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MANAGEMENT'SDISCUSSIONANDANALYSIS

YEARENDEDDECEMBER31,2013

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|NorthernDynastyMineralsLtd.      
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|Management'sDiscussionAndAnalysis
|YearendedDecember31,2013         
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TableofContents

|1.1  | DATE                                                                          | 3                                      
|---- | ----------------------------------------------------------------------------- | ---------------------------------------
|     |                                                                               |                                        
|1.2  | OVERVIEW                                                                      | 4                                      
|     |                                                                               |                                        
|     | 1.2.1 PEBBLE PROJECT                                                          | 5                                      
|     |                                                                               | 1.2.1.1TECHNICAL PROGRAMS              
|     |                                                                               | 1.2.1.2LEGAL MATTERS                   
|     |                                                                               | 1.2.1.3BRISTOL BAY WATERSHED ASSESSMENT
|     | 1.2.2
      OTHER PROPERTIES                                                  | 12                                     
|     |                                                                               | 1.2.2.1SOUTH PEBBLE, SP AND KAK CLAIMS 
|     |                                                                               | 1.2.2.2BIG CHUNK NORTH AND SOUTH       
|     | 1.2.3
      MARKET TRENDS                                                     | 13                                     
|     |                                                                               |                                        
|1.3  | SELECTED
      ANNUAL INFORMATION                                             | 14                                     
|     |                                                                               |                                        
|1.4  | SUMMARY
      AND DISCUSSION OF QUARTERLY RESULTS                             | 15                                     
|     |                                                                               |                                        
|1.5  | RESULTS
      OF OPERATIONS                                                   | 17                                     
|     |                                                                               |                                        
|1.6  | LIQUIDITY                                                                     | 19                                     
|     |                                                                               |                                        
|1.7  | CAPITAL
      RESOURCES                                                       | 20                                     
|     |                                                                               |                                        
|1.8  | OFF-BALANCE
      SHEET ARRANGEMENTS                                          | 20                                     
|     |                                                                               |                                        
|1.9  | TRANSACTIONS
      WITH RELATED PARTIES                                       | 20                                     
|     |                                                                               |                                        
|1.10 | FOURTH
      QUARTER                                                          | 20                                     
|     |                                                                               |                                        
|1.11 | PROPOSED
      TRANSACTIONS                                                   | 21                                     
|     |                                                                               |                                        
|1.12 | CRITICAL
      ACCOUNTING ESTIMATES                                           | 21                                     
|     |                                                                               |                                        
|1.13 | CHANGES
      IN ACCOUNTING POLICIES INCLUDING INITIAL ADOPTION               | 25                                     
|     |                                                                               |                                        
|1.14 | FINANCIAL
      INSTRUMENTS AND OTHER INSTRUMENTS                             | 25                                     
|     |                                                                               |                                        
|1.15 | OTHER
      MD&A REQUIREMENTS                                                 | 28                                     
|     | 1.15.1
      DISCLOSURE OF OUTSTANDING SHARE DATA                             | 29                                     
|     | 1.15.2
      DISCLOSURE CONTROLS AND PROCEDURES                               | 29                                     
|     | 1.15.3
      MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING | 29                                     
|     | 1.15.4
      CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING             | 30                                     
|     | 1.15.5
      LIMITATIONS OF CONTROLS AND PROCEDURES                           | 30                                     
|     | 1.15.6
      RISK FACTORS                                                     | 30                                     

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|**1.1** | Date
|------- | ----

This Managements Discussion and Analysis ("MD&A") should
be read in conjunction with the audited consolidated financial statements
("Financial Statements") of Northern Dynasty Minerals Ltd. ("Northern Dynasty"
or the "Company") for the year ended December 31, 2013 as publicly filed under
the Companys profile on SEDAR at www.sedar.com.

The Company reports in accordance with International Financial
Reporting Standards as issued by the International Accounting Standards Board
("IASB") and interpretations of the IFRS Interpretations Committee (together,
"IFRS"). The following disclosure and associated Financial Statements are
presented in accordance with IFRS. This MD&A is prepared as of March 25,
2014. All dollar amounts herein are expressed in Canadian dollars, unless
otherwise specified.

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

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|Cautionary Note to InvestorsConcerning Estimates of Measuredand Indicated Resources                                                                                                                                                                                                                                                                                    
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|The following section uses the terms "measured resources"
      and "indicated resources". The Company advises investors that although
      those terms are recognized and required by Canadian regulations, the SEC
      does not recognize them. Investorsarecautionednottoassumethatalloranypartofmineraldepositsinthesecategorieswilleverbeconvertedintoreserves.

|Cautionary Noteto InvestorsConcerning Estimatesof InferredResources                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|The following section uses the term "inferred resources".
      The Company advises investors that although this term is recognized and
      required by Canadian regulations, the SEC does not recognize it. "Inferred
      resources" have a great amount of uncertainty as to their existence, and
      as to their economic and legal feasibility. It cannot be assumed that all
      or any part of a mineral resource will ever be upgraded to a higher
      category. Under Canadian rules, estimates of inferred mineral resources
      may not form the basis of economic studies, except in rare cases.
      Investorsarecautionednottoassumethatalloranypartofaninferredresourceexists,oriseconomicallyorlegallymineable.

|1.2 | Overview
|--- | --------

Northern Dynasty is a mineral exploration company which, via
its subsidiaries, holds interests in mining claims on State of Alaska land in
southwest Alaska, USA (US or America), which are part of or in the vicinity
of the Pebble Copper-Gold-Molybdenum Project (the "Pebble Project"). The Pebble
Project is an advanced, pre-development stage initiative to design the
development of one of the worlds most important mineral resources when measured
by aggregate contained metals.

Northern Dynasty acquired the right to earn an interest in the
Pebble property in late 2001. From 2001 to 2007, the Company established
substantial mineral resources at the Pebble deposit. Comprehensive
environmental, social and engineering studies of the deposit and surrounding
area to support mine planning and permitting activities were initiated in 2004.

In mid-2007, a wholly-owned  affiliate of Northern Dynasty and a wholly-owned subsidiary of Anglo American  plc ("Anglo American") established the Pebble Limited Partnership  (the "Pebble Partnership") to advance the Pebble Project toward  feasibility.  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 for comprehensive exploration, engineering, environmental and  socioeconomic programs and, if warranted, permitting of a planned project,  followed by construction of the final approved Pebble Project.  Anglo American’s cash contribution since the  formation of the Pebble Partnership amounted to $595 million (US$573 million).

On September 15, 2013, Anglo American gave the Company its
notice of withdrawal from the Pebble Partnership. In December 2013, Northern
Dynasty exercised its right to acquire Anglo Americans interest in the Pebble
Partnership and now holds a 100% interest in the Pebble Partnership and its
general partner, Pebble Mines Corp., which administers the Pebble Project.

Subsequent to the end of the year, Thomas C. (Tom) Collier, an
experienced US regulatory lawyer and former Chief of Staff in the US Department
of Interior, was appointed Chief Executive Officer ("CEO") of the Pebble
Partnership. Mr. Collier has extensive natural resource sector experience,
specializing in the provision of strategic leadership to companies navigating
federal environmental permitting processes, specifically the Environmental
Impact Statement process under the USA

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National Environmental Policy Act ("NEPA") and 404 wetlands
permitting under the Clean Water Act.

Former Pebble Partnership CEO, John Shively, was named Chairman
of Pebble Mines Corp. and will continue to play an active role on the Pebble
strategic leadership team.

At December 31, 2013, Northern Dynasty had cash and cash
equivalents on hand of $25.8 million for its operating requirements. In the fall
of 2013, the Company initiated a review of all Pebble Partnership programs,
timelines and budgets and prioritized the allocation of available financial
resources to advance the Pebble Project in the most efficient manner. Management
believes that the Company has sufficient capital resources to cover corporate
expenditure requirements and activities at the Pebble Project for a period in
excess of the next twelve months.

