EX-99.1 2 exhibit99-1.htm EXHIBIT 99.1 Northern Dynasty Minerals Ltd. - Exhibit 99.1 - Filed by newsfilecorp.com

 

 

 

 


 

 

CONDENSED CONSOLIDATED INTERIM
FINANCIAL STATEMENTS

 

THREE AND NINE MONTHS ENDED
SEPTEMBER 30, 2013

 

 

(Expressed in thousands of Canadian Dollars)

(Unaudited)


Northern Dynasty Minerals Ltd.
Condensed Consolidated Interim Statements of Financial Position
(Unaudited - Expressed in thousands of Canadian Dollars)

          September 30     December 31  
    Notes     2013     2012  
                   
ASSETS                  
                   
Non-current assets                  
   Investment in the Pebble Limited Partnership   3   $  102,870   $  99,336  
   Exploration and evaluation assets   4     1,055     1,055  
Total non-current assets         103,925     100,391  
                   
Current assets                  
   Amounts receivable from a related party   8         3  
   Amounts receivable and prepaid expenses   5     5,505     5,003  
   Cash and cash equivalents   6     22,539     27,537  
Total current assets         28,044     32,543  
           
Total Assets       $  131,969   $  132,934  
                   
EQUITY                  
                   
Capital and reserves                  
   Share capital   7   $  389,227   $  389,189  
   Reserves         55,168     51,129  
   Deficit         (316,536 )   (311,425 )
Total Equity         127,859     128,893  
                   
LIABILITIES                  
                   
Non-current liabilities                  
   Deferred income taxes         3,760     3,632  
Total non-current liabilties         3,760     3,632  
                   
Current liabilities                  
   Payable to a related party   8     19     148  
   Trade and other payables   9     331     261  
Total current liabilities         350     409  
                   
Total Liabilities         4,110     4,041  
                   
Total Equity and Liabilities       $  131,969   $  132,934  

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

These condensed consolidated interim financial statements are authorized for issue by the Board of Directors on November 7, 2013. They are signed on the Company's behalf by:

/s/ Ronald W. Thiessen /s/ Peter Mitchell
   
Ronald W. Thiessen Peter Mitchell
Director Director

Page 2


Northern Dynasty Minerals Ltd.
Condensed Consolidated Interim Statements of Comprehensive (Income) Loss
(Unaudited - Expressed in thousands of Canadian Dollars, except for share information)

      Three months ended September 30     Nine months ended September 30  
  Notes   2013     2012     2013     2012  
                           
Expenses                          
 Exploration and evaluation expenses 11   270     1,255   $  915   $  3,798  
 General and administrative expenses 11   1,552     2,472     4,435     4,704  
 Share-based compensation         1,260     641     4,739  
Loss from operating activities     1,822     4,987     5,991     13,241  
 Foreign exchange loss (gain)     114     136     (157 )   131  
 Interest income     (234 )   (240 )   (723 )   (654 )
Loss before tax     1,702     4,883     5,111     12,718  
 Income tax recovery         (2 )       (2 )
Loss for the period   $  1,702   $  4,881   $  5,111   $  12,716  
                           
Other comprehensive loss (income)                          
Items that may be reclassified subsequently to loss                          
 Exchange difference arising on translation of investment in
     the Pebble Limited Partnership
3, 7 (c)   2,147     3,484     (3,534 )   3,374  
 Deferred income tax on investment 7 (c)   (79 )   (128 )   128     (124 )
Other comprehensive loss (income) for the period   $  2,068   $  3,356   $  (3,406 ) $  3,250  
                           
Total comprehensive loss for the period   $  3,770   $  8,237   $  1,705   $  15,966  
                           
Basic and diluted loss per common share 10 $  0.02   $  0.05   $  0.05   $  0.13  

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

Page 3


Northern Dynasty Minerals Ltd.
Condensed Consolidated Interim Statements of Cash Flows
(Unaudited - Expressed in thousands of Canadian Dollars)

      Nine months ended September 30  
  Notes   2013     2012  
               
Cash flows from operating activities              
   Loss for the period   $  (5,111 ) $  (12,716 )
   Adjustments for items not affecting cash or operating activities:              
       Foreign exchange gain     (161 )   142  
       Income tax recovery         (2 )
       Interest received on cash     (354 )   (326 )
       Interest receivable on loan 5 (a)   (369 )   (328 )
       Share-based compensation     641     4,739  
      (243 )   4,225  
   Changes in non-cash working capital items              
       Decrease (increase) in amounts receivable and prepaid expenses     35     (177 )
       Decrease in amounts receivable from a related party     3     483  
       Increase in trade and other payables     70     696  
       (Decrease) increase in payable to related party     (129 )   177  
      (21 )   1,179  
               
