---



CONSOLIDATEDFINANCIALSTATEMENTS





YEARS ENDEDDECEMBER 31, 2009 AND 2008



(ExpressedinthousandsofCanadianDollars)



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Report of Independent Registered Chartered
Accountants

To the Shareholders ofNorthern Dynasty Minerals Ltd.

We have audited the accompanying consolidated statements of
financial position of Northern Dynasty Minerals Ltd. and subsidiaries (the
Company) as at December 31, 2009, 2008 and January 1, 2008 and the
consolidated statements of comprehensive loss (income), changes in equity and
cash flows for each of the years ended December 31, 2009 and 2008. These
financial statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with Canadian generally
accepted auditing standards and the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, these consolidated financial statements present
fairly, in all material respects, the financial position of Northern Dynasty
Minerals Ltd. and subsidiaries as atDecember 31, 2009, 2008 and January
1, 2008, and the results of their operations and their cash flows for each of
the years ended December 31, 2009 and 2008 in accordance with International
Financial Reporting Standards as issued by the International Accounting
Standards Board.

The consolidated statements of financial position as at January
1, 2008 and December 31, 2008 and the consolidated statements of loss and
comprehensive loss and cash flows for the year ended December 31, 2008, prepared
in accordance with Canadian generally accepted accounting principles, as
presented in Note 16 to these financial statements, were audited by other
auditors who expressed an opinion without reservation on those statements in
their report dated March 20, 2009.

We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the Companys
internal control over financial reporting as of December 31, 2009, based onthe criteria established in Internal ControlIntegrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated March 30, 2010 expressed an unqualified opinion
on the Companys internal control over financial reporting.

(Signed) Deloitte & Touche LLP

Independent Registered Chartered Accountants Vancouver,
Canada March 30, 2010

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Report of Independent Registered Chartered Accountants

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

We have audited the internal control over financial reporting
of Northern Dynasty Minerals Ltd. and subsidiaries (the Company)as of
December 31, 2009, based on the criteria established in Internal
ControlIntegrated Frameworkissued by the Committee of Sponsoring
Organizations of the Treadway Commission. The Companys management is
responsible for maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control over financial
reporting, included in the accompanying Managements Report on Internal Control
over Financial Reporting. Our responsibility is to express an opinion on the
Companys internal control over financial reporting based on our audit.

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

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

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

In our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as of December 31,
2009, based on the criteria established in Internal ControlIntegrated
Frameworkissued by the Committee of Sponsoring Organizations of the
Treadway Commission.

We have also audited, in accordance with Canadian generally
accepted auditing standards and the standards of the Public Company Accounting
Oversight Board (United States), the consolidated financial statements as at and
for the year ended December 31, 2009 of the Company and our report dated March
30, 2010 expressed an unqualified opinion on those financial statements.

(Signed) Deloitte & Touche LLP

Independent Registered Chartered Accountants Vancouver,
Canada March 30, 2010

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Northern Dynasty Minerals Ltd.ConsolidatedStatementsofFinancialPosition(Expressed in thousands of Canadian Dollars)

|                                             |  |      |  |   | As at       |  
|-------------------------------------------- |  | ---- |  | - | ----------- | -
|                                             |  |      |  |   | December 31 |  
|                                             |  | Note |  |   | 2009        |  
|                                             |  |      |  |   |             |  
|ASSETS                                       |  |      |  |   |             |  
|                                             |  |      |  |   |             |  
|Noncurrentassets                            |  |      |  |   |             |  
|Property, plant and equipment                |  | 3    |  | $ |            |  
|Investment in the Pebble Limited Partnership |  | 4    |  |   | 104,937     |  
|                                             |  |      |  |   | 104,937     |  
|                                             |  |      |  |   |             |  
|Currentassets                                |  |      |  |   |             |  
|Balances receivable from a related party     |  | 6    |  |   | 55          |  
|Amounts receivable and other assets          |  | 7    |  |   | 181         |  
|Marketable securities                        |  |      |  |   | 2           |  
|Cash and cash equivalents                    |  | 8    |  |   | 44,895      |  
|                                             |  |      |  |   | 45,133      |  
|                                             |  |      |  |   |             |  
|TotalAssets                                  |  |      |  | $ | 150,070     |  
|                                             |  |      |  |   |             |  
|EQUITY                                       |  |      |  |   |             |  
|                                             |  |      |  |   |             |  
|Share capital                                |  | 9    |  | $ | 370,660     |  
|Reserves                                     |  |      |  |   | 36,919      |  
|Deficit                                      |  |      |  |   | (261,509    | )
|                                             |  |      |  |   | 146,070     |  
|LIABILITIES                                  |  |      |  |   |             |  
|                                             |  |      |  |   |             |  
|Currentliabilities                           |  |      |  |   |             |  
|Balances payable to a related party          |  | 6    |  |   |            |  
|Amounts payable and other liabilities        |  | 10   |  |   | 193         |  
|                                             |  |      |  |   | 193         |  
|                                             |  |      |  |   |             |  
|Noncurrentliabilities                       |  |      |  |   |             |  
|Deferred income taxes                        |  | 11   |  |   | 3,807       |  
|                                             |  |      |  |   | 3,807       |  
|                                             |  |      |  |   |             |  
|TotalLiabilities                             |  |      |  |   | 4,000       |  
|                                             |  |      |  |   |             |  
|TotalEquityandLiabilities                    |  |      |  | $ | 150,070     |  

Theaccompanyingnotesareanintegralpartoftheseconsolidatedfinancialstatements.

These consolidated financial statements are authorized for issue by the Board of Directors on March 29, 2010. They are signed on the 
Company's behalf by:



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

Page 2

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Northern Dynasty Minerals Ltd.ConsolidatedStatementsofComprehensiveLoss(Income)(Expressed in thousands of Canadian Dollars, except for share information)

|                                                                                                                 |  |      |  |   |                         |   |   |          |  
|---------------------------------------------------------------------------------------------------------------- |  | ---- |  | - | ----------------------- | - | - | -------- | -
|                                                                                                                 |  |      |  |   | Year ended December 31, |  
|                                                                                                                 |  | Note |  |   | 2009                    |   |   | 2008     |  
|                                                                                                                 |  |      |  |   |                         |   |   | (note 16 | )
|Expenses                                                                                                         |  |      |  |   |                         |   |   |          |  
|Depreciation                                                                                                     |  |      |  | $ |                        |   | $ | 4        |  
|Donations                                                                                                        |  |      |  |   | 445                     |   |   |         |  
|Conference and travel                                                                                            |  |      |  |   | 349                     |   |   | 273      |  
|Exploration                                                                                                      |  |      |  |   | 321                     |   |   | 408      |  
|Foreign exchange loss (gain)                                                                                     |  |      |  |   | 130                     |   |   | (9,130   | )
|Impairment loss on marketable securities                                                                         |  |      |  |   | 15                      |   |   |         |  
|Impairment loss on property, plant and equipment                                                                 |  | 3    |  |   | 11                      |   |   |         |  
|Insurance                                                                                                        |  |      |  |   | 263                     |   |   | 407      |  
|Legal, accounting and audit                                                                                      |  |      |  |   | 354                     |   |   | 370      |  
|Office costs                                                                                                     |  |      |  |   | 331                     |   |   | 226      |  
|Salaries                                                                                                         |  |      |  |   | 1,453                   |   |   | 1,381    |  
|Shareholder communication                                                                                        |  |      |  |   | 750                     |   |   | 384      |  
|Sharebased compensation                                                                                         |  |      |  |   | 8,479                   |   |   | 7,707    |  
|Trust and filing                                                                                                 |  |      |  |   | 199                     |   |   | 235      |  
|Loss from operating activities                                                                                   |  |      |  |   | 13,100                  |   |   | 2,265    |  
|Interest (income)                                                                                                |  |      |  |   | (335                    | ) |   | (1,115   | )
|Loss before tax                                                                                                  |  |      |  |   | 12,765                  |   |   | 1,150    |  
|Income tax (recovery)                                                                                            |  | 11   |  |   | (25                     | ) |   |         |  
|Lossfortheyear                                                                                                   |  |      |  | $ | 12,740                  |   | $ | 1,150    |  
|                                                                                                                 |  |      |  |   |                         |   |   |          |  
|Other comprehensive loss (income)                                                                                |  |      |  |   |                         |   |   |          |  
|Unrealized loss on availableforsale marketable securities                                                      |  |      |  |   | 1                       |   |   | 11       |  
|Exchange difference arising on
      translation of investment in          
      the Pebble Limited Partnership |  | 4    |  |   | 16,674                  |   |   | (22,635  | )
|Deferred income tax on investment                                                                                |  | 11   |  |   | (609                    | ) |   | 827      |  
|Othercomprehensiveloss(income)                                                                                   |  |      |  | $ | 16,066                  |   | $ | (21,797  | )
|                                                                                                                 |  |      |  |   |                         |   |   |          |  
|Totalcomprehensiveloss(income)                                                                                   |  |      |  | $ | 28,806                  |   | $ | (20,647  | )
|                                                                                                                 |  |      |  |   |                         |   |   |          |  
|Basicanddilutedlosspercommonshare                                                                                |  | 12   |  | $ | 0.14                    |   | $ | 0.01     |  

Theaccompanyingnotesareanintegralpartoftheseconsolidatedfinancialstatements.

Page 3

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Northern Dynasty Minerals Ltd.ConsolidatedStatementsofCashFlows(Expressed in thousands of Canadian Dollars)

|                                                             |   |                         |   |   |          |  
|------------------------------------------------------------ | - | ----------------------- | - | - | -------- | -
|                                                             |   | Years ended December 31 |  
|                                                             |   | 2009                    |   |   | 2008     |  
|                                                             |   |                         |   |   | (note 16 | )
|Cashflowsfromoperatingactivities                             |   |                         |   |   |          |  
|(Loss) for the year                                          | $ | (12,740                 | ) | $ | (1,150   | )
|Adjustments for:                                             |   |                         |   |   |          |  
|Depreciation                                                 |   |                        |   |   | 4        |  
|Impairment loss on marketable securities                     |   | 15                      |   |   |         |  
|Impairment loss on property, plant and equipment             |   | 11                      |   |   |         |  
|Donation of shares                                           |   | 437                     |   |   |         |  
|Foreign exchange loss (gain)                                 |   | 130                     |   |   | (9,130   | )
|Income tax expense                                           |   | (25                     | ) |   |         |  
|Interest income                                              |   | (335                    | ) |   | (1,115   | )
|Sharebased compensation                                     |   | 8,479                   |   |   | 7,707    |  
|                                                             |   | (4,028                  | ) |   | (3,684   | )
|Changes in noncash working capital items                    |   |                         |   |   |          |  
|(Increase) decrease in amounts receivable and other assets   |   | (17                     | ) |   | 710      |  
|Decrease in balances receivable from related parties         |   | 94                      |   |   | 1,071    |  
|Increase (decrease) in amounts payable and other liabilities |   | 45                      |   |   | (1,483   | )
|(Decrease) in balances payable to related parties            |   |                        |   |   | (21      | )
|                                                             |   | 122                     |   |   | 277      |  
|                                                             |   |                         |   |   |          |  
|Net cash (used in) operating activities                      |   | (3,906                  | ) |   | (3,407   | )
|                                                             |   |                         |   |   |          |  
|Cashflowsfrominvestingactivities                             |   |                         |   |   |          |  
|Interest income                                              |   | 335                     |   |   | 1,115    |  
|Net cash generated by investing activities                   |   | 335                     |   |   | 1,115    |  
|                                                             |   |                         |   |   |          |  
|Cashflowsfromfinancingactivities                             |   |                         |   |   |          |  
|Common shares issued for cash, net of issue costs            |   | 2,630                   |   |   |         |  
|Net cash generated by financing activities                   |   | 2,630                   |   |   |         |  
|                                                             |   |                         |   |   |          |  
|Netdecreaseincashandcashequivalents                          |   | (941                    | ) |   | (2,292   | )
|Effect of exchange rate fluctuations on cash held            |   | (130                    | ) |   | 9,130    |  
|Cash and cash equivalents at beginning of the year           |   | 45,966                  |   |   | 39,128   |  
|                                                             |   |                         |   |   |          |  
|Cashandcashequivalentsatendoftheyear                         | $ | 44,895                  |   | $ | 45,966   |  

Theaccompanyingnotesareanintegralpartoftheseconsolidatedfinancialstatements.

Page 4

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Northern  Dynasty  Minerals  Ltd.ConsolidatedStatementsofChangesinEquity(Expressed
 in thousands  of  Canadian  Dollars,
 except for share information)

|                                                                            |  | Sharecapital |  |   | Reserves |  |   |               |   |   |             |  
|--------------------------------------------------------------------------- |  | ------------ |  | - | -------- |  | - | ------------- | - | - | ----------- | -
|                                                                            |  |              |  |   |          |  |   | Equitysettled |   |   | Foreign     |  
|                                                                            |  |              |  |   |          |  |   | sharebased   |   |   | currency    |  
|                                                                            |  | Numberof     |  |   |          |  |   | payments      |   |   | translation |  
|                                                                            |  | shares       |  |   | Amount   |  |   | reserve       |   |   | reserve     |  
|                                                                            |  |              |  |   |          |  |   |               |   |   |             |  
|Restated balance at January 1, 2008 (note 16)                               |  | 92,543,639   |  | $ | 365,202  |  | $ | 17,381        |   | $ |            |  
|Sharebased compensation                                                    |  |             |  |   |         |  |   | 7,707         |   |   |            |  
|Total comprehensive income (loss) for the year                              |  |             |  |   |         |  |   |              |   |   | 21,808      |  
|BalanceatDecember31,2008(note 16)                                           |  | 92,543,639   |  | $ | 365,202  |  | $ | 25,088        |   | $ | 21,808      |  
|                                                                            |  |              |  |   |          |  |   |               |   |   |             |  
|Shares issued for cash on exercise of options                               |  | 555,337      |  |   | 2,630    |  |   |              |   |   |            |  
|Fair value of share options allocated to shares issued on exercise          |  |             |  |   | 2,391    |  |   | (2,391        | ) |   |            |  
|Shares donated (note 9)                                                     |  | 75,000       |  |   | 437      |  |   |              |   |   |            |  
|Sharebased compensation                                                    |  |             |  |   |         |  |   | 8,479         |   |   |            |  
|Cumulative loss reclassified to loss on impairment of marketable securities |  |             |  |   |         |  |   |              |   |   |            |  
|Total comprehensive income (loss) for the year                              |  |             |  |   |         |  |   |              |   |   | (16,065     | )
|BalanceatDecember31,2009                                                    |  | 93,173,976   |  |   | 370,660  |  |   | 31,176        |   |   | 5,743       |  

Theaccompanyingnotesareanintegralpartoftheseconsolidatedfinancialstatements.