Plansfor2014

The Company’s priority goals in 2014 are to address the US Environmental Protection Agency  ("EPA")’s recently announced 404(c) process under the Clean Water Act, to move  forward with environmental planning and project design work and to seek one or  more potential joint venture or other partners to join the Pebble Project.  Northern Dynasty has consolidated all of the  technical data, engineering work and permitting documentation related to the Pebble  Project into a data room to facilitate due diligence reviews by interested  parties.  The Company will also continue  its review of the project and advance engineering and environmental studies, as  well as regulatory documentation, to prepare for federal and state permitting  under NEPA.  A final decision on formal  permit application timing depends on factors such as completion of technical  assessments and interaction with regulatory agencies, and would be made by the  Northern Dynasty and Pebble Mines Corp. Boards.

|1.2.1 | PebbleProject
|----- | -------------

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

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

From 2001-2007, Northern Dynasty explored the Pebble deposit
and surrounding property using its own financial resources. This work led to an
overall expansion of the deposit, including discovery of a substantial volume of
higher grade mineralization to the east, as well as the discovery of another
porphyry copper-gold-molybdenum deposit, a porphyry copper zone, a gold-copper
skarn occurrence, and gold showings along the extensive northeast-trending
mineralized system underlying the property.

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

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

In February  2011, Northern Dynasty announced the results of an independent Preliminary  Assessment ("PA") of the Pebble Project by Wardrop, a Tetra Tech  Company.  The PA analyzed the economics  of three successive mine development cases comprising 25, 45 and 78 years of  open pit mining, each at a posited processing rate of 200,000 tons per  day.  The results of the PA indicated the  potential for positive returns on invested capital in a mine.  Although additional engineering,  environmental and socioeconomic studies and data collection programs designed  to advance a prefeasibility study for the Pebble Project continued from 2011  through early 2013, this work was not sufficiently comprehensive or material to  obviate the 2011 PA analyses and conclusions.   However, since the withdrawal of Anglo American from the Pebble  Partnership in late 2013 and in light of more recent stakeholder and regulatory  feedback, Northern Dynasty initiated a comprehensive review of previous  analyses of the Pebble Project, including the 2011 PA and various project  components.  Current studies of the  Pebble Project investigate new infrastructure plans as well as lower throughput  rates in a revised project development concept.   As well, the cost and revenue inputs require updating given the nearly 4  years which have passed since the 2011 PA was done.  For these reasons, any project which is  ultimately put forward for permitting will almost certainly be different from  the economic assessment model examined in the 2011 PA.  Therefore conclusions in the 2011 PA study may  have limited going-forward relevance at this time.  There can be no assurances given by Northern  Dynasty that the economics of the new alternative mine models being assessed  will demonstrate economics similar to those projected in the 2011 PA.

In January 2012, the Pebble Partnership publicly released the
Environmental Baseline Document ("EBD") for the Pebble Project. It contains more
than 27,000 pages of scientific data and analyses, characterizing a broad range
of environmental and social conditions in southwest Alaska  including climate,
water quality, wetlands, fish and aquatic habitat, wildlife, land and water use,
socioeconomics and subsistence primarily based on research undertaken between
2004 and 2008, although baseline data collecting and monitoring has continued.
Public and expert review of the EBD was facilitated under the Keystone
initiative (see further details in section 1.2.1.3 below) .

_____________________________1 Mineral resources
at February 2010 estimated within a volume or shell defined by long-term metal
price estimates of US$2.50/lb copper, US$900/oz gold and US$25/lb molybdenum.
M+I include 527 million tonnes in the measured category grading 0.33% copper,
0.35 g/t gold and 178 ppm molybdenum and 5,414 million tonnes in the indicated
category grading 0.43% copper, 0.35 g/t gold and 257 ppm molybdenum. Copper
equivalent calculations used metal prices of US$1.85/lb for copper, US$ 902/oz
for gold and US$12.50/lb for molybdenum, and metallurgical recoveries of 85% for
copper, 69.6% for gold, and 77.8% for molybdenum in the Pebble West area and
89.3% for copper, 76.8% for gold, 83.7% for molybdenum in the Pebble East area .
Mineral resources that are not mineral reserves do not have demonstrated
economic viability. The qualified person for the estimate is David Gaunt, P.Geo.

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Compilation of 2009 to 2013 environmental baseline data reports
as well as reports that analyze the results of the baseline studies will be
completed so that it can be shared with state/federal agencies and the public as
part of the future permitting process. The EBD study is available on the
Companys websitewww.pebbleresearch.com.



|**1.2.1.1** | TechnicalPrograms
|----------- | -----------------

Pebble Project activities in 2013 included ongoing
environmental monitoring and baseline data collection, engineering studies,
stakeholder engagement, business development and public affairs programming as
well as drilling and geo-hydrological testing at site.

ExplorationandDrilling

The 2013 drilling program consisted of 29 holes, totaling 6,195
feet. All of the holes were drilled to collect geotechnical data.

Engineering

Engineering activities were designed to advance mine planning
studies for the Pebble Project. The most recent phase of work commenced in 2011,
and has included additional analysis of an open pit and process plant designs,
and potential associated infrastructure options, along with compilation of
potential designs for the transportation infrastructure and power plant.
Development options and component alternatives are also being considered as part
of the Companys review of the project.

EnvironmentalandSocioeconomic

EnvironmentalBaselineDocument("EBD")

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

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

The compilation of environmental studies undertaken in support
of mine development is more commonly presented to regulatory agencies as part of
a broader permitting package, which includes a Project Description. The EBD was
released in advance in order to provide stakeholders with additional time to
review the substantial document in advance of project permitting.

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

Work toward completion of a Project Description for the Pebble
Project advanced in 2013. The Pebble Partnership expects to be in a position to
initiate federal and state permitting under the NEPA in 2014, although a final
determination on permit timing has not yet been made.

Comprehensive environmental and socioeconomic baseline study
programs have continued at the Pebble Project site in 2013. This years field
programs have included surface and groundwater hydrology, water quality and fish
resources studies, with a focus on monitoring.

CulturalResourceStudies

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

CommunityEngagement

An active program of stakeholder outreach was undertaken at
Pebble in 2013 that includes community meetings, stakeholder visits,
presentations and event appearances, as well as stakeholder tours to the Pebble
Project site and to operating mines in the United States and Canada. The focus
of these outreach activities is to update stakeholders on the Pebble Project, to
receive feedback on stakeholder priorities and concerns and to advise
participants about modern mining practices. Additional meetings were held
recently to update stakeholders on the changes to the Pebble Project with Anglo
Americans withdrawal.

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

|1. | The PebbleFundforSustainableBristolBayFisheries&Communities 
      Established in 2008 with a five-year, US$5 million commitment, with the
      goal of enhancing the health and sustainability of regional fisheries and
      the communities they support. Grants are determined based on criteria and
      selections made by an advisory board comprised of citizens from
      communities throughout the Bristol Bay region. Grants totaling US$522,337
      were awarded to sixteen charitable organizations, schools, and tribes
      serving southwest Alaska for 2014.
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | The Bristol Bay Marketplace Business Idea Competition for
      residents of Bristol Bay communities was introduced in 2011. The
      competition, sponsored by the Pebble Partnership and the Pebble Fund,
      provides the opportunity for local entrepreneurs to compete for funding to
      start or expand Bristol Bay-based businesses. The Bristol Bay Marketplace
      Business Idea Competition continued in 2013.                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|2. | An independent stakeholder dialogue process concerning
      the Pebble Project was initiated in late 2010 by the Keystone Center  a
      non-profit organization specializing in facilitating stakeholder-driven
      consultation processes concerning contentious, science-based issues.                                                                                                                                                                                                                                                                                        

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|   | Independent Science Panels ("ISP"), consisting of
      respected experts in a range of technical, scientific and sociological
      fields, were assembled to review environmental and socioeconomic data
      compiled by the Pebble Partnership for the purpose of project engineering
      and permitting, while providing expert insight to Pebble Project
      stakeholders. The process is designed to address: geology and
      geochemistry; hydrology and water quality; fish, wildlife and habitat; and
      social, economic and cultural dynamics. Four ISP events were held in
      October 2012 and a final event, focused on Wildlife, Wetlands and
      Endangered Species, was held in May 2013.
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|3. | Elders Forum - The Elders Forum is an annual event hosted
      by the Pebble Partnership to foster meaningful dialogue and provide
      updated information on the Pebble Project to Native elders from
      communities throughout the Bristol Bay region. The fifth annual Elders
      Forum was held in August 2013, and involved over 200 attendees
      representing 22 of the 31 in- region communities.                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | In addition, an Elders Advisory Committee comprised of 10
      members representing eight sub- regions within Bristol Bay works directly
      with the Pebble Partnership on an ongoing basis to outline community
      concerns pertaining to mining and potential impacts on subsistence ways of
      life. The committee participates in mine tours, Pebble site tours and
      educational meetings and conferences in order to share information
      regarding modern mining with their communities.                                                                                                                                                                                                         

As the Pebble Project advances toward the completion of a
Project Description and preparation for project permitting under NEPA, it is
expected that the Pebble Partnership will initiate further stakeholder
engagement programs to involve stakeholders in the planning process.

