           | $ | (90                    | )
| | Total reimbursed (to) the Group                                             | $ | (90                    | )

Page 29

---

|Northern Dynasty Minerals Ltd.                                                                               
|-------------------------------------------------------------------------------------------------------------
|Notes to the Consolidated Financial
      Statements                                                         
|For the years ended December 31, 2013 and 2012                                                               
|(Expressed in
      thousands of Canadian Dollars, unless otherwise stated, except per share
      or option)

| |                                          |   | December 31 |  |   | December 31 | 
| | ---------------------------------------- | - | ----------- |  | - | ----------- | 
| | Balances receivable from related parties |   | 2013        |  |   | 2012        | 
| |                                          |   |             |  | $ |             | 
| | Jointly controlled entity (b)            | $ |            |  |   | 3           | 
| |                                          |   |             |  | $ |             | 
| | Total                                    | $ |            |  |   | 3           | 

| |                                                            |   | December 31 |  |   | December 31 | 
| | ---------------------------------------------------------- | - | ----------- |  | - | ----------- | 
| | Balances payable to related parties                        |   | 2013        |  |   | 2012        | 
| | Entity with significant influence over the Group
      (a) | $ | 459         |  | $ | 148         | 
| | Total                                                      | $ | 459         |  | $ | 148         | 

| | (a) | Hunter Dickinson Services Inc. ("HDSI"), a private
      company, provides geological, corporate development, administrative and
      management services to the Group and its subsidiaries at annually set
      rates pursuant to a management services agreement. HDSI also incurs third
      party costs on behalf of the Group which are reimbursed by the Group at
      cost. The Group may make pre-payments for services under terms of the
      services agreement. Several directors and other key management personnel
      of HDSI, who are close business associates, are also key management
      personnel of the Group.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | (b) | The Group incurred costs on behalf of the Pebble
      Partnership while under joint control (note 3(a)), which were reimbursed
      at cost.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

|9. | TRADE AND OTHER
PAYABLES
|-- | ------------------------

| |                             |   | December 31 |  |   | December 31 | 
| | --------------------------- | - | ----------- |  | - | ----------- | 
| | Falling due within the year |   | 2013        |  |   | 2012        | 
| | Trade                       | $ | 2,318       |  | $ | 261         | 
| | Other (note 6 (b))          |   | 1,276       |  |   |            | 
| | Total                       | $ | 3,594       |  | $ | 261         | 

|10. | BASIC AND DILUTED LOSS PER
  SHARE
|--- | ----------------------------------

The calculation of basic and diluted
loss per share was based on the following:

| |                                                                   |   | December 31 |  |   | December 31 | 
| | ----------------------------------------------------------------- | - | ----------- |  | - | ----------- | 
| |                                                                   |   | 2013        |  |   | 2012        | 
| | Loss attributable to common shareholders                          | $ | 2,523       |  | $ | 15,662      | 
| | Weighted average number of common shares outstanding
      (000s) |   | 95,007      |  |   | 94,995      | 

Diluted loss per share did not include
the effect of the of share purchase options outstanding as they are
anti-dilutive.

Page 30

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|Northern Dynasty Minerals Ltd.                                                                               
|-------------------------------------------------------------------------------------------------------------
|Notes to the Consolidated Financial
      Statements                                                         
|For the years ended December 31, 2013 and 2012                                                               
|(Expressed in
      thousands of Canadian Dollars, unless otherwise stated, except per share
      or option)

|11. | EMPLOYMENT COSTS
|--- | ----------------

The amount of salaries and benefits
included in expenses are as follows:

| |                                     |   | Year ended December 31 | 
| | ----------------------------------- | - | ---------------------- | 
| |                                     |   | 2013                   | 
| | Exploration and evaluation expenses | $ | 992                    | 
| | General and administration expenses |   | 3,389                  | 
| | Share-based compensation            |   | 641                    | 
| | Total                               | $ | 5,022                  | 