Page 5

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|Northern Dynasty Minerals Ltd.                                             
|---------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                             
|For the years ended December 31, 2009 and 2008                             
|(Expressed in
      thousands of Canadian Dollars, unless otherwise stated)

|1. | NATURE OF OPERATIONS AND CONTINUANCE OF
      OPERATIONS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | Northern Dynasty Minerals Ltd. (the "Company") is
      incorporated under the laws of the Province of British Columbia, Canada,
      and its principal business activity is the exploration of mineral
      properties. The consolidated financial statements of the Company as at and
      for the year ended December 31, 2009 comprise of the Company and its
      subsidiaries (note 5) (together referred to as the "Group" and
      individually as "Group entities") and the Groups interest in jointly
      controlled entities. The Company is the ultimate parent. The Group owns a
      50% share in the Pebble Limited Partnership (the "Pebble Partnership")
      (note 4). The Pebble Partnership owns the Pebble Copper-Gold-Molybdenum
      Project (the "Pebble Project"), the Groups principal mineral property
      interest located in Alaska, United States of America ("USA" or
    "US").
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | The Group is in the process of exploring its mineral
      property interests and has not yet determined whether the Pebble Project
      contains mineral reserves that are economically recoverable. The Groups
      continuing operations and the underlying value and recoverability of the
      amounts shown for the investment in the Pebble Partnership is entirely
      dependent upon the existence of economically recoverable mineral reserves;
      the ability of the Group to obtain the necessary financing to complete the
      exploration and development of the Pebble Project; obtaining the necessary
      permits to mine; and future profitable production or proceeds from the
      disposition of the investment in the Pebble Partnership.                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|2. | SIGNIFICANT ACCOUNTING
POLICIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

|(a) | Statement of Compliance and Conversion to
      International Financial Reporting Standards                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    | The Canadian Accounting Standards Board ("AcSB")
      confirmed in February 2008 that International Financial Reporting
      Standards ("IFRS") will replace Canadian generally accepted accounting
      principles ("GAAP") for publicly accountable enterprises for financial
      periods beginning on and after January 1, 2011, with the option available
      to early adopt IFRS from periods beginning on or after January 1, 2009
      upon receipt of approval from the Canadian Securities regulatory
      authorities, which the Group received in early March 2009.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    | The consolidated financial statements have been prepared
      in accordance with International Financial Reporting Standards as issued
      by the International Accounting Standards Board ("IASB") and
      interpretations of the International Financial Reporting Interpretations
      Committee ("IFRIC"). These are the Groups first consolidated annual
      financial statements presented in accordance with IFRS.                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|(b) | Basis of Preparation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    | These consolidated financial statements have been
      prepared on a historical cost basis, except for financial instruments
      classified as available-for-sale which are stated at their fair value. In
      addition these consolidated financial statements have been prepared using
      the accrual basis of accounting, except for cash flow
  information.                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    | These consolidated financial statements have been
      prepared on the basis of IFRS standards that are effective or available
      for early adoption on December 31, 2009, the Groups first annual
      reporting date.                                                                                                                                                                                                                                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    | The preparation of these consolidated financial
      statements resulted in changes to the accounting policies as compared with
      the most recent annual financial statements prepared under GAAP. The
      accounting policies set out below have been applied consistently to all
  periods presented in these consolidated financial statements.                                                                                                                                                                                                                              

Page 6

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|Northern Dynasty Minerals Ltd.                                             
|---------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                             
|For the years ended December 31, 2009 and 2008                             
|(Expressed in thousands
      of Canadian Dollars, unless otherwise stated)

|    | They also have been applied in preparing an
      opening IFRS statement of financial position as at January 1, 2008 for the
      purposes of the transition to IFRS, as required by IFRS 1, First Time
      Adoption of International Financial Reporting Standards("IFRS 1").The impact of the transition from GAAP to IFRS is explained in Note
    16.                                                                                                                                                                                                                                                                                                                
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|(c) | Basis of Consolidation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | These consolidated financial statements include the
      accounts of the Group and all its subsidiaries (note 5).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | The Group has determined that its investment in the
      Pebble Partnership, a 50:50 limited partnership between the Group and
      Anglo American plc ("Anglo"), each through wholly-owned affiliates,
      qualifies as an interest in a jointly controlled entity under IAS 31,
      Interests in Joint Ventures. The Group has elected to apply the
      equity method to account for its interest in the Pebble Partnership (note
      4). The investment is carried in the statement of financial position at
      cost and adjusted by post-acquisition changes in the Groups share of the
      net assets of the joint venture, less any impairment losses.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | Intra-Group balances and transactions, including any
      unrealized income and expenses arising from intra- Group transactions, are
      eliminated in full on consolidation. Unrealized gains arising from
      transactions with equity accounted investees are eliminated against the
      investment to the extent of the Groups interest in the investee.
      Unrealized losses are eliminated in the same way as unrealized gains, but
      only to the extent that there is no evidence of impairment.                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|(d) | Business Combinations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | From January 1, 2008, acquisitions of subsidiaries and
      businesses are accounted for using the purchase method. The cost of the
      business combination is measured as the aggregate of the fair values (at
      the date of exchange) of assets given, liabilities incurred or assumed,
      and equity instruments issued by the Group in exchange for control of the
      acquired entity or acquiree. The acquirees identifiable assets,
      liabilities and contingent liabilities that meet the conditions for
      recognition under IFRS 3 are recognized at their fair values at the
      acquisition date, except for:                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | •                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | •                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | •                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | Goodwill arising on acquisition is recognized as an asset
      and initially measured at cost, being the excess of the cost of the
      business combination over the Groups interest in the net fair value of
      the identifiable assets, liabilities and contingent liabilities
      recognized. If, after reassessment, the Groups interest in the net fair
      value of the acquirees identifiable assets, liabilities and contingent
      liabilities exceeds the cost of the business combination, the excess is
      recognized immediately in profit or loss.                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | If the initial accounting for a business combination is
      incomplete by the end of the reporting period in which the combination
      occurs, the Group reports provisional amounts for the items for which the
      accounting is incomplete. Those provisional amounts are adjusted during
      the measurement period (see below), or additional assets or liabilities
      are recognized, to reflect new information obtained about facts and
      circumstances that existed as of the acquisition date that, if known,
  would have affected the amounts recognized as of that date.                                                                        

Page 7

---

|Northern Dynasty Minerals Ltd.                                             
|---------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                             
|For the years ended December 31, 2009 and 2008                             
|(Expressed in thousands
      of Canadian Dollars, unless otherwise stated)

|    | The measurement period is the period from the date of
      acquisition to the date the Group obtains complete information about facts
      and circumstances that existed as of the acquisition date  and is subject
      to a maximum of one year.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | The interest of non-controlling shareholders in the
      acquiree is initially measured at the non-controlling shareholders
      proportion of the net fair value of the assets, liabilities and contingent
      liabilities recognized.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|(e) | Interests in Joint Ventures                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | A joint venture is a contractual arrangement whereby the
      Group and other parties undertake an economic activity that is subject to
      joint control (i.e. when the strategic financial and operating policy
      decisions relating to the activities of the joint venture require the
      unanimous consent of the parties sharing control).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | Joint venture arrangements that involve the establishment
      of a separate entity in which each venturer has an interest are referred
      to as jointly controlled entities. The Group reports its interests in a
      jointly controlled entity ("JCE"), under the equity method of accounting,
      except when the investment is classified as held for sale, in which case
      it is accounted for in accordance with IFRS 5, Non-current Assets Held
      for Sale and Discontinued Operations. Under the equity method, the
      Groups interest in the JCE are carried in the consolidated financial
      statement of financial position at cost as adjusted for post-acquisition
      changes in the Groups share of the net assets of the JCE less any
      impairment in the value of the investment. Losses in excess of the Groups
      interest in that JCE are recognized only to the extent that the Group has
      incurred legal or constructive obligations or made payments on behalf of
      the JCE.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | Any excess of the cost of the acquisition over the
      Groups share of the fair value of the identifiable assets, liabilities
      and contingent liabilities of the JCE recognized at the date of the
      acquisition is recognized as goodwill. The goodwill is included within the
      carrying amount of the JCE and is assessed for impairment as part of that
      JCE. Any excess of the Groups share of the net fair value of the
      identifiable assets, liabilities and contingent liabilities over the cost
      of acquisition, after reassessment, is recognized immediately in profit or
      loss.                                                                                                                                                                                                                                                                                                                                                                                                              
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | When a group entity transacts with a JCE of the Group,
      unrealized profits and losses are eliminated to the extent of the Groups
      interest in the joint venture.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|(f) | Foreign Currencies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | The functional currency is the currency of the primary
      economic environment in which the entity operates and has been determined
      for each entity within the Group. The functional currency of the Pebble
      Partnership is US dollars and for all other entities within the Group, the
      functional currency is Canadian dollars. The functional currency
      determinations were conducted through an analysis of the consideration
      factors identified in IAS 21, The Effects of Changes in Foreign
      Exchange Rates.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | Transactions in currencies other than the functional
      currency are recorded at the rates of exchange prevailing on dates of
      transactions. At the end of each reporting period, monetary assets and
      liabilities that are denominated in foreign currencies are translated at
      the rates prevailing at that date. Non-monetary assets and liabilities
      carried at fair value that are denominated in foreign currencies are
      translated at rates prevailing at the date when the fair value was
      determined. Non-monetary items that are measured in terms of historical
      cost in a foreign currency are not retranslated.                                                                                                                                                                                                                                                                                                                                                                            

Page 8

---

|Northern Dynasty Minerals Ltd.                                             
|---------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                             
|For the years ended December 31, 2009 and 2008                             
|(Expressed in thousands
      of Canadian Dollars, unless otherwise stated)

|(g) | Financial Instruments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | The Group does not have any derivative financial
      instruments.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | Non-derivative financial
      assets:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | The Group 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 Group manages such investments and makes purchase and sale
      decisions based on their fair value in accordance with the Group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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | The Groups investments in marketable securities are
      classified as available-for-sale ("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.                                                                                                                                                                                                                                                        
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | Loans and receivables comprise amounts receivable and
      balances receivable from a related party.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | Non-derivative financial
      liabilities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | The group has the following non-derivative financial
      liabilities: amounts payable and other
liabilities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

Page 9

---

|Northern Dynasty Minerals Ltd.                                             
|---------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                             
|For the years ended December 31, 2009 and 2008                             
|(Expressed in thousands
      of Canadian Dollars, unless otherwise stated)

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.

Impairment of
financial assets:

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

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

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

|    | For certain categories of financial assets, such as
      amounts receivable, assets that are assessed not to be impaired
      individually are subsequently assessed for impairment on a collective
      basis. The carrying amount of financial assets is reduced by the
      impairment loss directly for all financial assets with the exception of
      amounts receivable, where the carrying amount is reduced through the use
      of an allowance account. When an amount receivable is considered
      uncollectible, it is written off against the allowance account. Subsequent
      recoveries of amounts previously written off are credited against the
      allowance account. Changes in the carrying amount of the allowance account
      are recognized in profit or loss.          
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    | With the exception of AFS equity instruments, if, in a
      subsequent period, the amount of the impairment loss decreases and the
      decrease can be related objectively to an event occurring after the
      impairment was recognized, the previously recognized impairment loss is
      reversed through profit or loss to the extent that the carrying amount of
      the investment at the date the impairment is reversed does not exceed what
      the amortized cost would have been had the impairment not been recognized.
      In respect of AFS equity securities, impairment losses previously
      recognized through profit or loss are not reversed through profit or loss.
      Any increase in fair value subsequent to an impairment loss is recognized
      directly in equity.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    | When an AFS financial asset is considered to be impaired,
      cumulative gains or losses previously recognized in other comprehensive
      income are reclassified to profit or loss in the period.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|(h) | Exploration and Evaluation Expenditure                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    | Exploration and evaluation expenditures include the costs
      of acquiring licenses, costs associated with exploration and evaluation
      activity, and the fair value (at acquisition date) of exploration and
      evaluation assets acquired in a business combination. Exploration and
      evaluation expenditures are expensed as incurred except for expenditures
      associated with the acquisition of exploration and evaluation assets
      through a business combination or an asset acquisition. Costs incurred
      before the Group has obtained the legal rights to explore an area are
      recognized in profit or loss.                                                                                                                                                          

Page 10

---

|Northern Dynasty Minerals Ltd.                                             
|---------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                             
|For the years ended December 31, 2009 and 2008                             
|(Expressed in thousands
      of Canadian Dollars, unless otherwise stated)

|    | Acquisition costs, including general and administrative
      costs, are only capitalized to the extent that these costs can be related
      directly to operational activities in the relevant area of interest where
      it is considered likely to be recoverable by future exploitation or sale
      or where the activities have not reached a stage which permits a
      reasonable assessment of the existence of reserves.                                                      
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    | Exploration and evaluation assets are assessed for
      impairment if (i) sufficient data exists to determine technical
      feasibility and commercial viability, and (ii) facts and circumstances
      suggest that the carrying amount exceeds the recoverable amount.                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    | Once the technical feasibility and commercial viability
      of the extraction of mineral resources in an area of interest are
      demonstrable, exploration and evaluation assets attributable to that area
      of interest are first tested for impairment and then reclassified to
      mining property and development assets within property, plant and
      equipment.                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    | Recoverability of the carrying amount of any exploration
      and evaluation assets is dependent on successful development and
      commercial exploitation, or alternatively, sale of the respective areas of
      interest.                                                                                                                                                                                                                                                             
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|(i) | Property, Plant and Equipment                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    | Property, plant and equipment ("PPE") are carried at
      cost, less accumulated depreciation and accumulated impairment
    losses.                                                                                                                                                                                                                                                                                                                                                        
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    | The cost of an item of PPE consists of the purchase
      price, any costs directly attributable to bringing the asset to the
      location and condition necessary for its intended use and an initial
      estimate of the costs of dismantling and removing the item and restoring
      the site on which it is located.                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    | Depreciation is provided at rates calculated to write off
      the cost of PPE, less their estimated residual value, using the declining
      balance method at various rates ranging from 20% - 30% per
annum.                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    | An item of PPE is derecognized upon disposal or when no
      future economic benefits are expected to arise from the continued use of
      the asset. Any gain or loss arising on disposal of the asset, determined
      as the difference between the net disposal proceeds and the carrying
      amount of the asset, is recognized in profit or loss.                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    | Where an item of plant and equipment consists of major
      components with different useful lives, the components are accounted for
      as separate items of plant and equipment. Expenditures incurred to replace
      a component of an item of PPE that is accounted for separately, including
      major inspection and overhaul expenditures, are capitalized.                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    | Residual values and estimated useful lives are reviewed
      at least annually.                                                                                                                                                                                                                                                                                                                                                                                                             
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|(j) | Cash and Cash Equivalents                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    | Cash and cash equivalents in the statement of financial
      position are comprised of cash and short term deposits held at major
      financial institutions with an original maturity of three months or less,
      which are readily convertible into a known amount of cash. The Groups
      cash and cash equivalents are invested in business and savings accounts
      and guaranteed investment certificates which are available on demand by
      the Group for its programs.