EmploymentandWorkforceDevelopment

The Pebble Partnership has been one of the most important
private sector employers in southwest Alaska for several years, and has
implemented employee training and workforce development initiatives such as
training in the areas of equipment operations, health, safety and environment.

|**1.2.1.2** | LegalMatters
|----------- | ------------

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

In November 2011, by a narrow 280  246 (53%  47%) margin,
voters in Southwest Alaskas Lake & Peninsula Borough supported a ballot
measure sponsored by anti-Pebble activists that proposed to restrict future
development that affects more than one square mile of land within the 31,000
square mile borough. The initiative was opposed by a broad spectrum of Alaska
interests, including a group of four Alaska Native village corporations
representing seven Lake & Peninsula Borough communities whose private land holdings would be affected by
the ordinance, the State of Alaska and the Pebble Partnership. It was also
opposed by the Resource Development Council for Alaska, the Alaska State Chamber
of Commerce, the Alaska Miners Association, Council of Alaska Producers, the
Alaska Oil and Gas Association and the Alaska Industry Support Alliance, among
others.

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The Pebble Partnership and the State of Alaska filed legal
challenges to the ballot initiative in the Alaska Superior Court, and on March
19, 2014 the court issued a permanent injunction barring the law from going into
effect. The court ruled in favor of the Pebble Partnership, agreeing that the
Alaska constitution and Alaska statutes preempted local governments from
interfering with resource development on State lands.

An environmental group, Renewable Resources Coalition ("RRC"),
has filed a lawsuit against the Pebble Partnership and others in superior court
in California. The lawsuit follows a complaint that Pebble Partnership filed
with the Alaska Public Offices Commission in 2009 which alleged that RRC and
others had engaged in illegal conduct during the course of a ballot initiative
campaign in 2008. The commission investigated and issued a report finding RRC
and others had violated Alaska law, and subsequently RRC and others entered into
a consent decree and paid a settlement fine. RRC then filed a lawsuit against
the Pebble Partnership, asserting that the Pebble Partnership violated RRC's
rights by acquiring documents and information which the Pebble Partnership had
attached to its complaint to the Alaska Public Offices Commission. The trial
court dismissed the lawsuit, finding that it was an improper retaliatory lawsuit
and barred by California's Anti-SLAPP (Strategic Lawsuits against Public
Participation) statute. An appellate court recently reversed that dismissal and
remanded the case back to the trial court. A status hearing is set for April
2014. The Pebble Partnership maintains that its conduct in reporting illegal
conduct to the proper law enforcement authority was appropriate and proper in
all respects, and it will again ask the trial court to dismiss the lawsuit for
lack of merit.

|**1.2.1.3** | BristolBayWatershedAssessment
|----------- | -----------------------------

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

The EPAs first draft Bristol Bay Watershed Assessment ("BBWA")
report was released on May 18, 2012. In the Companys opinion after review with
its consultants, the draft report is a fundamentally flawed document. By the
EPAs own admission, it has evaluated the effects of a "hypothetical project"
that is, one which has neither been defined nor proposed, and for which key
environmental mitigation strategies have not yet been developed and, hence would
not yet be known. It is believed by the Company that the assessment was rushed 
it is based on studies conducted over only one year in an area of 20,000 square
miles. In comparison, the Pebble Project has studied the ecological and social
environment surrounding Pebble for nearly a decade. The EPA also failed to fully
consider the comprehensive and detailed data that the Pebble Partnership
provided as part of its 27,000-page Environmental Baseline Document.

Page 10

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|NorthernDynastyMineralsLtd.      
|---------------------------------
|Management'sDiscussionAndAnalysis
|YearendedDecember31,2013         
|                                 

The EPA called for public comment on the quality and
sufficiency of scientific information presented in the draft BBWA report. In
response, the Pebble Partnership and Northern Dynasty made submissions on the
draft report. Northern Dynasty made a presentation highlighting these
shortcomings at the public hearings held in Seattle, Washington, on May 31, 2012
and in Anchorage, Alaska, on August 7, 2012. In July 2012, the Company also
submitted a 635-page critique of the draft report in response to the EPAs call
for public comment, and has called upon the EPA to cease such unwarranted
actions on the watershed assessment until such time as a definitive proposal for
the development of the Pebble deposit is submitted into the rigorous NEPA
process.

Concerns about the reasonableness of the basis of risk
assessment in the draft EPA report were stated by many of the independent
experts on the peer review panel assembled to review the BBWA in a report
entitled "ExternalPeerReviewofEPA'sDraftDocument:AnAssessmentofPotentialMiningImpactsonSalmonEcosystemsofBristolBay,Alaska"released in
November 2012. In a wide-ranging critique of t he draft report's methodology and
findings, many peer review panelists called the EPA's effort to evaluate the
effects of a "hypothetical mining scenario" on the water, fish, wildlife and
cultural resources of Southwest Alaska "inadequate", "premature",
"unreasonable",suspect"and"misleading". The full peer review report can be found at:
http://www.epa.gov/ncea/pdfs/bristolbay/Final-Peer-Review-Report-Bristol-Bay.pdf.

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

On April 26, 2013, the EPA released a revised draft of the BBWA
report and announced another public comment and Peer Review period. The Pebble
Partnership and Northern Dynasty made submissions on the revised draft. In late
May 2013, Northern Dynasty filed a 205-page submission which describes the same
major shortcomings as the original report published in May 2012. For additional
information on Northern Dynastys submission to the EPA and the Companys
critique of the BBWA report, see
http://www.northerndynastyminerals.com/ndm/BristolBay.asp.

In mid-January 2014, the EPA released the final version of its
BBWA. The report still reflects many of the same fundamental shortcomings as
previous drafts. It does not include any recommendations or regulatory actions
that will affect future development of the Pebble Project.

On February 28, 2014, the EPA announced that it is initiating a process under the Clean Water Act to investigate potential impacts on aquatic habitat and fisheries associated with mine development in southwest Alaska.  The EPA process, which is a continuation of the BBWA study initiated in 2011, will include consultation with the U.S. Army Corps of Engineers and the Pebble Partnership.  Based on input the EPA receives during any one of these steps, the agency has stated it could decide to take action under Section 404(c) of the Clean Water Act or decide that further review is not necessary.  Northern Dynasty management continues to be of the opinion that any final decisions about Pebble should be made by federal and state regulators working within the NEPA permitting process based on an actual permit application, and not unilaterally and pre-emptively by the EPA.

Page 11

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|NorthernDynastyMineralsLtd.      
|---------------------------------
|Management'sDiscussionAndAnalysis
|YearendedDecember31,2013         
|                                 

|**1.2.2**   | OtherProperties           
|----------- | --------------------------
|            |                           
|**1.2.2.1** | SouthPebble,SPandKAKClaims

AgreementbetweenFullMetalMineralsandthePebblePartnership

On January 31, 2012, the Pebble Partnership entered into a
Limited Liability Company Agreement (the "FMM Agreement") of Kaskanak Copper LLC
(the "LLC") with Full Metal Minerals (USA) Inc. ("FMMUSA"), which indirectly
owned 100% of FMMUSAs South Pebble Claims (the "FMM Properties"). On May 8,
2013, the Pebble Partnership purchased FMMUSAs entire ownership interest in the
LLC for a cash consideration of US$750,000. As a result, the Pebble Partnership
is the indirect owner of a 100% interest in the FMM Properties.

The FMM Properties total 542 claims covering approximately 135 square miles are located west of mineral claims held by the Pebble Partnership.

|**1.2.2.2** | BigChunkNorthandSouth
|----------- | ---------------------

NorthernDynastysPurchaseandOptionAgreementwithLibertyStar

On June 29, 2010, Northern Dynasty entered into an agreement
with Liberty Star Uranium and Metals Corp. and its subsidiary, Big Chunk Corp.
(together, "Liberty Star"), pursuant to which Liberty Star sold 23.8 square
miles of claims (the "Purchased Claims") to a US subsidiary of Northern Dynasty
in consideration for both a US$1 million cash payment and a secured convertible
loan from Northern Dynasty in the amount of US$3 million which accrues interest
at 10% per annum compounded monthly and which was repayable 45 days after being
called (the "Loan"). The parties agreed, through various amendments to the
original agreement, to increase the principal amount of the Loan by US$730,174
(the "Additional Loan Amount"), being the amounts expended by Northern Dynasty
on annual assessment work, rental and related fees relating to the maintenance
of Liberty Stars claims in Alaska. Northern Dynasty carried out initial
exploration surveys in 2010.

