---











CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDEDDECEMBER 31, 2006, 2005 AND 2004

(Expressed in Canadian Dollars)

---

D E  V I S S E R  G R A Y  L L
PCHARTERED ACCOUNTANTS

401 - 905 West Pender Street Vancouver, BC Canada V6C
1L6

AUDITORS REPORT

To the Shareholders of Northern Dynasty Minerals Ltd.

We have audited the consolidated balance sheets of Northern
Dynasty Minerals Ltd. as at December 31, 2006 and 2005, and the consolidated
statements of operations and deficit and cash flows for each of the years in the
three year period ended December 31, 2006. 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 generally accepted
auditing standards in Canada and the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and
perform an audit to obtain reasonable assurance 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.

In our opinion, these consolidated financial statements present
fairly, in all material respects, the financial position of the Company as at
December 31, 2006 and 2005 and the results of its operations and cash flows for
each of the years in the three year period ended December 31, 2006 in accordance
with Canadian generally accepted accounting principles

De Visser Gray LLP

CHARTERED ACCOUNTANTS

Vancouver, British Columbia March 16, 2007

---

NORTHERN DYNASTY MINERALS
LTD.Consolidated Balance Sheets(Expressed in Canadian
Dollars)

|                                                        |   | December
      31 |   |   | December
      31 |  
|------------------------------------------------------- | - | ----------------- | - | - | ----------------- | -
|                                                        |   | 2006              |   |   | 2005              |  
|                                                        |   |                   |   |   |                   |  
|Assets                                                  |   |                   |   |   |                   |  
|                                                        |   |                   |   |   |                   |  
|Current assets                                          |   |                   |   |   |                   |  
|Cash and equivalents                                    | $ | 93,689,667        |   | $ | 12,948,640        |  
|Marketable securities (note 4)                          |   |                  |   |   | 363,906           |  
|Amounts receivable and prepaids                         |   | 489,846           |   |   | 416,971           |  
|Options exercised proceeds
      receivable (note 8(h)) |   | 3,740,000         |   |   |                  |  
|Balances receivable from related parties (note 8)       |   | 192,480           |   |   | 448,360           |  
|                                                        |   | 98,111,993        |   |   | 14,177,877        |  
|                                                        |   |                   |   |   |                   |  
|Equipment(note 5)                                       |   | 633,445           |   |   | 411,205           |  
|Mineral
      property interests(note 6)                |   | 168,221,821       |   |   | 16,706,930        |  
|                                                        |   |                   |   |   |                   |  
|                                                        | $ | 266,967,259       |   | $ | 31,296,012        |  
|                                                        |   |                   |   |   |                   |  
|Liabilities and Shareholders' Equity                    |   |                   |   |   |                   |  
|                                                        |   |                   |   |   |                   |  
|Current liabilities                                     |   |                   |   |   |                   |  
|Accounts payable and accrued
      liabilities          | $ | 7,839,372         |   | $ | 3,161,012         |  
|                                                        |   |                   |   |   |                   |  
|Future income tax liability(notes 6(a) and 9)           |   | 61,601,069        |   |   |                  |  
|                                                        |   | 69,440,441        |   |   | 3,161,012         |  
|                                                        |   |                   |   |   |                   |  
|Shareholders' equity                                    |   |                   |   |   |                   |  
|Share capital (note 7(b))                               |   | 357,364,087       |   |   | 132,361,949       |  
|Contributed surplus (note 7(e))                         |   | 10,061,913        |   |   | 7,289,377         |  
|Deficit                                                 |   | (169,899,182      | ) |   | (111,516,326      | )
|                                                        |   | 197,526,818       |   |   | 28,135,000        |  
|Nature of operations (note 1)                           |   |                   |   |   |                   |  
|Subsequent events
      (note 11)                       |   |                   |   |   |                   |  
|                                                        |   |                   |   |   |                   |  
|                                                        | $ | 266,967,259       |   | $ | 31,296,012        |  

The accompanying notes are an integral part of these
consolidated financial statements.

Approved by the Board of Directors

|/s/ Ronald W. Thiessen | /s/ Jeffrey R. Mason
|---------------------- | --------------------
|                       |                     
|Ronald W. Thiessen     | Jeffrey R. Mason    
|Director               | Director            

---

NORTHERN DYNASTY MINERALS
LTD.Consolidated Statements of Operations(Expressed in
Canadian Dollars)

|                                                            |   | Years ended December 31 |  
|----------------------------------------------------------- | - | ----------------------- | -
|                                                            |   | 2006                    |  
|                                                            |   |                         |  
|Expenses                                                    |   |                         |  
|Amortization                                                | $ | 123,908                 |  
|Conference and travel                                       |   | 935,981                 |  
|Exploration (schedule)                                      |   | 50,612,416              |  
|Legal, accounting and audit                                 |   | 931,318                 |  
|Office and administration                                   |   | 3,041,226               |  
|Shareholder communication                                   |   | 385,920                 |  
|Stock-based compensation - exploration (note 7(d))          |   | 1,882,378               |  
|Stock-based compensation - administration
      (note 7(d)) |   | 4,162,686               |  
|Trust
      and filing                                      |   | 149,270                 |  
|                                                            |   | 62,225,103              |  
|                                                            |   |                         |  
|Other expense (income)                                      |   |                         |  
|Foreign exchange                                            |   | (772,703                | )
|Interest income                                             |   | (2,237,667              | )
|Gain on disposal of marketable securities                   |   | (194,381                | )
|Write down of marketable securities                         |   |                        |  
|                                                            |   | (3,204,751              | )
|                                                            |   |                         |  
|Loss before taxes                                           |   | 59,020,352              |  
|                                                            |   |                         |  
|Future income tax recovery(note 9)                          |   | (637,496                | )
|                                                            |   |                         |  
|Loss for the year                                           | $ | 58,382,856              |  
|                                                            |   |                         |  
|Basic and diluted
      loss per common share               | $ | 0.75                    |  
|                                                            |   |                         |  
|Weighted average number of                                  |   |                         |  
|common shares outstanding                                   |   | 77,708,870              |  

The accompanying notes are an integral part of these
consolidated financial statements.



Consolidated Statements of Deficit(Expressed in
Canadian Dollars)

Years ended December 312006
      
      
      2005
      
      
      2004Deficit, beginning of year
      $
      111,516,326
      
      $
      61,198,495
      
      $
      19,499,848Loss for the year
      
      58,382,856
      
      
      50,317,831
      
      
      41,698,647Deficit, end of year
      $
      169,899,182
      
      $
      111,516,326
      
      $
      61,198,495


The accompanying notes are an integral part of these
consolidated financial statements.

---

NORTHERN DYNASTY MINERALS
LTD.Consolidated Statements of Cash Flows(Expressed in
Canadian Dollars)

|                                                          |   | Years ended December 31 |  
|--------------------------------------------------------- | - | ----------------------- | -
|                                                          |   | 2006                    |  
|                                                          |   |                         |  
|Operating activities                                      |   |                         |  
|Loss for the year                                         | $ | (58,382,856             | )
|Items not involving cash                                  |   |                         |  
|Amortization                                              |   | 123,908                 |  
|Future income
      taxes                                 |   | (637,496                | )
|Gain on sale of marketable
      securities               |   | (194,381                | )
|Stock-based
      compensation                            |   | 6,045,064               |  
|Marketable securities received                            |   |                        |  
|Write down of marketable
      securities                 |   |                        |  
|Changes in non-cash working capital items                 |   |                         |  
|Amounts receivable
      and prepaids                     |   | (72,875                 | )
|Accounts payable and accrued liabilities                  |   | 4,678,360               |  
|Balances receivable
      from and payable to             |   |                         |  
|related parties                                           |   | 255,880                 |  
|Cash and equivalents used for operating activities        |   | (48,184,396             | )
|                                                          |   |                         |  
|Investing activities                                      |   |                         |  
|Purchase of equipment                                     |   | (346,148                | )
|Acquisition costs                                         |   | (81,879                 | )
|Proceeds
      on sales of marketable securities          |   | 558,287                 |  
|Cash and equivalents from (used for) investing activities |   | 130,260                 |  
|                                                          |   |                         |  
|Financing activities                                      |   |                         |  
|Options exercised proceeds receivable                     |   | (3,740,000              | )
|Common shares issued for cash, net of issue
      costs   |   | 132,535,163             |  
|Cash and equivalents
      from financing activities      |   | 128,795,163             |  
|                                                          |   |                         |  
|Increase in cash and equivalents                          |   | 80,741,027              |  
|                                                          |   |                         |  
|Cash and equivalents,
      beginning of year             |   | 12,948,640              |  
|                                                          |   |                         |  
|Cash and equivalents,
      end of year                   | $ | 93,689,667              |  
|                                                          |   |                         |  
|Supplementary information                                 |   |                         |  
|Taxes paid                                                | $ |                        |  
|Interest paid                                             | $ |                        |  
|                                                          |   |                         |  
|Non-cash investing activities                             |   |                         |  
|Issuance of shares for mineral
      property interests   | $ | 89,194,447              |  
|Fair value of stock options allocated to shares           |   |                         |  
|issued upon exercise                                      | $ | 5,045,304               |  

The accompanying notes are an integral part of these
consolidated financial statements.