Page 11

---

|Northern Dynasty Minerals Ltd.                                             
|---------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                             
|For the years ended December 31, 2009 and 2008                             
|(Expressed in thousands
      of Canadian Dollars, unless otherwise stated)

|(k) | Impairment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | At the end of each reporting period the carrying amounts
      of the Groups assets are reviewed to determine whether there is any
      indication that those assets are impaired. If any such indication exists,
      the recoverable amount of the asset is estimated in order to determine the
      extent of the impairment, if any. The recoverable amount is the higher of
      fair value less costs to sell and value in use. Fair value is determined
      as the amount that would be obtained from the sale of the asset in an
      arms length transaction between knowledgeable and willing parties. In
      assessing value in use, the estimated future cash flows are discounted to
      their present value using a pre-tax discount rate that reflects current
      market assessments of the time value of money and the risks specific to
      the asset. If the recoverable amount of an asset is estimated to be less
      than its carrying amount, the carrying amount of the asset is reduced to
      its recoverable amount and the impairment loss is recognized in the profit
      or loss for the period. For an asset that does not generate largely
      independent cash inflows, the recoverable amount is determined for the
      cash generating unit to which the asset belongs.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | Where an impairment loss subsequently reverses, the
      carrying amount of the asset (or cash-generating unit) is increased to the
      revised estimate of its recoverable amount, but to an amount that does not
      exceed the carrying amount that would have been determined had no
      impairment loss been recognized for the asset (or cash-generating unit) in
      prior years. A reversal of an impairment loss is recognized immediately in
      profit or loss.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|(l) | Share Capital                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | Common shares are classified as equity. Transaction costs
      directly attributable to the issue of common shares and share purchase
      options are recognized as a deduction from equity, net of any tax
      effects.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|(m) | Share-based Payment Transactions                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | The share purchase option plan allows Group employees and
      consultants to acquire shares of the Group. The fair value of share
      purchase options granted is recognized as an employee or consultant
      expense with a corresponding increase in equity. An individual is
      classified as an employee when the individual is an employee for legal or
      tax purposes (direct employee) or provides services similar to those
      performed by a direct employee.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | The fair value is measured at grant date and each tranche
      is recognized on a straight line basis over the period during which the
      share purchase options vest. The fair value of the share purchase options
      granted is measured using the Black-Scholes option pricing model taking
      into account the terms and conditions upon which the share purchase
      options were granted. At each financial position reporting date, the
      amount recognized as an expense is adjusted to reflect the actual number
      of share purchase options that are expected to
vest.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

Page 12

---

|Northern Dynasty Minerals Ltd.                                             
|---------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                             
|For the years ended December 31, 2009 and 2008                             
|(Expressed in thousands
      of Canadian Dollars, unless otherwise stated)

|(n) | Income Taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | Income tax on the profit or loss for the periods
      presented comprises current and deferred tax. Income tax is recognized in
      profit or loss except to the extent that it relates to items recognized
      directly in equity, in which case it is recognized in equity.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | Current tax expense is the expected tax payable on the
      taxable income for the year, using tax rates enacted or substantively
      enacted at year end, adjusted for amendments to tax payable with regards
      to previous years.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | Deferred tax is provided using the balance sheet
      liability method, providing for temporary differences between the carrying
      amounts of assets and liabilities for financial reporting purposes and the
      amounts used for taxation purposes. The following temporary differences
      are not provided for: goodwill not deductible for tax purposes; the
      initial recognition of assets or liabilities that affect neither
      accounting nor taxable profit; and differences relating to investments in
      subsidiaries, associates, and joint ventures to the extent that they will
      probably not reverse in the foreseeable future. The amount of deferred tax
      provided is based on the expected manner of realization or settlement of
      the carrying amount of assets and liabilities, using tax rates enacted or
      substantively enacted at the financial position reporting date applicable
      to the period of expected realization or settlement.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | A deferred tax asset is recognized only to the extent
      that it is probable that future taxable profits will be available against
      which the asset can be utilized.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | Additional income taxes that arise from the distribution
      of dividends are recognized at the same time as the liability to pay the
      related dividend.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | Deferred tax assets and liabilities are offset when there
      is a legally enforceable right to set off current tax assets against
      current tax liabilities and when they relate to income taxes levied by the
      same taxation authority and the Group intends to settle its current tax
      assets and liabilities on a net basis.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|(o) | Restoration, Rehabilitation, and Environmental
      Obligations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | An obligation to incur restoration, rehabilitation and
      environmental costs arises when environmental disturbance is caused by the
      exploration or development of a mineral property interest. Such costs
      arising from the decommissioning of plant and other site preparation work,
      discounted to their net present value, are provided for and capitalized at
      the start of each project to the carrying amount of the asset, along with
      a corresponding liability as soon as the obligation to incur such costs
      arises. The timing of the actual rehabilitation expenditure is dependent
      on a number of factors such as the life and nature of the asset, the
      operating license conditions and, when applicable, the environment in
      which the mine operates.                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | Discount rates using a pre-tax rate that reflects the
      time value of money are used to calculate the net present value. These
      costs are charged against profit or loss over the economic life of the
      related asset, through amortization using either the unit-of-production or
      the straight line method. The corresponding liability is progressively
      increased as the effect of discounting unwinds creating an expense
      recognized in profit or loss.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | Decommissioning costs are also adjusted for changes in
      estimates. Those adjustments are accounted for as a change in the
      corresponding capitalized cost, except where a reduction in costs is
      greater than the unamortized capitalized cost of the related assets, in
      which case the capitalized cost is reduced to nil and the remaining
      adjustment is recognized in profit or loss.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

Page 13

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|Northern Dynasty Minerals Ltd.                                             
|---------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                             
|For the years ended December 31, 2009 and 2008                             
|(Expressed in thousands
      of Canadian Dollars, unless otherwise stated)

|    | The operations of the Group have been, and may in the
      future be, affected from time to time in varying degree by changes in
      environmental regulations, including those for site restoration costs.
      Both the likelihood of new regulations and their overall effect upon the
      Group are not predictable.                                                                                                                                       
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | The Group has no material restoration, rehabilitation and
      environmental obligations as the disturbance to date is
  immaterial.                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|(p) | Loss per Share                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | The Group presents basic and diluted loss per share data
      for its common shares, calculated by dividing the loss attributable to
      common shareholders of the Group by the weighted average number of common
      shares outstanding during the period. Diluted loss per share does not
      adjust the loss attributable to common shareholders or the weighted
      average number of common shares outstanding when the effect is
      anti-dilutive.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|(q) | Segment Reporting                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | The Group operates in a single reportable operating
      segment  the acquisition, exploration and development of mineral
      properties.                                                                                                                                                                                                                                                                                                                        
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | The Groups investment in the Pebble Partnership, which
      holds the Pebble Project located in Alaska, USA. All other significant
      assets are held within Canada.                                                                                                                                                                                                                                                                                            

Page 14

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|Northern Dynasty Minerals Ltd.                                             
|---------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                             
|For the years ended December 31, 2009 and 2008                             
|(Expressed in thousands
      of Canadian Dollars, unless otherwise stated)

|(r) | Significant Accounting Estimates and
    Judgments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | The preparation of these consolidated financial
      statements requires management to make certain estimates, judgments and
      assumptions that affect the reported amounts of assets and liabilities at
      the date of the financial statements and reported amounts of expenses
      during the reporting period. Actual outcomes could differ from these
      estimates. These 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 period in which the estimate is
      revised and future periods if the revision affects both current and future
      periods. These estimates are based on historical experience, current and
      future economic conditions and other factors, including expectations of
      future events that are believed to be reasonable under the
      circumstances.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | Critical accounting estimates                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | Significant assumptions about the future and other
      sources of estimation uncertainty that management has made at the
      financial position reporting date, that could result in a material
      adjustment to the carrying amounts of assets and liabilities, in the event
      that actual results differ from assumptions made, relate to, but are not
      limited to, the following:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

| | i.   | the recoverability of amounts receivable which are
      included in the consolidated statements of financial position;                                                                                              
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |      |                                                                                                                                                                                                                      
| | ii.  | the carrying value and the recoverability of the carrying
      value of the investment in the Pebble Partnership included in the
      consolidated statements of financial position;                               
| |      |                                                                                                                                                                                                                      
| | iii. | the estimated useful lives of property, plant and
      equipment which are included in the consolidated statement of financial
      position and the related depreciation included in profit or
loss;              
| |      |                                                                                                                                                                                                                      
| | iv.  | the inputs used in accounting for share-based
      compensation expense in profit or loss; and                                                                                                                      
| |      |                                                                                                                                                                                                                      
| | v.   | the provision for the income tax recovery which is
      included in profit or loss and the composition of deferred income tax
      liabilities included in the consolidated statements of financial
      position.

|    | Critical accounting judgments                                                                                                                                                                                                                                                  
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                
|    | The determination of categories of financial assets and
      financial liabilities has been identified as an accounting policy which
      involves judgements or assessments made by management.                                                                             
|    |                                                                                                                                                                                                                                                                                
|(s) | Accounting Standards, Interpretations and Amendments
      to Existing Standards That Are Not Yet Effective                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                
|    | The group has not yet adopted certain new standards,
      amendments and interpretations to existing standards, which have been
      published but are only effective for our accounting periods beginning on
      or after January 1, 2010 or later periods. These include:
|    |                                                                                                                                                                                                                                                                                
|    | •                                                                                                                                                                                                                                                                              
|    | •                                                                                                                                                                                                                                                                              
|    | •                                                                                                                                                                                                                                                                              
|    | •                                                                                                                                                                                                                                                                              

Page 15

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|Northern Dynasty Minerals Ltd.                                             
|---------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                             
|For the years ended December 31, 2009 and 2008                             
|(Expressed in thousands
      of Canadian Dollars, unless otherwise stated)

|   | At the financial position reporting date, the following
      accounting interpretation was in issue but not yet effective: IFRIC 19,
      Extinguishing Financial Liabilities with Equity Instruments. This
      interpretation is not expected to have any impact on the financial results
      of the Group.
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                   
|   | The Group anticipates that the adoption of these
      standards and interpretations in future periods will have no material
      impact on the consolidated financial statements of the Group except for
      additional disclosures.                                                                          
|   |                                                                                                                                                                                                                                                                                                                   
|3. | PROPERTY, PLANT AND
EQUIPMENT                                                                                                                                                                                                                                                                                     

| |                              |   | Furniture and |  |   |          |   |   |           |   |   |       |  
| | ---------------------------- | - | ------------- |  | - | -------- | - | - | --------- | - | - | ----- | -
| |                              |   | Fixtures      |  |   | Vehicles |   |   | Computers |   |   | Total |  
| | Cost                         |   |               |  |   |          |   |   |           |   |   |       |  
| | Balance at January 1, 2009   | $ | 15            |  | $ | 17       |   | $ | 32        |   | $ | 64    |  
| | Additions                    |   |              |  |   |         |   |   |          |   |   |      |  
| | Impairment
      loss1       |   |              |  |   | (17      | ) |   | (32       | ) |   | (49   | )
| | Balance at December 31, 2009 | $ | 15            |  | $ |         |   | $ |          |   | $ | 15    |  
| |                              |   |               |  |   |          |   |   |           |   |   |       |  
| | Accumulated Depreciation     |   |               |  |   |          |   |   |           |   |   |       |  
| | Balance at January 1, 2009   | $ | 15            |  | $ | 15       |   | $ | 23        |   | $ | 53    |  
| | Depreciation for the year    |   |              |  |   |         |   |   |          |   |   |      |  
| | Impairment
      loss1       |   |              |  |   | (15      | ) |   | (23       | ) |   | (38   | )
| | Balance at December 31, 2009 | $ | 15            |  | $ |         |   | $ |          |   | $ | 15    |  
| |                              |   |               |  |   |          |   |   |           |   |   |       |  
| | Carrying Amount              |   |               |  |   |          |   |   |           |   |   |       |  
| | At December 31,
      2009   | $ |              |  | $ |         |   | $ |          |   | $ |      |  

| |                                 |   | Furniture and |  |   |          |  |   |           |  |   |       | 
| | ------------------------------- | - | ------------- |  | - | -------- |  | - | --------- |  | - | ----- | 
| |                                 |   | Fixtures      |  |   | Vehicles |  |   | Computers |  |   | Total | 
| | Cost                            |   |               |  |   |          |  |   |           |  |   |       | 
| | Balance at January 1, 2008      | $ | 15            |  | $ | 17       |  | $ | 32        |  | $ | 64    | 
| | Additions                       |   |              |  |   |         |  |   |          |  |   |      | 
| | Balance at December 31, 2008    | $ | 15            |  | $ | 17       |  | $ | 32        |  | $ | 64    | 
| |                                 |   |               |  |   |          |  |   |           |  |   |       | 
| | Accumulated Depreciation        |   |               |  |   |          |  |   |           |  |   |       | 
| | Balance at January 1, 2008      | $ | 15            |  | $ | 14       |  | $ | 20        |  | $ | 49    | 
| | Depreciation for
      the year |   |              |  |   | 1        |  |   | 3         |  |   | 4     | 
| | Balance at December 31, 2008    | $ | 15            |  | $ | 15       |  | $ | 23        |  | $ | 53    | 
| |                                 |   |               |  |   |          |  |   |           |  |   |       | 
| | Carrying Amount                 |   |               |  |   |          |  |   |           |  |   |       | 
| | At January 1,
      2008        | $ |              |  | $ | 3        |  | $ | 12        |  | $ | 15    | 
| | At December 31, 2008            | $ |              |  | $ | 2        |  | $ | 9         |  | $ | 11    | 

| | 1. | Impairment loss recognized at December 31, 2009 relates
      to the impairment of items of property, plant and equipment during the
      year.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------

