---



MANAGEMENT'S DISCUSSION AND ANALYSIS

YEAR ENDED DECEMBER 31, 2011

---

|NORTHERN DYNASTY MINERALS LTD.      
|------------------------------------
|MANAGEMENT'S DISCUSSION AND ANALYSIS
|YEAR ENDED DECEMBER 31, 2011        
|                                    

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

|1.1  | DATE                                                                          | 3                     
|---- | ----------------------------------------------------------------------------- | ----------------------
|1.2  | OVERVIEW                                                                      |                       
|     | 1.2.1                                                                         | SUMMARY               
|     |                                                                               | 1.2.1.1               
|     |                                                                               | 1.2.1.2               
|     |                                                                               | 1.2.1.3               
|     |                                                                               | 1.2.1.4               
|     | 1.2.2                                                                         | OTHER
      PROPERTIES
|     |                                                                               | 1.2.2.1               
|     |                                                                               | 1.2.2.2               
|     | 1.2.3                                                                         | MARKET
      TRENDS   
|1.3  | SELECTED
      ANNUAL INFORMATION                                             | 15                    
|1.4  | SUMMARY
      OF QUARTERLY RESULTS                                            | 16                    
|1.5  | RESULTS
      OF OPERATIONS                                                   | 16                    
|1.6  | LIQUIDITY                                                                     | 20                    
|1.7  | CAPITAL
      RESOURCES                                                       | 21                    
|1.8  | OFF-BALANCE
      SHEET ARRANGEMENTS                                          | 21                    
|1.9  | TRANSACTIONS
      WITH RELATED PARTIES                                       | 21                    
|1.10 | FOURTH
      QUARTER                                                          | 21                    
|1.11 | PROPOSED
      TRANSACTIONS                                                   | 22                    
|1.12 | CRITICAL
      ACCOUNTING ESTIMATES                                           | 22                    
|1.13 | CHANGES
      IN ACCOUNTING POLICIES INCLUDING INITIAL ADOPTION               | 25                    
|1.14 | FINANCIAL
      INSTRUMENTS AND OTHER INSTRUMENTS                             | 28                    
|1.15 | OTHER
      MD&A REQUIREMENTS                                                 | 31                    
|     | 1.15.1
      DISCLOSURE OF OUTSTANDING SHARE DATA                             | 32                    
|     | 1.15.2
      DISCLOSURE CONTROLS AND PROCEDURES                               | 32                    
|     | 1.15.3
      MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING | 32                    
|     | 1.15.4
      CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING             | 33                    
|     | 1.15.6
      RISK FACTORS                                                     | 33                    

Page 2

---

|NORTHERN DYNASTY MINERALS LTD.      
|------------------------------------
|MANAGEMENT'S DISCUSSION AND ANALYSIS
|YEAR ENDED DECEMBER 31, 2011        
|                                    

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

This Managements Discussion and Analysis ("MD&A") should
be read in conjunction with the audited consolidated financial statements of
Northern Dynasty Minerals Ltd. ("Northern Dynasty" or the "Company") for the
year ended December 31, 2011 as publicly filed under the Companys profile on
SEDAR at www.sedar.com.

The Company reports in accordance with International Financial
Reporting Standards ("IFRS") and the following disclosure, and associated
consolidated financial statements, are presented in accordance with IFRS. This
MD&A is prepared as of March 28, 2012. All dollar figures stated herein are
expressed in Canadian dollars, unless otherwise specified.

|This discussion includes certain statements that may be
      deemed "forward-looking statements". These forward-looking statements
      constitute "forward-looking statements" within the meaning of Section 27A
      of the Securities Act of 1933 and Section 21E of the Securities Exchange
      Act of 1934.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|All information contained in this management discussion
      relating to the contents of the Preliminary Assessment, including but not
      limited to statements of the potential of the Pebble Copper-Gold-
      Molybdenum Project (the "Pebble Project") and information under the
      headings "Preliminary Assessment Key Findings, " "Production Profiles, "
      "Financial Valuation" and "Capital and Operating Costs" are "forward
      looking statements" within the definition of the United States Private
      Securities Litigation Reform Act of 1995. The information relating to the
      possible construction of a port, road, power generating facilities and
      power transmission facilities also constitutes such "forward looking
      statements." The Preliminary Assessment was prepared to broadly quantify
      the Pebble Project's capital and operating cost parameters and to provide
      guidance on the type and scale of future project engineering and
      development work that will be needed to ultimately define the project's
      likelihood of feasibility and optimal production rate. It was not prepared
      to be used as a valuation of the Pebble Project nor should it be
      considered to be a prefeasibility study. Although based on a comprehensive
      technical review of recent engineering and technical studies undertaken by
      the Pebble Limited Partnership (the "Pebble Partnership") and Northern
      Dynasty, the studies of capital and operating costs are incomplete and
      have not been optimized, so the ultimate costs may vary significantly from
      the amounts set out in the Preliminary Assessment. This could materially
      and adversely impact the projected economics of the Pebble Project. The
      Preliminary Assessment is based on, Wardrop, a Tetra Tech Companys
      comprehensive review of recent engineering and technical studies
      undertaken principally by the Pebble Partnership and by Northern Dynasty.
      The economic assessments and other opinions expressed in the Preliminary
      Assessment are strictly those of Northern Dynasty and Wardrop, and do not
      reflect the views of any other stakeholder in the project. As such, any
      project which is ultimately put forward by the Pebble Partnership for
      permitting under the National Environmental Policy Act may differ from
      those mine models presented in the Preliminary Assessment.
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|The Preliminary Assessment, in part, uses inferred
      mineral resources which are considered too speculative geologically to be
      categorized as mineral reserves and to have economic considerations
      applied to them. There can be no assurance that the operating and
      financial projections contained in the Preliminary Assessment will be
      realized.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|The following are the principal risk factors and
      uncertainties which, in management's opinion, are likely to most directly
      affect the conclusions of the Preliminary Assessment and the ultimate
      feasibility of the Pebble Project. A portion of the mineralized material
      at the Pebble Project is currently classified as an inferred resource and
      it is not a reserve. The mineralized material in the Preliminary
      Assessment is based on the measured, indicated and inferred resources
estimated by                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

Page 3

---

|NORTHERN DYNASTY MINERALS LTD.      
|------------------------------------
|MANAGEMENT'S DISCUSSION AND ANALYSIS
|YEAR ENDED DECEMBER 31, 2011        
|                                    

|Hunter Dickinson Services Inc. and audited by Wardrop.
      Additional process tests and other engineering and geologic work will be
      required to determine if the mineralized material is an economically
      exploitable reserve. There can be no assurance that this mineralized
      material can become a reserve or the amount that may be converted to a
      reserve or the grade thereof. Final feasibility work has not been done to
      confirm the pit design, mining methods, and processing methods assumed in
      the Preliminary Assessment. Final feasibility could determine that the
      assumed pit design, mining methods, and processing methods are not
      correct. Construction and operation of the mine and processing facilities
      depends on securing environmental and other permits on a timely basis. No
      permits have been applied for and there can be no assurance that required
      permits can be secured or secured on a timely basis. Data is incomplete
      and cost estimates have been developed in part based on the expertise of
      the individuals participating in the preparation of the Preliminary
      Assessment and on costs at projects believed to be comparable, and not
      based on firm price quotes. Costs, including design, procurement,
      construction, and on-going operating costs and metal recoveries could be
      materially different from those contained in the Preliminary Assessment.
      There can be no assurance that mining can be conducted at the rates and
      grades assumed in the Preliminary Assessment. The project requires the
      development of port facilities, roads and electrical generating and
      transmission facilities. Although Northern Dynasty believes that the State
      of Alaska favours the development of these facilities, there can be no
      assurance that these infrastructure facilities can be developed on a
      timely and cost-effective basis. Energy risks include the potential for
      significant increases in the cost of fuel and electricity.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|The Preliminary Assessment assumes specified, long-term
      price levels for gold, copper, silver and molybdenum. Prices for these
      commodities are historically volatile, and Northern Dynasty has no control
      of or influence on those prices, all of which are determined in
      international markets. There can be no assurance that the prices of these
      commodities will continue at current levels or that they will not decline
      below the prices assumed in the Preliminary Assessment. Prices for gold,
      copper, silver, and molybdenum have been below the price ranges assumed in
      Preliminary Assessment during the past ten years, and for extended periods
      of time.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|The Pebble Project will require major financing, probably
      a combination of debt and equity financing. Interest rates are at
      historically low levels. There can be no assurance that debt and/or equity
      financing will be available on acceptable terms. A significant increase in
      costs of capital could materially and adversely affect the value and
      feasibility of constructing the project. Other general risks include those
      ordinary to very large construction projects including the general
      uncertainties inherent in engineering and construction cost, the need to
      comply with generally increasing environmental obligations, and
      accommodation of local and community concerns. The Company is also subject
      to the specific risks inherent in the mining business, as well as general
      economic and business conditions.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|For more information on the Company, Investors should
      review the Companys annual information form and Form 40-F filing with the
      United States Securities and Exchange Commission (the "SEC") at
      www.sec.govand its home jurisdiction filings that are available on
      SEDAR at www.sedar.com. The Company reviews its forward looking statements
      on an ongoing basis and updates this information when circumstances
      require it.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

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

Page 4

---

|NORTHERN DYNASTY MINERALS LTD.      
|------------------------------------
|MANAGEMENT'S DISCUSSION AND ANALYSIS
|YEAR ENDED DECEMBER 31, 2011        
|                                    

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

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

|1.2   | Overview
|----- | --------
|      |         
|1.2.1 | Summary 

Northern Dynasty is a mineral exploration company which holds
indirect interests in 650 square miles of mineral claims in southwest Alaska,
USA. These claims are part of or in the vicinity of the Pebble
Copper-Gold-Molybdenum Project (the "Pebble Project").