---

NORTHERN DYNASTY MINERALS
LTD.Consolidated Schedules of Exploration
Expenses(Expressed in Canadian Dollars)

|                                                                |   |                 |  |   | Other      |   |   |             | 
|--------------------------------------------------------------- | - | --------------- |  | - | ---------- | - | - | ----------- | 
|                                                                |   | Pebble Property |  |   | Properties |   |   | Total       | 
|                                                                |   |                 |  |   |            |   |   |             | 
|Exploration expenses for the year ended
      December 31, 2006 |   |                 |  |   |            |   |   |             | 
|Assays and analysis                                             | $ | 585,981         |  | $ |           |   | $ | 585,981     | 
|Drilling                                                        |   | 7,562,670       |  |   |           |   |   | 7,562,670   | 
|Engineering                                                     |   | 4,744,097       |  |   |           |   |   | 4,744,097   | 
|Environmental                                                   |   | 13,663,869      |  |   |           |   |   | 13,663,869  | 
|Equipment rental                                                |   | 67,257          |  |   |           |   |   | 67,257      | 
|Freight                                                         |   | 1,081,734       |  |   |           |   |   | 1,081,734   | 
|Geological                                                      |   | 1,250,352       |  |   |           |   |   | 1,250,352   | 
|Graphics                                                        |   | 35,766          |  |   |           |   |   | 35,766      | 
|Helicopter                                                      |   | 5,626,814       |  |   |           |   |   | 5,626,814   | 
|Property fees and assessments                                   |   | 172,193         |  |   |           |   |   | 172,193     | 
|Site activities                                                 |   | 10,294,948      |  |   |           |   |   | 10,294,948  | 
|Socioeconomic                                                   |   | 4,625,548       |  |   |           |   |   | 4,625,548   | 
|Travel and
      accommodation                                  |   | 901,187         |  |   |           |   |   | 901,187     | 
|Incurred during fiscal 2006                                     |   | 50,612,416      |  |   |           |   |   | 50,612,416  | 
|Cumulative
      expenditures, December 31, 2005                |   | 86,727,794      |  |   | (66,418    | ) |   | 86,661,376  | 
|Cumulative expenditures, December 31, 2006                      | $ | 137,340,210     |  | $ | (66,418    | ) | $ | 137,273,792 | 
|                                                                |   |                 |  |   |            |   |   |             | 
|                                                                |   |                 |  |   |            |   |   |             | 
|Exploration expenses for the year ended December 31,
      2005 |   |                 |  |   |            |   |   |             | 
|Assays and analysis                                             | $ | 343,426         |  | $ |           |   | $ | 343,426     | 
|Drilling                                                        |   | 5,724,305       |  |   |           |   |   | 5,724,305   | 
|Engineering                                                     |   | 9,338,697       |  |   |           |   |   | 9,338,697   | 
|Environmental                                                   |   | 13,081,142      |  |   |           |   |   | 13,081,142  | 
|Equipment rental                                                |   | 46,822          |  |   |           |   |   | 46,822      | 
|Freight                                                         |   | 557,971         |  |   |           |   |   | 557,971     | 
|Geological                                                      |   | 918,845         |  |   |           |   |   | 918,845     | 
|Graphics                                                        |   | 62,572          |  |   |           |   |   | 62,572      | 
|Helicopter                                                      |   | 4,669,476       |  |   |           |   |   | 4,669,476   | 
|Property fees and assessments                                   |   | 175,003         |  |   |           |   |   | 175,003     | 
|Site activities                                                 |   | 5,052,487       |  |   |           |   |   | 5,052,487   | 
|Socioeconomic                                                   |   | 2,506,824       |  |   |           |   |   | 2,506,824   | 
|Travel and accommodation                                        |   | 588,847         |  |   |           |   |   | 588,847     | 
|Incurred during fiscal 2005                                     |   | 43,066,417      |  |   |           |   |   | 43,066,417  | 
|Cumulative expenditures, December 31, 2004                      |   | 43,661,377      |  |   | (66,418    | ) |   | 43,594,959  | 
|Cumulative
      expenditures, December 31, 2005                | $ | 86,727,794      |  | $ | (66,418    | ) | $ | 86,661,376  | 
|                                                                |   |                 |  |   |            |   |   |             | 
|                                                                |   |                 |  |   |            |   |   |             | 
|Exploration expenses for the year ended
      December 31, 2004 |   |                 |  |   |            |   |   |             | 
|Assays and analysis                                             | $ | 745,237         |  | $ | (3,623     | ) | $ | 741,614     | 
|Drilling                                                        |   | 7,689,138       |  |   | (715,000   | ) |   | 6,974,138   | 
|Engineering                                                     |   | 3,886,839       |  |   |           |   |   | 3,886,839   | 
|Environmental                                                   |   | 9,806,864       |  |   |           |   |   | 9,806,864   | 
|Equipment rental                                                |   | 248,577         |  |   |           |   |   | 248,577     | 
|Freight                                                         |   | 603,711         |  |   |           |   |   | 603,711     | 
|Geological                                                      |   | 1,398,162       |  |   | (749       | ) |   | 1,397,413   | 
|Graphics                                                        |   | 93,985          |  |   | 472        |   |   | 94,457      | 
|Helicopter                                                      |   | 3,823,073       |  |   | 2,798      |   |   | 3,825,871   | 
|Property fees and assessments                                   |   | 139,714         |  |   |           |   |   | 139,714     | 
|Site activities                                                 |   | 3,715,240       |  |   |           |   |   | 3,715,240   | 
|Socioeconomic                                                   |   | 686,948         |  |   |           |   |   | 686,948     | 
|Travel and
      accommodation                                  |   | 475,105         |  |   | (1,591     | ) |   | 473,514     | 
|Incurred during fiscal 2004                                     |   | 33,312,593      |  |   | (717,693   | ) |   | 32,594,900  | 
|Cumulative
      expenditures, December 31, 2003                |   | 10,348,784      |  |   | 651,275    |   |   | 11,000,059  | 
|Cumulative expenditures, December 31, 2004                      | $ | 43,661,377      |  | $ | (66,418    | ) | $ | 43,594,959  | 

The accompanying notes are an integral part of these
consolidated financial statements.

---

|NORTHERN DYNASTY MINERALS LTD.                      
|----------------------------------------------------
|Notes to Consolidated Financial Statements          
|For the years ended December 31, 2006, 2005 and 2004
|(Expressed in
      Canadian Dollars)               

|1. | NATURE OF OPERATIONS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | Northern Dynasty Minerals Ltd. (the "Company") is
      incorporated under the laws of the Province of British Columbia, and its
      principal business activity is the exploration of mineral properties. The
      Companys principal mineral property interest is the Pebble Project
      located in Alaska, United States of America (USA).                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | The Company is in the process of exploring its mineral
      property interests and has not yet determined whether its mineral property
      interests contain mineral reserves that are economically recoverable. The
      Companys continuing operations and the underlying value and
      recoverability of the amounts shown for mineral property interests are
      entirely dependent upon the existence of economically recoverable mineral
      reserves, the ability of the Company to obtain the necessary financing to
      complete the exploration and development of the mineral property
      interests, confirmation of the Companys title to the mineral property
      interests, and on future profitable production or proceeds from the
      disposition of the mineral property interests.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|2. | BASIS OF PRESENTATION AND PRINCIPLES OF
      CONSOLIDATION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | These consolidated financial statements have been
      prepared in accordance with Canadian generally accepted accounting
      principles. A reconciliation of material differences between these
      principles and accounting principles generally accepted in the United
      States is shown in note 11. These consolidated financial statements
      include the accounts of the Company and its wholly- owned
    subsidiaries.                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | All material intercompany balances and transactions have
      been eliminated.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|3. | SIGNIFICANT ACCOUNTING
POLICIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

|(a) | Cash and equivalents                                                                                                                                                                                                                             
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                  
|    | Cash and equivalents consist of cash and highly liquid
      investments, having maturity dates of three months or less from the date
      of purchase, which are readily convertible to known amounts of
  cash.                               
|    |                                                                                                                                                                                                                                                  
|(b) | Marketable securities                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                  
|    | The Company's investments in marketable securities are
      initially recorded at cost. When there has been a loss in value of an
      investment that is other than a temporary decline, the investment is
      written down to market value.