Page 16

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|Northern Dynasty Minerals Ltd.                                             
|---------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                             
|For the years ended December 31, 2009 and 2008                             
|(Expressed in thousands
      of Canadian Dollars, unless otherwise stated)

|4. | INVESTMENT IN THE PEBBLE LIMITED
  PARTNERSHIP                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | On July 26, 2007, the Group converted a wholly-owned
      general partnership formed in 2006 to hold its Pebble Property interest
      into a limited partnership, the Pebble Partnership, so that an indirect
      wholly-owned subsidiary of Anglo American plc ("Anglo") could subscribe
      for 50% of the Pebble Partnership's equity effective July 31, 2007. Each
      of the Group and Anglo has equal rights in the Pebble Partnership through
      wholly-owned affiliates. The purpose of the Pebble Partnership is to
      engineer, permit, construct and operate a modern, long-life mine at the
      Pebble Project. The Pebble Partnership's assets include the shares of two
      Alaskan subsidiaries which hold registered title to the claims. To
      maintain its 50% interest in the Pebble Partnership, Anglo is required to
      make staged cash investments into the Pebble Partnership aggregating to
      US$1.425 billion, potentially increasing to US$1.5 billion, as discussed
      below.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | Anglos staged investment requirements includes an
      initial minimum expenditure of US$125 million to be expended towards a
      prefeasibility study (funding completed in 2008) plus a requirement to
      fund additional expenditures as approved by the board of the general
      partner (Pebble Mines Corp.) unless Anglo elects to terminate its rights
      and relinquish all its interests in the Pebble Partnership. After the
      completion and approval by the partners of the prefeasibility study, Anglo
      is required, in order to retain its 50% interest in the Pebble
      Partnership, to commit to further expenditures which bring Anglos total
      investment to at least US$450 million, which amount is to be expended in
      producing a final feasibility study and in related activities, including
      to obtain relevant permits contemplated for current and planned
      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, Anglo is required to commit to the
      remainder of the total investment of US$1.425 billion in order to retain
      its interest in the Pebble Partnership. Following completion of the
      US$1.425 billion expenditure, any further expenditure will be funded by
      Anglo and Northern Dynasty on a 50:50 basis. If the feasibility study is
      completed after 2011, Anglos overall funding requirement increases from
      US$1.425 billion to US$1.5 billion. The Pebble Partnership agreement
      provides for equal project control rights for both partners with no
      operators fees payable to either party.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | The Group has determined that its investment in the
      Pebble Partnership qualifies as an interest in a jointly controlled entity
      under IAS 31, Interests in Joint Ventures, and has elected to apply
      the equity method in accounting for its interest in the Pebble
      Partnership. The Group has not accounted for its share of the loss in the
      Pebble Partnership for the current or prior year as the agreement with
      Anglo states that the distribution of losses funded by Anglo are allocated
      100% to Anglo until the total investment of US$1.425 billion is met.
      Accordingly, the Group has not recognized any share of losses relating to
      the Pebble Partnership totaling in Canadian dollars $68,330 in the year
      (2008  $150,965), since the Group has no obligation in respect of these
      losses. Cumulative losses in Canadian dollars as at December 31, 2009
      total $264,053 (2008  $195,723). The accounting policies of the Pebble
      Partnership are the same as those followed by the Group. The Group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.                                                                                                                                                                                                                                                                                                                                                                                     

| | Investment in the Pebble Partnership              |   | As at
      December 31 |   |   | As at
      December 31 |  |   | As at
      January 1 | 
| | ------------------------------------------------- | - | ----------------------- | - | - | ----------------------- |  | - | --------------------- | 
| |                                                   |   | 2009                    |   |   | 2008                    |  |   | 2008                  | 
| | Carrying value at the
      beginning of the year | $ | 121,611                 |   | $ | 98,976                  |  | $ |                      | 
| | Recognition of initial equity investment          |   |                        |   |   |                        |  |   | 98,976                | 
| | Foreign currency translation (note 9(d))          |   | (16,674                 | ) |   | 22,635                  |  |   |                      | 
| | Carrying value at the end of the year             | $ | 104,937                 |   | $ | 121,611                 |  | $ | 98,976                | 

Page 17

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|Northern Dynasty Minerals Ltd.                                             
|---------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                             
|For the years ended December 31, 2009 and 2008                             
|(Expressed in thousands
      of Canadian Dollars, unless otherwise stated)

Summary financial information for the
equity accounted investee, not adjusted for the percentage ownership held by the
Group, is as follows:

| |                     |   | As at December 31 |  |   | As at December 31 |  |   | As at January 1 | 
| | ------------------- | - | ----------------- |  | - | ----------------- |  | - | --------------- | 
| |                     |   | 2009              |  |   | 2008              |  |   | 2008            | 
| | Ownership           |   | 50%               |  |   | 50%               |  |   | 50%             | 
| |                     |   |                   |  |   |                   |  |   |                 | 
| | Non-current assets  | $ | 104,820           |  | $ | 121,703           |  | $ | 99,058          | 
| | Current assets      |   | 6,691             |  |   | 14,176            |  |   | 1,344           | 
| | Total assets        |   | 111,511           |  |   | 135,879           |  |   | 100,402         | 
| | Current liabilities |   | 3,268             |  |   | 13,325            |  |   | 7,168           | 
| | Total liabilities   |   | 3,268             |  |   | 13,325            |  |   | 7,168           | 
| | Net
      loss      | $ | 68,330            |  | $ | 150,965           |  | $ | 44,758          | 

|   | The cumulative losses of the Pebble Partnership have not
      been included in the financial statements of the Group.
|-- | ----------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                       
|5. | SUBSIDIARIES                                                                                                          

| |                               |                                | Proportion of Ownership |                   
| | ----------------------------- | ------------------------------ | ----------------------- | ------------------
| | Name of Subsidiary            | Place of Incorporation         | Interest                | Principal Activity
| | 3537137 Canada Inc.           | British Columbia,
      Canada | 100%                    | Holding Group     
| | 0796412 BC Ltd.               | British Columbia, Canada       | 100%                    | Not active        
| | Northern Dynasty Partnership1 | Alaska, USA                    | 100%                    | Holding Group     

1. The Groups affiliate which holds
the Groups 50% interest in the Pebble Partnership (note 4).

|6. | RELATED PARTY BALANCES AND TRANSACTIONS                                                                                                                                                                                                                                                                                                                                                                             
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                     
|   | A number of key management personnel, or their related
      parties, hold positions in other entities that result in them having
      control or significant influence over the financial or operating policies
      of the entities outlined below.                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                     
|   | The following entities transacted with the Group in the
      reporting period. The terms and conditions of the transactions with key
      management personnel and their related parties were no more favourable
      than those available, or which might reasonably be expected to be
      available, on similar transactions to non-key management personnel related
      entities on an arms length basis.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                     
|   | The aggregate value of transactions and outstanding
      balances relating to key management personnel and entities over which they
      have control or significant influence were as
follows:                                                                                                                                                                                                                   

Page 18

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|Northern Dynasty Minerals Ltd.                                             
|---------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                             
|For the years ended December 31, 2009 and 2008                             
|(Expressed in thousands
      of Canadian Dollars, unless otherwise stated)

| |                                                      |   | For Years Ended December 31 | 
| | ---------------------------------------------------- | - | --------------------------- | 
| | Transactions                                         |   | 2009                        | 
| | Services rendered:                                   |   |                             | 
| | Hunter Dickinson Services Inc. (a)                   | $ | 1,588                       | 
| | Sidev Holdings Ltd. (b)                              |   | 3                           | 
| | C.E.C Engineering Ltd. (c)                           |   |                            | 
| | Total for services rendered                          | $ | 1,591                       | 
| | Reimbursement for third party expenses paid by HDSI: |   |                             | 
| | Hunter Dickinson Services Inc. (a)                   | $ | 593                         | 

| |                                          |   | As at December 31 |  |   | As at December 31 |  |   | As at January 1 | 
| | ---------------------------------------- | - | ----------------- |  | - | ----------------- |  | - | --------------- | 
| | Related party balances receivable        |   | 2009              |  |   | 2008              |  |   | 2008            | 
| |                                          |   |                   |  |   |                   |  |   |                 | 
| | Hunter Dickinson Services
      Inc. (a) | $ | 55                |  | $ | 149               |  | $ | 27              | 
| | Pebble Partnership (d)                   |   |                  |  |   |                  |  |   | 1,193           | 
| | Total                                    | $ | 55                |  | $ | 149               |  | $ | 1,220           | 

| |                                |   | As at December 31 |  |   | As at December 31 |  |   | As at January 1 | 
| | ------------------------------ | - | ----------------- |  | - | ----------------- |  | - | --------------- | 
| | Related party balances payable |   | 2009              |  |   | 2008              |  |   | 2008            | 
| |                                |   |                   |  |   |                   |  |   |                 | 
| | Sidev Holdings Ltd. (b)        | $ |                  |  | $ |                  |  | $ | 21              | 

| | (a) | Hunter Dickinson Services Inc. ("HDSI") is a private
      Group which until recently was owned equally by several public companies,
      one of which was the Group. HDSI has certain directors in common with the
      Group and provides geological, corporate development, administrative and
      management services to, and incurs third party costs on behalf of, the
      Group and its subsidiaries at rates determined on a full cost recovery
      basis pursuant to an agreement dated June 1, 2008. No interest is accrued
      on these related party balances.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | (b) | Sidev Holdings Ltd. is a private Group controlled by a
      former director of Pebble East Claims Corp., a wholly owned private US
      subsidiary of the Pebble Partnership, which provided project management
      services at market rates.                                                                                                                                                                                                                                                                                                                                   
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | (c) | C.E.C Engineering Ltd. is a private Group controlled by a
      director that provided services to the Group at market rates.                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | (d) | The Group incurred third party costs on behalf of the
      Pebble Partnership during 2007 in the normal course of operations. The
      balance payable as at December 31, 2007 was reimbursed to the Group in
      2008.                                                                                                                                                                                                                                                                                                                                                         

Page 19

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|Northern Dynasty Minerals Ltd.                                             
|---------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                             
|For the years ended December 31, 2009 and 2008                             
|(Expressed in thousands
      of Canadian Dollars, unless otherwise stated)

Key management personnel
compensation

| |                          |   | For Years Ended December 31 | 
| | ------------------------ | - | --------------------------- | 
| | Compensation             |   | 2009                        | 
| | Salaries                 | $ | 817                         | 
| | Share-based compensation |   | 2,752                       | 
| | Total                    | $ | 3,569                       | 

|7. | AMOUNTS RECEIVABLE AND OTHER
  ASSETS
|-- | -------------------------------------

| |                                  |   | As at December 31 |  |   | As at December 31 |  |   | As at January 1 | 
| | -------------------------------- | - | ----------------- |  | - | ----------------- |  | - | --------------- | 
| |                                  |   | 2009              |  |   | 2008              |  |   | 2008            | 
| | Amounts receivable               | $ | 39                |  | $ | 34                |  | $ | 604             | 
| | Other assets 
      prepayments |   | 142               |  |   | 131               |  |   | 271             | 
| | Total                            | $ | 181               |  | $ | 165               |  | $ | 875             | 

|8. | CASH AND CASH
EQUIVALENTS
|-- | -------------------------

| |                                    |   | As at December 31 |  |   | As at December 31 |  |   | As at January 1 | 
| | ---------------------------------- | - | ----------------- |  | - | ----------------- |  | - | --------------- | 
| |                                    |   | 2009              |  |   | 2008              |  |   | 2008            | 
| | Business and savings accounts      | $ | 39,688            |  | $ | 692               |  | $ | 2,669           | 
| | Guaranteed Investment Certificates |   | 5,207             |  |   |                  |  |   |                | 
| | Bankers Acceptances               |   |                  |  |   | 1,197             |  |   | 1,005           | 
| | Commercial Paper1                  |   |                  |  |   |                  |  |   | 35,454          | 
| | Government Treasury Bills          |   |                  |  |   | 44,077            |  |   |                | 
| | Total                              | $ | 44,895            |  | $ | 45,966            |  | $ | 39,128          | 

1. During year ended December 31, 2008,
the Group disposed of its investments in commercial paper and purchased
Government of Canada Treasury bonds. The Group held no commercial paper in the
year ended December 31, 2009.

|9. | CAPITAL AND RESERVES
|-- | --------------------

|(a) | Authorized Share Capital                                                                                                                                                                                             
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                      
|    | At December 31, 2009, the authorized share capital
      comprised an unlimited number of common shares. The common shares do not
      have a par value. All issued shares are fully paid.                          
|    |                                                                                                                                                                                                                      
|(b) | Issued Share Capital                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                      
|    | At December 31, 2009 the issued share capital comprised
      93,173,976 common shares (2008  92,543,639; January 1, 2008 
      92,543,639). The change in issued share capital for the year was as
      follows:

Page 20

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|Northern Dynasty Minerals Ltd.                                             
|---------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                             
|For the years ended December 31, 2009 and 2008                             
|(Expressed in thousands
      of Canadian Dollars, unless otherwise stated)

| |                                                                |  | Number
      of shares |  |  | Amount     | 
| | -------------------------------------------------------------- |  | ---------------------- |  |  | ---------- | 
| |                                                                |  | 2009                   |  |  | 2008       | 
| | Balance at the beginning of the year                           |  | 92,543,639             |  |  | 92,543,639 | 
| | Donation of shares (1)                                         |  | 75,000                 |  |  |           | 
| | Share purchase options exercised (c)                           |  | 555,337                |  |  |           | 
| | Fair value allocated
      to share purchase options exercised |  |                       |  |  |           | 
| | Balance at end of the year                                     |  | 93,173,976             |  |  | 92,543,639 | 

| | 1. | The Group donated shares to the Britannia Beach
        Historical Society, a registered charitable organization that owns and
        operates the British Columbia Museum of Mining, during the year. The cost
        recognized for the donation of the shares along with the corresponding
        share capital value was determined using the quoted market value per common
        share on date of issue.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(c) | Share Purchase Option Compensation Plan                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | The Group has a share purchase option plan approved by
      the Groups shareholders that allows it to grant share purchase options,
      subject to regulatory terms and approval, to its officers, directors,
      employees, and service providers. The share purchase option plan (the
      "2008 Rolling Option Plan") is based on the maximum number of eligible
      shares equalling a rolling percentage of 10% of the Group's outstanding
      common shares, calculated from time to time. Pursuant to the 2008 Rolling
      Option Plan, if outstanding share purchase options are exercised or
      expire, and/or the number of issued and outstanding common shares of the
      Group increases, then the share purchase options available to grant under
      the plan increase proportionately. The exercise price of each share
      purchase option is set by the Board of Directors at the time of grant but
      cannot be less than the market price (less permissible discounts). Share
      purchase options can have a maximum term of ten years and typically
      terminate 90 days following the termination of the optionees employment
      or engagement, except in the case of retirement or death. Vesting of share
      purchase options is at the discretion of the Board of Directors at the
      time the options are granted.