Northern Dynasty called for the repayment of the Loan in
October 2012 and, after failure by Liberty Star to make any repayment, Northern
Dynasty agreed to accept transfer of 199 claims (the "Settlement Claims")
covering 47.9 square miles located north of the ground held 100% by the Pebble
Partnership in settlement of the Loan. Prior to transfer of the Settlement
Claims to Northern Dynasty, a third party purported to register a lien on the
Settlement Claims in respect of a debt allegedly owed by Liberty Star, which
Liberty Star disputes. Liberty Star has filed a claim against the third party,
who has in turn filed a counterclaim against Liberty Star and has joined
Northern Dynasty and its subsidiary, U5 Resources Inc., as parties to the
lawsuit. Each of U5 Resources Inc. and Northern Dynasty has tendered its defence
of the counterclaim to Liberty Star, which is obligated to indemnify Northern
Dynasty and U5 Resources Inc. from any losses arising from the failure of
Liberty Star to transfer clear title to the Settlement Claims.

The total area of the properties is 71.7 square miles, and
includes 95 Purchased Claims and 199 Settlement Claims. All of these claims are
located in the vicinity of the Pebble Project.

Page 12

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|NorthernDynastyMineralsLtd.      
|---------------------------------
|Management'sDiscussionAndAnalysis
|YearendedDecember31,2013         
|                                 

|1.2.3 | MarketTrends
|----- | ------------

Copper prices showed a significant increase between late 2003
and mid-2008, and, after a steep decline in late 2008 and early 2009, steadily
increased until late 2011. Although prices have been variable since that time,
overall they have weakened. The recent closing price is US$2.98/lb.

Although gold prices have dropped from time to time, the
average annual price steadily increased from 2008 to 2012. Gold prices trended
lower in 2013; however, there has been some improvement in prices in early 2014.
The recent closing price is US$1,314/oz.

Molybdenum prices have been more volatile than gold or copper,
beginning an upward trend in 2003 that reached a peak of US$34/lb in October
2005, decreasing through 2006, then rising in 2007 until the latter part of
2008, when they dropped significantly. This decrease continued until May 2009.
Prices improved but were variable in 2010 and 2011. Prices then increased to
US$15.00/lb in early April 2012, before decreasing through July 2013, then
varying for the remainder of the year, averaging US$10.40/lb. The recent closing
price is US$10.21/lb.

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

Year
    Averagemetalprice(US$)Copper
    Gold
    Molybdenum2008
    3.16/lb
    871/oz
    29.70/lb2009
    2.34/lb
    974/oz
    11.29/lb2010
    3.42/lb
    1,228/oz
    15.87/lb2011
    4.00/lb
    1,572/oz
    15.41/lb2012
    3.61/lb
    1,669/oz
    12.81/lb2013
    3.32/lb
    1,410/oz
    10.40/lb2014(tothedateofthisMD&A)
    3.21/lb
    1,293/oz
    10.26/lb


Source:LMEOfficialCashPriceasprovidedat www.metalprices.com

Page 13

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|NorthernDynastyMineralsLtd.      
|---------------------------------
|Management'sDiscussionAndAnalysis
|YearendedDecember31,2013         
|                                 

|1.3 | SelectedAnnualInformation
|--- | -------------------------

The following selected annual information is from the audited
consolidated financial statements which have been prepared in accordance with
IFRS. The 2013 figures include the Pebble Partnership on a consolidated basis
with effect from December 10, 2013. All figures are expressed in thousands of
Canadian dollars unless otherwise stated except per share amounts.

|                                                   |   | December31 |  |   | December31 |  |   | December31 | 
|-------------------------------------------------- | - | ---------- |  | - | ---------- |  | - | ---------- | 
|StatementsofFinancialPosition                      |   | 2013       |  |   | 2012       |  |   | 2011       | 
|Investment in the Pebble Partnership
      ("PLP") | $ |           |  | $ | 99,336     |  | $ | 101,542    | 
|Mineral property, plant and equipment              |   | 108,050    |  |   | 1,055      |  |   | 1,055      | 
|Current assets                                     |   | 33,734     |  |   | 32,543     |  |   | 42,644     | 
|Totalassets                                        |   | 141,784    |  |   | 132,934    |  |   | 145,241    | 
|Shareholders equity                               |   | 133,928    |  |   | 128,893    |  |   | 141,356    | 
|Other liabilities                                  |   | 3,803      |  |   | 3,632      |  |   | 3,715      | 
|Current liabilities                                |   | 4,053      |  |   | 409        |  |   | 170        | 
|Totalshareholdersequityandliabilities             |   | 141,784    |  |   | 132,934    |  |   | 145,241    | 
|Workingcapital                                     | $ | 29,681     |  | $ | 32,134     |  | $ | 42,474     | 

|                                                     |   |            |   |   |            |   |   |            |  
|---------------------------------------------------- | - | ---------- | - | - | ---------- | - | - | ---------- | -
|                                                     |   | Yearended  |   |   | Yearended  |   |   | Yearended  |  
|                                                     |   | December31 |   |   | December31 |   |   | December31 |  
|Expenses(income)                                     |   | 2013       |   |   | 2012       |   |   | 2011       |  
|Exploration and evaluation                           | $ | 1,991      |   | $ | 4,461      |   | $ | 819        |  
|General and administrative                           |   | 6,245      |   |   | 6,780      |   |   | 6,168      |  
|Share-based compensation                             |   | 641        |   |   | 5,225      |   |   | 14,205     |  
|Exchange (gain) loss                                 |   | (340       | ) |   | 83         |   |   | (58        | )
|Interest income                                      |   | (1,136     | ) |   | (887       | ) |   | (944       | )
|Gain on discontinuance of equity method              |   | (5,062     | ) |   |           |   |   |           |  
|Loss before tax                                      |   | 2,339      |   |   | 15,662     |   |   | 20,190     |  
|Income tax expense (recovery)                        |   | 184        |   |   |           |   |   | (51        | )
|Lossfortheyear                                       | $ | 2,523      |   | $ | 15,662     |   | $ | 20,139     |  
|                                                     |   |            |   |   |            |   |   |            |  
|Basic and diluted loss per common share              | $ | 0.03       |   | $ | 0.16       |   | $ | 0.21       |  
|Weighted average number of common shares outstanding |   | 95,007     |   |   | 94,995     |   |   | 94,852     |  

Page 14

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|NorthernDynastyMineralsLtd.      
|---------------------------------
|Management'sDiscussionAndAnalysis
|YearendedDecember31,2013         
|                                 

|1.4 | SummaryandDiscussionofQuarterlyResults
|--- | --------------------------------------