---

|NORTHERN DYNASTY MINERALS LTD.                      
|----------------------------------------------------
|Notes to Consolidated Financial Statements          
|For the years ended December 31, 2006, 2005 and 2004
|(Expressed in Canadian
      Dollars)               

|(c) | Equipment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    | Equipment is recorded at cost and is amortized over its estimated useful life using the declining balance method at various rates ranging from 20% to 30% per annum.                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|(d) | Mineral property interests                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    | Exploration expenditures incurred prior to the determination of the feasibility of mining operations and administrative expenditures are expensed as incurred. Mineral property acquisition costs, and exploration and development
expenditures incurred subsequent to such determination and to increase or to extend the life of existing production, are capitalized and amortized over the estimated life of the property following the commencement of commercial production, or are
written off if the property is sold, allowed to lapse or abandoned, or when an impairment has been determined to have occurred.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    | Mineral property acquisition costs include the cash consideration and the fair market value of common shares, based on the trading price of the shares, on the date of issue or as otherwise provided under the agreement terms for
the mineral property interest. Costs for properties for which the Company does not possess unrestricted ownership and exploration rights, such as option agreements, are expensed in the period incurred or until a feasibility study has determined that
the property is capable of commercial production.                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    | Costs of exploration costs, feasibility studies, and option payments are expensed in the period incurred.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    | Administrative expenditures related to exploration activities are expensed in the period incurred.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    | The amount presented for mineral property interests represents costs incurred to date and accumulated acquisition costs, less write-downs, and does not necessarily reflect present or future values.                                                                                                                                                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|(e) | Asset retirement obligations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    | The Company recognizes statutory, contractual or other legal obligations related to the retirement of tangible long-lived assets when such obligations are incurred, if a reasonable estimate of fair value can be made. These
obligations are measured initially at fair value and the resulting costs capitalized to the carrying value of the related asset. In subsequent periods, the liability is adjusted for any changes in the amount or timing and for the discounting of the
underlying future cash flows. The capitalized asset retirement cost is amortized to operations over the life of the asset.       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    | The Company has no material asset retirement obligations as the disturbance to date is minimal.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

---

|NORTHERN DYNASTY MINERALS LTD.                      
|----------------------------------------------------
|Notes to Consolidated Financial Statements          
|For the years ended December 31, 2006, 2005 and 2004
|(Expressed in Canadian
      Dollars)               

|(f) | Impairment of long-lived assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    | Long-lived assets, including mineral properties and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets
to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an
impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of would be separately presented in the balance sheet and reported at the lower of the carrying amount
and the fair value less costs to sell, and are no longer amortized.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|(g) | Share capital                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    | Common shares issued for mineral property interests are recorded at the fair market value based upon the trading price of the shares on the TSX Venture Exchange on the date of issue or as otherwise provided for under the terms of
the agreement to issue the shares.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    | Share issue costs are deducted from share capital.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|(h) | Stock-based compensation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    | The Company has a share option plan which is described in note 7(d). The Company records all stock-based payments using the fair value method.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    | Under the fair value method, stock-based payments are measured at the fair value of the consideration received or the fair value of the equity instruments issued or liabilities incurred, whichever is more reliably measurable and
are charged to operations over the vesting period. The offset is credited to contributed surplus.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    | Consideration received upon the exercise of stock options is credited to share capital and the related contributed surplus is transferred to share capital.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|(i) | Foreign currency translation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    | All of the Company's foreign subsidiaries are considered integrated with those of the Companys domestic operations and use the Canadian dollar as their functional currency.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    | Monetary assets and liabilities of the Company and its integrated foreign operations are translated into Canadian dollars at exchange rates in effect at the balance sheet date. Non-monetary assets and liabilities are translated at
historical exchange rates unless such items are carried at market, in which case they are translated at the exchange rates in effect on the balance sheet date. Revenues and expenses, except amortization, are translated at average exchange rates for
the period. Amortization is translated at the same exchange rates as the assets to which it relates. Gains or losses on translation are recorded in the statement of operations.                                                                                                                                        

---

|NORTHERN DYNASTY MINERALS LTD.                      
|----------------------------------------------------
|Notes to Consolidated Financial Statements          
|For the years ended December 31, 2006, 2005 and 2004
|(Expressed in Canadian
      Dollars)               

|(j) | Income taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    | The Company uses the asset and liability method of accounting for income taxes. Under this method, future income tax assets and liabilities are computed based on differences between the carrying amount of assets and liabilities on
the balance sheet and their corresponding tax values, generally using the enacted or substantively enacted income tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or
settled.               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    | Future income tax assets also result from unused loss carry forwards and other deductions. Future tax assets are recognized to the extent that they are considered more likely than not to be realized. The valuation of future income
tax assets is adjusted, if necessary, by the use of a valuation allowance to reflect the estimated realizable amount.                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|(k) | Loss per common share                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    | Basic loss per common share is calculated by dividing the loss for the period by the weighted average number of common shares outstanding during the period.                                                                                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    | Diluted loss per common share is calculated using the treasury stock method. Under the treasury stock method, the weighted average number of common shares outstanding used for the calculation of diluted loss per common share
assumes that the proceeds to be received on the exercise of dilutive stock options and warrants are used to repurchase common shares at the average market price during the period.                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    | When the Company is in a net loss position, diluted loss per share is not presented separately as the effect of the outstanding options and warrants would be anti-dilutive.                                                                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|(l) | Fair value of financial instruments                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    | The carrying values of cash and equivalents, amounts receivable, and accounts payable and accrued liabilities approximate their fair value due to their short term nature. It is not practicable to determine the fair values of the
advances to or from related parties due to the related party nature of such amounts and the absence of a secondary market for such instruments. Fair value estimates are made at the date of issuance, and at the balance sheet date, based on relevant
market information.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    | It is managements opinion that the Company is not exposed to significant interest or credit risks arising from these financial instruments.                                                                                                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|(m) | Use of estimates                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    | The preparation of financial statements in conformity with Canadian generally accepted accounting principles requires management to make estimates and assumptions that affect the                                                                                                                                                                                                                                                                                                                              

---

|NORTHERN DYNASTY MINERALS LTD.                      
|----------------------------------------------------
|Notes to Consolidated Financial Statements          
|For the years ended December 31, 2006, 2005 and 2004
|(Expressed in Canadian
      Dollars)               

|    | reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities as at the balance sheet date, and the reported amounts of revenues and expenses during the reporting period. Significant areas
requiring the use of management estimates include the determination of the recoverability on buildings and equipment, impairment of mineral property interests, rates of amortization of equipment, the determination of reclamation obligations, and the
assumptions used in determining the fair value of non-cash stock-based compensation. Actual results could differ from those estimates.                              
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|(n) | Environmental expenditures                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | The operations of the Company 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 Company vary greatly from country to country and are not predictable. The Companys policy is to meet or possibly surpass environmental standards set by relevant legislation by the application of
technically proven and economically feasible measures.                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | Environmental expenditures that relate to ongoing environmental and reclamation programs are charged against operations as incurred or capitalized and amortized depending on their expected future economic benefit. Estimated future
removal and site restoration costs are recognized when the ultimate liability is reasonably determinable, and are charged against operations over the estimated remaining life of the related business operations, net of expected recoveries.                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|(o) | Variable interest entities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | The Company accounts for variable interest entities (VIE) in accordance with CICA Accounting Guideline 15, "Consolidation of Variable Interest Entities" ("AcG15"). AcG15 prescribes the application of consolidation
principles for entities that meet the definition of a VIE. An enterprise holding other than a voting interest in a VIE could, subject to certain conditions, be required to consolidate the VIE if it is considered its primary beneficiary whereby it
would absorb the majority of the VIEs expected losses, receive the majority of its expected residual returns, or both. The Company has determined that it does not have any VIEs.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|(p) | Comparative figures                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | The preparation of the prior years' comparative figures have been reclassified to conform to the financial statement presentation adopted for the current year.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

---

|NORTHERN DYNASTY MINERALS LTD.                      
|----------------------------------------------------
|Notes to Consolidated Financial Statements          
|For the years ended December 31, 2006, 2005 and 2004
|(Expressed in Canadian
      Dollars)               

|4. | MARKETABLE SECURITIES
|-- | ---------------------

| |                                    |  | Number          |  |   |         |  |   | Market  |  |   | Carrying | 
| | ---------------------------------- |  | --------------- |  | - | ------- |  | - | ------- |  | - | -------- | 
| |                                    |  | of
      shares |  |   | Cost    |  |   | value   |  |   | value    | 
| | December 31, 2006                  |  |                 |  |   |         |  |   |         |  |   |          | 
| | Taseko Mines Limited common shares |  | nil             |  | $ |        |  | $ |        |  | $ |         | 
| |                                    |  |                 |  |   |         |  |   |         |  |   |          | 
| |                                    |  |                 |  |   |         |  |   |         |  |   |          | 
| | December 31, 2005                  |  |                 |  |   |         |  |   |         |  |   |          | 
| | Taseko Mines Limited common shares |  | 256,272         |  | $ | 715,000 |  | $ | 533,046 |  | $ | 363,906  | 

|   | The companys investment in 256,272 common shares of
      Taseko Mines Limited was sold during the year ended December 31, 2006 for
      proceeds of $558,287.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                 
|5. | EQUIPMENT                                                                                                                                                       

| |                        |   |         |  |   | Accumulated  |  |   |                      | 
| | ---------------------- | - | ------- |  | - | ------------ |  | - | -------------------- | 
| |                        |   | Cost    |  |   | Amortization |  |   | Net Book
      Value | 
| | December 31, 2006      |   |         |  |   |              |  |   |                      | 
| | Buildings              | $ | 218,549 |  | $ | 49,597       |  | $ | 168,952              | 
| | Furniture and fixtures |   | 234,883 |  |   | 107,824      |  |   | 127,059              | 
| | Site equipment         |   | 279,171 |  |   | 41,876       |  |   | 237,295              | 
| | Vehicles               |   | 94,124  |  |   | 43,233       |  |   | 50,891               | 
| | Computer equipment     |   | 88,693  |  |   | 39,445       |  |   | 49,248               | 
| |                        | $ | 915,420 |  | $ | 281,975      |  | $ | 633,445              | 
| |                        |   |         |  |   |              |  |   |                      | 
| | December 31, 2005      |   |         |  |   |              |  |   |                      | 
| | Buildings              | $ | 186,359 |  | $ | 32,613       |  | $ | 153,746              | 
| | Furniture and fixtures |   | 219,496 |  |   | 60,673       |  |   | 158,823              | 
| | Site equipment         |   | 15,387  |  |   | 15,387       |  |   |                     | 
| | Vehicles               |   | 66,043  |  |   | 21,422       |  |   | 44,621               | 
| | Computer equipment     |   | 81,986  |  |   | 27,971       |  |   | 54,015               | 
| |                        | $ | 569,271 |  | $ | 158,066      |  | $ | 411,205              | 

|6. | MINERAL PROPERTY
INTERESTS
|-- | --------------------------

|(a) | Pebble Property
|--- | ---------------

| |                                                                     |   | Years ended December 31 | 
| | ------------------------------------------------------------------- | - | ----------------------- | 
| |                                                                     |   | 2006                    | 
| | Balance, beginning of the period                                    | $ | 16,706,930              | 
| | Changes during the period                                           |   |                         | 
| | Acquisition of 20% carried
      contractual interests held by HDGI |   | 151,433,012             | 
| | Acquisition costs                                                   |   | 81,879                  | 
| | Exploration Lands  Issuance of 977,795
      common shares         |   |                        | 
| | Pebble Property                                                     | $ | 168,221,821             | 