Page 21

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|Northern Dynasty Minerals Ltd.                                             
|---------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                             
|For the years ended December 31, 2009 and 2008                             
|(Expressed in thousands
      of Canadian Dollars, unless otherwise stated)

The continuity of share purchase
options for the year ended December 31, 2009 is as follows:

| |                                                                 |   |                |  |   | Dec 31    |  |   |           |  |   |           |   |   | Expired /  |   |   | Dec 31    | 
| | --------------------------------------------------------------- | - | -------------- |  | - | --------- |  | - | --------- |  | - | --------- | - | - | ---------- | - | - | --------- | 
| | Expiry date                                                     |   | Exercise price |  |   | 2008      |  |   | Granted   |  |   | Exercised |   |   | cancelled  |   |   | 2009      | 
| | April 30, 2009                                                  | $ | 7.25           |  |   | 359,400   |  |   |          |  |   | (15,000   | ) |   | (344,400   | ) |   |          | 
| | April 30, 2009                                                  | $ | 9.81           |  |   | 50,000    |  |   |          |  |   |          |   |   | (50,000    | ) |   |          | 
| | April 30, 2009                                                  | $ | 10.32          |  |   | 593,000   |  |   |          |  |   |          |   |   | (593,000   | ) |   |          | 
| | April 14, 2011                                                  | $ | 9.74           |  |   | 1,461,668 |  |   |          |  |   |          |   |   | (1,434,168 | ) |   | 27,500    | 
| | April 30, 2011                                                  | $ | 7.25           |  |   | 945,000   |  |   |          |  |   |          |   |   | (765,000   | ) |   | 180,000   | 
| | October 27, 2011                                                | $ | 3.00           |  |   | 221,877   |  |   |          |  |   | (80,340   | ) |   | (6,629     | ) |   | 134,908   | 
| | February 2, 2012                                                | $ | 5.00           |  |   |          |  |   | 529,000   |  |   | (54,166   | ) |   |           |   |   | 474,834   | 
| | February 4, 2012                                                | $ | 5.00           |  |   |          |  |   | 2,168,200 |  |   | (350,831  | ) |   | (80,167    | ) |   | 1,737,202 | 
| | February 20, 2012                                               | $ | 10.95          |  |   | 828,000   |  |   |          |  |   |          |   |   | (678,000   | ) |   | 150,000   | 
| | March 26, 2012                                                  | $ | 8.25           |  |   |          |  |   | 25,000    |  |   |          |   |   |           |   |   | 25,000    | 
| | April 11, 2013                                                  | $ | 9.74           |  |   | 753,000   |  |   |          |  |   |          |   |   | (678,000   | ) |   | 75,000    | 
| | August 22, 2013                                                 | $ | 5.35           |  |   | 40,000    |  |   |          |  |   |          |   |   |           |   |   | 40,000    | 
| | October 27, 2013                                                | $ | 3.00           |  |   | 140,000   |  |   |          |  |   | (10,000   | ) |   |           |   |   | 130,000   | 
| | February 2, 2014                                                | $ | 5.00           |  |   |          |  |   | 2,063,000 |  |   | (45,000   | ) |   |           |   |   | 2,018,000 | 
| | February 4, 2014                                                | $ | 5.00           |  |   |          |  |   | 220,000   |  |   |          |   |   |           |   |   | 220,000   | 
| |                                                                 |   |                |  |   | 5,391,945 |  |   | 5,005,200 |  |   | (555,337  | ) |   | (4,629,364 | ) |   | 5,212,444 | 
| |                                                                 |   |                |  |   |           |  |   |           |  |   |           |   |   |            |   |   |           | 
| | Weighted average exercise price                                 |   |                |  | $ | 8.90      |  | $ | 5.02      |  | $ | 4.74      |   | $ | 9.30       |   | $ | 5.26      | 
| | Weighted average contractual
            remaining life (years) |   |                |  |   | 2.44      |  |   |           |  |   |           |   |   |            |   |   | 2.99      | 
| | Weighted average share price on exercise                        |   |                |  |   |           |  |   |           |  | $ | 8.74      |   |   |            |   |   |           | 

During the year, the Group issued
5,005,200 share purchase options to purchase common shares at an average
exercise price of $5.02 per common share. The Group also cancelled 4,629,364
share purchase options with exercise prices between $3.00 and $10.95 and with
various expiry dates between April 30, 2009 and April 11, 2013. The Group
determined that of the share purchase options granted, 2,243,700 were
replacement options for 4,462,400 of the cancelled options and as such a
modification of these cancelled options had occurred for accounting purposes.
For modified options, the compensation expense is based on the fair value of the
options on the modification date less the fair value of the original options
based on the shorter of the remaining life of the old option or the expected
life of the modified option.

The Company issued 25,000 share
purchase options to a non employee for geological advisory services. The Company
estimates the fair value of these services approximates the fair value of the
share purchase options granted measured using the Black Scholes option pricing
model.

Page 22

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|Northern Dynasty Minerals Ltd.                                             
|---------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                             
|For the years ended December 31, 2009 and 2008                             
|(Expressed in thousands
      of Canadian Dollars, unless otherwise stated)

The following are the share purchase
options that were exercisable at December 31, 2009:

| |                   |   |                |  |  | Number of options |  |  | Number of
      options | 
| | ----------------- | - | -------------- |  |  | ----------------- |  |  | ----------------------- | 
| | Expiry date       |   | Exercise price |  |  | outstanding       |  |  | exercisable             | 
| | April 14, 2011    | $ | 9.74           |  |  | 27,500            |  |  | 18,333                  | 
| | April 30, 2011    | $ | 7.25           |  |  | 180,000           |  |  | 180,000                 | 
| | October 27, 2011  | $ | 3.00           |  |  | 134,908           |  |  | 64,578                  | 
| | February 2, 2012  | $ | 5.00           |  |  | 474,834           |  |  | 122,167                 | 
| | February 4, 2012  | $ | 5.00           |  |  | 1,737,202         |  |  | 365,869                 | 
| | February 20, 2012 | $ | 10.95          |  |  | 150,000           |  |  | 150,000                 | 
| | March 26, 2012    | $ | 8.25           |  |  | 25,000            |  |  | 8,333                   | 
| | April 11, 2013    | $ | 9.74           |  |  | 75,000            |  |  | 50,000                  | 
| | August 22, 2013   | $ | 5.35           |  |  | 40,000            |  |  | 26,667                  | 
| | October 27, 2013  | $ | 3.00           |  |  | 130,000           |  |  | 83,333                  | 
| | February 2, 2014  | $ | 5.00           |  |  | 2,018,000         |  |  | 642,667                 | 
| | February 4, 2014  | $ | 5.00           |  |  | 220,000           |  |  | 73,333                  | 
| |                   |   |                |  |  | 5,212,444         |  |  | 1,785,280               | 

The continuity of share purchase
options for the year ended December 31, 2008 is as follows:

| |                                                                 |   |                |  |   | Dec 31    |  |   |           |  |   |           |  |   | Expired / |   |   | Dec 31    | 
| | --------------------------------------------------------------- | - | -------------- |  | - | --------- |  | - | --------- |  | - | --------- |  | - | --------- | - | - | --------- | 
| | Expiry date                                                     |   | Exercise price |  |   | 2007      |  |   | Granted   |  |   | Exercised |  |   | cancelled |   |   | 2008      | 
| | April 30, 2009                                                  | $ | 7.25           |  |   | 359,400   |  |   |          |  |   |          |  |   |          |   |   | 359,400   | 
| | April 30, 2009                                                  | $ | 9.81           |  |   | 50,000    |  |   |          |  |   |          |  |   |          |   |   | 50,000    | 
| | April 30, 2009                                                  | $ | 10.32          |  |   | 596,350   |  |   |          |  |   |          |  |   | (3,350    | ) |   | 593,000   | 
| | April 14, 2011                                                  | $ | 9.74           |  |   |          |  |   | 1,510,500 |  |   |          |  |   | (48,832   | ) |   | 1,461,668 | 
| | April 30, 2011                                                  | $ | 7.25           |  |   | 945,000   |  |   |          |  |   |          |  |   |          |   |   | 945,000   | 
| | October 27, 2011                                                | $ | 3.00           |  |   |          |  |   | 224,660   |  |   |          |  |   | (2,783    | ) |   | 221,877   | 
| | February 20, 2012                                               | $ | 10.95          |  |   | 828,000   |  |   |          |  |   |          |  |   |          |   |   | 828,000   | 
| | April 11, 2013                                                  | $ | 9.74           |  |   |          |  |   | 753,000   |  |   |          |  |   |          |   |   | 753,000   | 
| | August 22, 2013                                                 | $ | 5.35           |  |   |          |  |   | 40,000    |  |   |          |  |   |          |   |   | 40,000    | 
| | October 27, 2013                                                | $ | 3.00           |  |   |          |  |   | 140,000   |  |   |          |  |   |          |   |   | 140,000   | 
| |                                                                 |   |                |  |   | 2,778,750 |  |   | 2,668,160 |  |   |          |  |   | (54,965   | ) |   | 5,391,945 | 
| |                                                                 |   |                |  |   |           |  |   |           |  |   |           |  |   |           |   |   |           | 
| | Weighted average exercise price                                 |   |                |  | $ | 9.06      |  | $ | 8.75      |  | $ |          |  | $ | 9.43      |   | $ | 8.90      | 
| | Weighted average
      contractual       remaining life (years) |   |                |  |   | 2.85      |  |   |           |  |   |           |  |   |           |   |   | 2.44      | 

Page 23

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|Northern Dynasty Minerals Ltd.                                             
|---------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                             
|For the years ended December 31, 2009 and 2008                             
|(Expressed in thousands
      of Canadian Dollars, unless otherwise stated)

The following are the share purchase
options that were exercisable at December 31, 2008:

| |                   |   |                |  |  | Number of options |  |  | Number of
      options | 
| | ----------------- | - | -------------- |  |  | ----------------- |  |  | ----------------------- | 
| | Expiry date       |   | Exercise price |  |  | outstanding       |  |  | exercisable             | 
| | April 30, 2009    | $ | 7.25           |  |  | 359,400           |  |  | 359,400                 | 
| | April 30, 2009    | $ | 9.81           |  |  | 50,000            |  |  | 50,000                  | 
| | April 30, 2009    | $ | 10.32          |  |  | 593,000           |  |  | 593,000                 | 
| | April 14, 2011    | $ | 9.74           |  |  | 1,461,668         |  |  | 492,335                 | 
| | April 30, 2011    | $ | 7.25           |  |  | 945,000           |  |  | 945,000                 | 
| | October 27, 2011  | $ | 3.00           |  |  | 221,877           |  |  | 74,886                  | 
| | February 20, 2012 | $ | 10.95          |  |  | 828,000           |  |  | 828,000                 | 
| | April 11, 2013    | $ | 9.74           |  |  | 753,000           |  |  | 251,000                 | 
| | August 22, 2013   | $ | 5.35           |  |  | 40,000            |  |  | 13,333                  | 
| | October 27, 2013  | $ | 3.00           |  |  | 140,000           |  |  | 46,667                  | 
| |                   |   |                |  |  | 5,391,945         |  |  | 3,653,621               | 

The weighted average fair value of the
share purchase options granted during the year is $2.14 (2008  $3.63) . Options
were priced based on the Black-Scholes option pricing model using the following
weighted average assumptions to estimate the fair value of options granted:

| |                         |   | Years Ended December 31 | 
| | ----------------------- | - | ----------------------- | 
| |                         |   | 2009                    | 
| | Risk-free interest rate |   | 1.79%                   | 
| | Expected life           |   | 3.88 years              | 
| | Expected volatility     |   | 64%                     | 
| | Grant date share price  | $ | 5.41                    | 
| | Expected dividend yield |   | Nil                     | 

|    | Option pricing models require the input of highly
      subjective assumptions including the expected price volatility. Changes in
      the subjective input assumptions can materially affect the fair value
      estimate, and therefore the existing models do not necessarily provide a
      reliable measure of the fair value of the Group's share purchase
      options.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                    
|(d) | Foreign Currency Translation
  Reserve                                                                                                                                                                                                                                                                                                                                             

| |                                                                       |   | 2009    |   |   | 2008   |  
| | --------------------------------------------------------------------- | - | ------- | - | - | ------ | -
| | Balance at beginning of year                                          | $ | 21,808  |   | $ |       |  
| | Exchange (loss) gain on translation of investment in the
      Pebble |   |         |   |   |        |  
| | Partnership                                                           |   | (16,674 | ) |   | 22,635 |  
| | Deferred income
      tax on investment (note 11)                     |   | 609     |   |   | (827   | )
| | Balance at the end of the year                                        | $ | 5,743   |   | $ | 21,808 |  

The foreign currency translation
reserve represents accumulated exchange differences arising on the translation
of the investment in the Pebble Partnership which has a US dollar functional
currency and related tax effect that have been recognized in other comprehensive
income (loss).