1.2.1.1 Pebble Project

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

Mineralization was discovered in 1987, and by 1997 an initial
mineral resource of copper, gold and molybdenum had been outlined in the Pebble
deposit by a previous operator.

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

In mid-2007, a wholly-owned affiliate of Northern Dynasty and a
wholly-owned subsidiary of Anglo American plc, Anglo American US (Pebble) LLC
("Anglo American") established the Pebble Limited Partnership (the Pebble
Partnership) to engineer, permit, construct and operate a modern, long-life
mine at the Pebble Project. The 50/50 Pebble Partnership owns the Pebble
Project, which consists of the Pebble Deposit and 350 square miles of associated
resource lands, along with a

Page 5

---

|NORTHERN DYNASTY MINERALS LTD.      
|------------------------------------
|MANAGEMENT'S DISCUSSION AND ANALYSIS
|YEAR ENDED DECEMBER 31, 2011        
|                                    

stream of financing being provided by Anglo American for
comprehensive exploration, engineering, environmental and socioeconomic programs
and, if warranted, development of the Pebble Project. Work programs at Pebble
since mid-2007 have been carried out by the Pebble Partnership. These programs
include detailed engineering, environmental and socioeconomic studies toward the
completion of a prefeasibility study for the Pebble Project which will enable
the Pebble Partnership to engage stakeholders in the planning process and
prepare for permitting under the National Environmental Policy Act ("NEPA").

Preliminary Assessment

Northern Dynasty commissioned an independent Preliminary
Assessment of the Pebble Project, the results of which were announced by the
Company on February 23, 2011. The study, completed by Wardrop, a Tetra Tech
Company ("Wardrop")1, was based on concept, prefeasibility and
feasibility-level study programs undertaken by the Pebble Partnership and
Northern Dynasty on various components of the Pebble Project. The Preliminary
Assessment updates and substantially revises project economic analysis last done
by Northern Dynasty in 2004.

The economic assessments and other opinions expressed in the
Preliminary Assessment are strictly those of Northern Dynasty and Wardrop, and
do not reflect the views of any other stakeholder in the project. The Pebble
Partnership continues to separately undertake detailed engineering,
environmental and socioeconomic studies toward the completion of a
prefeasibility report for the Pebble Project, including ongoing programs to
engage project stakeholders in the planning process. As such, any project which
is ultimately put forward by the Pebble Partnership for permitting under NEPA
and the Alaska State Large Mine Permitting Process may differ from those mine
models presented in the Preliminary Assessment.

The Preliminary Assessment describes and assigns potential
economic value to three successive mine development cases comprising 25, 45 and
78 years of open pit mining and a nominal processing rate of 200,000 tons per
day. Key results include:

- For the Pebble Project, the 45-year Reference Case yields a 14.2% pre-tax
  internal rate of return ("IRR"), a 6.2-year payback on initial capital
  investment of US$4.7 billion and a US$6.1 billion pre-tax net present value
  ("NPV") at a 7% discount rate and long-term metal prices defined in

___________________________________________1Qualified Persons for the February 2011 Preliminary Assessment Technical
Report include Hassan Ghaffari, P.Eng, Robert Morrison, P.Geo, Andre de Ruijter,
P.Eng, Tysen Hantelmann, P.Eng, Aleksandar Zivkovic, P.Eng, and Scott Cowie,
MAusIMM; Doug Ramsey, P.R. Bio is author of sustainability section. All of these
qualified persons are independent of Northern Dynasty.

The Preliminary Assessment is based on mineral resources at
February 2010 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. Mineral
resources that are not mineral reserves do not have demonstrated economic
viability. At a 0.30% copper equivalent (CuEQ) cut-off, these comprise:

- 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.

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.

Page 6

---

|NORTHERN DYNASTY MINERALS LTD.      
|------------------------------------
|MANAGEMENT'S DISCUSSION AND ANALYSIS
|YEAR ENDED DECEMBER 31, 2011        
|                                    

- For Northern Dynastys 50% share of the project, the 45-year Reference
  Case yields an 18% pre-tax and 15.4% post-tax IRR, a 4.7-year pre-tax and
  5.3-year post-tax payback on initial capital investment and a US$3.6 billion
  pre-tax and US$2.4 billion post-tax NPV at a 7% discount rate and long-term
  metal prices.At prevailing metal prices at the time of the study, the
  45-year Reference Case yields a 30.2% pre-tax and 25.1% post-tax IRR, a
  2.6-year pre-tax and 3.1-year post-tax payback on initial capital investment
  and a US$8.3 billion pre-tax and $5.6 billion post-tax NPV at a 7% discount
  rate for Northern Dynastys 50% interest.
- The 45-year Reference Case produces 31 billion ("B") lb copper, 30 million
  ("M") oz gold, 1.4 B lb molybdenum, 140 M oz silver, 1.2 M kg rhenium and
  907,000 oz palladium while mining only 32% of the mineral resource.
- For the 45-year Reference Case, cash costs per payable lb of copper after
  by-product credits total minus US$0.11.

Additional details on the Preliminary Assessment are described
in Northern Dynastys 2010 Annual Information Form and the February 2011
Preliminary Assessment Technical Report, both of which are posted on the
Companys profile at www.sedar.com.

The results of the Preliminary Assessment confirm that the
Pebble Project has the potential to generate substantial annual revenues, with
increasingly better returns over decades of production.

Ongoing Prefeasibility Study and Environmental and
Socioeconomic Work

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

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

In January 2012, the Pebble Partnership released the
Environmental Baseline Document ("EBD") for the Pebble Project, characterizing
existing physical, biological and social conditions in the project area, in
anticipation of initiating project permitting. It contains more than 27,000
pages of scientific data and analyses, characterizing a broad range of
environmental and social conditions in southwest Alaska  including climate,
water quality, wetlands, fish and aquatic habitat, wildlife, land and water use,
socioeconomics and subsistence. The EBD is based primarily on research

___________________________2Initial capital
expenditures for all three development cases are estimated at $4.7 billion,
excluding capital costs associated with outsourced power, road and port
infrastructure.

Page 7

---

|NORTHERN DYNASTY MINERALS LTD.      
|------------------------------------
|MANAGEMENT'S DISCUSSION AND ANALYSIS
|YEAR ENDED DECEMBER 31, 2011        
|                                    

collected between 2004 and 2008, although baseline data
collecting and monitoring of these environments continues today.

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

Work continues toward completion of the Prefeasibility Study,
with permitting under NEPA expected to begin toward the end of 2012.

The 2012 budget for a comprehensive work program is currently
being finalized and is expected to be similar to the prior year. The program
would include work to advance the Prefeasibility Study for the Pebble Project,
finalize a Project Description, continue community engagement and workforce
development programs and prepare for permitting under NEPA.

Corporate

Northern Dynasty has cash and cash equivalents on hand of $37.5
million for its operating requirements. As the Pebble Project is being financed
by Anglo American in 2012, management believes that the Company has sufficient
capital resources to cover its short to medium term cash requirements.

1.2.1.2 Limited Partnership Established to Advance the
Pebble Project

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

Anglo Americans staged investment requirements include an
initial minimum expenditure of US$125 million (completed in 2008) towards a
prefeasibility report. The prefeasibility report is to be approved by the Board
of the general partner (Pebble Mines Corp.), and is to summarize all previous
prefeasibility studies. The Board of the general partner is also to approve the
alternatives for a final Feasibility Study. Anglo American is required, in order
to retain its 50% interest in the Pebble Partnership, to commit within 90 days
of the later of the receipt of the approved prefeasibility report and the
approved study alternatives, to fund further expenditures which would bring its
total investment to at least US$450 million, which amount is to be expended
towards producing a final feasibility study and related activities, the
completion of which is expected to take the Pebble Partnership to a production
decision. Upon an affirmative decision by the Pebble Partnership to develop a
mine following approval of a positive Feasibility Study, Anglo American is
required to commit to the remaining portion of the total investment of US$1.5
billion in order to retain its interest in the Pebble Partnership. Following
completion of the US$1.5 billion expenditure, any further expenditure will be
funded by Anglo American and the Company (through

Page 8

---

|NORTHERN DYNASTY MINERALS LTD.      
|------------------------------------
|MANAGEMENT'S DISCUSSION AND ANALYSIS
|YEAR ENDED DECEMBER 31, 2011        
|                                    

its affiliate) on a 50:50 basis (subject to dilution for
non-contribution). The Pebble Partnership agreement provides for equal project
control rights with no operators fees payable to either party.

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

Anglo Americans cash contribution since the formation of the
Pebble Partnership on July 31, 2007 to December 31, 2011 amounts to $418.1
million (US$398.5 million).