---

|NORTHERN DYNASTY MINERALS LTD.                      
|----------------------------------------------------
|Notes to Consolidated Financial Statements          
|For the years ended December 31, 2006, 2005 and 2004
|(Expressed in Canadian
      Dollars)               

| | (i) | Exploration and Resource
Lands
| | --- | ------------------------------

Pursuant to an Assignment Agreement
dated October 29, 2001 between the Company and Hunter Dickinson Group Inc.,
(HDGI), a related party to the Company, the Company was assigned an 80%
interest in two options, which had been granted by Teck Cominco American
Incorporated (Teck Cominco) under a single agreement to HDGI in respect of
Teck Comincos Pebble copper/gold/molybdenum property in southwestern Alaska.
One option granted the right to purchase 100% of the lands containing the then
known mineralized resource at Pebble (the Resource Lands Option) and the
second option granted the right to purchase a 50% interest in the lands
surrounding the Resource Lands (the Exploration Lands Option) (together, the
Options). HDGI is a related party by virtue of (i) having certain directors in
common with the Company, and (ii) its shareholders or their associates being at
the time significant shareholders of the Company. The Assignment Agreement was
ratified by shareholders of the Company on June 28, 2002.

The Company was assigned the 80%
interest together with the right to acquire the remaining 20% contractual
interests in these option agreements from HDGI in consideration of the Company
reimbursing HDGIs costs of $584,655 in connection with the options, which
included the staking of 134 claims to expand the property and 30 kilometers of
induced polarization surveying over the new claims, and agreeing to pay for
HDGIs 20% share of costs in connection with the exercise requirements under the
Options.

The Resource Lands Option was extended
by one year in an agreement dated December 19, 2002 under which the Company
issued to Teck Cominco 200,000 shares for the extension. Pursuant to the
Resource Lands Option the Company had the right to purchase the 36 claims of the
Resource Lands, subject to HDGIs 20% carried interests, by paying Teck Cominco
US$10 million in cash or shares prior to November 30, 2004, which it did on
November 23, 2004 by the issuance of 1,772,775 shares to Teck Cominco (total
value of $11,788,621). Teck Cominco had the right for 180 days to elect whether
to require the Company to manage the resale of these shares (NDM Resource Lands
shares) in a manner where Teck Cominco would be guaranteed the US$10 million in
resale proceeds net of any excess or deficiency adjustments. The actual adjusted
amount was US$9,938,600. On May 9, 2005, Teck Cominco elected for the Company to
guarantee the adjusted amount of US$9,938,600 in resale proceeds of the
1,772,775 shares. Under the agreement, the Company is to ensure proceeds
totalling US$9,938,600 by May 22, 2006. At December 31, 2005, 473,700 of the
1,772,775 NDM Resource Lands shares had been sold for proceeds of US$2,039,902.
During the year ended December 31, 2006, the Company managed the sale of an
additional 1,277,028 NDM Resource Lands shares for proceeds paid to Teck Cominco
of US$7,898,698, thereby completing its commitment regarding the resale of the
NDM Resource Lands shares. The remaining 22,047 unsold NDM Resource Lands shares
relating to this acquisition were then returned to the Companys treasury.

At the time of the Company exercising
the Resource Lands Option, the Company also exercised the Exploration Lands
Option to earn a 50% interest in the adjacent Exploration Lands, subject to
HDGIs carried interest, by having completed 60,000 feet of drilling on the
Exploration Lands prior to November 30, 2004.

As a consequence of the Company
exercising the Exploration Lands Option, Teck Cominco could elect to either form
a 50/50 joint venture with the Company with respect to the Exploration

---

|NORTHERN DYNASTY MINERALS LTD.                      
|----------------------------------------------------
|Notes to Consolidated Financial Statements          
|For the years ended December 31, 2006, 2005 and 2004
|(Expressed in Canadian
      Dollars)               

Lands, or to sell its 50% interest in
the Exploration Lands to the Company for US$4 million and retain a net profits
interest. On February 21, 2005, Teck Cominco elected to sell its remaining 50%
interest in the Exploration Lands to the Company for the stipulated US$4 million
payment, a 4% pre-payback net profits interest (after debt service), and a 5%
after-payback net profits interest in any mine production from the Exploration
Lands. The Company issued 977,795 shares of the Company at the then-prevailing
market price as consideration for the required US$4 million payment but subject
to Teck Comincos right to elect to have the proceeds guaranteed.

Teck Cominco had the right, until
August 24, 2005, to elect whether to require the Company to manage the resale of
these shares (NDM Exploration Lands shares) in a manner where Teck Cominco
would be guaranteed US$4 million in resale proceeds by August 24, 2006. On July
18, 2005, Teck Cominco elected for the Company to guarantee the US$4 million in
resale proceeds. During the year ended December 31, 2006, the Company had
managed the sale of 654,502 NDM Exploration Lands shares for proceeds paid to
Teck Cominco of approximately US$4,000,000, and thereby completing its
commitment regarding the resale of the NDM Exploration Lands shares. During
2006, the remaining 323,293 unsold NDM Exploration Lands shares relating to this
acquisition were then returned to the Companys treasury.

In total, 345,340 common shares of the
Company, at a value of $1,772,776, unsold after the Companys obligations to
Teck Cominco had been met, were returned to the treasury of the Company. The
Company recorded this amount in contributed surplus and a related future income
tax liability of $728,405 generated on this transaction is fully offset by
previously unrecognized tax assets.

| | (ii) | HDGI 20% carried contractual
  interest
| | ---- | ---------------------------------------

As a consequence of the Company
electing to exercise the Options, the Company was entitled under the Assignment
Agreement with HDGI to elect to acquire HDGIs 20% carried contractual interests
in the Options for cash or share consideration equal to the independently
appraised value of the carried interests.

On May 31, 2006, the Company acquired
100% of the outstanding common shares of HDGI for purchase price of 14,002,268
common shares of the Company. The agreed number of shares was based on
negotiations between the Company, represented by a Special Committee of the
Board of Directors, and HDGI with reference to an independent valuation of the
carried interests performed by Ross Glanville & Associates Ltd in March
2005. Both parties agreed to a valuation of $6.37 per share, based upon the
issuance of 14,002,268 common shares, as representing the fair value of the 20%
carried contractual interest. The valuation report was publicly filed at
www.sedar.com. The TSX Venture Exchange and
the American Stock Exchange have accepted the acquisition transaction. The
results of HDGIs operations have been included in the consolidated financial
statements since the date of acquisition. The following table summarizes the
assets acquired and liabilities assumed on the date of acquisition:

| | Mineral property interest                | $ | 151,433,012 |  
| | ---------------------------------------- | - | ----------- | -
| | Future income tax
      liability        |   | (62,238,565 | )
| | Purchase price                           | $ | 89,194,447  |  
| |                                          |   |             |  
| | Consideration  14,002,268 common shares | $ | 89,194,447  |  