|12. | INCOME TAX
EXPENSE
|--- | ------------------

| |                                       |   | Year ended December 31 | 
| | ------------------------------------- | - | ---------------------- | 
| |                                       |   | 2013                   | 
| | Current tax expense (recovery)        |   |                        | 
| |                                       |   |                        | 
| | Current expense (recovery)            | $ |                       | 
| | Current income tax expense (recovery) | $ |                       | 
| |                                       |   |                        | 
| | Deferred income tax expense           |   |                        | 
| |                                       |   |                        | 
| | Current expense                       | $ | 184                    | 
| | Deferred income tax expense           | $ | 184                    | 

| |                                                        |   | Year ended December 31 |  
| | ------------------------------------------------------ | - | ---------------------- | -
| | Reconciliation of effective tax rate                   |   | 2013                   |  
| |                                                        |   |                        |  
| | (Loss) for the period                                  | $ | (2,523                 | )
| | Total income tax expense (recovery)                    |   | 184                    |  
| | (Loss) excluding income tax                            |   | (2,339                 | )
| | Income tax using the Company's domestic tax
      rate |   | (602                   | )
| | Non-deductible expenses and other                      |   | 336                    |  
| | Increase in statutory tax rates                        |   | (1,465                 | )
| | Foreign exchange                                       |   | 13                     |  
| | Deferred income tax assets not recognized              |   | 1,902                  |  
| |                                                        | $ | 184                    |  

The Company's domestic tax rate for the
year was 25.75% (2012  25.00%) .

Page 31

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|Northern Dynasty Minerals Ltd.                                                                               
|-------------------------------------------------------------------------------------------------------------
|Notes to the Consolidated Financial
      Statements                                                         
|For the years ended December 31, 2013 and 2012                                                               
|(Expressed in
      thousands of Canadian Dollars, unless otherwise stated, except per share
      or option)

| |                                                          |   | December 31 |   |   | December 31 |  
| | -------------------------------------------------------- | - | ----------- | - | - | ----------- | -
| | Deferred income tax assets (liabilities)                 |   | 2013        |   |   | 2012        |  
| | Resource pool                                            | $ |            |   | $ | 21,144      |  
| | Tax losses                                               |   | 115         |   |   | 58          |  
| | Net deferred income tax assets                           |   | 115         |   |   | 21,202      |  
| | Resource property/investment in Pebble
      Partnership |   | (3,901      | ) |   | (24,834     | )
| | Equipment                                                |   | (17         | ) |   |            |  
| | Net deferred income tax liability                        | $ | (3,803      | ) | $ | (3,632      | )

The Group had the following temporary
differences at December 31, 2013 in respect of which no deferred tax asset has
been recognized:

| | Expiry            |   | Tax
      losses |  |   | Resource pools |  |   | Other | 
| | ----------------- | - | ---------------- |  | - | -------------- |  | - | ----- | 
| | Within one year   | $ |                 |  | $ |               |  | $ |      | 
| | One to five years |   |                 |  |   |               |  |   | 1,311 | 
| | After five years  |   | 41,075           |  |   |               |  |   |      | 
| | No expiry date    |   | 41               |  |   | 106,666        |  |   | 93    | 
| | Total             | $ | 41,116           |  | $ | 106,666        |  | $ | 1,404 | 

The Group has taxable temporary
differences in relation to investments in foreign subsidiaries or branches for
which deferred tax liabilities have not been recognized of approximately $9.5
million.