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

1.2.1.3 Technical Programs

Exploration and Drilling

Site work in 2011 focused on drilling for engineering studies,
and support for environmental field work. The drilling programs collected
information around planned infrastructure, to continue geotechnical studies and
metallurgical testwork, and to further test groundwater conditions and
overburden characteristics in the deposit-area. Additional holes were drilled to
assess the deposit model between the East and West zones. Drilling continued at
site in the fourth quarter ("Q4"); 12 holes totaling 12,039 feet were drilled.
Of these, eight were drilled for geotechnical purposes, and one hole was drilled
to test an area of interest for potential infrastructure development. There were
also three holes (two exploration and one infill) drilled to assist with
resource modeling.

In total, 85 holes totaling approximately 50,768 feet, were
drilled in 2011.

Engineering

The current phase of the engineering program consists of
completion of the prefeasibility study for the Pebble Project. This work
commenced during the first quarter with updating of the 2011 work schedule and
estimates of costs. A number of key consultants were engaged in the first
quarter and the primary engineering contractor for the prefeasibility study was
selected during the second quarter.

The initial round of engineering design was completed and
review began in the middle of Q4. Metallurgical testwork data was utilized to
finalize process design criteria. Equipment lists and plant layouts, as well as
the overall site plan were compiled.

Other data were also collected to support the design: at the
deposit site, geotechnical drilling of potential infrastructure sites and the
deposit-area overburden was completed as well as data collection for the primary
infrastructure components. The latter work included ongoing compilation from
offshore data recorders (which have been installed for approximately one year)
at the potential port site, geophysical analysis of the proposed port uplands
area, and additional geotechnical reconnaissance along the potential road
route.

A review of the mine plan also began late in Q4.

Page 9

---

|NORTHERN DYNASTY MINERALS LTD.      
|------------------------------------
|MANAGEMENT'S DISCUSSION AND ANALYSIS
|YEAR ENDED DECEMBER 31, 2011        
|                                    

Environmental and Socioeconomic Studies

The Environmental Baseline Document ("EBD") was released in
January 2012. The EBD provides information and analysis on baseline physical,
chemical, biological and social conditions based upon ongoing data collection by
the Pebble Project environmental study team from 2004-2008. Its purpose is to
provide the public, regulatory agencies and the Pebble Partnership with a
detailed compendium of pre-development environmental and socioeconomic
conditions in the project area.

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

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

Comprehensive environmental and socioeconomic baseline study
programs continue at the Pebble Project site. The 2012 field programs will
primarily focus on surface and groundwater hydrology, water quality and fish
resources.

Cultural Resource Studies

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

Community Engagement

An active program of stakeholder outreach continued in 2011,
including community meetings, stakeholder visits, presentations and event
appearances, as well as stakeholder tours to the Pebble Project site and to
operating mines in the United States and Canada. The focus of these outreach
activities is to update stakeholders on the Pebble Project, to receive feedback
on stakeholder priorities and concerns, and to advise participants about modern
mining practices.

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

|1. | The Pebble Fund for Sustainable Bristol Bay Fisheries
      & Communities Established in 2008 with a five-year, US$5 million
      commitment, the goal of the Pebble Fund is to enhance 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. The fifth round of grants was announced in October 2011, when
      US$323,919 was awarded to 15 worthy community
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Page 10

---

|NORTHERN DYNASTY MINERALS LTD.      
|------------------------------------
|MANAGEMENT'S DISCUSSION AND ANALYSIS
|YEAR ENDED DECEMBER 31, 2011        
|                                    

|   | development projects in southwest Alaska. To the end of
      2011, the Pebble Fund has supported 105 community-based projects
      throughout southwest Alaska via grants totaling more than US$3.5 million,
      while leveraging nearly US$15 million in matching funds from other
      organizations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   | The Bristol Bay Marketplace Business Idea Competition for
      residents of Bristol Bay communities was introduced in 2011. The
      competition, sponsored by the Pebble Partnership and the Pebble Fund,
      provides the opportunity for local entrepreneurs to compete for funding to
      start or expand Bristol Bay-based businesses.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|2. | An independent stakeholder dialogue process concerning
      the Pebble Project was initiated in late 2010 by the Keystone Center  a
      non-profit organization specializing in facilitating stakeholder-driven
      consultation processes concerning contentious, science-based issues.
      Independent Science Panels (ISP), consisting of respected experts in a
      range of technical, scientific and sociological fields, are being
      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. Four ISP
      events are planned for the fall 2012 to address: geology and geochemistry;
      hydrology and water quality; fish, wildlife and habitat; and social,
      economic and cultural dynamics.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   | The 2011 site tour program hosted 84 tour groups and over
      400 individual stakeholders. Additionally, about 86 stakeholders have
      visited operating mines in Alaska, Canada, Utah and
  Wisconsin.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

As the Pebble Project advances toward the completion of a
prefeasibility study and preparation for project permitting under NEPA, it is
expected that the Pebble Partnership will initiate a broad-based public
consultation program to involve stakeholders in the process by which the project
is being designed. This consultative process is currently expected to begin in
the spring of 2012.

Employment and Workforce Development

The Pebble Partnership is one of the most important private
sector employers in southwest Alaska. A total of 509 Bristol Bay residents were
employed by the Pebble Project in 2011.

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

1.2.1.4 Legal Matters

On February 23, 2011, the Company issued a news release
announcing that it was in receipt of a new independent Preliminary Assessment of
the Pebble Project, which is based on the information

Page 11

---

|NORTHERN DYNASTY MINERALS LTD.      
|------------------------------------
|MANAGEMENT'S DISCUSSION AND ANALYSIS
|YEAR ENDED DECEMBER 31, 2011        
|                                    

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

In February 2011, the U.S. 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 the
Nushagak and Kvichak drainages. This process was initiated in response to calls
from tribes in opposition to the Pebble Project for the EPA to pre-emptively use
its powers under Section 404c 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 has embarked on a scientific study to assess
potential impacts of hard rock mining and other resource development in the
region. The Bristol Bay Watershed Assessment process is expected to conclude in
mid to late 2012.

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

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

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

The Pebble Partnership and the State of Alaska view the
initiative as unconstitutional and unenforceable because it seeks to restrict
development of state-owned resources on state lands

Page 12

---

|NORTHERN DYNASTY MINERALS LTD.      
|------------------------------------
|MANAGEMENT'S DISCUSSION AND ANALYSIS
|YEAR ENDED DECEMBER 31, 2011        
|                                    

through a municipal ordinance. The State of Alaska and the
Pebble Partnership have filed legal challenges in the Alaska Superior Court.

|1.2.2   | Other Properties               
|------- | -------------------------------
|        |                                
|1.2.2.1 | South Pebble, SP and KAK
Claims

Agreement between Full Metal Minerals and the Pebble
Partnership

On January 31, 2012, the Pebble Partnership entered into a
Limited Liability Company Agreement of Kaskanak Copper LLC (the "FMM Agreement")
with Full Metal Minerals (USA) Inc. ("FMMUSA"), a wholly-owned subsidiary of
Full Metal Minerals Corp., which superseded and replaced the letter agreement
entered into by the same parties on September 27, 2010. Under the FMM Agreement,
the Pebble Partnership can earn a 60% interest in Kaskanak Copper LLC (the
"LLC") which owns 100% of FMMs South Pebble Claims (the "FMM Properties"), by
incurring exploration expenditures of at least US$3 million and making annual
payments of US$50,000 to FMMUSA over a period ending on December 31, 2013. The
Pebble Partnership has been appointed as the manager of the LLC and will
continue as manager until it resigns or is deemed to resign in certain defined
circumstances which include a reduction of its ownership interest in the LLC to
below 50%.

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

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

1.2.2.2 Big Chunk North and South and Bonanza Hills
Claims

Northern Dynastys Purchase and Option Agreement with
Liberty Star

On June 29, 2010, Northern Dynasty entered into an agreement
with Liberty Star Uranium and Metals Corp. and its subsidiary, Big Chunk Corp.
(together, "Liberty Star"), pursuant to which Liberty Star sold 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 (the "Loan"). The parties agreed with effect
from November 14, 2011, to increase the principal amount of the Loan by
US$730,174 (the "Additional Loan Amount"), being the amounts expended by
Northern Dynasty to date on annual assessment work, rental and related fees
relating to Liberty Stars claims in Alaska. The Loan is repayable, in cash on
demand or convertible into Liberty Star shares at the election of Northern
Dynasty, after Northern Dynasty has spent at least a minimum amount (the
"Minimum Expenditure") earning into a joint venture (which has not yet been
formed  see the discussion below). The Minimum Expenditure was originally set
at US$1 million, but the parties subsequently agreed on November 14, 2011 to
reduce the Minimum Expenditure by the Additional Loan Amount plus interest
incurred thereon, with the result that the

Page 13

---

|NORTHERN DYNASTY MINERALS LTD.      
|------------------------------------
|MANAGEMENT'S DISCUSSION AND ANALYSIS
|YEAR ENDED DECEMBER 31, 2011        
|                                    

Minimum Expenditure has been reduced to US$271,900. The Pebble
Partnership had the right to acquire the Purchased Claims for a period of time
but declined to exercise that right.

In addition, subject to negotiating and signing a definitive
earn-in option and joint venture agreement, Northern Dynasty will be able to
earn a 60% interest in Liberty Stars remaining Big Chunk properties in Alaska
by spending US$10 million on those properties over six years. The Loan may be
applied as part of the earn-in requirements, at Northern Dynastys discretion.
As of the date of this MD&A, Northern Dynasty and Liberty Star have not
entered into a joint venture agreement. On September 8, 2011, the parties agreed
to exclude the 56 Bonanza Hills claims (14 square miles) from any future joint
venture between them.