---

|NORTHERN DYNASTY MINERALS LTD.                      
|----------------------------------------------------
|Notes to Consolidated Financial Statements          
|For the years ended December 31, 2006, 2005 and 2004
|(Expressed in Canadian
      Dollars)               

|    | Upon completion of the acquisition of HDGI and being
      discharged of Teck Comincos share resale guarantees, the Company,
      together with one or more 100% owned subsidiaries, owns a 100% right,
      title and interest in the entire Pebble Property (subject only to the Teck
      Cominco net profits interest in the Exploration Lands portion of the
      property).                                                                                                                                                                                                                                                                                                             
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | The acquisition created a future tax liability due to the
      limited pools available in HDGI to offset taxable income earned in that
      Company relative to the carrying cost of the acquired asset on the
      Companys balance sheet. Subsequent to the date of acquisition, deductible
      expenditures incurred by HDGI have reduced this liability and this amount
      has been recorded as a future income tax recovery.                                                                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|(b) | Pickle Lake Joint Venture                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | The Company holds a 37.5% participating joint venture
      interest, subject to a 2.5% net profits interest ("NPI") held by the
      original owners, in certain mineral properties in northwestern Ontario
      under the Pickle Lake Joint Venture. The remaining 62.5% joint venture
      interest is held by Energold Minerals Inc. (Energold) (together jointly
      with the Company, the Partners). The Company continues to maintain these
      claims in good standing.                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | In October 2006, the Partners entered into an option
      agreement with Solomon Resources Limited (Solomon) whereby Solomon will
      have the right to earn up to a 60% interest in the Eyapamikama Lake
      property (formerly Arseno Lake), located 170km north of Pickle Lake. Under
      the option agreement, Solomon is granted an exclusive option to earn a
      minimum 50% interest in the property by funding an initial exploration
      program of $25,600 (completed). Subsequent to year-end, Solomon notified
      the Partners of its intent to exercise the option to earn a 50% interest.
      Under the option agreement to earn its 50% interest, Solomon
  must:
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | •                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | •                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | •                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | Solomon has the option to increase its interest to 60% by
      issuing to the Partners 300,000 Solomon shares and $100,000 by January 31,
      2009 and incurring additional $1,000,000 in exploration expenditures by
      January 31, 2010.                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|(c) | Little Bald Mountain                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | The Company holds an 8.1% net profits interest in the
      Little Bald Mountain property in Nevada, USA.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

---

|NORTHERN DYNASTY MINERALS LTD.                      
|----------------------------------------------------
|Notes to Consolidated Financial Statements          
|For the years ended December 31, 2006, 2005 and 2004
|(Expressed in Canadian
      Dollars)               

|7. | SHARE CAPITAL
|-- | -------------

|(a) | Authorized share capital                                                                                         
|--- | -----------------------------------------------------------------------------------------------------------------
|    |                                                                                                                  
|    | The Company's authorized share capital consists of an
      unlimited number of common shares, without par value.
|    |                                                                                                                  
|(b) | Issued and outstanding common
  shares                                                                           

| |                                                                          |  |       |  |  | Number of  |   |   |             |  
| | ------------------------------------------------------------------------ |  | ----- |  |  | ---------- | - | - | ----------- | -
| | Common shares
      issued:                                              |  | Price |  |  | Shares     |   |   | Amount      |  
| | Balance, December 31, 2003                                               |  |       |  |  | 31,733,318 |   |   | 21,064,437  |  
| | Private placement March 2004, net of issue
      costs                   |  | 8.00  |  |  | 2,750,000  |   |   | 21,905,914  |  
| | Private placement August 2004,
      net of issue costs                  |  | 3.55  |  |  | 2,816,902  |   |   | 9,800,333   |  
| | Share purchase options exercised                                         |  | 0.40  |  |  | 88,750     |   |   | 35,500      |  
| | Share purchase options
      exercised                                   |  | 0.50  |  |  | 106,500    |   |   | 53,250      |  
| | Share purchase options exercised                                         |  | 0.75  |  |  | 70,000     |   |   | 52,500      |  
| | Share purchase options
      exercised                                   |  | 1.18  |  |  | 10,000     |   |   | 11,800      |  
| | Share purchase options exercised                                         |  | 5.00  |  |  | 33,999     |   |   | 169,995     |  
| | Property option payments                                                 |  | 6.65  |  |  | 1,772,725  |   |   | 11,788,621  |  
| | Warrants exercised                                                       |  | 0.60  |  |  | 30,000     |   |   | 18,000      |  
| | Warrants exercised                                                       |  | 0.90  |  |  | 6,944,445  |   |   | 6,250,000   |  
| | Warrants exercised                                                       |  | 1.15  |  |  | 500,000    |   |   | 575,000     |  
| | Warrants exercised                                                       |  | 4.65  |  |  | 821,875    |   |   | 3,821,719   |  
| | Replacement of lost certificate                                          |  |       |  |  | 11,905     |   |   |            |  
| | Fair value of stock options allocated to
      shares issued on exercise |  |       |  |  |           |   |   | 562,492     |  
| | Balance, December 31, 2004                                               |  |       |  |  | 47,690,419 |   |   | 76,109,561  |  
| | Private placement March 2005,
      net of issue costs (ii)              |  | 4.25  |  |  | 7,247,000  |   |   | 29,209,019  |  
| | Share purchase options exercised                                         |  | 0.75  |  |  | 25,000     |   |   | 18,750      |  
| | Share purchase options
      exercised                                   |  | 0.94  |  |  | 50,000     |   |   | 47,000      |  
| | Share purchase options exercised                                         |  | 1.18  |  |  | 3,000      |   |   | 3,540       |  
| | Share purchase options
      exercised                                   |  | 2.30  |  |  | 7,500      |   |   | 17,250      |  
| | Share purchase options exercised                                         |  | 2.35  |  |  | 315,000    |   |   | 740,250     |  
| | Share purchase options
      exercised                                   |  | 5.00  |  |  | 1,287,001  |   |   | 6,435,005   |  
| | Share purchase options exercised                                         |  | 5.05  |  |  | 38,000     |   |   | 191,900     |  
| | Share purchase options
      exercised                                   |  | 5.31  |  |  | 3,334      |   |   | 17,704      |  
| | Warrants exercised                                                       |  | 0.60  |  |  | 10,000     |   |   | 6,000       |  
| | Warrants exercised
      (i)                                             |  | 4.15  |  |  | 2,176,902  |   |   | 9,034,143   |  
| | Warrants exercised (ii)                                                  |  | 5.00  |  |  | 261,656    |   |   | 1,308,280   |  
| | Common shares issued upon
      property acquisition (note 6(a))         |  | 5.03  |  |  | 977,795    |   |   | 4,918,309   |  
| | Fair
      value of stock options allocated to shares issued on exercise |  |       |  |  |           |   |   | 4,305,238   |  
| | Balance, December 31, 2005                                               |  |       |  |  | 60,092,607 |   |   | 132,361,949 |  
| | Share purchase options exercised                                         |  | 4.50  |  |  | 19,932     |   |   | 89,694      |  
| | Share purchase options
      exercised                                   |  | 4.65  |  |  | 100,000    |   |   | 465,000     |  
| | Share purchase options exercised                                         |  | 5.00  |  |  | 1,897,500  |   |   | 9,487,500   |  
| | Share purchase options
      exercised                                   |  | 5.31  |  |  | 99,932     |   |   | 530,639     |  
| | Share purchase options exercised                                         |  | 5.40  |  |  | 64,933     |   |   | 350,638     |  
| | Share purchase options
      exercised                                   |  | 7.25  |  |  | 22,498     |   |   | 163,111     |  
| | Warrants exercised, net of issue costs of
      $922,550 (ii)            |  | 5.00  |  |  | 6,985,344  |   |   | 34,004,171  |  
| | Common shares issued pursuant
      to share purchase agreement, net of  |  |       |  |  |            |   |   |             |  
| | issue costs of $14,040 (iii)                                             |  | 10.00 |  |  | 8,745,845  |   |   | 87,444,410  |  
| | Common shares issued upon
      acquisition (note 6(a)(ii))              |  |       |  |  | 14,002,268 |   |   | 89,194,447  |  
| | Common shares returned to treasury                                       |  |       |  |  | (345,340   | ) |   | (1,772,776  | )
| | Fair value of stock options allocated to
      shares issued on exercise |  |       |  |  |           |   |   | 5,045,304   |  
| | Balance, December 31, 2006                                               |  |       |  |  | 91,685,519 |   | $ | 357,364,087 |  

---

|NORTHERN DYNASTY MINERALS LTD.                      
|----------------------------------------------------
|Notes to Consolidated Financial Statements          
|For the years ended December 31, 2006, 2005 and 2004
|(Expressed in Canadian
      Dollars)               

| | (i)   | In August 2004, the Company completed a private placement
      consisting of 2,816,902 units at a price of $3.55 per unit. Each unit was
      comprised of one common share and one warrant exercisable to purchase one
      additional common share at a price of $4.15 until August 5,
2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | ----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | (ii)  | In March 2005, the Company completed a private placement
      consisting of 7,247,000 units at a price of $4.25 per unit. Each unit was
      comprised of one common share and one warrant exercisable to purchase one
      additional common share at a price of $5.00 until September 18,
    2006.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | (iii) | In July 2006, the Company issued 8,745,845 common shares
      in connection with a share purchase agreement with Kennecott Canada
      Exploration Inc. (Kennecott), a subsidiary of Rio Tinto plc, for $10.00
      per share. Kennecott has a right of first refusal to participate in up to
      50% of future share placements by the Company, subject to customary
      exceptions, until Kennecott reaches 19.9% of the Companys outstanding
      share capital. The right thereafter continues as a 19.9% right until
      Kennecott either fails to take up any offered allotment or the fifth
      anniversary of the agreement, whichever occurs first. Subsequent to
      December 31, 2006, Rio Tinto, through its subsidiary QIT-Fer Et Titane
      Inc., purchased 9.4 million common shares of Northern Dynasty from a
      significant shareholder of the Company to bring its share ownership to
      approximately 19.79%.

|(c) | Share purchase warrants                                                                                                                       
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                               
|    | The continuity of share purchase warrants (each warrant
      exercisable for one common share) for the year ended December 31, 2006
      is:

Exercise
      
      Dec 31
      
      
      
      
      
      Expired/
      
      Dec. 31Expiry date
      price
      
      2005
      
      Issued
      
      Exercised
      
      cancelled
      
      2006Sept. 18, 2006
      $ 5.00
      
      6,985,344
      
      
      