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

|                                                 |   |         |   |   |         |   |   |         |   |   |         |   |   |         |   |   |              |   |   |         |   |   |         |  
|------------------------------------------------ | - | ------- | - | - | ------- | - | - | ------- | - | - | ------- | - | - | ------- | - | - | ------------ | - | - | ------- | - | - | ------- | -
|StatementsofFinancial                            |   | Dec 31  |   |   | Sep 30  |   |   | Jun 30  |   |   | Mar 31  |   |   | Dec 31  |   |   | Sep
      30 |   |   | Jun 30  |   |   | Mar 31  |  
|Position                                         |   | 2013    |   |   | 2013    |   |   | 2013    |   |   | 2013    |   |   | 2012    |   |   | 2012         |   |   | 2012    |   |   | 2012    |  
|Investment in PLP
      (1)                      | $ |        |   | $ | 102,870 |   | $ | 105,017 |   | $ | 101,443 |   | $ | 99,336  |   | $ | 98,168       |   | $ | 101,652 |   | $ | 99,595  |  
|Mineral property, plant &
      equipment        |   | 108,050 |   |   | 1,055   |   |   | 1,055   |   |   | 1,055   |   |   | 1,055   |   |   | 1,055        |   |   | 1,055   |   |   | 1,055   |  
|Current assets                                   |   | 33,734  |   |   | 28,044  |   |   | 29,693  |   |   | 30,817  |   |   | 32,543  |   |   | 35,623       |   |   | 38,605  |   |   | 40,811  |  
|Totalassets                                      |   | 141,784 |   |   | 131,969 |   |   | 135,765 |   |   | 133,315 |   |   | 132,934 |   |   | 134,846      |   |   | 141,312 |   |   | 141,461 |  
|                                                 |   |         |   |   |         |   |   |         |   |   |         |   |   |         |   |   |              |   |   |         |   |   |         |  
|Equity                                           |   | 133,928 |   |   | 127,859 |   |   | 131,629 |   |   | 129,456 |   |   | 128,893 |   |   | 130,214      |   |   | 137,191 |   |   | 137,282 |  
|Deferred income tax ("DIT")                      |   | 3,803   |   |   | 3,760   |   |   | 3,839   |   |   | 3,709   |   |   | 3,632   |   |   | 3,589        |   |   | 3,719   |   |   | 3,643   |  
|Current liabilities                              |   | 4,053   |   |   | 350     |   |   | 297     |   |   | 150     |   |   | 409     |   |   | 1,043        |   |   | 402     |   |   | 536     |  
|Totalshareholdersequityandliabilities           |   | 141,784 |   |   | 131,969 |   |   | 135,765 |   |   | 133,315 |   |   | 132,934 |   |   | 134,846      |   |   | 141,312 |   |   | 141,461 |  
|Working capital                                  |   | 29,681  |   |   | 27,694  |   |   | 29,396  |   |   | 30,667  |   |   | 32,134  |   |   | 34,580       |   |   | 38,203  |   |   | 40,275  |  
|                                                 |   |         |   |   |         |   |   |         |   |   |         |   |   |         |   |   |              |   |   |         |   |   |         |  
|Comprehensive(Income)Loss                        |   |         |   |   |         |   |   |         |   |   |         |   |   |         |   |   |              |   |   |         |   |   |         |  
|Expenses                                         |   |         |   |   |         |   |   |         |   |   |         |   |   |         |   |   |              |   |   |         |   |   |         |  
|Exploration and
      evaluation                 |   | 1,076   |   |   | 270     |   |   | 246     |   |   | 399     |   |   | 663     |   |   | 1,255        |   |   | 1,274   |   |   | 1,269   |  
|General and
      administrative                 |   | 1,810   |   |   | 1,552   |   |   | 1,495   |   |   | 1,388   |   |   | 2,076   |   |   | 2,472        |   |   | 1,136   |   |   | 1,096   |  
|Share-based compensation                         |   |        |   |   |        |   |   | 217     |   |   | 424     |   |   | 486     |   |   | 1,260        |   |   | 1,702   |   |   | 1,777   |  
|Loss from operating
      activities             |   | 2,886   |   |   | 1,822   |   |   | 1,958   |   |   | 2,211   |   |   | 3,225   |   |   | 4,987        |   |   | 4,112   |   |   | 4,142   |  
|Exchange (gain) loss                             |   | (183    | ) |   | 114     |   |   | (175    | ) |   | (96     | ) |   | (48     | ) |   | 136          |   |   | (87     | ) |   | 82      |  
|Interest income                                  |   | (413    | ) |   | (234    | ) |   | (265    | ) |   | (224    | ) |   | (233    | ) |   | (240         | ) |   | (251    | ) |   | (163    | )
|Gain on discontinuance of equity method (1)      |   | (5,062  | ) |   |        |   |   |        |   |   |        |   |   |        |   |   |             |   |   |        |   |   |        |  
|(Income) loss before
      tax                   |   | (2,772  | ) |   | 1,702   |   |   | 1,518   |   |   | 1,891   |   |   | 2,944   |   |   | 4,883        |   |   | 3,774   |   |   | 4,061   |  
|Income tax expense (recovery)                    |   | 184     |   |   |        |   |   |        |   |   |        |   |   | 2       |   |   | (2           | ) |   |        |   |   |        |  
|(Income)lossforthequarter                        |   | (2,588  | ) |   | 1,702   |   |   | 1,518   |   |   | 1,891   |   |   | 2,946   |   |   | 4,881        |   |   | 3,774   |   |   | 4,061   |  
|Foreign exchange translation
      difference    |   | (3,340  | ) |   | 2,147   |   |   | (3,574  | ) |   | (2,107  | ) |   | (1,168  | ) |   | 3,484        |   |   | (2,057  | ) |   | 1,947   |  
|Deferred income tax                              |   |        |   |   | (79     | ) |   | 130     |   |   | 77      |   |   | 41      |   |   | (128         | ) |   | 76      |   |   | (72     | )
|Reversal of DIT                                  |   | (141    | ) |   |        |   |   |        |   |   |        |   |   |        |   |   |             |   |   |        |   |   |        |  
|Comprehensive(income)loss                        | $ | (6,069  | ) | $ | 3,770   |   | $ | (1,926  | ) | $ | (139    | ) | $ | 1,819   |   | $ | 8,237        |   | $ | 1,793   |   | $ | 5,936   |  
|                                                 |   |         |   |   |         |   |   |         |   |   |         |   |   |         |   |   |              |   |   |         |   |   |         |  
|Basic and diluted (income) loss per common share | $ | (0.03   | ) | $ | 0.02    |   | $ | 0.02    |   | $ | 0.02    |   | $ | 0.03    |   | $ | 0.05         |   | $ | 0.04    |   | $ | 0.04    |  

(1)Pebble Limited Partnership. Up to the change of
control in Q4 of 2013, it was held under joint venture and accounted for under
the equity method.

Page 15

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|NorthernDynastyMineralsLtd.      
|---------------------------------
|Management'sDiscussionAndAnalysis
|YearendedDecember31,2013         
|                                 

DiscussionofQuarterlyTrends

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

|              |  |                  |  | 1CADfor1USD |  |      
|------------- |  | ---------------- |  | ----------- |  | -----
|Period        |  | USDmovementtoCAD |  | Start       |  | End  
|Q1 2012       |  | Depreciation     |  | $1.02       |  | $1.00
|Q2 2012       |  | Appreciation     |  | $1.00       |  | $1.02
|Q3 2012       |  | Depreciation     |  | $1.02       |  | $0.98
|Q4 2012       |  | Appreciation     |  | $0.98       |  | $0.99
|Q1 2013       |  | Appreciation     |  | $0.99       |  | $1.02
|Q2 2013       |  | Appreciation     |  | $1.02       |  | $1.05
|Q3 2013       |  | Depreciation     |  | $1.05       |  | $1.03
|Q4 2013       |  | Appreciation     |  | $1.03       |  | $1.06
|              |  |                  |  |             |  |      
|FY 2012       |  | Depreciation     |  | $1.02       |  | $0.99
|FY
      2013 |  | Appreciation     |  | $0.99       |  | $1.06

Share-based compensation expense has fluctuated due to the
timing of share purchase option grants and the vesting periods associated with
these grants. The fair value of share purchase options ("options") is determined
at the grant date and the compensation expense for each tranche is recognized
over the period during which the options vest. The Company granted options in Q2
of 2012 however, share-based compensation ("SBC") did not increase due to the
lower estimated fair value for these options of $0.87 per option as compared to
$6.56 per option for the previous years grant and notwithstanding the vesting
of one-half of these options at grant date. In Q1 and Q4 of 2012 SBC related to
the amortization of SBC on options that were still vesting. In Q3 of 2012, the
Company recognized approximately $458,000 in additional SBC in respect to
options that the Companys directors voluntarily agreed to cancel that were
still vesting. In 2013, as no options were granted, the remaining unamortized
SBC was recognized. All options were fully vested by end of Q3 of 2013.

Exploration and evaluation expenses averaged around $1.3
million for three quarters from Q1 to Q3 of 2012 as the Company conducted a
further technical study to advance work completed since the issue of the 2011
Preliminary Assessment ("2011 PA"). From Q4 of 2012 through Q3 of 2013,
exploration and evaluation expenses trended lower due to the completion of work
related to the technical study. In Q4 of 2013, additional costs were incurred as
a result of the withdrawal of Anglo American from the Pebble Partnership and the
Company consolidating the Pebble Partnership from December 10, 2013.

Page 16

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|NorthernDynastyMineralsLtd.      
|---------------------------------
|Management'sDiscussionAndAnalysis
|YearendedDecember31,2013         
|                                 

|1.5 | ResultsofOperations
|--- | -------------------

The following financial data has been prepared in accordance
with IFRS effective for the year ended December 31, 2013 and is expressed in
thousands of Canadian dollars unless otherwise stated.