The total area of the properties is 172.7 square miles, and
includes 95 Purchased Claims; 428 Big Chunk South claims (102.9 square miles)
and 184 Big Chunk North claims (46 square miles). All of these claims are
located in the vicinity of Pebble.

In 2010, Northern Dynasty funded helicopter borne ZTEM and
aeromagnetic geophysical surveys over the Big Chunk North and Bonanza Hills
properties and a two-hole air rotary drill program on the Big Chunk South
property.

|1.2.3 | Market Trends
|----- | -------------

Copper prices showed a significant increase between late 2003
and mid-2008, and after a steep decline in late 2008 and early 2009, steadily
increased until late 2011. The price of copper in 2012 has decreased from the
average price in 2011.

Although gold prices have dropped from time to time, over the
past five years the average annual price has steadily increased. This upward
trend continues in 2012.

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.
Since that time, prices have been variable, but on an overall upward trend to
late 2011. The average price has decreased in 2012.

Average annual prices as well as the average price so far in
2012 for copper, gold and molybdenum are shown in the table below:

Year
    Average metal price (US$)Copper
    Gold
    Molybdenum2008
    3.16/lb
    871/oz
    29.70/lb2009
    2.34/lb
    974/oz
    11.29/lb2010
    3.42/lb
    1,228/oz
    15.87/lb2011
    4.00/lb
    1,572/oz
    15.41/lb2012 (to the date of this MD&A)
    3.76/lb
    1,695/oz
    14.24/lb


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

Page 14

---

|NORTHERN DYNASTY MINERALS LTD.      
|------------------------------------
|MANAGEMENT'S DISCUSSION AND ANALYSIS
|YEAR ENDED DECEMBER 31, 2011        
|                                    

|1.3 | Selected Annual
  Information
|--- | -----------------------------

The following selected annual information is from the audited
consolidated financial statements which have been prepared in accordance with
IFRS as issued by the International Accounting Standards Board ("IASB") and
interpretations of the IFRS Interpretations Committee ("IFRICs"). The Company
adopted and transitioned to IFRS as of January 1, 2008. All figures are
expressed in thousands of Canadian dollars, except per share amounts.

|                                                 |   | As at       |  |   | As at       |  |   | As at       | 
|------------------------------------------------ | - | ----------- |  | - | ----------- |  | - | ----------- | 
|                                                 |   | December 31 |  |   | December 31 |  |   | December 31 | 
|Statements of
      Financial Position           |   | 2011        |  |   | 2010        |  |   | 2009        | 
|Investment in the Pebble Partnership             | $ | 101,542     |  | $ | 99,306      |  | $ | 104,937     | 
|Exploration and evaluation assets                |   | 1,055       |  |   | 1,055       |  |   |            | 
|Current assets                                   |   | 42,644      |  |   | 43,886      |  |   | 45,133      | 
|Total
      assets                               |   | 145,241     |  |   | 144,247     |  |   | 150,070     | 
|Shareholders equity                             |   | 141,356     |  |   | 140,060     |  |   | 146,070     | 
|Other liabilities                                |   | 3,715       |  |   | 3,633       |  |   | 3,807       | 
|Current liabilities                              |   | 170         |  |   | 554         |  |   | 193         | 
|Total
      shareholders equity and liabilities |   | 145,241     |  |   | 144,247     |  |   | 150,070     | 
|Working capital                                  | $ | 42,474      |  | $ | 43,332      |  | $ | 44,940      | 

|                                                           |   | Year
      ended |   |   | Year
      ended |   |   | Year
      ended |  
|---------------------------------------------------------- | - | ---------------- | - | - | ---------------- | - | - | ---------------- | -
|                                                           |   | December 31      |   |   | December 31      |   |   | December 31      |  
|Expenses
      (income)                                    |   | 2011             |   |   | 2010             |   |   | 2009             |  
|Exploration and evaluation                                 | $ | 819              |   | $ | 1,800            |   | $ | 321              |  
|General and administrative                                 |   | 6,110            |   |   | 4,456            |   |   | 4,300            |  
|Share-based compensation                                   |   | 14,205           |   |   | 8,373            |   |   | 8,479            |  
|Interest income                                            |   | (944             | ) |   | (544             | ) |   | (335             | )
|Loss before tax                                            |   | 20,190           |   |   | 14,085           |   |   | 12,765           |  
|Income tax expense
      (recovery)                        |   | (51              | ) |   | 30               |   |   | (25              | )
|Loss for the year                                          | $ | 20,139           |   | $ | 14,115           |   | $ | 12,740           |  
|                                                           |   |                  |   |   |                  |   |   |                  |  
|Basic and diluted loss per common share                    | $ | 0.21             |   | $ | 0.15             |   | $ | 0.14             |  
|Weighted average
      number of common shares outstanding |   | 94,852           |   |   | 93,779           |   |   | 92,828           |  

Page 15

---

|NORTHERN DYNASTY MINERALS LTD.      
|------------------------------------
|MANAGEMENT'S DISCUSSION AND ANALYSIS
|YEAR ENDED DECEMBER 31, 2011        
|                                    

|1.4 | Summary of Quarterly
  Results
|--- | ------------------------------

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

|                                                                         |  |   | Dec 31  |   |   | Sep 30  |   |   | June 30 |   |   | Mar 31  |   |   | Dec 31  |   |   | Sep 30  |   |   | Jun 30  |   |   | Mar 31  |  
|------------------------------------------------------------------------ |  | - | ------- | - | - | ------- | - | - | ------- | - | - | ------- | - | - | ------- | - | - | ------- | - | - | ------- | - | - | ------- | -
|                                                                         |  |   | 2011    |   |   | 2011    |   |   | 2011    |   |   | 2011    |   |   | 2010    |   |   | 2010    |   |   | 2010    |   |   | 2010    |  
|Exploration and evaluation
    assets                                    |  | $ | 1,055   |   | $ | 1,055   |   | $ | 1,055   |   | $ | 1,055   |   | $ | 1,055   |   | $ | 1,055   |   | $ | 1,055   |   | $ |        |  
|investment in PLP                                                        |  |   | 101,542 |   |   | 104,658 |   |   | 96,301  |   |   | 96,810  |   |   | 99,306  |   |   | 102,741 |   |   | 106,295 |   |   | 101,423 |  
|Current assets                                                           |  |   | 42,644  |   |   | 43,792  |   |   | 44,925  |   |   | 45,302  |   |   | 43,886  |   |   | 43,421  |   |   | 44,955  |   |   | 46,632  |  
|Total assets                                                             |  |   | 145,241 |   |   | 149,505 |   |   | 142,281 |   |   | 143,167 |   |   | 144,247 |   |   | 147,217 |   |   | 152,305 |   |   | 148,055 |  
|                                                                         |  |   |         |   |   |         |   |   |         |   |   |         |   |   |         |   |   |         |   |   |         |   |   |         |  
|Equity                                                                   |  |   | 141,356 |   |   | 145,550 |   |   | 138,566 |   |   | 139,261 |   |   | 140,060 |   |   | 143,287 |   |   | 148,305 |   |   | 144,322 |  
|Deferred income tax                                                      |  |   | 3,715   |   |   | 3,829   |   |   | 3,523   |   |   | 3,542   |   |   | 3,633   |   |   | 3,737   |   |   | 3,825   |   |   | 3,645   |  
|Current liabilities                                                      |  |   | 170     |   |   | 126     |   |   | 192     |   |   | 364     |   |   | 554     |   |   | 193     |   |   | 175     |   |   | 88      |  
|Total shareholders equity and liabilities                               |  |   | 145,241 |   |   | 149,505 |   |   | 142,281 |   |   | 143,167 |   |   | 144,247 |   |   | 147,217 |   |   | 152,305 |   |   | 148,055 |  
|Working capital                                                          |  |   | 42,474  |   |   | 43,666  |   |   | 44,733  |   |   | 44,938  |   |   | 43,332  |   |   | 43,228  |   |   | 44,780  |   |   | 46,544  |  
|                                                                         |  |   |         |   |   |         |   |   |         |   |   |         |   |   |         |   |   |         |   |   |         |   |   |         |  
|Comprehensive (Income) Loss                                              |  |   |         |   |   |         |   |   |         |   |   |         |   |   |         |   |   |         |   |   |         |   |   |         |  
|Expenses                                                                 |  |   |         |   |   |         |   |   |         |   |   |         |   |   |         |   |   |         |   |   |         |   |   |         |  
|Exploration and evaluation                                               |  |   | (86     | ) |   | 448     |   |   | 141     |   |   | 316     |   |   | 850     |   |   | 653     |   |   | 150     |   |   | 147     |  
|General and administrative                                               |  |   | 1,615   |   |   | 871     |   |   | 2,146   |   |   | 1,478   |   |   | 1,017   |   |   | 1,177   |   |   | 1,221   |   |   | 1,041   |  
|Share-based compensation                                                 |  |   | 2,170   |   |   | 2,752   |   |   | 2,782   |   |   | 6,501   |   |   | 1,588   |   |   | 1,543   |   |   | 4,340   |   |   | 902     |  
|Interest income                                                          |  |   | (270    | ) |   | (252    | ) |   | (225    | ) |   | (197    | ) |   | (198    | ) |   | (175    | ) |   | (90     | ) |   | (81     | )
|Loss before tax                                                          |  |   | 3,429   |   |   | 3,819   |   |   | 4,844   |   |   | 8,098   |   |   | 3,257   |   |   | 3,198   |   |   | 5,621   |   |   | 2,009   |  
|Income tax expense (recovery)                                            |  |   | (51     | ) |   |        |   |   |        |   |   |        |   |   | 21      |   |   | 41      |   |   | 3       |   |   | (35     | )
|Loss for the quarter                                                     |  |   | 3,378   |   |   | 3,819   |   |   | 4,844   |   |   | 8,098   |   |   | 3,278   |   |   | 3,239   |   |   | 5,624   |   |   | 1,974   |  
|Loss (gain) on marketable
    securities                                 |  |   | 1       |   |   |        |   |   |        |   |   |        |   |   | 1       |   |   | (1      | ) |   | 1       |   |   |        |  
|Exchange difference on translation of the
    Pebble Partnership         |  |   | 3,116   |   |   | (8,357  | ) |   | 509     |   |   | 2,496   |   |   | 3,435   |   |   | 3,554   |   |   | (4,872  | ) |   | 3,514   |  
|Deferred income tax                                                      |  |   | (114    | ) |   | 306     |   |   | (19     | ) |   | (91     | ) |   | (124    | ) |   | (129    | ) |   | 176     |   |   | (127    | )
|Comprehensive loss (income)                                              |  | $ | 6,381   |   | $ | (4,232  | ) | $ | 5,334   |   | $ | 10,503  |   | $ | 6,590   |   | $ | 6,663   |   | $ | 929     |   | $ | 5,361   |  
|                                                                         |  |   |         |   |   |         |   |   |         |   |   |         |   |   |         |   |   |         |   |   |         |   |   |         |  
|Basic and diluted loss per common share                                  |  | $ | 0.04    |   | $ | 0.04    |   | $ | 0.05    |   | $ | 0.09    |   | $ | 0.03    |   | $ | 0.03    |   | $ | 0.06    |   | $ | 0.02    |  
|                                                                         |  |   |         |   |   |         |   |   |         |   |   |         |   |   |         |   |   |         |   |   |         |   |   |         |  
|Weighted average number of common shares outstanding YTD
    (thousands) |  |   | 94,977  |   |   | 94,974  |   |   | 94,882  |   |   | 94,567  |   |   | 93,973  |   |   | 93,857  |   |   | 93,815  |   |   | 93,254  |  