      (6,985,344
      )
      
      
      Weighted
        average exercise price
      
      
      5.00
      
      $     
      
      $ 5.00
      
      $     
      
      $     


The continuity of share purchase
warrants (each warrant exercisable for one common share) for the year ended
December 31, 2005 is:

Exercise
      
      Dec. 31
      
      
      
      
      
      Expired/
      
      Dec. 31Expiry date
      price
      
      2004
      
      Issued
      
      Exercised
      
      cancelled
      
      2005January 14, 2005
      $ 0.60
      
      10,000
      
      
      
      (10,000
      )
      
      
      March 16, 2005
      $ 9.00
      
      553,125
      
      
      
      
      
      (553,125
      )
      August 5, 2005
      $ 4.15
      
      2,816,902
      
      
      
      (2,176,902
      )
      (640,000
      )
      Sept. 18, 2006
      $ 5.00
      
      
      
      7,247,000
      
      (261,656
      )
      
      
      6,985,3443,380,027
      
      7,247,000
      
      (2,448,558
      )
      (1,193,125
      )
      6,985,344Weighted
        average exercise price
      
      
      $ 4.93
      
      $ 5.00
      
      $ 4.23
      
      $ 6.40
      
      $ 5.00


---

|NORTHERN DYNASTY MINERALS LTD.                      
|----------------------------------------------------
|Notes to Consolidated Financial Statements          
|For the years ended December 31, 2006, 2005 and 2004
|(Expressed in Canadian
      Dollars)               

|(d) | Share purchase option compensation plan                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    | The Company has a share option plan approved by the
      shareholders that allows it to grant options, subject to regulatory terms
      and approval, to its directors, employees, officers, and
    consultants.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    | A new share option plan was approved by the Board and by
      the shareholders in June 2006. The new share option plan (the "2006
      Rolling Option Plan") is based on the maximum number of eligible shares
      equaling a rolling percentage of up to 10% of the Company's outstanding
      common shares, calculated from time to time. Pursuant to the 2006 Rolling
      Option Plan, if outstanding options are exercised, or expire, and/or the
      number of issued and outstanding common shares of the Company increases,
      then the options available to grant under the plan increase
      proportionately. The exercise price of each option is set by the Board of
      Directors at the time of grant but cannot be less than the market price
      (less permissible discounts). 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 options is at the discretion of the Board of Directors
      at the time the options are granted.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    | The continuity of share purchase options for the year
      ended December 31, 2006 is:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

| |                                       | Exercise | Dec 31    |           |             | Expired
      / | Dec. 31  
| | ------------------------------------- | -------- | --------- | --------- | ----------- | --------------- | ---------
| | Expiry date                           | price    | 2005      | Granted   | Exercised   | cancelled       | 2006     
| | November 30, 2006                     | $ 4.65   | 100,000   |          | (100,000)   |                |         
| | November 30, 2006                     | $ 5.00   | 1,897,500 |          | (1,897,500) |                |         
| | September 28, 2007                    | $ 5.40   | 150,000   |          | (64,933)    |                | 85,067   
| | November 30, 2007                     | $ 4.50   | 170,000   |          | (19,932)    |                | 150,068  
| | November 30, 2007                     | $ 5.31   | 641,666   |          | (99,932)    | (26,668)        | 515,066  
| | December 14, 2007                     | $ 5.37   | 15,000    |          |            |                | 15,000   
| | April 30, 2009                        | $ 7.25   |          | 471,500   | (22,498)    | (38,332)        | 410,670  
| | April 30, 2009                        | $ 9.81   |          | 62,500    |            |                | 62,500   
| | April 30, 2011                        | $ 7.25   |          | 1,125,000 |            |                | 1,125,000
| |                                       |          | 2,974,166 | 1,659,000 | (2,204,795) | (65,000)        | 2,363,371
| |                                       |          |           |           |             |                 |          
| | Weighted
      average exercise price | $ 5.05   | $ 7.35    | $ 5.03    | $ 6.45      | $ 6.64         

---

|NORTHERN DYNASTY MINERALS LTD.                      
|----------------------------------------------------
|Notes to Consolidated Financial Statements          
|For the years ended December 31, 2006, 2005 and 2004
|(Expressed in Canadian
      Dollars)               

The continuity of share purchase
options for the year ended December 31, 2005 is:

| |                                 | Exercise | Dec. 31   |         |             | Expired
      / | Dec. 31  
| | ------------------------------- | -------- | --------- | ------- | ----------- | --------------- | ---------
| | Expiry date                     | price    | 2004      | Granted | Exercised   | cancelled       | 2005     
| | May 9, 2005                     | $ 0.75   | 25,000    |        | (25,000)    |                |         
| | July 29, 2005                   | $ 0.94   | 50,000    |        | (50,000)    |                |         
| | July 29, 2005                   | $ 1.18   | 3,000     |        | (3,000)     |                |         
| | July 29, 2005                   | $ 2.35   | 315,000   |        | (315,000)   |                |         
| | September 19, 2005              | $ 2.30   | 7,500     |        | (7,500)     |                |         
| | November 30, 2005               | $ 5.00   | 1,469,334 |        | (1,241,000) | (228,334)       |         
| | November 30, 2005               | $ 5.05   | 38,000    |        | (38,000)    |                |         
| | November 30, 2006               | $ 4.65   | 100,000   |        |            |                | 100,000  
| | November 30, 2006               | $ 5.00   | 2,192,000 |        | (46,001)    | (248,499)       | 1,897,500
| | September 28, 2007              | $ 5.40   |          | 150,000 |            |                | 150,000  
| | November 30, 2007               | $ 4.50   |          | 170,000 |            |                | 170,000  
| | November 30, 2007               | $ 5.31   |          | 655,000 | (3,334)     | (10,000)        | 641,666  
| | December 14, 2007               | $ 5.37   |          | 15,000  |            |                | 15,000   
| |                                 |          | 4,199,834 | 990,000 | (1,728,835) | (486,833)       | 2,974,166
| |                                 |          |           |         |             |                 |          
| | Weighted average exercise price | $ 4.71   | $ 5.19    | $ 4.32  | $ 5.01      | $ 5.05         

The exercise prices of all share
purchase options granted during the year were equal to the market price at the
grant date. Using an option pricing model with the assumptions noted below, the
estimated fair value of all options granted during 2006 and 2005 have been
reflected in the statements of operations as follows:

| |                                             |   | Years ended December 31 | 
| | ------------------------------------------- | - | ----------------------- | 
| |                                             |   | 2006                    | 
| | Exploration                                 |   |                         | 
| | Engineering                                 | $ | 636,927                 | 
| | Environmental, socioeconomic and land       |   | 224,466                 | 
| | Geological                                  |   | 1,020,985               | 
| |                                             |   | 1,882,378               | 
| | Operations and administration               |   | 4,162,686               | 
| | Total compensation cost recognized in       |   |                         | 
| | operations, credited to contributed surplus | $ | 6,045,064               | 

The weighted average assumptions used
to estimate the fair value of options granted during the period were:

| |                         | 2006          | 2005          | 2004         
| | ----------------------- | ------------- | ------------- | -------------
| | Risk-free interest rate | 4%            | 3%            | 3%           
| | Expected life           | 4.4 years     | 2.5 years     | 2.2 years    
| | Vesting period          | 0  24 months | 0  18 months | 0  18 months
| | Expected volatility     | 52%           | 60%           | 80%          
| | Expected dividend yield | nil           | nil           | 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 Company's share purchase options.

---

|NORTHERN DYNASTY MINERALS LTD.                      
|----------------------------------------------------
|Notes to Consolidated Financial Statements          
|For the years ended December 31, 2006, 2005 and 2004
|(Expressed in Canadian
      Dollars)               

|(e) | Contributed surplus
|--- | -------------------

| | Contributed surplus, December 31, 2003                                   | $ | 1,688,335  |  
| | ------------------------------------------------------------------------ | - | ---------- | -
| | Changes during 2004                                                      |   |            |  
| | Non-cash stock-based
      compensation                                  |   | 6,378,877  |  
| | Fair
      value of stock options allocated to shares issued on exercise |   | (562,492   | )
| | Contributed surplus, December 31, 2004                                   |   | 7,504,720  |  
| | Changes during 2005                                                      |   |            |  
| | Non-cash stock-based
      compensation                                  |   | 4,089,895  |  
| | Fair
      value of stock options allocated to shares issued on exercise |   | (4,305,238 | )
| | Contributed surplus, December 31, 2005                                   |   | 7,289,377  |  
| | Changes during 2006                                                      |   |            |  
| | Non-cash stock-based
      compensation                                  |   | 6,045,064  |  
| | Common shares returned to treasury (note
      6(a)(ii))                 |   | 1,772,776  |  
| | Fair value of stock options allocated to
      shares issued on exercise |   | (5,045,304 | )
| | Contributed
      surplus, December 31, 2006                             | $ | 10,061,913 |  