The Companys operations and business are notdriven by
seasonal trends, but rather are driven towards the achievement of project
milestones relating to the Pebble Project such as the achievement of various
technical, environmental, socio-economic and legal objectives, including
obtaining the necessary permits, the completion of pre-feasibility and final
feasibility studies, preparation of engineering designs, as well as receipt of
financings to fund these objectives along with mine construction.

|1.5.1 | ResultsofOperationsfortheYearEndedDecember31,2013vs.2012
|----- | --------------------------------------------------------

The Company recorded a decrease in loss of $13.1 million due
mainly to the decrease in exploration and evaluation expenses, share-based
compensation expense and a gain recognized on discontinuance of the equity
method (in respect to the Pebble Partnership).

Exploration and evaluation expenses ("E&E") decreased by
$2.5 million as the Companys work on technical studies wound down.

General and administrative expenses ("G&A") decreased to
$6.2 million from $6.8 million in 2012 due mainly to a reduction in consulting
fees paid and conference and travel costs. In 2012, in response to EPAs
initiatives such as the BBWA (refer 1.2.1.3BristolBayWatershedAssessment),the Company initiated a program
to retain US political and scientific representatives and consultants to assist,
consult and represent the Company, which costs in 2013 have been lower. This was
offset by increased shareholder communication in 2013 as the Company has focused
more resources in the area of investor relations and shareholder communication.

The following table provides a breakdown of G&A incurred in
the year as compared to 2012, expressed in thousands of dollars:

|G&A                           |   | 2013  |  |   | 2012  | 
|----------------------------- | - | ----- |  | - | ----- | 
|Conference and travel         | $ | 340   |  | $ | 566   | 
|Consulting                    |   | 836   |  |   | 1,761 | 
|Insurance                     |   | 342   |  |   | 343   | 
|Legal, accounting and audit   |   | 275   |  |   | 255   | 
|Office costs                  |   | 670   |  |   | 702   | 
|Management and administration |   | 2,572 |  |   | 2,095 | 
|Shareholder communication     |   | 983   |  |   | 830   | 
|Trust and filing              |   | 227   |  |   | 228   | 
|Total                         | $ | 6,245 |  | $ | 6,780 | 

Share-based compensation decreased to $0.6 million from $5.2
million in 2012 due mainly to the Company not granting share purchase options.
In 2012 the Company granted 2.2 million options were granted and recognized an
additional $0.5 million expense for options that were cancelled voluntarily.
Although over 2.0 million options were cancelled voluntarily in 2013, they were
fully vested, and there was no impact on SBC as the Company had previously
recognized SBC thereon.

Page 17

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|NorthernDynastyMineralsLtd.      
|---------------------------------
|Management'sDiscussionAndAnalysis
|YearendedDecember31,2013         
|                                 

After the recognition of an exchange gain on translation of the
Pebble Partnership which has a US dollar functional currency of $6.9 million
(2012  loss of $2.2 million) (refer DiscussionofQuarterlyTrendsin1.4),the comprehensive income for the year was $4.4 million as compared to
a comprehensive loss of $17.8 million in 2012.

|1.5.2 | CashFlowsfortheYearEndedDecember31,2013vs.2012
|----- | ----------------------------------------------

Net cash used in operations decreased by $2.7 million to $7.8
million in 2013 due mainly to the decrease in Company corporate activities.

The Company contributed a further $1.0 million to the Pebble
Partnership before the change in control of the Pebble Partnership on December
10, 2013. On assumption of control, the Companys cash resources increased by
$6.5 million.

The Company received $0.6 million in interest on cash balances
as compared to $0.4 million in 2012 as the Companys funds were invested at
higher rates. For the year, the Company had a net decrease in cash of $1.7
million (2012  $9.9 million) .

|1.5.3 | FinancialpositionasatDecember31,2013vs.December31,2012
|----- | ------------------------------------------------------

The Companys total assets increased by $8.9 million to $141.8
million. The increase was mainly the result of consolidating the assets and
liabilities of the Pebble Partnership as a result of assuming control thereof
(discussed further in Note 3 in the Notes to the Financial Statements). In
respect to non-current assets, the Company recognized the Pebble mineral
property and plant and equipment as it discontinued the equity method of
accounting for the Pebble Partnership which including a foreign exchange gain on
translation amounted to an increase of $7.7 million. Current assets increased by
$1.2 million. The Company consolidated amounts receivable and prepaid expenses,
certain restricted cash ($1.2 million) and cash and cash equivalents from the
Pebble Partnership ($6.5 million  see previous section). The additional cash
and cash equivalents reduced the decrease in cash and cash equivalents utilized
for the year to $1.7 million. Other changes included the change in value of the
amounts receivable due to accrued interest ($0.3 million) and foreign exchange
gain on translation ($0.5 million) .

|1.5.4 | ThePebblePartnershipunderJointVenture
|----- | -------------------------------------

Until the change of control on December 10, 2013, the Company
accounted for its investment in the Pebble Partnership under the equity method.

Expenditures incurred by the Pebble Partnership on the Pebble
Project were funded by Anglo American in order to retain its 50% interest in the
Pebble Project. Anglo Americans total contributions from inception of the
Pebble Partnership to December 31, 2013 total $594.9 million (US$573.2 million)
.. For the period ended January 1 to December 10, 2013, the Pebble Partnership
incurred losses of $68.8 million (December 31, 2012  $102.9 million) . E&E
costs decreased to $58.5 million from $93.3 million in the previous year as the
Pebble Partnership focused on various programs to advance the completion of a
prefeasibility study for the Pebble Project and the completion of a Project
Description to support the permit application under NEPA (refer discussion in
1.2.1.1TechnicalPrograms). In
Q1 of 2012, the Pebble Partnership released the EBD.

The main E&E costs during the period ended January 1 to
December 10, 2013, were:

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|NorthernDynastyMineralsLtd.      
|---------------------------------
|Management'sDiscussionAndAnalysis
|YearendedDecember31,2013         
|                                 

- engineering (2013  $10.6 million; December 31, 2012  $19.1 million);
- environmental planning and testing (2013  $13.9 million; December 31,
  2012  $20.0 million);
- site activities (2013  $18.8 million; December 31, 2012  $36.6 million);
- corporate affairs (2013  $13.7 million; December 31, 2012  $16.5
  million); and
- business development (2013  $1.5 million; December 31, 2012  $1.1
  million).

For further discussion on exploration activities and related
technical programs see section1.2.1.1 TechnicalPrograms.

|1.6 | Liquidity
|--- | ---------

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

Northern Dynasty has $25.8 million in cash and cash equivalents
for its operating requirements. In the fall of 2013, the Company initiated a
review of all Pebble Partnership programs, timelines and budgets and prioritized
the allocation of available financial resources to advance the Pebble Project in
the most efficient manner (refer to 1.2). Based on available cash
resources Management believe the Company will be able to meet corporate
expenditure requirements and activities at the Pebble Project for at least the
next twelve months. 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 Company will be successful in obtaining additional
financing. If the Company is unable to raise the necessary capital resources and
generate sufficient cash flows to meet obligations as they come due, the Company
may have to reduce or curtail its operations.

At December 31, 2013, the Company had working capital of
approximately $29.7 million as compared to $32.1 million at December 31, 2012.
The Company has no long term debt, capital lease obligations, operating leases
or any other long term obligations other than those disclosed in the Financial
Statements (refer note 14, CommitmentsandContingencies, in the notes to the Financial Statements).

The Company has no "Purchase Obligations", defined as any
agreement to purchase goods or services that is enforceable and legally binding
on the Company that specifies all significant terms, including: fixed or minimum
quantities to be purchased; fixed, minimum or variable price provisions; and the
approximate timing of the transaction. The Company is responsible for
maintenance payments on the Pebble Project claims and other claims in the
vicinity thereof (see 1.2.2) and routine office leases.

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|NorthernDynastyMineralsLtd.      
|---------------------------------
|Management'sDiscussionAndAnalysis
|YearendedDecember31,2013         
|                                 

|1.7 | CapitalResources
|--- | ----------------

The Companys capital resources consist of its cash reserves.
As of December 31, 2013, the Company had no long term debt or commitments for
material capital expenditures other than what has been disclosed in the
Financial Statements.