Page 24

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|Northern Dynasty Minerals Ltd.                                             
|---------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                             
|For the years ended December 31, 2009 and 2008                             
|(Expressed in thousands
      of Canadian Dollars, unless otherwise stated)

|(e) | Investment Revaluation
Reserve
|--- | ------------------------------

| |                                                                            |   | 2009 |   |   | 2008 |  
| | -------------------------------------------------------------------------- | - | ---- | - | - | ---- | -
| | Balance at beginning of year                                               | $ | (14  | ) | $ | (3   | )
| | (Loss) on revaluation of investment in AFS marketable
      securities     |   | (1   | ) |   | (11  | )
| | Cumulative loss reclassified to loss on
      Impairment of AFS marketable |   |      |   |   |      |  
| | securities                                                                 |   | 15   |   |   |     |  
| | Balance at the end of the year                                             | $ |     |   | $ | (14  | )

|    | The investment revaluation reserve represents accumulated
      gains and losses arising on the revaluation of AFS marketable securities
      that have been recognized in other comprehensive income (loss). During the
      current year the Group determined that these marketable securities were
      impaired due the prolonged decline in the market price since receipt of
      the marketable securities and the balance was reclassified to
  loss.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|10. | AMOUNTS PAYABLE AND OTHER
  LIABILITIES                                                                                                                                                                                                                                                                                                                                                                                                                          

| |                             |   | As at December 31 |  |   | As at December 31 |  |   | As at January 1 | 
| | --------------------------- | - | ----------------- |  | - | ----------------- |  | - | --------------- | 
| | Falling due within the year |   | 2009              |  |   | 2008              |  |   | 2008            | 
| | Trade payables              | $ | 193               |  | $ | 148               |  | $ | 1,631           | 

|11. | INCOME TAX EXPENSE
|--- | ------------------

Years Ended December 312009
      
      
      2008Current tax expenseCurrent period
      $
      
      
      $
      
      
      
      Deferred tax expense (recovery)Current period
      
      (25
      )
      
      Deferred income tax (liabilities)
      
      (25
      )
      
      Total income tax (recovery)
      $
      (25
      )
      $
      


Page 25

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|Northern Dynasty Minerals Ltd.                                             
|---------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                             
|For the years ended December 31, 2009 and 2008                             
|(Expressed in thousands
      of Canadian Dollars, unless otherwise stated)

| |                                                              |  | Years Ended December 31 | 
| | ------------------------------------------------------------ |  | ----------------------- | 
| | Reconciliation of effective tax rate                         |  | 2009                    | 
| |                                                              |  |                         | 
| | (Loss) for the period                                        |  |                         | 
| | Total income tax (recovery)                                  |  |                         | 
| | (Loss) excluding income tax                                  |  |                         | 
| | Income tax using the Company's domestic tax rate             |  | 30.0 %                  | 
| | Non-deductible expenses                                      |  | (20.1)%                 | 
| | Utilization of losses previously not recognized              |  |                        | 
| | Reduction in statutory tax rates                             |  | (15.4)%                 | 
| | Foreign exchange                                             |  | (16.0)%                 | 
| | Difference in foreign tax rates                              |  | 4.5 %                   | 
| | Benefit of US branch losses not recognized                   |  | 8.8%                    | 
| | Other                                                        |  | (2.0)%                  | 
| | Deferred income tax
      assets not recognized (recognized) |  | 10.4
      %            | 
| |                                                              |  | 0.2 %                   | 

| | Deferred income tax assets (liabilities)   |   | As at December
      31 |   |   | As at December
      31 |   |   | As at January
      1 |  
| | ------------------------------------------ | - | ----------------------- | - | - | ----------------------- | - | - | --------------------- | -
| |                                            |   | 2009                    |   |   | 2008                    |   |   | 2008                  |  
| | Resource pool                              | $ | 26,234                  |   | $ | 31,619                  |   | $ | 26,724                |  
| | Non operating
      losses                 |   | 1,508                   |   |   | 1,204                   |   |   | 561                   |  
| | Net deferred income tax assets             |   | 27,742                  |   |   | 32,823                  |   |   | 27,285                |  
| | Investment in the
      Pebble Partnership |   | (31,549                 | ) |   | (37,264                 | ) |   | (30,899               | )
| | Net deferred income tax (liability)        | $ | (3,807                  | ) | $ | (4,441                  | ) | $ | (3,614                | )

At December 31, 2009, the Group had
available losses for income tax purposes in Canada totaling approximately $14.5
million (2008  $10.3 million), expiring in various years from 2010 to 2029
assuming none are recoverable in one year. At December 31, 2009 the Group had
available losses from its branch operations in the United States of $58.3
million (2008  $51.2 million), expiring in various years from 2021 to 2029.

The Group had approximately $202.3
million (2008  $202.3 million) of resource tax pools available in Canada,
which, when available, may be carried forward and utilized to reduce future
taxes related to certain resource income. In addition, the Group had
approximately $122.9 million (2008  $155.9 million) of resource tax pools
available, which may be used to shelter certain resource income in the United
States.

The Group had the following balances at
December 31, 2009 in respect of which no deferred tax asset was recognized:

| |                   |  | Non-      |  |  |          |  |  | Investment in |  |  |       | 
| | ----------------- |  | --------- |  |  | -------- |  |  | ------------- |  |  | ----- | 
| | Expiry            |  | operating |  |  | Resource |  |  | Pebble        |  |  |       | 
| |                   |  | losses    |  |  | Pools    |  |  | Partnership   |  |  | Other | 
| | Within one year   |  |          |  |  |         |  |  |              |  |  |      | 
| | One to five years |  |          |  |  |         |  |  |              |  |  | 47    | 
| | After five years  |  | 26,079    |  |  |         |  |  |              |  |  | 274   | 
| | No expiry date    |  | 20        |  |  | 24,352   |  |  | 12,690        |  |  |      | 
| |                   |  | 26,099    |  |  | 24,352   |  |  | 12,690        |  |  | 321   | 

Page 27

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|Northern Dynasty Minerals Ltd.                                             
|---------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                             
|For the years ended December 31, 2009 and 2008                             
|(Expressed in thousands
      of Canadian Dollars, unless otherwise stated)

|12. | BASIC AND DILUTED LOSS PER SHARE                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | The calculation of basic and diluted loss per share for
      the year ended December 31, 2009 was based on the loss attributable to
      common shareholders of $12,740 (2008  $1,150) and the weighted average
      number of common shares outstanding of 92,828,293 (2008 92,543,639)
      respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | Diluted loss per share did not include the effect of
      5,212,444 (2008  5,391,945) share purchase options as they are
      anti-dilutive.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|13. | FINANCIAL RISK MANAGEMENT                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | The Group is exposed in varying degrees to a variety of
      financial instrument related risks. The Board approves and monitors the
      risk management processes, inclusive of documented investment policies,
      counterparty limits, and controlling and reporting structures. The type of
      risk exposure and the way in which such exposure is managed is provided as
      follows:                                                                                                                                                                                                                                                                                                                                             
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | Credit Risk                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | Credit risk is the risk of potential loss to the Group if
      a counterparty to a financial instrument fails to meet its contractual
      obligations. The Groups credit risk is primarily attributable to its
      liquid financial assets, including cash and cash equivalents, amounts
      receivable and balances receivable from related parties. The Group limits
      the exposure to credit risk 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 Group for its
      programs.                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | Liquidity Risk                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | Liquidity risk is the risk that the Group will not be
      able to meet its financial obligations when they become due. The Group
      ensures, as far as reasonably possible, it will have sufficient capital in
      order to meet short term business requirements, after taking into account
      cash flows from operations and the Groups holdings of cash and cash
      equivalents. The Group believes that these sources will be sufficient to
      cover the likely short term cash requirements. The Groups cash and cash
      equivalents are currently invested in business accounts and guaranteed
      investment certificates which are available on demand by the Group for its
      programs.                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | The Group has no contractual obligations other than
      current trade payables (note 10).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | Foreign exchange risk                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | The Group is exposed to foreign exchange risk as some of
      its cash and cash equivalents are held in US dollars. Also certain of the
      Groups corporate expenses are incurred in US dollars. The results of the
      Groups operations are subject to currency transaction risk and currency
      translation risk. The operating results and financial position of the
      Group are reported in Canadian dollars in the Groups consolidated
      financial statements. The fluctuation of the US dollar in relation to the
      Canadian dollar will consequently have an impact upon the losses incurred
      by the Group and may also affect the value of the Groups assets and the
      amount of shareholders equity.

Page 28

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|Northern Dynasty Minerals Ltd.                                             
|---------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                             
|For the years ended December 31, 2009 and 2008                             
|(Expressed in thousands
      of Canadian Dollars, unless otherwise stated)

The Group has not entered into any
agreements or purchased any instruments to hedge possible currency risks at this
time.

The exposure of the Groups cash and
cash equivalents, amounts receivable and amounts receivable from related parties
to foreign exchange risk is as follows:

| | Currency                  |   | As at December 31, 2009 |  |   | As
      at December 31, 2008 |  |   | As
      at January 1, 2008 | 
| | ------------------------- | - | ----------------------- |  | - | ----------------------------- |  | - | --------------------------- | 
| |                           |   | Foreign                 |  |   | Amount in                     |  |   | Foreign                     | 
| |                           |   | currency                |  |   | Canadian                      |  |   | currency                    | 
| |                           |   | amount                  |  |   | dollars                       |  |   | amount                      | 
| | US dollars                |   |                         |  |   |                               |  |   |                             | 
| | Cash and cash equivalents | $ | 651                     |  | $ | 684                           |  | $ | 1,028                       | 
| | Amounts
      receivable  |   |                        |  |   |                              |  |   |                            | 
| | Total financial assets    | $ | 651                     |  | $ | 684                           |  | $ | 1,028                       | 

The exposure of the Groups amounts
payable and other liabilities and amounts due to related parties to foreign
exchange risk is as follows:

| | Currency                              |   | As
      at December 31, 2009 |  |   | As
      at December 31, 2008 |  |   | As at January 1, 2008 | 
| | ------------------------------------- | - | ----------------------------- |  | - | ----------------------------- |  | - | --------------------- | 
| |                                       |   | Foreign                       |  |   | Amount in                     |  |   | Foreign               | 
| |                                       |   | currency                      |  |   | Canadian                      |  |   | currency              | 
| |                                       |   | amount                        |  |   | dollars                       |  |   | amount                | 
| | 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 $68 in the year (2008  $125). 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 Group is subject to interest rate
risk with respect to its investments in cash and cash equivalents. The Groups
policy is to invest cash at fixed rates of interest and cash reserves are to be
maintained in cash and cash equivalents in order to maintain liquidity, while
achieving a satisfactory return for shareholders. Fluctuations in interest rates
when the cash and cash equivalents mature impact interest income earned.

Assuming that all other variables
remain constant, a 10 basis point increase or decrease in interest rates would
have resulted in a decrease or increase in the loss of approximately $33 in the
year (2008  $112).

Commodity price risk

While the value of the Group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 Group 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.

Page 29

---

|Northern Dynasty Minerals Ltd.                                             
|---------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                             
|For the years ended December 31, 2009 and 2008                             
|(Expressed in thousands
      of Canadian Dollars, unless otherwise stated)

Gold, copper, and molybdenum prices
historically have fluctuated widely and are affected by numerous factors outside
of the Group'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 Group's policy is to maintain a
strong capital base so as to maintain investor and creditor confidence and to
sustain future development of the business. The capital structure of the Group
consists of equity, comprising share capital, net of accumulated deficit.

There were no changes in the Group's
approach to capital management during the year.

The Group is not subject to any
externally imposed capital requirements.

Fair value

The fair value of the Groups financial
assets and liabilities approximates the carrying amount.

Financial instruments measured at fair
value are classified into one of three levels in the fair value hierarchy
according to the relative reliability of the inputs used to estimate the fair
values. The three levels of the fair value hierarchy are:

•
    Level 1  Unadjusted quoted prices in active markets for
      identical assets or liabilities;•
    Level 2  Inputs other than quoted prices that are
      observable for the asset or liability either directly or indirectly; and•
    Level 3  Inputs that are not based on observable market
      data.


| |                                      |   | Financial assets at fair value | 
| | ------------------------------------ | - | ------------------------------ | 
| |                                      |   |                                | 
| |                                      |   | Level
      1                  | 
| | Available for sale financial asset   |   |                                | 
| | Marketable securities                | $ | 2                              | 
| | Total financial assets at fair value | $ | 2                              | 

| |                                      |   | Financial assets at fair value | 
| | ------------------------------------ | - | ------------------------------ | 
| |                                      |   |                                | 
| |                                      |   | Level
      1                  | 
| | Available for sale financial asset   |   |                                | 
| | Marketable securities                | $ | 2                              | 
| | Total financial assets at fair value | $ | 2                              | 

|14. | COMMITMENTS AND CONTINGENCIES                   
|--- | ------------------------------------------------
|    |                                                 
|    | The Group has no commitments or
  contingencies.

Page 30

---

|Northern Dynasty Minerals Ltd.                                             
|---------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                             
|For the years ended December 31, 2009 and 2008                             
|(Expressed in thousands
      of Canadian Dollars, unless otherwise stated)

|15. | SUBSEQUENT EVENTS                                                                                                                                                                                                                                                                                                                                                                        
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                          
|    | The Group issued 556,390 common shares pursuant to the
      exercise of share purchase options with various expiry dates at exercise
      prices of $3.00 and $5.00 per common share from January through March 29,
      2010. The Group also cancelled 53,501 and 4,008 share purchase options
      with option prices of $5.00 and $3.00 respectively during the same
      period.

Page 31

---

|Northern Dynasty Minerals Ltd.                                             
|---------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                             
|For the years ended December 31, 2009 and 2008                             
|(Expressed in thousands
      of Canadian Dollars, unless otherwise stated)

|16. | TRANSITION TO INTERNATIONAL FINANCIAL REPORTING
      STANDARDS                                                                                                                                                                                                                                                                                
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                
|    | As stated in Note 2, these consolidated financial
      statements are for the period covered by the Groups first annual
      consolidated financial statements prepared in accordance with
  IFRS.                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                
|    | The accounting policies in Note 2 have been applied in
      preparing the consolidated financial statements for the year ended
      December 31, 2009, the consolidated financial statements for the year
      ended December 31, 2008 and the opening IFRS statement of financial
      position on January 1, 2008, the "Transition Date".
|    |                                                                                                                                                                                                                                                                                                                                                
|    | In preparing the opening IFRS statement of financial
      position and the financial statements for the year ended December 31,
      2008, the Group has adjusted amounts reported previously in financial
      statements that were prepared in accordance with GAAP.                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                
|    | An explanation of how the transition from GAAP to IFRS
      has affected the Groups financial position, financial performance and
      cash flows is set out in the following tables.                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                
|    | The guidance for the first time adoption of IFRS is set
      out in IFRS 1. IFRS 1 provides for certain mandatory exceptions and
      optional exemptions for first time adopters of IFRS. The Group elected to
      take the following IFRS 1 optional exemptions:                                                                         
|    |                                                                                                                                                                                                                                                                                                                                                
|    | •                                                                                                                                                                                                                                                                                                                                              
|    |                                                                                                                                                                                                                                                                                                                                                
|    | •                                                                                                                                                                                                                                                                                                                                              
|    |                                                                                                                                                                                                                                                                                                                                                
|    | •                                                                                                                                                                                                                                                                                                                                              