|1.5 | Results of
Operations
|--- | ---------------------

The following financial data has been prepared in accordance
with IFRS as issued by the IASB and interpretations of the IFRS Interpretations
Committee (IFRICs) effective for the year ended December 31, 2011 and are
expressed in Canadian dollars unless otherwise stated.

The Companys operations and business are not driven by
seasonal trends, but rather are driven towards the achievement of project
milestones relating to the Pebble Project such as the achievement of various
technical, environmental, socio-economic and legal objectives, including
obtaining the necessary permits, the completion of pre-feasibility and final
feasibility studies,

Page 16

---

|NORTHERN DYNASTY MINERALS LTD.      
|------------------------------------
|MANAGEMENT'S DISCUSSION AND ANALYSIS
|YEAR ENDED DECEMBER 31, 2011        
|                                    

preparation of engineering designs, as well as receipt of
financings to fund these objectives along with mine construction.

1.5.1 Results of Comprehensive Loss for the Year Ended
December 31, 2011 vs. 2010

The Company recorded a comprehensive loss of $18.0 million for
the current year as compared to $19.5 million in 2010. The decrease was mainly
attributable to the net exchange gain on translation of the equity investment in
the Pebble Partnership (as opposed to a loss in 2010) which offset the higher
share-based compensation and the increase in general and administrative expenses
in the current year.

Share-based compensation increased to $14.2 million from $8.4
million in 2010. The Company granted options in the current year which were
measured at the weighted average grant date fair value of $6.35 per share
purchase option as compared to $3.88 per share purchase option in 2010. The fair
value was determined using the Black Scholes model with the following weighted
average assumptions: risk free rate of 2.25% (2010  2.36%); expected volatility
of 64% (2010  65%) and expected life of 4.20 years (2010  3.72 years).

General and administrative expenses increased to $6.1 million
in 2011 from $4.5 million in 2010. The increase was due to the increase in
donations, conference and travel, office costs and salaries. The following table
provides a breakdown of the expenses incurred expressed in thousands of Canadian
dollars:

|General and administrative expenses |   | 2011  |   |   | 2010  | 
|----------------------------------- | - | ----- | - | - | ----- | 
|Conference and travel               | $ | 525   |   | $ | 288   | 
|Donations                           |   | 866   |   |   | 12    | 
|Insurance                           |   | 296   |   |   | 248   | 
|Legal, accounting and audit         |   | 328   |   |   | 274   | 
|Office costs                        |   | 980   |   |   | 653   | 
|Salaries                            |   | 2,334 |   |   | 2,188 | 
|Shareholder communication           |   | 517   |   |   | 431   | 
|Trust and filing                    |   | 322   |   |   | 224   | 
|Foreign exchange loss (gain)        |   | (58   | ) |   | 138   | 
|Total                               | $ | 6,110 |   | $ | 4,456 | 

Office costs increased as the Company updated its offsite data
room. Donations increased to $0.9 million as the Company recognized an expense,
based on the quoted market value on the date of issue, of a donation of 75,000
common shares to the University of British Columbia to assist in financing the
construction of a new earth science building. Salaries were higher as the
Company completed and issued an independent Preliminary Assessment Technical
Report in February 2011 and incurred other costs relating to the preparation and
analysis thereof.

As a result of the completion and issue of the Preliminary
Assessment Technical Report, the Company recorded exploration costs of $0.8
million (2010  $1.8 million). In 2010, the Company conducted two independent
studies on the Pebble Project and also completed required exploratory activities
on the Liberty Star claims.

Page 17

---

|NORTHERN DYNASTY MINERALS LTD.      
|------------------------------------
|MANAGEMENT'S DISCUSSION AND ANALYSIS
|YEAR ENDED DECEMBER 31, 2011        
|                                    

As a result of the depreciation of the Canadian dollar against
the US dollar from approximately 1USD=0.99CAD at January 1, 2011 to 1USD=1.02CAD
at December 31, 2011, the Company recorded an exchange gain of $2.2 million in
other comprehensive loss related to the exchange difference on the equity
investment in the Pebble Partnership, which has a US dollar functional currency.
The Company recognized a loss of $5.6 million in the comparable period of 2010
when the Canadian dollar appreciated from 1USD=1.05CAD at January 1, 2010 to
1USD=0.99CAD at December 31, 2010.

1.5.2 Cash Flows for the Year Ended December 31, 2011 vs.
2010

Net cash used in operations increased to $7.5 million in the
current year from $6.0 million in the prior year. The increase was due to the
increase in general and administrative expenses (see 1.5.1) .

The Company however saw an increase in cash from investing
activities as higher interest was received on cash balances due to the increase
in interest rates. In the comparable prior period the Company used cash to
acquire the Liberty Star claims for $1.1 million and advance a loan to Liberty
Star for $2.9 million.

As a result of the exercise of share purchases options, the
Company increased cash resources by $4.2 million in 2011 as compared to $5.2
million in 2010.

1.5.3 Financial position as at December 31, 2011 vs.
December 31, 2010

The Companys total assets increased to $145.2 million from
$144.2 million. The increase was attributable to the increase in the carrying
value of the Companys investment in the Pebble Partnership as a result of the
exchange gain of $2.2 million recognized on translation (refer 1.5.1) . This was
offset by a decrease in current assets of $1.2 million. Cash and cash
equivalents decreased by $2.9 million as the Company utilized $7.4 million of
its cash in its operations, received $4.2 million from the exercise of share
purchase options and $0.6 million in interest on cash balances and advanced $0.3
million to Liberty Star. Related party receivables increased by $0.4 million due
to an advance by the Company and the amounts receivable increased by $1.3
million due mainly to the increase in the loan receivable as result of the cash
advance of $0.3 million, further increases to the loan of $0.5 in respect to
expenses paid in 2010 and interest accrued for the year of $0.3 million.

1.5.4 Investment in the Pebble Partnership

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

Expenditures incurred by the Pebble Partnership on the Pebble
Project are being funded 100% by Anglo American. Anglo Americans total
contributions from inception to December 31, 2011, total $418.1 million
(US$398.5 million). For the year ended December 31, 2011, the Pebble Partnership
incurred losses of $84.5 million (2010  $68.8 million). Exploration costs
increased to $32.1 million from $30.0 million in the previous year as the Pebble
Partnership continued to focus on the preparation of a prefeasibility study for
the Pebble Project and the release of the EBD. The main exploration expenditures
during the year ended December 31, 2011, were for:

- engineering (2011  $20.0 million; 2010  $11.1 million);

Page 18

---

|NORTHERN DYNASTY MINERALS LTD.      
|------------------------------------
|MANAGEMENT'S DISCUSSION AND ANALYSIS
|YEAR ENDED DECEMBER 31, 2011        
|                                    

- environmental planning and testing (2011  $12.8 million; 2010  $13.3
  million);
- site activities (2011  $32.1 million; 2010  $30.0 million); and
- public affairs (2011  $12.3 million; 2010  $8.3 million).