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

|1.8 | Off-BalanceSheetArrangements
|--- | ----------------------------

There are none.

|1.9 | TransactionswithRelatedParties
|--- | ------------------------------

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

|Transactions                 |   | 2013  |  |   | 2012  | 
|---------------------------- | - | ----- |  | - | ----- | 
|Services rendered by HDSI    | $ | 4,181 |  | $ | 3,531 | 
|Reimbursement of third party |   |       |  |   |       | 
|expenses incurred by HDSI    |   | 829   |  |   | 1,129 | 
|TotalpaidbytheCompany        | $ | 5,010 |  | $ | 4,660 | 

The Company continues to use resources provided by HDSI to
assist with ongoing administration and management of the Company, including
continuous disclosure obligations, shareholder communications, public affairs
and investor relations, assisting the Company with the Pebble Partnership as
appropriate.

Other related party transactions include compensation paid to
key management personnel (directors and senior management including the Senior
Vice President, Corporate Development; Vice President ("VP"), Corporate
Communication, VP, Engineering and VP, Public Affairs). For the year ended
December 31, 2013, this comprised directors fees and salaries of $2.5 million
(2012  $2.2 million) and share -based compensation of $0.2 million (2012  $2.8
million) .

|1.10 | FourthQuarter2013vs2012
|---- | -----------------------

The Company recorded total comprehensive income of $6.1 million
as compared to a $1.8 million loss in 2012 as the Company recognized a gain on
discontinuance of the equity method for accounting for the Pebble Partnership
and a larger foreign exchange gain on translation as compared to 2012.

The Company recorded an increase in E&E of $0.4 million as
the Company initiated a review of all Pebble Partnership programs, timelines and
budgets in order to prioritize the allocation of available financial resources to advance the Pebble Project in
the most efficient manner with the withdrawal of Anglo American.

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|NorthernDynastyMineralsLtd.      
|---------------------------------
|Management'sDiscussionAndAnalysis
|YearendedDecember31,2013         
|                                 

G&A decreased to $1.8 million from $2.1 million in 2012.
The decrease was due mainly to decreased consulting costs and less conference
and travel related costs. This was offset by increased management and
administration resulting from the withdrawal of Anglo American from the Pebble
Partnership.

The following table provides a breakdown of G&A incurred
during the quarter as compared to the fourth quarter of 2012, expressed in
thousands of dollars:

|G&A                           |   | 2013  |  |   | 2012  | 
|----------------------------- | - | ----- |  | - | ----- | 
|Conference and travel         | $ | 29    |  | $ | 230   | 
|Consulting                    |   | 154   |  |   | 564   | 
|Insurance                     |   | 86    |  |   | 89    | 
|Legal, accounting and audit   |   | 214   |  |   | 175   | 
|Office costs                  |   | 237   |  |   | 147   | 
|Management and administration |   | 894   |  |   | 596   | 
|Shareholder communication     |   | 191   |  |   | 270   | 
|Trust and filing              |   | 5     |  |   | 5     | 
|Total                         | $ | 1,810 |  | $ | 2,076 | 

SBC decreased to $nil from $0.5 million in 2013 due mainly to
the Company not granting options. The Company had recognized the remaining
unamortized SBC in previous quarters.

On the discontinuance of the equity method for accounting for
the investment in Pebble Partnership, the Company recorded a gain of $5.1
million in the quarter. The Company recognized, through other comprehensive
income or loss, an exchange gain of $3.3 million in 2013 versus a $1.2 million
gain in 2012 on translation of the investment in the Pebble Partnership. As the
Pebble Partnership has a US dollar functional currency, the Company is impacted
by movements in the US / Canadian dollar exchange rate (see 1.4,Discussion ofQuarterly Trends).

|1.11 | ProposedTransactions
|---- | --------------------

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

|1.12 | CriticalAccountingEstimates
|---- | ---------------------------

The preparation of the Financial Statements requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities at the end of the reporting period presented and reported amounts of
expenses during said reporting period. Actual outcomes may differ from these
estimates. The following are specific areas where significant estimates or
judgments exist:

Estimates

| | i. | The Company uses the Black-Scholes Option Pricing Model
      to calculate the fair value of share purchase options granted for
      determining share-based compensation included in the loss for the year. Inputs used in this model require
      subjective assumptions including the expected price volatility from three
      to five years. Changes in the subjective input assumptions can affect the
      fair value estimate, and therefore the existing models do not necessarily
      provide a reliable single measure of the fair value of the Companys share
      purchase options.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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|NorthernDynastyMineralsLtd.      
|---------------------------------
|Management'sDiscussionAndAnalysis
|YearendedDecember31,2013         
|                                 

| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | ii.  | The loan receivable from Liberty Star Uranium &
      Metals Corp (refer Note 5 in the Notes to the Financial Statements), which
      is secured by certain mineral claims, was past due at the end of the
      reporting period. However the Company has not recognized an allowance for
      doubtful debts because the Company has a reasonable expectation that the
      loan will be settled by the transfer of the underlying mineral claims by
      the debtor.
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | iii. | Significant assumptions about the future and other
      sources of estimation uncertainty are made in determining the provision
      for any deferred income tax expense included in the loss for the year and
      the composition of deferred income tax liabilities included in the
      Statement of Financial Position in the Consolidated Financial Statements.                                                                                                  

Judgments

| | i.   | In terms of IFRS 6, ExplorationandEvaluationofMineralResources("IFRS 6"), the Company
      used judgment in determining that there are no facts and circumstances
      suggesting that the carrying amount of the Companys exploration and
      evaluation assets (which comprise the mineral property and plant and
      equipment )("E&E assets") may exceed their recoverable amount.                                                                                                                                                                                                                                                                                                      
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | ii.  | IAS 21, TheEffectsofChangesinForeignExchangeRates ("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 that mainly influences the cost of undertaking the business
      activities in each jurisdiction in which the Company operates.                                                                        
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | iii. | The Company applied judgment in determining the
      classification of its interests in other entities. In particular, the
      Company 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
      Company concluded that its previous 50% interest in the Pebble Partnership
      that the Company held until December 10, 2013, was a joint venture in
      accordance with IFRS 11, JointArrangements.                                           
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | iv.  | The Company 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,
      BusinessCombinations, and hence the transaction was
      outside the scope of IFRS 3. The Company 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 Company has employed judgment that going concern was
      still an appropriate basis for the preparation of the Financial
      Statements. Although the Company 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 Company
      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.

Page 22

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|NorthernDynastyMineralsLtd.      
|---------------------------------
|Management'sDiscussionAndAnalysis
|YearendedDecember31,2013         
|                                 

|**1.12.1** | MineralresourcesandthecarryingvalueoftheCompany sinvestmentinthePebblePartnership
|---------- | ----------------------------------------------------------------------------------

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

|**1.12.2** | Impairmentanalysisofassets
|---------- | --------------------------

At the end of each reporting period, the carrying amounts of
the Companys assets, which comprise mainly its E&E assets and the Liberty
Star loan receivable, are reviewed to determine whether there is any indication
that those assets are impaired. The Liberty Star loan receivable is discussed
under estimates above (refer (ii)). With respect to the Companys E&E
assets, the Company determined that, as per IFRS 6, there were no facts or
circumstances suggesting that the carrying value was impaired.

Recoverability of the carrying amount of the mineral property
is dependent on successful development and commercial exploitation or
alternatively, sale thereof.

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

At December 31, 2013, the Company reviewed the carrying value
of its assets and determined that there were no indicators of impairment.

|**1.12.3** | Restoration,rehabilitation,andenvironmentalobligations
|---------- | ------------------------------------------------------

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

Discount rates using pre-tax rates that reflect the time value
of money are used to calculate the net present value of restoration,
rehabilitation and environmental costs. 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.

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|NorthernDynastyMineralsLtd.      
|---------------------------------
|Management'sDiscussionAndAnalysis
|YearendedDecember31,2013         
|                                 

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

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

At December 31, 2013, the Company has no material restoration,
rehabilitation and environmental obligations as the disturbance to date is
minimal.

|**1.12.4** | Share-basedcompensationexpense
|---------- | ------------------------------

As indicated in 1.12 (i) the Company uses the Black -Scholes
option pricing model to estimate the fair value of options granted through its
Board of Directors, to directors, employees and service providers. Changes in
any of the inputs in the model such as expected volatility, expected life to
exercise and interest rates could cause a significant change in the share-based
compensation expense charged in a period. During the year the Company did not
grant any share purchase options. The share-based compensation expense
recognized in the year relates to the vesting of tranches of share purchase
options that were granted in prior years. The weighted average fair value of
options granted in 2012 was estimated at $0.87 per option based on the following
weighted average assumptions and inputs:

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

|**1.12.5** | IncomeTaxes
|---------- | -----------

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

Further discussion can be found in Note 2 in the Notes to the
Financial Statements which accompany this MD&A.