Page 32

---

Reconciliationof Assets,Liabilities& Equity

|                                               |   | As at         |   |   |          |   |   |                                        |   |   |      |   |   |         |   |   |        |   |   |           |  
|---------------------------------------------- | - | ------------- | - | - | -------- | - | - | -------------------------------------- | - | - | ---- | - | - | ------- | - | - | ------ | - | - | --------- | -
|                                               |   | January 1     |   |   |          |   |   |                                        |   |   |      |   |   |         |   |   |        |   |   |           |  
|                                               |   | 2008          |   |   |          |   |   |                                        |   |   |      |   |   |         |   |   |        |   |   | As at     |  
|                                               |   | GAAP          |   |   |          |   |   |                                        |   |   |      |   |   |         |   |   |        |   |   | January 1 |  
|                                               |   | as previously |   |   |          |   |   | **Effect
      of transition to IFRS** |   |   | 2008 |  
|                                               |   | reported      |   |   | Note (a) |   |   | (b)                                    |   |   | (c)  |   |   | (d)     |   |   | (e)    |   |   | IFRS      |  
|ASSETS                                         |   |               |   |   |          |   |   |                                        |   |   |      |   |   |         |   |   |        |   |   |           |  
|Non-current assets                             |   |               |   |   |          |   |   |                                        |   |   |      |   |   |         |   |   |        |   |   |           |  
|Property, plant and equipment                  | $ | 674           |   | $ | (659     | ) | $ |                                       |   | $ |     |   | $ |        |   | $ |       |   | $ | 15        |  
|Mineral property interest                      |   | 168,222       |   |   | (105,983 | ) |   |                                       |   |   |     |   |   | (62,239 | ) |   |       |   |   |          |  
|Investment in the Pebble Limited Partnership   |   |              |   |   | 98,976   |   |   |                                       |   |   |     |   |   |        |   |   |       |   |   | 98,976    |  
|Total non-current
      assets                 |   | 168,896       |   |   | (7,666   | ) |   |                                       |   |   |     |   |   | (62,239 | ) |   |       |   |   | 98,991    |  
|Current assets                                 |   |               |   |   |          |   |   |                                        |   |   |      |   |   |         |   |   |        |   |   |           |  
|Balances receivable from related parties       |   | 27            |   |   | 1,193    |   |   |                                       |   |   |     |   |   |        |   |   |       |   |   | 1,220     |  
|Amounts receivable and prepayments             |   | 1,000         |   |   | (125     | ) |   |                                       |   |   |     |   |   |        |   |   |       |   |   | 875       |  
|Marketable securities                          |   | 13            |   |   |         |   |   |                                       |   |   |     |   |   |        |   |   |       |   |   | 13        |  
|Cash and cash equivalents                      |   | 40,341        |   |   | (1,213   | ) |   |                                       |   |   |     |   |   |        |   |   |       |   |   | 39,128    |  
|Total current assets                           |   | 41,381        |   |   | (145     | ) |   |                                       |   |   |     |   |   |        |   |   |       |   |   | 41,236    |  
|Total assets                                   | $ | 210,277       |   | $ | (7,811   | ) | $ |                                       |   | $ |     |   | $ | (62,239 | ) | $ |       |   | $ | 140,227   |  
|                                               |   |               |   |   |          |   |   |                                        |   |   |      |   |   |         |   |   |        |   |   |           |  
|EQUITY                                         |   |               |   |   |          |   |   |                                        |   |   |      |   |   |         |   |   |        |   |   |           |  
|                                               |   |               |   | $ |         |   |   |                                        |   |   |      |   |   |         |   |   |        |   |   |           |  
|Share capital                                  | $ | 365,202       |   |   |          |   | $ |                                       |   | $ |     |   | $ |        |   | $ |       |   | $ | 365,202   |  
|Reserves                                       |   | 18,015        |   |   | (7,554   | ) |   | 7,554                                  |   |   | (637 | ) |   |        |   |   |       |   |   | 17,378    |  
|Deficit                                        |   | (273,906      | ) |   | 41,271   |   |   | (7,554                                 | ) |   | 637  |   |   | (4,453  | ) |   | (3,614 | ) |   | (247,619  | )
|Total equity                                   |   | 109,311       |   |   | 33,717   |   |   |                                       |   |   |     |   |   | (4,453  | ) |   | (3,614 | ) |   | 134,961   |  
|LIABILITIES                                    |   |               |   |   |          |   |   |                                        |   |   |      |   |   |         |   |   |        |   |   |           |  
|Current liabilities                            |   |               |   |   |          |   |   |                                        |   |   |      |   |   |         |   |   |        |   |   |           |  
|Balance payable to related parties             |   | 21            |   |   |         |   |   |                                       |   |   |     |   |   |        |   |   |       |   |   | 21        |  
|Accounts payable and
      accrued liabilities |   | 7,607         |   |   | (5,976   | ) |   |                                       |   |   |     |   |   |        |   |   |       |   |   | 1,631     |  
|Total current liabilities                      |   | 7,628         |   |   | (5,976   | ) |   |                                       |   |   |     |   |   |        |   |   |       |   |   | 1,652     |  
|                                               |   |               |   |   |          |   |   |                                        |   |   |      |   |   |         |   |   |        |   |   |           |  
|Future income tax liability                    |   | 57,786        |   |   |         |   |   |                                       |   |   |     |   |   | (57,786 | ) |   | 3,614  |   |   | 3,614     |  
|Non-controlling interest                       |   | 35,552        |   |   | (35,552  | ) |   |                                       |   |   |     |   |   |        |   |   |       |   |   |          |  
|                                               |   |               |   |   |          |   |   |                                        |   |   |      |   |   |         |   |   |        |   |   |           |  
|Total liabilities                              |   | 100,966       |   |   | (41,528  | ) |   |                                       |   |   |     |   |   | (57,786 | ) |   | 3,614  |   |   | 5,266     |  
|Total equity and liabilities                   | $ | 210,277       |   | $ | (7,811   | ) | $ |                                       |   | $ |     |   | $ | (62,239 | ) | $ |       |   | $ | 140,227   |  

Page 33

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|Northern Dynasty Minerals Ltd.                                             
|---------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                             
|For the years ended December 31, 2009 and 2008                             
|(Expressed in thousands
      of Canadian Dollars, unless otherwise stated)

Reconciliationof Assets,Liabilities& Equity(continued)

|                                                   |   | **As at**       |   |   |          |   |   |                                    |  |   |        |   |   |         |   |   |        |   |   |             |  
|-------------------------------------------------- | - | --------------- | - | - | -------- | - | - | ---------------------------------- |  | - | ------ | - | - | ------- | - | - | ------ | - | - | ----------- | -
|                                                   |   | **December 31** |   |   |          |   |   |                                    |  |   |        |   |   |         |   |   |        |   |   |             |  
|                                                   |   | 2008            |   |   |          |   |   |                                    |  |   |        |   |   |         |   |   |        |   |   | As at       |  
|                                                   |   | GAAP            |   |   |          |   |   |                                    |  |   |        |   |   |         |   |   |        |   |   | December 31 |  
|                                                   |   | as previously   |   |   |          |   |   | Effect
      of transition to IFRS |  |   | 2008   |  
|                                                   |   | reported        |   |   | Note (a) |   |   | (b)                                |  |   | (c)    |   |   | (d)     |   |   | (e)    |   |   | IFRS        |  
|ASSETS                                             |   |                 |   |   |          |   |   |                                    |  |   |        |   |   |         |   |   |        |   |   |             |  
|Non-current assets                                 |   |                 |   |   |          |   |   |                                    |  |   |        |   |   |         |   |   |        |   |   |             |  
|                                                   |   |                 |   |   |          |   |   |                                    |  |   |        |   |   |         |   |   |        |   |   |             |  
|Property, plant and equipment                      | $ | 619             |   | $ | (608     | ) | $ |                                   |  | $ |       |   | $ |        |   | $ |       |   | $ | 11          |  
|Mineral property interest                          |   | 168,222         |   |   | (105,983 | ) |   |                                   |  |   |       |   |   | (62,239 | ) |   |       |   |   |            |  
|Investment in the
      Pebble Limited Partnership |   |                |   |   | 98,976   |   |   | 22,635                             |  |   |       |   |   |        |   |   |       |   |   | 121,611     |  
|Total non-current assets                           |   | 168,841         |   |   | (7,615   | ) |   | 22,635                             |  |   |       |   |   | (62,239 | ) |   |       |   |   | 121,622     |  
|Current assets                                     |   |                 |   |   |          |   |   |                                    |  |   |        |   |   |         |   |   |        |   |   |             |  
|Balances receivable from related parties           |   |                |   |   | 149      |   |   |                                   |  |   |       |   |   |        |   |   |       |   |   | 149         |  
|Amounts receivable and prepayments                 |   | 1,109           |   |   | (944     | ) |   |                                   |  |   |       |   |   |        |   |   |       |   |   | 165         |  
|Marketable securities                              |   | 2               |   |   |         |   |   |                                   |  |   |       |   |   |        |   |   |       |   |   | 2           |  
|Cash and cash equivalents                          |   | 59,201          |   |   | (13,235  | ) |   |                                   |  |   |       |   |   |        |   |   |       |   |   | 45,966      |  
|Total current assets                               |   | 60,312          |   |   | (14,030  | ) |   |                                   |  |   |       |   |   |        |   |   |       |   |   | 46,282      |  
|                                                   |   |                 |   |   |          |   | $ |                                    |  |   |       |   |   |         |   |   |        |   |   |             |  
|Total assets                                       | $ | 229,153         |   | $ | (21,645  | ) | $ | 22,635                             |  |   |        |   | $ | (62,239 | ) | $ |       |   | $ | 167,904     |  
|                                                   |   |                 |   |   |          |   |   |                                    |  |   |        |   |   |         |   |   |        |   |   |             |  
|EQUITY                                             |   |                 |   |   |          |   |   |                                    |  |   |        |   |   |         |   |   |        |   |   |             |  
|                                                   |   |                 |   | $ |          |   |   |                                   |  |   |        |   |   |         |   |   |        |   |   |             |  
|Share capital                                      | $ | 365,202         |   | $ |         |   | $ |                                    |  |   |       |   | $ |        |   | $ |       |   | $ | 365,202     |  
|Reserves                                           |   | 22,485          |   |   | 936      |   |   | 22,635                             |  |   | 1,653  |   |   |        |   |   | (827   | ) |   | 46,882      |  
|Deficit                                            |   | (423,812        | ) |   | 184,796  |   |   |                                   |  |   | (1,653 | ) |   | (4,486  | ) |   | (3,614 | ) |   | (248,769    | )
|Total equity                                       |   | (36,125         | ) |   | 185,732  |   |   | 22,635                             |  |   |       |   |   | (4,486  | ) |   | (4,441 | ) |   | 163,315     |  
|LIABILITIES                                        |   |                 |   |   |          |   |   |                                   |  |   |        |   |   |         |   |   |        |   |   |             |  
|Current liabilities                                |   |                 |   |   |          |   |   |                                    |  |   |        |   |   |         |   |   |        |   |   |             |  
|Balance payable to related parties                 |   | 1,328           |   |   | (1,328   | ) |   |                                   |  |   |       |   |   |        |   |   |       |   |   |            |  
|Accounts payable and
      accrued liabilities     |   | 12,015          |   |   | (11,867  | ) |   |                                   |  |   |       |   |   |        |   |   |       |   |   | 148         |  
|Total current liabilities                          |   | 13,343          |   |   | (13,195  | ) |   |                                   |  |   |       |   |   |        |   |   |       |   |   | 148         |  
|                                                   |   |                 |   |   |          |   |   |                                    |  |   |        |   |   |         |   |   |        |   |   |             |  
|Future income tax liability                        |   | 57,753          |   |   |         |   |   |                                   |  |   |       |   |   | (57,753 | ) |   | 4,441  |   |   | 4,441       |  
|Non-controlling interest                           |   | 194,182         |   |   | (194,182 | ) |   |                                   |  |   |       |   |   |        |   |   |       |   |   |            |  
|                                                   |   |                 |   |   |          |   |   |                                    |  |   |        |   |   |         |   |   |        |   |   |             |  
|Total liabilities                                  |   | 265,278         |   |   | (207,377 | ) |   |                                   |  |   |       |   |   | (57,753 | ) |   | 4,441  |   |   | 4,589       |  
|Total equity and liabilities                       | $ | 229,153         |   | $ | (21,645  | ) | $ | 22,635                             |  | $ |       |   | $ | (62,239 | ) | $ |       |   | $ | 167,904     |  

Page 34

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|Northern Dynasty Minerals Ltd.                                             
|---------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                             
|For the years ended December 31, 2009 and 2008                             
|(Expressed in thousands
      of Canadian Dollars, unless otherwise stated)

Reconciliationof Loss(Income)andComprehensiveLoss(Income)

|Year Ended December
      31, 2008                                |   | GAAP          |   |   |          |   |   |                                    |   |   |       |  |   |     |  |   |     |  |   |         |  
|----------------------------------------------------------------- | - | ------------- | - | - | -------- | - | - | ---------------------------------- | - | - | ----- |  | - | --- |  | - | --- |  | - | ------- | -
|                                                                  |   | as previously |   |   |          |   |   | Effect
      of transition to IFRS |   |   |       | 
|                                                                  |   | reported      |   |   | Note (a) |   |   | (b)                                |   |   | (c)   |  |   | (d) |  |   | (e) |  |   | IFRS    |  
|Expenses (income)                                                 |   |               |   |   |          |   |   |                                    |   |   |       |  |   |     |  |   |     |  |   |         |  
|Depreciation                                                      | $ | 182           |   | $ | (178     | ) | $ |                                   |   | $ |      |  | $ |    |  | $ |    |  | $ | 4       |  
|Conference and travel                                             |   | 1,756         |   |   | (1,483   | ) |   |                                   |   |   |      |  |   |    |  |   |    |  |   | 273     |  
|Exploration                                                       |   | 140,603       |   |   | (140,195 | ) |   |                                   |   |   |      |  |   |    |  |   |    |  |   | 408     |  
|Foreign exchange gain                                             |   | (9,168        | ) |   | 38       |   |   |                                   |   |   |      |  |   |    |  |   |    |  |   | (9,130  | )
|Insurance                                                         |   | 676           |   |   | (269     | ) |   |                                   |   |   |      |  |   |    |  |   |    |  |   | 407     |  
|Interest income                                                   |   | (1,268        | ) |   | 153      |   |   |                                   |   |   |      |  |   |    |  |   |    |  |   | (1,115  | )
|Legal, accounting and audit                                       |   | 1,141         |   |   | (771     | ) |   |                                   |   |   |      |  |   |    |  |   |    |  |   | 370     |  
|Office costs                                                      |   | 4,554         |   |   | (4,328   | ) |   |                                   |   |   |      |  |   |    |  |   |    |  |   | 226     |  
|Salaries                                                          |   | 5,427         |   |   | (4,046   | ) |   |                                   |   |   |      |  |   |    |  |   |    |  |   | 1,381   |  
|Shareholder communication                                         |   | 384           |   |   |         |   |   |                                   |   |   |      |  |   |    |  |   |    |  |   | 384     |  
|Share-based compensation - exploration                            |   | 1,641         |   |   | (1       | ) |   |                                   |   |   |      |  |   |    |  |   |    |  |   | 1,640   |  
|Share-based compensation - administration                         |   | 3,776         |   |   |         |   |   |                                   |   |   | 2,291 |  |   |    |  |   |    |  |   | 6,067   |  
|Trust
      and filing                                            |   | 235           |   |   |         |   |   |                                   |   |   |      |  |   |    |  |   |    |  |   | 235     |  
|Loss before taxes                                                 |   | 149,939       |   |   | (151,080 | ) |   |                                   |   |   | 2,291 |  |   |    |  |   |    |  |   | 1,150   |  
|Income taxes                                                      |   |              |   |   |         |   |   |                                   |   |   |      |  |   |    |  |   |    |  |   |        |  
|Future income tax recovery                                        |   | (33           | ) |   |         |   |   |                                   |   |   |      |  |   | 33  |  |   |    |  |   |        |  
|Loss for the year                                                 | $ | 149,906       |   | $ | (151,080 | ) | $ |                                   |   | $ | 2,291 |  | $ | 33  |  | $ |    |  | $ | 1,150   |  
|Other comprehensive loss (income)                                 |   |               |   |   |          |   |   |                                    |   |   |       |  |   |     |  |   |     |  |   |         |  
|Unrealized loss on available-for-sale marketable
      securities |   | 11            |   |   |         |   |   |                                   |   |   |      |  |   |    |  |   |    |  |   | 11      |  
|Exchange difference on translation
      of investment in the     |   |               |   |   |          |   |   |                                    |   |   |       |  |   |     |  |   |     |  |   |         |  
|Pebble Limited Partnership                                        |   | 936           |   |   | (936     | ) |   | (22,635                            | ) |   |      |  |   |    |  |   |    |  |   | (22,635 | )
|Deferred income tax                                               |   |              |   |   |         |   |   |                                   |   |   |      |  |   |    |  |   | 827 |  |   | 827     |  
|Other comprehensive
      loss (income)                           | $ | 947           |   | $ | (936     | ) | $ | (22,635                            | ) | $ |      |  | $ |    |  | $ | 827 |  | $ | (21,797 | )
|Total comprehensive loss (income)                                 | $ | 150,853       |   | $ | (152,016 | ) | $ | (22,635                            | ) | $ | 2,291 |  | $ | 33  |  | $ | 827 |  | $ | (20,647 | )