For further discussion on exploration activities and the
technical programs underway on the Pebble Project, please refer to section
1.2.1.3.

1.5.5 Discussion of Quarterly Trends

The Companys investment in the Pebble Partnership is carried
in US dollars. Exchange differences arising from the translation of the Groups
investment in the Pebble Partnership are taken directly to the foreign currency
translation reserve in other comprehensive loss. Other than Q3 of 2011 and Q2 of
2010, the Company has recorded exchange losses in other comprehensive loss in
each quarter as a result of the depreciation of the US dollar. This resulted in
a decrease in the carrying value of the Companys investment in the Pebble
Partnership on the statements of financial position over the same corresponding
period. The following table summarizes the movement in the US dollar to the
Canadian dollar and the resulting exchange differences recognized in each
quarter:

|              |                           | 1CAD for 1USD |      
|------------- | ------------------------- | ------------- | -----
|Period        | USD
      movement to CAD | Start         | End  
|Q1 2010       | Depreciation              | $1.05         | $1.02
|Q2 2010       | Appreciation              | $1.02         | $1.06
|Q3 2010       | Depreciation              | $1.06         | $1.03
|Q4 2010       | Depreciation              | $1.03         | $0.99
|Q1 2011       | Depreciation              | $0.99         | $0.97
|Q2 2011       | Depreciation              | $0.97         | $0.96
|Q3 2011       | Appreciation              | $0.96         | $1.05
|Q4 2011       | Depreciation              | $1.05         | $1.02
|              |                           |               |      
|FY 2010       | Depreciation              | $1.05         | $0.99
|FY
      2011 | Appreciation              | $0.99         | $1.02

Share-based compensation expense also typically fluctuates
based on the timing of share purchase option grants and the vesting periods
associated with these grants. The fair value of share purchase options is
recognized at the grant date and the compensation expense for each tranche is
recognized over the period during which the share purchase options vest. As a
result of the granting of share purchase options in Q1 of 2011 and Q2 of 2010
the Company recognized an increase in share-based compensation. In Q3 and Q4 of
2010, and Q2 to Q4 of 2011, share-based compensation decreased as a result of
the vesting of certain tranches of these options. In Q1 of 2011 share-based
compensation was impacted by the full vesting of a third of the options granted
with an exercise price of $15.44 which resulted in a larger expense versus the
lower vesting in Q2 to Q4 of 2011.

Exploration and evaluation expenses increased each quarter from
Q1 to Q4 of 2010 as the Company conducted two independent studies, initiated
work on the Preliminary Assessment Technical Report ("PA") and completed
exploratory work on the Liberty Star claims. In 2011, the Company completed the
PA, conducted further ongoing analysis thereof and paid annual fees and rentals
on Liberty Star claims. In Q4 of 2011, the Company agreed to treat certain of
the 2011 payments in

Page 19

---

|NORTHERN DYNASTY MINERALS LTD.      
|------------------------------------
|MANAGEMENT'S DISCUSSION AND ANALYSIS
|YEAR ENDED DECEMBER 31, 2011        
|                                    

respect to Liberty Star claims as an advance and increased the
principal amount of the loan outstanding from Liberty Star resulting in a credit
in exploration costs for the quarter.

|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. Other than the issue of common shares
pursuant to a private placement financing in 2008, the Company has in each year
issued common shares pursuant to the exercise of share purchase options. The
Company's access to financing is always uncertain. There can be no assurance of
continued access to significant equity funding.

The funding of expenditures on the Pebble Project held through
the Pebble Partnership is currently being provided by Anglo American (described
below). Excluding cash and cash equivalents in the Pebble Partnership, Northern
Dynasty has approximately $37 million in cash and cash equivalents for its own
operating requirements. With the Pebble Project fully funded, the Company
believes it has sufficient resources to cover its short to medium term cash
requirements.

As discussed in section 1.2.1.2, the Company is in a 50:50
limited partnership with Anglo American. To maintain its 50% interest in the
Pebble Partnership, Anglo American is required to make staged cash investments
into the Pebble Partnership aggregating to US$1.5 billion. Anglo American
completed the initial US$125 million commitment to fund prefeasibility study
expenditures in 2008. After approval of the prefeasibility report, in order to
retain its 50% interest, Anglo American is required to commit to further
expenditures which will bring its total investment to at least US$450 million,
which amount is to be expended producing a final feasibility study and in
related activities, the completion of which may take the Pebble Partnership to a
production decision. Upon an affirmative decision to develop a mine, Anglo
American is required to commit to the remaining portion of the total investment
of US$1.5 billion in order to retain its 50% interest in the Pebble
Partnership.

At December 31, 2011, the Company had working capital of
approximately $42.5 million as compared to $43.3 million at December 31,
2010.

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

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

The Company is responsible for all maintenance payments on the
Purchased Claims (refer 1.2.2.2) . Subject to entering into a definitive joint
venture agreement with Liberty Star, which has not occurred as of the date of
this MD&A, the Company would be required to spend US$10 million in
exploration and claims maintenance over 6 years.

Page 20

---

|NORTHERN DYNASTY MINERALS LTD.      
|------------------------------------
|MANAGEMENT'S DISCUSSION AND ANALYSIS
|YEAR ENDED DECEMBER 31, 2011        
|                                    

|1.7 | Capital Resources
|--- | -----------------

The Company has no long-term debt and had 94,978,764 common
shares issued and outstanding at December 31, 2011.

The Company had no commitments for material capital
expenditures as of December 31, 2011.

The Pebble Partnership, which is being funded by Anglo
American, has an approximate US$1.5 million commitment to the Pebble Fund for
Sustainable Bristol Bay Fisheries & Communities until 2013 (refer to
Community Engagementin 1.2.1.3) .

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

|1.8 | Off-Balance Sheet
  Arrangements
|--- | --------------------------------

None.

|1.9 | Transactions with Related
  Parties
|--- | -----------------------------------

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

Costs for services rendered by HDSI to the Company for the year
ended December 31, 2011 were $3.5 million as compared to $2.8 million for the
year ended December 31, 2010. The increase over 2010 is due to the Company using
additional resources provided by HDSI to assist with ongoing administration and
management of the Company including assisting with the independent Preliminary
Assessment, continuous disclosure obligations, shareholder communications and
investor relations, as well as assisting with the Companys role as partner in
the Pebble Partnership. The costs for expenses paid by HDSI and reimbursed by
the Company for the year ended December 31 2011 were $1.1 million as compared to
$0.7 million for the year ended December 31, 2010.

Compensation paid to key management personnel (directors and
senior management comprising the Senior Vice President ("VP"), Corporate
Development; VP, Engineering and VP, Public Affairs) for the year ended December
31, 2011 comprised salaries of $1.8 million (2010  $1.0 million) and
share-based compensation of $7.9 million (2010  $4.1 million).

|1.10 | Fourth Quarter
|---- | --------------

Loss increased to $3.4 million from $3.3 million in 2010. The
increase was attributable to an increase in share-based compensation recognized
and an increase in general and administrative expenses.

Share-based compensation increased to $2.2 million from $1.6
million in the comparable period of 2010 as a result of the higher grant date
fair value determined per share option for the 2011 share

Page 21

---

|NORTHERN DYNASTY MINERALS LTD.      
|------------------------------------
|MANAGEMENT'S DISCUSSION AND ANALYSIS
|YEAR ENDED DECEMBER 31, 2011        
|                                    

options granted and vesting during 2011. Share-based
compensation is measured by determining the fair value of the share purchase
options at the grant date for each tranche and is recognized over the period
during which the share purchase option vests. The weighted average grant date
fair value per share purchase option was $6.35 determined using the Black
Scholes model with the following weighted average assumptions: risk free rate of
2.25%; expected volatility of 64% and expected life of 4.20 years.

The Company recorded conference and travel expenses of $242,000
(2010  $61,000) as senior management travelled to various locations globally to
meet with stakeholders and provide information about the Pebble property. Salary
costs for the period increased to $531,000 (2010 $436,000) as a result of the
ongoing analyses of the Pebble Project following the Preliminary Assessment
Technical Report issued in February 2011.

As a result of the appreciation of the Canadian dollar against
the US dollar from approximately 1US=1.05CAD at October 1, 2011 to 1 USD=1.02CAD
at December 31, 2011, the Company recorded an exchange loss of $3.1 million in
other comprehensive income related to the exchange difference on the equity
investment in the Pebble Partnership, which has a USD dollar functional
currency. This compared to a loss recognized in 2010 of $3.4 million when the
Canadian dollar strengthened from 1USD=1.03 at October 1, 2010 to 1USD=0.9946 at
December 31, 2010.

|1.11 | Proposed
Transactions
|---- | ---------------------

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

|1.12 | Critical Accounting
  Estimates
|---- | -------------------------------

The Company's significant accounting policies are presented in
Note 2 in the notes to the consolidated financial statements for the year ended
December 31, 2011. The preparation of the consolidated financial statements
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the end of the reporting period presented
and reported amounts of expenses during said reporting period. Actual outcomes
could differ from these estimates. The consolidated financial statements include
estimates which, by their nature, are uncertain. The impacts of such estimates
are pervasive throughout the consolidated financial statements, and may require
accounting adjustments based on future occurrences. Revisions to accounting
estimates are recognized in the year in which the estimate is revised and future
years if the revision affects both current and future years. These estimates are
based on historical experience, current and future economic conditions and other
factors, including expectations of future events that are believed to be
reasonable under the circumstances.