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

| |                                             |   | Years
      ended December 31, | 
| | ------------------------------------------- | - | ------------------------------ | 
| | Transactions                                |   | 2006                           | 
| | Services rendered and expenses reimbursed   |   |                                | 
| | Hunter Dickinson Inc. (a)                   | $ | 3,728,221                      | 
| | Hunter Dickinson Group Inc. (b)             |   |                               | 
| | Sidev Holdings Ltd. (c)                     |   | 176,138                        | 
| | Brian Mountford & Associates
      Ltd. (d) |   |                               | 
| | Galahad Gold plc (e)                        |   | 31,355                         | 
| | Shambala Gold plc (e)                       |   |                               | 
| | Beattie Consulting Ltd. (f)                 |   | 1,950                          | 
| | Gordon J. Fretwell Law Corporation (g)      |   | 16,050                         | 

| | Balances receivable (payable)               |   | At December 31, 2006 |  |   | At December 31, 2005 |  
| | ------------------------------------------- | - | -------------------- |  | - | -------------------- | -
| | Hunter Dickinson Inc. (a)                   | $ | 192,480              |  | $ | 451,560              |  
| | Hunter Dickinson Group Inc. (b)             |   |                     |  |   | (3,200               | )
| | Northern Dynasty director and employees (h) |   | 3,740,000            |  |   |                     |  
| |                                             | $ | 3,932,480            |  | $ | 448,360              |  

| | (a) | Hunter Dickinson Inc. ("HDI") is a private company owned
      equally by nine public companies, one of which is Northern Dynasty. HDI
      has certain directors in common with the Company and provides geological,
      corporate development, administrative and management services to, and
      incurs third party costs on behalf of, the Company and its subsidiaries on
      a full cost recovery basis pursuant to an agreement dated December 31,
      1996. Balances payable to HDI from time to time result from advances by
      HDI to the Company and from services rendered to, but not yet paid for by,
      the Company.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | (b) | Hunter Dickinson Group Inc. (HDGI) was a private
      company with certain directors in common that provided consulting services
      to the Company. The balances payable to HDGI resulted from the services
      rendered to, but not yet paid for by, the
Company.                                                                                                                                                                                                                                                                                                                                                                        

---

|NORTHERN DYNASTY MINERALS LTD.                      
|----------------------------------------------------
|Notes to Consolidated Financial Statements          
|For the years ended December 31, 2006, 2005 and 2004
|(Expressed in Canadian
      Dollars)               

| |     | In October 2001, the Company was assigned an 80% interest
      in two options granted by Teck Cominco to HDGI in respect of Teck
      Comincos "Pebble" gold-copper- molybdenum property in southwestern Alaska
      (note 6(a)).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |     | In May 2006, the Company completed the acquisition of the
      20% remaining contractual interest in the Pebble Property from
  HDGI                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | (c) | During the year ended December 31, 2006, the Company paid
      $176,138 (year ended December 31, 2005  $203,225) to Sidev Holdings Ltd.,
      a private company controlled by the Chief Operating Officer and a director
      of Northern Dynasty Mines Inc., a wholly owned private USA subsidiary of
      the Company, for project management services.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | (d) | During the year ended December 31, 2006, the Company paid
      $nil (year ended December 31, 2005  $112,000) to Brian Mountford &
      Associates Ltd., a private company controlled by a then director of the
      Company, and former President and director of Northern Dynasty Mines Inc.,
      a wholly owned private USA subsidiary of the Company. Payments made in
      fiscal 2005 were for engineering and project management services and for
      his services as an officer of the Company, from which positions he
      resigned at the end of June 2005. Mr. Mountford also served as a
      consultant to Galahad Gold plc and its wholly owned subsidiary Shambhala
      Gold plc, which are significant shareholders of the Company at December
      31, 2006.                                                                                                                                                                                                                                                                                 
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | (e) | During the year ended December 31, 2006, the Company paid
      $nil (year ended December 31, 2005  $124,998) to Shambhala Gold plc, (a
      subsidiary of Galahad Gold plc) for engineering and project management
      services provided by Mr. Mountford to the Company. During the year ended
      December 31, 2006, the Company was charged $31,335 (year ended December
      31, 2005  $47,421) by Galahad Gold plc, a significant shareholder of the
      Company at December 31, 2006 with a director in common, for travel
      expenses.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | (f) | During the year ended December 31, 2006, the Company paid
      $1,950 (period August 2, 2005 to December 31, 2005  $11,835) to Beattie
      Consulting Ltd., a private company controlled by a then director of
      Northern Dynasty Minerals Ltd.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | (g) | During the year ended December 31, 2006, the Company paid
      $16,050 (year ended December 31, 2005  nil) to Gordon J. Fretwell Law
      Corporation, a private company controlled by a director of Northern
      Dynasty Minerals Ltd.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | (h) | On November 30, 2006, the Company received irrevocable
      notifications of exercise from holders of 748,000 common share purchase
      options. Under the Company's incentive option plan, as amended, the
      persons exercising these options were permitted to defer paying to the
      Company the required exercise proceeds of $5.00 per share for a period up
      until 10 days after an internally imposed share trading blackout period
      applicable to these persons has been lifted (but within 90 days in any
      event unless a regulatory approval for an further extension is obtained).
      The blackout was imposed on account of their involvement in certain
      sensitive negotiations. The common share certificates in respect of these
      exercised options are held by the Company and will not be released until
      the required cash payment has been received. Subsequent to December 31,
      2006, the blackout was lifted and the cash payment relating to the
      exercised options were received by the
Company.

---

|NORTHERN DYNASTY MINERALS LTD.                      
|----------------------------------------------------
|Notes to Consolidated Financial Statements          
|For the years ended December 31, 2006, 2005 and 2004
|(Expressed in Canadian
      Dollars)               

|9. | INCOME TAXES                                                                                                                                                                                                              
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                           
|   | Substantially all the difference between the actual
      income tax recovery of $2,602,583 and the expected income tax recovery
      based on statutory tax rates relates to the benefit of losses not
      recognized.
|   |                                                                                                                                                                                                                           
|   | As at December 31, 2006 the tax effect of the significant
      components within the Companys future tax asset (liability) were as
      follows:                                                                       

| |                                                               |   | December 31 |   |   | December 31 |  
| | ------------------------------------------------------------- | - | ----------- | - | - | ----------- | -
| |                                                               |   | 2006        |   |   | 2005        |  
| | Future income tax assets (liabilities)                        |   |             |   |   |             |  
| | Resource pools                                                | $ | 56,888,000  |   | $ | 36,141,000  |  
| | Loss carry forwards                                           |   | 3,800,000   |   |   | 2,980,000   |  
| | Equipment                                                     |   | 110,000     |   |   | 60,000      |  
| | Other                                                         |   |            |   |   | 120,000     |  
| | Subtotal                                                      |   | 60,798,000  |   |   | 39,301,000  |  
| | Valuation allowance                                           |   | (59,432,099 | ) |   | (39,301,000 | )
| | Net future income tax asset                                   | $ | 1,365,901   |   | $ |            |  
| |                                                               |   |             |   |   |             |  
| | Acquisition of HDGI  Excess of book value of
      mineral   |   | (62,238,565 | ) |   |             |  
| | property over tax value                                       |   |             |   |   |            |  
| | Sale of NDM Exploration and Resource Lands
      shares      |   | (728,405    | ) |   |             |  
| | Excess of
      book value of mineral property over tax value |   |             |   |   |             |  
| | Net future income
      tax liability                         | $ | (61,601,069 | ) | $ |            |  

Income tax expense differs from the
amount that would result from applying the Canadian federal and provincial tax
rates to earnings before income taxes. These differences result from the
following items:

| |                                                               |   | December 31 |   |   | December 31 |  
| | ------------------------------------------------------------- | - | ----------- | - | - | ----------- | -
| |                                                               |   | 2006        |   |   | 2005        |  
| | Combined Canadian federal and provincial
      statutory rate |   | 34.12%      |   |   | 34.87%      |  
| |                                                               |   |             |   |   |             |  
| | Income tax at statutory rates                                 | $ | (20,138,000 | ) | $ | (17,546,000 | )
| | Non-deductible items                                          |   | 2,098,000   |   |   | 1,435,000   |  
| | Reduction in statutory tax rates                              |   | 360,000     |   |   | 126,000     |  
| | Difference in foreign tax rates                               |   | (3,620,000  | ) |   | (2,734,000  | )
| | Change in valuation allowance                                 |   | 20,131,099  |   |   | 18,991,000  |  
| | Other                                                         |   | 531,405     |   |   | (272,000    | )
| | Income tax recovery                                           | $ | (637,496    | ) | $ |            |  

At December 31, 2006, the Company had
available losses for income tax purposes in Canada totaling approximately $9.4
million (2005  $7.5 million), expiring in various years from 2007 to 2026.

The Company has capital losses
available of $156,713 (2005  $nil), which can be used to offset future capital
gains.

The Company has approximately $151.9
million (2005  $104.9 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 Company has
approximately $148.9 million (2005  $102.9 million) of resource tax pools
available, which may be used to shelter certain resource income in the United
States.