Page 35

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|Northern Dynasty Minerals Ltd.                                             
|---------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                             
|For the years ended December 31, 2009 and 2008                             
|(Expressed in thousands
      of Canadian Dollars, unless otherwise stated)

Reconciliationof Cash Flows

|Year Ended December
      31, 2008                 |   | GAAP          |   |   |                   |   |   |          |   |   |                                    |   |   |     |  |   |        |   |   |     |   |   |        |  
|-------------------------------------------------- | - | ------------- | - | - | ----------------- | - | - | -------- | - | - | ---------------------------------- | - | - | --- |  | - | ------ | - | - | --- | - | - | ------ | -
|                                                   |   | as previously |   |   | Reclassifications |   |   | Total    |   |   | Effect
      of transition to IFRS |   |   |     | 
|                                                   |   | reported      |   |   | under GAAP        |   |   | GAAP     |   |   | Note (a)                           |   |   | (b) |  |   | (c)    |   |   | (d) |   |   | IFRS   |  
|Operating activities                               |   |               |   |   |                   |   |   |          |   |   |                                    |   |   |     |  |   |        |   |   |     |   |   |        |  
|Loss for the year                                  | $ | (149,906      | ) | $ |                  |   | $ | (149,906 | ) | $ | 151,080                            |   | $ |    |  | $ | (2,291 | ) | $ | (33 | ) | $ | (1,150 | )
|Contributions from non-controlling
      interest  |   | 158,630       |   |   | (158,630          | ) |   |         |   |   |                                   |   |   |    |  |   |       |   |   |    |   |   |       |  
|Currency translation adjustment                    |   | (936          | ) |   |                  |   |   | (936     | ) |   | 936                                |   |   |    |  |   |       |   |   |    |   |   |       |  
|Depreciation                                       |   | 182           |   |   |                  |   |   | 182      |   |   | (178                               | ) |   |    |  |   |       |   |   |    |   |   | 4      |  
|Interest income                                    |   |              |   |   | (1,268            | ) |   | (1,268   | ) |   | 153                                |   |   |    |  |   |       |   |   |    |   |   | (1,115 | )
|Foreign exchange gain                              |   |              |   |   | (9,168            | ) |   | (9,168   | ) |   | 38                                 |   |   |    |  |   |       |   |   |    |   |   | (9,130 | )
|Future income tax recovery                         |   | (33           | ) |   |                  |   |   | (33      | ) |   |                                   |   |   |    |  |   |       |   |   | 33  |   |   |       |  
|Share-based compensation                           |   | 5,417         |   |   |                  |   |   | 5,417    |   |   | (1                                 | ) |   |    |  |   | 2,291  |   |   |    |   |   | 7,707  |  
|Changes in non-cash working capital                |   | 5,633         |   |   |                  |   |   | 5,633    |   |   | (5,356                             | ) |   |    |  |   |       |   |   |    |   |   | 277    |  
|Cash used in operating activities                  |   | 18,987        |   |   | (169,066          | ) |   | (150,079 | ) |   | 146,672                            |   |   |    |  |   |       |   |   |    |   |   | (3,407 | )
|                                                   |   |               |   |   |                   |   |   |          |   |   |                                    |   |   |     |  |   |        |   |   |     |   |   |        |  
|Investing activities                               |   |               |   |   |                   |   |   |          |   |   |                                    |   |   |     |  |   |        |   |   |     |   |   |        |  
|Interest income                                    |   |              |   |   | 1,268             |   |   | 1,268    |   |   | (153                               | ) |   |    |  |   |       |   |   |    |   |   | 1,115  |  
|Purchase of plant, property and equipment          |   | (127          | ) |   |                  |   |   | (127     | ) |   | 127                                |   |   |    |  |   |       |   |   |    |   |   |       |  
|Cash generated by investing activities             |   | (127          | ) |   | 1,268             |   |   | 1,141    |   |   | (26                                | ) |   |    |  |   |       |   |   |    |   |   | 1,115  |  
|                                                   |   |               |   |   |                   |   |   |          |   |   |                                    |   |   |     |  |   |        |   |   |     |   |   |        |  
|Financing activities                               |   |               |   |   |                   |   |   |          |   |   |                                    |   |   |     |  |   |        |   |   |     |   |   |        |  
|Contributions from non-controlling interest        |   |              |   |   | 158,630           |   |   | 158,630  |   |   | (158,630                           | ) |   |    |  |   |       |   |   |    |   |   |       |  
|Cash provided from financing activities            |   |              |   |   | 158,630           |   |   | 158,630  |   |   | (158,630                           | ) |   |    |  |   |       |   |   |    |   |   |       |  
|                                                   |   |               |   |   |                   |   |   |          |   |   |                                    |   |   |     |  |   |        |   |   |     |   |   |        |  
|Increase in cash and cash equivalents              |   | 18,860        |   |   | (9,168            | ) |   | 9,692    |   |   | (11,984                            | ) |   |    |  |   |       |   |   |    |   |   | (2,292 | )
|Effect of foreign exchange on cash held            |   |              |   |   | 9,168             |   |   | 9,168    |   |   | (38                                | ) |   |    |  |   |       |   |   |    |   |   | 9,130  |  
|Cash and cash equivalents,
      beginning of year |   | 40,341        |   |   |                  |   |   | 40,341   |   |   | (1,213                             | ) |   |    |  |   |       |   |   |    |   |   | 39,128 |  
|Cash and cash equivalents, end of year             | $ | 59,201        |   | $ |                  |   | $ | 59,201   |   | $ | (13,235                            | ) | $ |    |  | $ |       |   | $ |    |   | $ | 45,966 |  

Page 36

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|Northern Dynasty Minerals Ltd.                                             
|---------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                             
|For the years ended December 31, 2009 and 2008                             
|(Expressed in thousands
      of Canadian Dollars, unless otherwise stated)

Notes to Reconciliations

|(a) | Basis of Consolidation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | Under GAAP, the Group accounted for its interest in the
      Pebble Partnership (Partnership) as a variable interest entity (VIE)
      with the Group as the primary beneficiary. The Partnership was determined
      to be a VIE because the total equity investment at risk is not sufficient
      to permit the Partnership to finance its mine development activities
      without additional financial support from its partners. The Partnership
      will be required to incur several hundred millions of dollars over several
      years to achieve its business objective to engineer, permit, construct and
      operate a modern, long-life mine. Although both Anglo and the Group each
      hold an equal 50% voting interest in the Partnership, the Groups exposure
      to the potential expected losses of the VIE is greater than Anglos
      because at any point in time prior to Anglo completing its full cash
      contribution of US$1.425 billion to retain its 50% interest in the Pebble
      Partnership, Anglo has the ability to withdraw from the Partnership and
      the Group will be required to fund 100% of the remaining Partnership
      expenditures. Consequently, the Group concluded that the primary
      beneficiary of the Partnership would be the Group. Accordingly, the Group
      consolidated 100% of the Partnership, and previously reported a
      non-controlling interest.                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | IFRS does not include the concept of a variable interest
      entity. IFRS requires the Group to consolidate entities including Special
      Purpose Entities only where the Group has the power to govern the
      financial and operating policies of an entity so as to obtain benefits
      from its activities. On application of IFRS, the Group has determined that
      it has joint control of the Pebble Partnership as the Group holds 50% of
      the voting interest of the Partnership with Anglo holding the other 50%.
      The Group does not control the Partnership based on voting interest and
      does not own more than half of the voting power. Furthermore, both Anglo
      and the Group have equal rights and powers in governing the financial and
      operating policies of the Partnership or appointing and removing members
      of the Partnerships board of directors. Decision making is governed by
      the Partnerships board of directors, with equal representation from Anglo
      and the Group. The structure of the board of directors and the voting
      requirements result in joint decision making by Anglo and the Group in all
      circumstances. Under IFRS, the Group can elect to use either the equity
      method or proportionate consolidation method to account for its interest
      in the Pebble Partnership. The Group has elected to apply the equity
      method to account for its interest in the Pebble Partnership, and the
      carrying value of the investment is the Groups cost of investment to date
      in US dollars.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | Business combinations that occurred prior to January 1,
      2008 were not accounted for in accordance with IFRS 3, Business
      Combinations("IFRS 3") or IAS 27, Consolidated and Separate
      Financial Statements, in accordance with the IFRS 1 exemption
      discussed above.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|(b) | Cumulative translation differences                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | IFRS requires that the functional currency of each entity
      of the Group be determined separately. The Group has determined that as at
      the Transition Date the Canadian dollar was the functional currency of all
      entities in the Group except the Pebble Partnership which has a US dollar
      functional currency. In accordance with IFRS 1 optional exemptions, the
      Group elected to transfer the cumulative translation differences,
      recognized as a separate component of equity, to deficit at the Transition
      Date. Under GAAP, the Pebble Partnership was defined as an integrated
      foreign operation from the date the Pebble Partnership was formed
      ("formation date") to the Transition Date and therefore no foreign
      exchange translation in equity was noted. Under IFRS, the Pebble
      Partnership has a US dollar functional currency since the formation date
      and therefore as at the Transition Date a foreign exchange translation
      reserve of $7,554 had accumulated. In electing to take
  this                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

Page 37

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|Northern Dynasty Minerals Ltd.                                             
|---------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                             
|For the years ended December 31, 2009 and 2008                             
|(Expressed in thousands
      of Canadian Dollars, unless otherwise stated)

IFRS 1 exemption, the Group has
transferred this foreign exchange translation reserve at the Transition Date to
deficit.

The movement for the years ended
December 31, 2009 and 2008 in shareholders equity and the corresponding
movement in the equity investment in the Pebble Partnership are as follows:

2008Shareholders Equity(Decrease) increase in
      foreign currency translation reserve
    $
    22,635Non-current Assets(Decrease) increase in investment in
      the Pebble Partnership
    
    22,635


|(c) | Share-based Payment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    | Under GAAP, the Group measured share-based compensation
      related to share purchase options at fair value of the share purchase
      options granted using the Black-Scholes option pricing formula and
      recognized this expense over the vesting period of the options. For the
      purpose of accounting for share-based payment transactions an individual
      is classified as an employee when the individual is consistently
      represented to be an employee under law. The fair value of the share
      purchase options granted to employees is measured on the date of grant.
      The fair value of share purchase options granted to contractors and
      consultants is measured on the date the services are completed.
      Forfeitures are recognized as they occur.                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    | IFRS 2, similar to GAAP, requires the Group to measure
      share-based compensation related to share purchase options granted to
      employees at the fair value of the share purchase options on the date of
      grant and to recognize such expense over the vesting period of the
      options. However, for share purchase options granted to non-employees,
      IFRS requires that share-based compensation be measured at the fair value
      of the services received unless the fair value cannot be reliably
      measured. For the purpose of accounting for share based payment
      transactions an individual is classified as an employee when the
      individual is an employee for legal or tax purposes (direct employee) or
      provides services similar to those performed by a direct employee. This
      definition of an employee is broader than that previously applied by the
      Group and resulted in certain contractors and consultants being classified
      as employees under IFRS.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    | For the share purchase options granted to individuals
      reclassified, changes in fair value after the grant date previously
      recognized for GAAP purposes have been adjusted. The adjustments were
      calculated only for unvested share purchase options issued and outstanding
      as of and after the Transition Date.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|(d) | Deferred Tax on Mineral Properties                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    | Under GAAP, the Group, in determination of the net loss
      from its interest in the Pebble Partnership, recognized a future income
      tax liability on temporary differences arising on the initial recognition
      of the Pebble Partnership mineral property interest (where the fair value
      of the asset acquired exceeded its tax basis) in a transaction which was
      not a business combination and affected neither accounting profit or loss
      nor taxable profit or loss. IAS 12, Income Taxes(IAS 12) does
      not permit the recognition of deferred taxes on such transactions. As of
      the Transition Date and December 31, 2008, the Group has derecognized the
      impacts of all deferred tax liabilities which had previously been
      recognized on the initial acquisition of the investment in the Pebble
      Partnership through transactions deemed not to be business combinations
      and affecting neither accounting profit or loss nor taxable profit or
      loss.     

Page 38

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|Northern Dynasty Minerals Ltd.                                             
|---------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                             
|For the years ended December 31, 2009 and 2008                             
|(Expressed in thousands
      of Canadian Dollars, unless otherwise stated)

|(e) | Deferred Tax on Equity Investment in the Pebble
      Partnership                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    | The Group has determined that a deferred tax liability is
      required to be recognized under IAS 12 for temporary differences related
      inter alia to an interest in a joint venture. Although the Group does not
      see the temporary differences reversing in the foreseeable future given
      that the Pebble Partnership is still advancing the Pebble Project, the
      Group has determined it has joint control only, which does not meet the
      definition of control for the purposes of the section to allow the non
      recognition thereof.

As at
    
    
    As atDecember 31
    
    
    January 12008
    
    
    2008Shareholders equity(Decrease) in reserves
    $
    (827
    )
    $
    (Increase) in deficit
    
    
    
    
    (3,614
    )Non-current liabilitiesIncrease in deferred taxes
    
    827
    
    
    3,614


Page 39

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