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

| | i.  | the inputs used in measuring share-based compensation
      expense included in loss for the period; and                                                                                                                                                                     
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                              
| | ii. | the provision for the deferred income tax expense
      included in the loss for the period (nil for current period) and the
      composition of deferred income tax liabilities included in the
      consolidated statements of financial position at December 31,
  2011.

Page 22

---

|NORTHERN DYNASTY MINERALS LTD.      
|------------------------------------
|MANAGEMENT'S DISCUSSION AND ANALYSIS
|YEAR ENDED DECEMBER 31, 2011        
|                                    

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

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

1.12.2 Impairment analysis of assets

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

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

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

At December 31, 2011, the Company reviewed the carrying value
of its assets and determined that there were no indicators of impairment.

1.12.3 Restoration, rehabilitation, and environmental
obligations

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

Discount rates using pre-tax rates that reflect the time value
of money are used to calculate the net present value. These costs are charged
against profit or loss over the economic life of the related asset, through
amortization using either the unit-of-production or the straight line method.
The

Page 23

---

|NORTHERN DYNASTY MINERALS LTD.      
|------------------------------------
|MANAGEMENT'S DISCUSSION AND ANALYSIS
|YEAR ENDED DECEMBER 31, 2011        
|                                    

corresponding liability is progressively increased as the
effect of discounting unwinds creating an expense recognized in profit or
loss.

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

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

At December 31, 2011, the Company has no material restoration,
rehabilitation and environmental obligations as the disturbance to date is
minimal.

1.12.4 Share-based compensation expense

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

During the year ended December 31, 2011, the Company granted
share purchase options and the share-based compensation expense recognized
relates to the vesting of tranches from this grant and grants of share purchase
options in prior year grants. The following are the weighted average assumptions
and inputs used to estimate the fair value of share purchase options granted
during the year:

Risk-free interest rate
    2.25%Expected life
    4.20 yearsExpected volatility
    64%Grant date share price
    $13.37Expected dividend yield
    Nil


1.12.5 Income Taxes

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

Page 24

---

|NORTHERN DYNASTY MINERALS LTD.      
|------------------------------------
|MANAGEMENT'S DISCUSSION AND ANALYSIS
|YEAR ENDED DECEMBER 31, 2011        
|                                    

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

|1.13 | Changes in Accounting Policies including Initial
      Adoption
|---- | ---------------------------------------------------------------

Accounting Standards, Interpretations and Amendments to
Existing Standards

Effective January 1, 2011, the Group adopted new and revised
IFRS that were issued by the IASB. The application of these new and revised IFRS
has not had any material impact on the amounts reported for the current and
prior years but may affect the accounting for future transactions or
arrangements.

- Amendment to IAS 32 Financial Instruments:
  PresentationRights, options or warrants to acquire a fixed number
  of the Groups equity instruments for a fixed amount of any currency will be
  allowed to be classified as equity instruments so long as the Group offers the
  rights, options or warrants pro rata to all of the Groups existing owners of
  the same class of the Groups non-derivative equity instruments.
- Amendments to IFRS 3 Business CombinationsClarification that
  the contingent consideration arising in a business combination previously
  accounted for in accordance with IFRS 3 that is outstanding at the adoption
  date continues to be accounted for in accordance with IFRS 3.Limiting the
  accounting policy choice to measure non-controlling interests upon initial
  recognition at fair value or at the non-controlling interests proportionate
  share of the acquirees identifiable net assets to instruments that give rise
  to a present ownership interest and that currently entitle the holder to a
  share of net assets in the event of liquidation.Expansion of the
  guidance with regards to the attribution of the market-based measure of an
  acquirers share-based payment awards issued in exchange for acquiree awards.
- Amendments to IAS 27 Consolidated and Separate Financial
  StatementsClarification that the amendments to IAS 21 The Effects
  of Changes in Foreign Exchange Rates, IAS 28 Investments in Associates, and
  IAS 31 Interests in Joint Ventures resulting from IAS 27 should be applied
  prospectively, except for amendments resulting from renumbering.
- Amendments to IFRS 7 Financial Instruments:
  DisclosuresAmendment to disclosure requirements, specifically,
  ensuring qualitative disclosures are made in close proximity to quantitative
  disclosures in order to better enable financial statement users to evaluate an
  entitys exposure to risks arising from financial instruments.

Page 25

---

|NORTHERN DYNASTY MINERALS LTD.      
|------------------------------------
|MANAGEMENT'S DISCUSSION AND ANALYSIS
|YEAR ENDED DECEMBER 31, 2011        
|                                    

- Amendments to IAS 1 Presentation of Financial
  Statements
  Clarification that the breakdown of changes in equity
  resulting from transactions recognized in other comprehensive income is
  required to be presented in the statement of changes in equity or in the notes
  to the financial statements.
- Amendments to IAS 24 Related Party
  Disclosures
  Amendment of the definition for related parties.
- Amendments to IAS 34 Interim Financial
  Reporting
  Addition of further examples of events or transactions
  that require disclosure and removal of references to materiality when
  discussing other minimum disclosures.

Accounting standards not yet effective

|1) | Effective for annual periods beginning on or after
      July 1, 2011   
|-- | ------------------------------------------------------------------------
|   |                                                                         
|   |                                                                         
|   |                                                                         
|   |                                                                         
|   |                                                                         
|2) | Effective for annual periods beginning on or after
      July 1, 2012   
|   |                                                                         
|   |                                                                         
|   |                                                                         
|   |                                                                         
|   |                                                                         
|3) | Effective for annual periods beginning on or after
      January 1, 2013
|   |                                                                         
|   |                                                                         
|   |                                                                         
|   |                                                                         
|   |                                                                         
|   |                                                                         
|   |                                                                         
|   |                                                                         
|   |                                                                         
|   |                                                                         

Page 26

---

|NORTHERN DYNASTY MINERALS LTD.      
|------------------------------------
|MANAGEMENT'S DISCUSSION AND ANALYSIS
|YEAR ENDED DECEMBER 31, 2011        
|                                    



|                                                                                                                                                                                |  | New standard IFRS 12, Disclosure of Interests in
  Other Entities
Provides the disclosure requirements for all forms
  of interests in other entities, including subsidiaries, joint arrangements,
  associates, and consolidated structured entities.                                                                                                                                                                                                                                                         
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|                                                                                                                                                                                |  | New standard IFRS 13, Fair Value
  Measurement
Defines fair value and sets out in a single IFRS a
  framework for measuring fair value and requires disclosures about fair value
  measurements. The standard does not determine when an asset, a liability or an
  entitys own equity instrument is measured at fair value. Rather, the
  measurement and disclosure requirements of IFRS 13 apply when another IFRS
  requires or permits the item to be measured at fair value (with limited
  exceptions).
|                                                                                                                                                                                |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|The Company has not early adopted these new or revised
standards and is currently assessing the impact that these standards will have
on the consolidated financial statements.
|                                                                                                                                                                                |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|                                                                                                                                                                                |  | New interpretation IFRIC 20, Stripping Costs in
  the Production Phase of a Surface Mine
This Interpretation
  clarifies when production stripping should lead to the recognition of an asset
  and how that asset should be measured, both initially and in subsequent
  periods. Earlier application is permitted. This interpretation and the
  requirements for accounting for stripping costs will only be applicable to the
  Group once it is in the production phase.                                  
|                                                                                                                                                                                |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

|4) | Effective for annual periods beginning on or after
      January 1, 2015
|-- | ------------------------------------------------------------------------
|   |                                                                         
|   |                                                                         
|   |                                                                         
|   |                                                                         
|   |                                                                         
|   |                                                                         

Page 27

---

|NORTHERN DYNASTY MINERALS LTD.      
|------------------------------------
|MANAGEMENT'S DISCUSSION AND ANALYSIS
|YEAR ENDED DECEMBER 31, 2011        
|                                    

|1.14 | Financial Instruments and Other
      Instruments
|---- | -------------------------------------------------

The loan receivable by the Company from Liberty Star has an
equity conversion option. This equity conversion feature has been determined to
be an embedded derivative which requires separation from the loan receivable.
For embedded derivatives identified for separation, the fair value of the
derivative must be calculated as of the inception date and at each reporting
date subsequent to the inception date. The Company has determined that the fair
value of the equity conversion option at the date of inception and at December
31, 2011, is of nominal value as no definitive earn-in and joint venture
agreement has been entered into and the Minimum Expenditure has not been
incurred by the Company in respect to the JV Agreement claims.

1.14.1 Non-derivative financial assets:

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

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

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

Available-for-sale financial assets

Available-for-sale ("AFS") financial assets are non-derivatives
that are either designated as AFS or are not classified as (i) loans and
receivables, (ii) held-to-maturity investments or (iii) financial assets as at
FVTPL. The Companys investments in marketable securities are classified as AFS
financial assets. Subsequent to initial recognition, they are measured at fair
value and changes therein, other than impairment losses and foreign currency
differences on AFS monetary items, are recognized in other comprehensive income
or loss. When an investment is derecognized, the cumulative gain or loss in the
investment revaluation reserve is transferred to profit or loss.