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|NorthernDynastyMineralsLtd.      
|---------------------------------
|Management'sDiscussionAndAnalysis
|YearendedDecember31,2013         
|                                 

|1.13 | ChangesinAccountingPoliciesincludingInitialAdoption
|---- | ---------------------------------------------------

AccountingStandards,AmendmentsandRevisedStandardsAdopted

The Company adopted a number of new and revised standards and
amendments that became effective on January 1, 2013 which are discussed in Note
2 in the Notes to the Financial Statements which accompany this MD&A.

AccountingStandards,AmendmentsandRevisedStandardsNotYetEffective

The Company has disclosed information and potential impact
thereof in Note 2 in the Notes to the Financial Statements which accompany this
MD&A.

|1.14 | FinancialInstrumentsandOtherInstruments
|---- | ---------------------------------------

The Company has no derivative financial assets or liabilities.
The loan receivable from Liberty Star which the Company continues to record in
its consolidated financial statements has an equity conversion option which is
not exercisable as the terms set out in the letter agreement were not completed
(refer Note 5(a) in the Notes to the Financial Statements).

|**1.14.1** | Non-derivativefinancialassets:
|---------- | ------------------------------

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

Available-for-sale("AFS")financialassets

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

Loansandreceivables

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, (ii) amounts receivable from a
related party ($nil in current year), (iii) cash and cash equivalents and
restricted cash (see below).

Cashandcashequivalentsandrestrictedcash

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.

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|NorthernDynastyMineralsLtd.      
|---------------------------------
|Management'sDiscussionAndAnalysis
|YearendedDecember31,2013         
|                                 

The Company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 Company.

|**1.14.2** | Non-derivativefinancialliabilities:
|---------- | -----------------------------------

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

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

|**1.14.3** | FinancialRiskManagement
|---------- | -----------------------

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

CreditRisk

Credit risk is the risk of potential loss to the Company if a
counterparty to a financial instrument fails to meet its contractual
obligations. The Companys credit risk is primarily attributable to its liquid
financial assets, including cash and cash equivalents, restricted cash and
amounts receivable which includes the Companys loan receivable from Liberty
Star and any amounts receivable from related parties. There has been no change
in the Companys objectives and policies for managing this risk except for
changes in the carrying amounts of financial assets exposed to credit risk, and
there was no significant change to the Companys exposure to credit risk during
the year ended December 31, 2013. Management has also concluded that there is no
objective evidence of impairment to its amounts receivable including the
recoverability of the loan receivable from Liberty Star (see discussion below).

Management assesses the recoverability of the loan receivable
from Liberty Star as at the end of each reporting period based on financial
information available. In October 2012, the Company delivered notice to Liberty
Star for repayment of the loan principal and accrued interest. In November 2012,
a loan settlement agreement was negotiated pursuant to which Liberty Star was to
transfer to the Company certain of its mineral claims held as collateral for the
loan receivable in payment of the loan principal and accrued interest. As of
December 31, 2013 and to the date of this MD&A, Liberty Star had not
completed the valid transfer of the claims to the Company as per the loan
settlement agreement and as such the loan settlement agreement is not closed and
accordingly the Company continues to retain its rights under the original loan
letter agreement. The Company has reasonable expectation that it will recover
the carrying amount of the loan receivable by enforcing the legal rights
conferred by the original loan letter agreement and/or the loan settlement
agreement including, but not limited to, the right to receive all or any portion
of the mineral claims held as collateral for the loan receivable.

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|NorthernDynastyMineralsLtd.      
|---------------------------------
|Management'sDiscussionAndAnalysis
|YearendedDecember31,2013         
|                                 

LiquidityRisk

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

ForeignExchangeRisk

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

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

|Currency                            |   | December31,2013 |   |   | December 31, 2012 | 
|----------------------------------- | - | --------------- | - | - | ----------------- | 
|                                    |   | US dollar       |   |   | Amount in         | 
|                                    |   | amount          |   |   | Canadian          | 
|US
      dollars  Financial assets |   | (000s           | ) |   | dollars           | 
|                                    |   |                 |   |   |                   | 
|Amounts receivable                  | $ | 5,360           |   | $ | 5,701             | 
|Cash and cash equivalents           |   | 7,083           |   |   | 7,534             | 
|Totalexposedtocurrencyrisk          | $ | 12,443          |   | $ | 13,235            | 

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

|Currency                                 |   | December31,2013 |   |   | December 31, 2012 | 
|---------------------------------------- | - | --------------- | - | - | ----------------- | 
|                                         |   | US dollar       |   |   | Amount in         | 
|                                         |   | amount          |   |   | Canadian          | 
|US
      dollars  Financial liabilities |   | (000s           | ) |   | dollars           | 
|                                         |   |                 |   |   |                   | 
|Trade and other payables                 | $ | 3,197           |   | $ | 3,400             | 
|Totalexposedtocurrencyrisk               | $ | 3,197           |   | $ | 3,400             | 

A 10% depreciation of the Canadian dollar relative to the
United States dollar at December 31, 2013 would have decreased loss by $983
(2012 - $465). This analysis assumes that all other variables, in particular
interest rates, remain constant.

There has been no change in the Companys objectives and
policies for managing this risk, except for the changes in the carrying amounts
of financial assets exposed to foreign exchange risk, and there was no
significant change to the Companys exposure to foreign exchange risk during the
year ended December 31, 2013.

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|NorthernDynastyMineralsLtd.      
|---------------------------------
|Management'sDiscussionAndAnalysis
|YearendedDecember31,2013         
|                                 

Interestraterisk

The Company is subject to interest rate risk with respect to
its investments in cash and cash equivalents. There has been no change in the
Companys objectives and policies for managing this risk and no significant
change to the Companys exposure to interest rate risk during the year ended
December 31, 2013.

Assuming that all variables remain constant, a 100 basis points
change in a decrease or increase in interest rates would have resulted in a
decrease or increase in interest income of approximately $267 (2012 - $325).

Commoditypricerisk

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

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

CapitalManagement

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

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

|1.15 | OtherMD&ARequirements
|---- | ---------------------

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

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|NorthernDynastyMineralsLtd.      
|---------------------------------
|Management'sDiscussionAndAnalysis
|YearendedDecember31,2013         
|                                 

|**1.15.1** | DisclosureofOutstandingShareData
|---------- | --------------------------------

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

|Common shares issued and outstanding As of
      March 25, 2014                               |  | 95,009,864 | 
|--------------------------------------------------------------------------------------------- |  | ---------- | 
|Share options  as
      of March 25, 2014 (Weighted average exercise price per share: $2.19) |  | 6,434,500  | 

|**1.15.2** | DisclosureControlsandProcedures
|---------- | -------------------------------

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

|**1.15.3** | ManagementsReportonInternalControloverFinancialReporting
|---------- | ---------------------------------------------------------

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

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

The Company’s management assessed the effectiveness of the Company’s ICFR as of December 31, 2013. In making the 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 their assessment, management has concluded that, as of December 31, 2013, the Company’s ICFR was effective based on those criteria.

The Company’s ICFR 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 for the year ended December 31, 2013.  Deloitte LLP, as stated in their report that immediately precedes the Company's audited consolidated financial statements for the year ended December 31, 2013, expressed an unqualified opinion on the effectiveness of the Company’s ICFR.

Page 29

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|NorthernDynastyMineralsLtd.      
|---------------------------------
|Management'sDiscussionAndAnalysis
|YearendedDecember31,2013         
|                                 

|**1.15.4** | ChangesinInternalControloverFinancialReporting
|---------- | ----------------------------------------------

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

|**1.15.5** | LimitationsofControlsandProcedures
|---------- | ----------------------------------

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

|**1.15.6** | RiskFactors
|---------- | -----------

Please refer to "Risk Factors" under Item5 in the Companys 2013AnnualInformationForm filed under the Companys profile on
SEDAR at www.sedar.com for a detailed discussion. The Companys Form 40-F
which is filed with the SEC on EDGAR at www.sec.gov.com also discusses
certain risk factors.

Page 30

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