|13. | FINANCIAL RISK
MANAGEMENT
|--- | -------------------------

|    | The Group is exposed in varying degrees to a variety of
      financial instrument related risks. The Board approves and monitors the
      risk management processes, inclusive of documented investment policies,
      counterparty limits, and controlling and reporting structures. The type of
      risk exposure and the way in which such exposure is managed is provided as
      follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|(a) | Credit Risk                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    | Credit risk is the risk of potential loss to the Group if
      a counterparty to a financial instrument fails to meet its contractual
      obligations. The Groups credit risk is primarily attributable to its
      liquid financial assets, including cash and cash equivalents, restricted
      cash, amounts receivable and amounts receivable from related parties. The
      Group limits the exposure to credit risk by only investing its cash and
      cash equivalents and restricted cash with high-credit quality financial
      institutions in business and saving accounts, guaranteed investment
      certificates, and in government treasury bills which are available on
      demand by the Group for its programs. Amounts receivable (note 5) are
      primarily comprised of a secured loan and other receivable balances with
      government agencies.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|(b) | Liquidity Risk                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    | Liquidity risk is the risk that the Group will not be
      able to meet its financial obligations when they become due. The Group
      ensures, as far as reasonably possible, it will have sufficient capital in
      order to meet short to medium term business requirements, after taking
      into account cash flows from operations and the Groups holdings of cash
      and cash equivalents and restricted cash. The Groups cash and cash
      equivalents and restricted cash are currently invested in business
      accounts and guaranteed investment certificates which are available on
      demand.                                                                                                                                                                                                                                                            

Page 32

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|Northern Dynasty Minerals Ltd.                                                                               
|-------------------------------------------------------------------------------------------------------------
|Notes to the Consolidated Financial
      Statements                                                         
|For the years ended December 31, 2013 and 2012                                                               
|(Expressed in
      thousands of Canadian Dollars, unless otherwise stated, except per share
      or option)

|    | The Groups financial liabilities are comprised of trade
      and other payables (note 9) and payable to a related party (note 8), which
      are due for payment within 12 months from the reporting date. The carrying
      amounts of the Groups financial liabilities represent the Groups
      contractual obligations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|(c) | Foreign exchange risk                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | The Group is exposed to foreign exchange risk in respect
      to its US dollar-denominated cash and cash equivalents, restricted cash,
      loan receivable, and trade and other payables. Additionally certain of the
      Groups corporate expenses are incurred in US dollars. As a consequence,
      the Groups results from its operations are subject to currency
      transaction risk and currency translation risk. The operating results and
      financial position of the Group are reported in Canadian dollars in the
      Groups consolidated financial statements. The fluctuation of the US
      dollar in relation to the Canadian dollar will consequently have an impact
      upon the losses incurred by the Group and may also affect the value of the
      Groups assets and the amount of shareholders equity.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | The Group has not entered into any agreements or
      purchased any instruments to hedge possible currency risks.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | The exposure of the Group's financial assets to foreign
      exchange risk is as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

| | Currency                                      |   | December 31, 2013 |   |   | December 31, 2012 | 
| | --------------------------------------------- | - | ----------------- | - | - | ----------------- | 
| |                                               |   | US dollar         |   |   |                   | 
| |                                               |   | amount            |   |   | Amount in         | 
| | US
      dollars  Financial assets           |   | (000s             | ) |   | Canadian dollars  | 
| |                                               |   |                   |   |   |                   | 
| | Amounts receivable                            | $ | 5,360             |   | $ | 5,701             | 
| | Cash and cash equivalents and restricted cash |   | 7,083             |   |   | 7,534             | 
| | Total exposed to currency risk                | $ | 12,443            |   | $ | 13,235            | 

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

| | Currency                                 |   | December 31, 2013 |   |   | December 31, 2012 | 
| | ---------------------------------------- | - | ----------------- | - | - | ----------------- | 
| |                                          |   | US dollar         |   |   | Amount in         | 
| |                                          |   | amount            |   |   | Canadian          | 
| | US
      dollars  Financial liabilities |   | (000s             | ) |   | dollars           | 
| |                                          |   |                   |   |   |                   | 
| | Trade and other payables                 | $ | 3,197             |   | $ | 3,400             | 
| | Total exposed to currency risk           | $ | 3,197             |   | $ | 3,400             | 

Based on the above net exposures and
assuming that all other variables remain constant, a 10% depreciation of the
Canadian dollar relative to the US dollar would result in a decrease in the loss
of approximately $983 in the year (2012  $465). This sensitivity analysis
includes only outstanding foreign currency denominated monetary items, and excludes the effect of any
      translation adjustments for the investment in the Pebble
    Partnership.