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

Loans and receivables

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.

Page 28

---

|NORTHERN DYNASTY MINERALS LTD.      
|------------------------------------
|MANAGEMENT'S DISCUSSION AND ANALYSIS
|YEAR ENDED DECEMBER 31, 2011        
|                                    

Loans and receivables comprise amounts receivable including the
Liberty Star loan receivable and balances receivable from related parties.

1.14.2 Non-derivative financial liabilities:

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

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

1.14.3 Financial Risk Management

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

Credit Risk

Credit risk is the risk of potential loss to the Company if a
counterparty to a financial instrument fails to meet its contractual
obligations. The Companys credit risk is primarily attributable to its liquid
financial assets, including cash and cash equivalents, amounts receivable and
balances receivable from related parties. The Company limits the exposure to
credit risk in its cash and cash equivalents by only investing its cash and cash
equivalents with high-credit quality financial institutions in business and
saving accounts, guaranteed investment certificates, and in government treasury
bills which are available on demand by the Company for its programs. Management
assesses the recoverability of the loan receivable from Liberty Star as at the
end of each reporting period based on financial information available.

The Companys loan receivable from Liberty Star is secured by
other claims and assets owned by Liberty Star in Alaska, USA.

Liquidity Risk

Liquidity risk is the risk that the Company will not be able to
meet its financial obligations when they become due. The Company ensures, as far
as reasonably possible, it will have sufficient capital in order to meet short
term business requirements, after taking into account cash flows from operations
and the Companys holdings of cash and cash equivalents. The Company believes
that these sources will be sufficient to cover its short to medium term cash
requirements. In the longer term on completion of the US$1.5 billion expenditure
by Anglo American, any further expenditure will need to be funded by the Company
and Anglo American on a 50:50 basis. The Group currently does not have the
required funding to meet these long term obligations should they arise.

The Companys cash and cash equivalents are currently invested
in business accounts and guaranteed investment certificates which are available
on demand.

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

Page 29

---

|NORTHERN DYNASTY MINERALS LTD.      
|------------------------------------
|MANAGEMENT'S DISCUSSION AND ANALYSIS
|YEAR ENDED DECEMBER 31, 2011        
|                                    

Further discussion can be found in Section 1.6
Liquidity.

Foreign Exchange Risk

The Group is exposed to foreign exchange risk in respect to its
loan receivable which is denominated in US dollars. Also certain of the
Companys corporate expenses are incurred in US dollars. As a consequence, the
Companys operations are subject to currency transaction risk and currency
translation risk. The operating results and financial position of the Company
are reported in Canadian dollars in the Companys consolidated financial
statements. The fluctuation of the US dollar in relation to the Canadian dollar
will consequently have an impact upon the losses incurred by the Company and may
also affect the value of the Companys assets and the amount of 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 cash and cash equivalents,
amounts receivable and amounts receivable from related parties to foreign
exchange risk (in thousands of dollars) is as follows:

|Currency                     |   | As at December 31, 2011 |  |   | As at December 31, 2010 | 
|---------------------------- | - | ----------------------- |  | - | ----------------------- | 
|                             |   | Foreign                 |  |   | Amount in               | 
|                             |   | currency                |  |   | Canadian                | 
|                             |   | amount                  |  |   | dollars                 | 
|US dollars                   |   |                         |  |   |                         | 
|Amounts receivable           | $ | 4,220                   |  | $ | 4,292                   | 
|Cash and cash equivalents    |   | 36                      |  |   | 36                      | 
|Total financial
      assets | $ | 4,256                   |  | $ | 4,328                   | 

The exposure of the Companys amounts payable and other
liabilities and amounts due to related parties to foreign exchange risk (in
thousands of dollars) is as follows:

|Currency                          |   | As at December 31, 2011 |  |   | As at December 31, 2010 | 
|--------------------------------- | - | ----------------------- |  | - | ----------------------- | 
|                                  |   | Foreign                 |  |   |                         | 
|                                  |   | currency                |  |   | Amount in               | 
|                                  |   | amount                  |  |   | Canadian dollars        | 
|US dollars                        |   |                         |  |   |                         | 
|Amounts payable and other         |   |                         |  |   |                         | 
|liabilities                       | $ | 1                       |  | $ | 1                       | 
|Total financial
      liabilities | $ | 1                       |  | $ | 1                       | 

Based on the above net exposures and assuming that all other
variables remain constant, a 10% depreciation of the Canadian dollar against the
US dollar would result in a decrease in the loss of approximately $433,000 in
the year (2010  $318,000). This sensitivity analysis includes only outstanding
foreign currency denominated monetary items and excludes the effect of any
translation adjustments for the investment in the Pebble Partnership.

Interest rate risk

The Company is subject to interest rate risk with respect to
its investments in cash and cash equivalents. The Companys policy is to invest
cash at fixed rates of interest and cash reserves are to be maintained in cash
and cash equivalents in order to maintain liquidity, while achieving a

Page 30

---

|NORTHERN DYNASTY MINERALS LTD.      
|------------------------------------
|MANAGEMENT'S DISCUSSION AND ANALYSIS
|YEAR ENDED DECEMBER 31, 2011        
|                                    

satisfactory return for shareholders. Fluctuations in interest
rates when the cash and cash equivalents mature impact interest income
earned.

Assuming that all other variables remain constant, a 100 basis
points change representing a 1% increase or decrease in interest rates would
have resulted in a decrease or an increase in the loss (in thousands of dollars)
as follows:

|               |   | Year ended December 31 | 
|-------------- | - | ---------------------- | 
|               |   | 2011                   | 
|Effect on loss | $ | 389                    | 

Commodity price risk

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

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

Capital Management

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

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

|1.15 | Other MD&A
  Requirements
|---- | -------------------------

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

Page 31

---

|NORTHERN DYNASTY MINERALS LTD.      
|------------------------------------
|MANAGEMENT'S DISCUSSION AND ANALYSIS
|YEAR ENDED DECEMBER 31, 2011        
|                                    

|1.15.1 | Disclosure of Outstanding Share
  Data
|------ | --------------------------------------

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

|Common shares issued and outstanding               |  |            | 
|-------------------------------------------------- |  | ---------- | 
|As of March 28, 2012                               |  | 94,995,764 | 
|As of December 31, 2011                            |  | 94,978,764 | 
|Share options  as of March 28, 2012               |  | 8,289,782  | 
|(Weighted average exercise price per share: $8.72) |  |            | 

|1.15.2 | Disclosure Controls and
  Procedures
|------ | ------------------------------------

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

|1.15.3 | Managements Report on Internal Control over Financial
      Reporting
|------ | ----------------------------------------------------------------------

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

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

The Companys management assessed the effectiveness of the
Companys internal control over financial reporting as of December 31, 2011. In
making the assessment, it used the criteria set forth in the Internal
Control-Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission ("COSO"). Based on their assessment, management has
concluded that, as of December 31, 2011, the Companys internal control over
financial reporting was effective based on those criteria.

Page 32

---

|NORTHERN DYNASTY MINERALS LTD.      
|------------------------------------
|MANAGEMENT'S DISCUSSION AND ANALYSIS
|YEAR ENDED DECEMBER 31, 2011        
|                                    

The Companys internal control over financial reporting as of
December 31, 2011, has been audited by Deloitte & Touche LLP, Independent
Registered Chartered Accountants who also audited the Companys consolidated
financial statements for the year ended December 31, 2011. Deloitte & Touche
LLP as stated in their report that immediately precedes the Company's audited
consolidated financial statements for the year ended December 31, 2011,
expressed an unqualified opinion on the effectiveness of the Companys internal
control over financial reporting.

|1.15.4 Changes in Internal Control
      over Financial Reporting
|-----------------------------------------------------------------

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

|1.15.5 Limitations of Controls and
      Procedures
|---------------------------------------------------

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

|1.15.6 Risk Factors
|-------------------

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

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

Although there are known bodies of mineralization on the Pebble
Project, and the Pebble Partnership has completed core drilling programs within,
and adjacent to, the deposits to determine measured and indicated resources,
there are currently no known reserves or body of commercially viable ore and the
Pebble Project must be considered an exploration prospect only. Extensive
additional work is required before the Company or the Pebble Partnership can
ascertain if any mineralization may be economic and hence constitute "ore".
Engineering, socioeconomic and environmental studies are ongoing. Exploration
for minerals is a speculative venture necessarily

Page 33

---

|NORTHERN DYNASTY MINERALS LTD.      
|------------------------------------
|MANAGEMENT'S DISCUSSION AND ANALYSIS
|YEAR ENDED DECEMBER 31, 2011        
|                                    

involving substantial risk. If the expenditures the Company
and/or the Pebble Partnership incur and have incurred in the past on the Pebble
Project do not result in discovery and development of commercial quantities of
ore, the value of exploration and acquisition expenditures incurred will be
totally lost.

Feasibility work to determine the viability of the Pebble
Project has not been completed and permits have not been applied for

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

Volatility in Metal Prices

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

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

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

Page 34

---

|NORTHERN DYNASTY MINERALS LTD.      
|------------------------------------
|MANAGEMENT'S DISCUSSION AND ANALYSIS
|YEAR ENDED DECEMBER 31, 2011        
|                                    

environmental legislation may result in delays to the
exploration and, if warranted, development activities.

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

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

General Mining Risks

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

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

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

Page 35

---