---

|NORTHERN DYNASTY MINERALS LTD.                      
|----------------------------------------------------
|Notes to Consolidated Financial Statements          
|For the years ended December 31, 2006, 2005 and 2004
|(Expressed in Canadian
      Dollars)               

|10. | SUBSEQUENT EVENTS                            
|--- | ---------------------------------------------
|    |                                              
|    | Subsequent to December 31, 2006, the Company:
|    |                                              
|    | •                                            
|    | •                                            
|    | •                                            

---

|NORTHERN DYNASTY MINERALS LTD.                      
|----------------------------------------------------
|Notes to Consolidated Financial Statements          
|For the years ended December 31, 2006, 2005 and 2004
|(Expressed in Canadian
      Dollars)               

|11. | DIFFERENCES BETWEEN CANADIAN AND UNITED STATES
      GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    | The consolidated financial statements have been prepared
        in accordance with Canadian generally accepted accounting principles (Canadian
        GAAP), which differ in certain material respects from those principles
        that the Company would have followed had its consolidated financial statements
        been prepared in accordance with United States generally accepted accounting
        principles (US GAAP). Had the Company followed US GAAP, certain
        items on the statements of loss and deficit, and balance sheets would
        have been reported as follows:

| | Total
      assets                      |   | 2006        |  |   | 2005       | 
| | --------------------------------------- | - | ----------- |  | - | ---------- | 
| | Total assets under US and Canadian GAAP | $ | 266,967,259 |  | $ | 31,296,012 | 

| | Total
      liabilities                      |   | 2006       |  |   | 2005      | 
| | -------------------------------------------- | - | ---------- |  | - | --------- | 
| | Total liabilities under US and Canadian GAAP | $ | 69,440,441 |  | $ | 3,161,012 | 

| | Total share
      capital and contributed surplus                            |   | 2006        |  |   | 2005        | 
| | ---------------------------------------------------------------------------- | - | ----------- |  | - | ----------- | 
| | Total share capital and contributed surplus under US and
      Canadian GAAP | $ | 367,426,000 |  | $ | 139,651,326 | 

| | Total
      deficit                      |   | 2006        |  |   | 2005        | 
| | ---------------------------------------- | - | ----------- |  | - | ----------- | 
| | Total deficit under US and Canadian GAAP | $ | 169,899,182 |  | $ | 111,516,326 | 

| | Loss for the
      year                        |   | 2006        |   |   | 2005        |   |   | 2004        |  
| | ---------------------------------------------- | - | ----------- | - | - | ----------- | - | - | ----------- | -
| | Loss for the year under Canadian GAAP          | $ | (58,382,856 | ) | $ | (50,317,831 | ) | $ | (41,698,647 | )
| | Other comprehensive income                     |   |             |   |   |             |   |   |             |  
| | Mark-to-market adjustment on
      shares of   |   |             |   |   |             |   |   |             |  
| | Taseko
      Mines Limited (a)                 |   |            |   |   |            |   |   | 169,140     |  
| | Realization on prior year
      mark-to-market |   |             |   |   |             |   |   |             |  
| | adjustment (a)                                 |   |            |   |   | (169,140    | ) |   |            |  
| | Comprehensive loss for the year under US GAAP  | $ | (58,382,856 | ) | $ | (50,486,971 | ) | $ | (41,529,507 | )
| |                                                |   |             |   |   |             |   |   |             |  
| | Loss per share under US GAAP                   | $ | (0.75       | ) | $ | (0.90       | ) | $ | (1.04       | )
| |                                                |   |             |   |   |             |   |   |             |  
| | Comprehensive loss per share under US GAAP     | $ | (0.75       | ) | $ | (0.90       | ) | $ | (1.04       | )

|    | There are no material differences between Canadian GAAP
      and US GAAP in the consolidated statements of cash flows for the years
      ended December 31, 2006, 2005, and 2004.                                                                                                                                                                                                             
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                 
|(a) | Available-for-sale securities                                                                                                                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                 
|    | US GAAP requires investments in available-for-sale
      securities to be recorded at fair value in accordance with SFAS 115,
      "Accounting for Certain Investments in Debt and Equity Securities".
      Unrealized gains are recorded as "other comprehensive income" and the
      cumulative balance of these amounts is recorded as a separate component of
      shareholders equity.

---

|NORTHERN DYNASTY MINERALS LTD.                      
|----------------------------------------------------
|Notes to Consolidated Financial Statements          
|For the years ended December 31, 2006, 2005 and 2004
|(Expressed in Canadian
      Dollars)               

|    | US GAAP requires the Company to present comprehensive
      income in accordance with SFAS 130, "Reporting Comprehensive
      Income", which establishes standards for the reporting and display of
      comprehensive income, its components and accumulated balances.
      Comprehensive income comprises net income and all changes to shareholders
      equity except those resulting from investments by owners and distributions
      to owners.                                                                                                  
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | Under US GAAP, the Company's investment in marketable
      securities, namely its holdings of common shares of Taseko Mines Limited,
      would have a mark-to-market adjustment of $nil (2004  $169,140) to
      reflect their market value of $363,906 at December 31, 2005. No such
      adjustment would be recorded under Canadian GAAP.                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | In April 2005, the Canadian Institute of Chartered
      Accountants ("CICA") issued new and amended accounting standards for
      recognition, measurement and disclosure of financial instruments, hedges
      and comprehensive income. One of the new standards requires companies to
      present comprehensive income and its components, as well as net income, in
      their financial statements. The new standards are effective for interim
      and annual financial statements for fiscal years beginning on or after
      October 1, 2006.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|(b) | Impact of recent United States accounting
      pronouncements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

| | (i)   | In March 2004, the Emerging Issues Task Force (EITF)
      issued EITF 04-3, Mining Assets: Impairment and Business
      Combinations. EITF 04-3 requires mining companies to consider cash
      flows related to the economic value of mining assets (including mineral
      properties and rights) beyond those assets proven and probable reserves,
      as well as anticipated market price fluctuations, when assigning value in
      a business combination in accordance with SFAS 141 and when testing the
      mining assets for impairment in accordance with SFAS 144. EITF 04-3 is
      effective for fiscal periods beginning after March 31, 2004. The adoption
      of EITF 04-3 did not have material impact on the Companys financial
      position, results of operations or cash flows.                                                                                                                                                                                                                                                                                                             
| | ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | (ii)  | In December 2004, the FASB issued Statement of Financial
      Accounting Standards (SFAS) No. 153, "Exchanges of Non-Monetary
      Assets - An Amendment of APB Opinion No. 29" ("SFAS 153"). The
      guidance in APB No. 29, "Accounting for Non- Monetary Transactions"
      is based on the principle that exchanges of non-monetary assets should be
      measured based on the fair value of the assets exchanged. The guidance in
      that Opinion, however, included certain exceptions to that principle. SFAS
      153 amends APB No. 29 to eliminate the exception for exchanges of similar
      productive assets and replaces it with a general exception for exchanges
      of non-monetary assets that do not have commercial substance. A
      non-monetary exchange has commercial substance if the future cash flows of
      the entity are expected to change significantly as a result of the
      exchange. SFAS 153 was effective for the Companys 2006 fiscal year. The
      adoption of SFAS 153 had no impact the Companys financial position,
      results of operations or cash flows.
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | (iii) | In March 2005, the EITF issued EITF 04-6, "Accounting for
      Stripping Costs in the Mining Industry". The consensus indicated that
      costs of removing overburden and waste materials ("stripping costs") after
      production begins, represent variable production costs and should be
      considered a component of mineral inventory cost subject to the guidance
      in Chapter 4 of Accounting Research Bulletin No. 43, "Restatement and
      Revision of                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

---

|NORTHERN DYNASTY MINERALS LTD.                      
|----------------------------------------------------
|Notes to Consolidated Financial Statements          
|For the years ended December 31, 2006, 2005 and 2004
|(Expressed in Canadian
      Dollars)               

| |      | Accounting Research Bulletins". EITF 04-6 is effective
      for fiscal years beginning after December 15, 2005 and upon adoption, can
      be applied by either retroactively restating prior periods or using a
      cumulative catch-up adjustment. The adoption of this Statement had no
      impact the Companys financial position, results of operations or cash
      flows.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | (iv) | In June 2005, the FASB issued SFAS No. 154, Accounting
      Changes and Error Corrections, a replacement of APB Opinion No. 20,
      Accounting Changes, and FASB Statement No. 3, Reporting
      Accounting Changes in Interim Financial Statements. SFAS 154 requires
      retrospective application to prior periods financial statements of a
      change in accounting principle unless it is impracticable to do so. This
      is a change from the existing practice that requires most accounting
      changes to be accounted for by including in net income in the period of
      the change the cumulative effect of changing to the new accounting
      principle. SFAS 154 will be effective for accounting changes and
      corrections of errors made in fiscal years beginning after December 15,
      2005. The impact of SFAS 154 cannot be determined until such time as the
      Company makes a change in accounting policy.
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | (v)  | In June 2006, FASB issued Financial Interpretation No.
      48, Accounting for Uncertainty in Income Taxes - An Interpretation of
      SFAS Statement No. 109. This interpretation provides guidance on
      recognition and measurement of uncertainties in income taxes and is
      effective for the Companys 2007 fiscal year end. The Company does not
      expect the adoption of this Interpretation to have a significant effect on
      the Companys results of operations or financial position.                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | (vi) | In September 2006, the US Securities and Exchange
      Commission issued Staff Accounting Bulletin No. 108 which provides
      guidance on the consideration of the effects of prior year misstatements
      in quantifying misstatements in current year financial statements. This
      guidance is applicable for annual statements ending after November 15,
      2006. The Company does not expect the adoption of this interpretation to
      impact the Companys results of operations or financial
  position.                                                                                                                                                                                                                                                                                                                                                                                                                                 

---