Page 33

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|Northern Dynasty Minerals Ltd.                                                                               
|-------------------------------------------------------------------------------------------------------------
|Notes to the Consolidated Financial
      Statements                                                         
|For the years ended December 31, 2013 and 2012                                                               
|(Expressed in
      thousands of Canadian Dollars, unless otherwise stated, except per share
      or option)

|(d) | Interest rate risk                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | The Group is subject to interest rate cash flow risk with
      respect to its investments in cash and cash equivalents. The Groups
      policy is to invest cash at fixed rates of interest and cash reserves are
      to be maintained in cash and cash equivalents in order to maintain
      liquidity, while achieving a satisfactory return for shareholders.
      Fluctuations in interest rates when the cash and cash equivalents mature
      impact interest income earned.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | Assuming that all other variables remain constant, a 100
      basis points change representing a 1% increase or decrease in interest
      rates would have resulted in a decrease or increase in the loss as
      follows:                                                                                                                                                                                                                                                             

| |                |   | December 31 |  |   | December 31 | 
| | -------------- | - | ----------- |  | - | ----------- | 
| |                |   | 2013        |  |   | 2012        | 
| | Effect on loss | $ | 267         |  | $ | 325         | 

|(e) | Capital Management                                                                                                                                                                                                                                                                          
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                             
|    | The Group's policy is to maintain a strong capital base
      so as to maintain investor and creditor confidence and to sustain future
      development of the business. The capital structure of the Group consists
      of equity, comprising share capital, net of accumulated deficit.
|    |                                                                                                                                                                                                                                                                                             
|    | There were no changes in the Group's approach to capital
      management during the year.                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                             
|    | The Group is not subject to any externally imposed
      capital requirements.                                                                                                                                                                                                              
|    |                                                                                                                                                                                                                                                                                             
|(f) | Fair value                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                             
|    | The fair value of the Groups financial assets and
      liabilities approximates the carrying amount.                                                                                                                                                                                      

|14. | COMMITMENTS AND
  CONTINGENCIES
|--- | -------------------------------

The Group has the following commitments:

| |                                         |   | 2014            |   |   | 2015            |   |   | 2016          |  
| | --------------------------------------- | - | --------------- | - | - | --------------- | - | - | ------------- | -
| |                                         |   | (000s           | ) |   | (000s           | ) |   | (000s         | )
| | Anchorage office lease (i)              |   | US$ 740         |   |   | US$ 763         |   |   | US$ 651       |  
| | Anchorage communication lease (ii)      |   | 144             |   |   | 84              |   |   |              |  
| | Pebble Project site lease (iii)         |   | 780             |   |   | 260             |   |   |              |  
| | Total                                   |   | US$
      1,664 |   |   | US$
      1,107 |   |   | US$
      651 |  
| | Totalusing year end rate of $1.0636/US$ | $ | 1,770           |   | $ | 1,177           |   | $ | 692           |  

| | (i)   | Original term of 5 years expires on October 31,
    2016.        
| | ----- | -----------------------------------------------------------------
| | (ii)  | Lease term expires on July 31, 2015.                             
| | (iii) | Lease for accommodation at site, expires on April 30,
      2015.

Page 34

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|Northern Dynasty Minerals Ltd.                                                                               
|-------------------------------------------------------------------------------------------------------------
|Notes to the Consolidated Financial
      Statements                                                         
|For the years ended December 31, 2013 and 2012                                                               
|(Expressed in
      thousands of Canadian Dollars, unless otherwise stated, except per share
      or option)

After the reporting period, the Group
entered into a sub-lease agreement in respect of a portion of the Anchorage
office space subject to the operating lease for an average annual rent of
approximately US$218,000 ($232). The term of the sub-lease expires on October
31, 2016.

|15. | EVENTS AFTER THE REPORTING
  PERIOD
|--- | -----------------------------------

The Group granted 4,494,600 options at
an exercise price of $1.77 per option with expiry dates of February 26, 2017 and
2019. 1,795,800 options expired unexercised with a weighted average exercise
price of $5.17 per option with various expiry dates.

Page 35

---