Net cash used in operating activities     (5,375 )   (7,312 )
               
Cash flows from investing activity              
   Interest received     354     326  
Net cash from investing activity     354     326  
               
Cash flows from financing activity              
   Common shares issued for cash on exercise of share purchase options     30     85  
Net cash from financing activity     30     85  
               
Net decrease in cash and cash equivalents     (4,991 )   (6,901 )
   Effect of exchange rate fluctuations on cash held     (7 )   6  
   Cash and cash equivalents at beginning of the period     27,537     37,457  
               
Cash and cash equivalents at end of the period 6 $  22,539   $  30,562  

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

Page 4


Northern Dynasty Minerals Ltd.
Condensed Consolidated Interim Statements of Changes in Equity
(Unaudited - Expressed in thousands of Canadian Dollars, except for share information)

    Share capital     Reserves              
                      Foreign                    
                Equity settled     currency                    
                share-based     translation     Investment              
    Number of           payments     reserve     revaluation              
    shares     Amount     reserve     (note 7 (c))   reserve     Deficit     Total equity  
                                           
Balance at January 1, 2012   94,978,764   $  388,987   $  45,664   $  2,470   $  (2 ) $  (295,763 ) $  141,356  
Shares issued for cash on exercise of share purchase options   17,000     85                     85  
Fair value of options allocated to shares issued on exercise       81     (81 )                
Share-based compensation           4,739                 4,739  
Loss for the period                       (12,716 )   (12,716 )
Other comprehensive loss for the period net of tax               (3,250 )           (3,250 )
Balance at September 30, 2012   94,995,764   $  389,153   $  50,322   $  (780 ) $  (2 ) $  (308,479 ) $  130,214  
                                           
Balance at January 1, 2013   94,999,764   $  389,189   $  50,784   $  347   $  (2 ) $  (311,425 ) $  128,893  
Shares issued for cash on exercise of share purchase options   10,100     30                     30  
Fair value of options allocated to shares issued on exercise       8     (8 )                
Share-based compensation           641                 641  
Loss for the period                       (5,111 )   (5,111 )
Other comprehensive income for the period net of tax               3,406             3,406  
Balance at September 30, 2013   95,009,864   $  389,227   $  51,417   $  3,753   $  (2 ) $  (316,536 ) $  127,859  

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

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Northern Dynasty Minerals Ltd.
Notes to the Condensed Consolidated Interim Financial Statements
For the three and nine months ended September 30, 2013 and 2012
(Unaudited – Expressed in thousands of Canadian Dollars, unless otherwise stated, except per share or option)

1.

NATURE AND CONTINUANCE OF OPERATIONS

   

Northern Dynasty Minerals Ltd. (the "Company") is incorporated under the laws of the Province of British Columbia, Canada, and its principal business activity is the exploration of mineral properties. The Company is listed on the Toronto Stock Exchange ("TSX") under the symbol "NDM" and on the New York Stock Exchange-MKT ("NYSE-MKT") (formerly NYSE-AMEX) under the symbol "NAK". The Company’s corporate office is located at 1040 West Georgia Street, 15th floor, Vancouver, British Columbia.

   

The condensed consolidated interim financial statements ("Financial Statements") of the Company as at and for the three and nine months ended September 30, 2013, include financial information for the Company and its subsidiaries (note 2(c)) (together referred to as the "Group" and individually as "Group entities") and the Group’s interest in jointly controlled entities. The Company is the ultimate parent. At September 30, 2013, the Group owned a 50% share in the Pebble Limited Partnership (the "Pebble Partnership") (note 3), which owns the Pebble Copper-Gold-Molybdenum Project (the "Pebble Project") located in Alaska, United States of America ("USA" or "US"). On September 15, 2013, the Company received notice from its 50% partner in the Pebble Partnership that pursuant to the Pebble Limited Partnership agreement (the "Pebble LPA") it is withdrawing from the Pebble Partnership, Pebble Mines Corp. ("PMC") and the Pebble Project (notes 3 and 13).

   

The Group is in the process of exploring and developing the Pebble Project and has not yet determined whether the Pebble Project contains mineral reserves that are economically recoverable. The Group’s continuing operations and the underlying value and recoverability of the amounts shown for the investment in the Pebble Partnership is entirely dependent upon the existence of economically recoverable mineral reserves; the ability of the Group to obtain financing to complete the exploration and development of the Pebble Project (see below); the Group obtaining the necessary permits to mine; and future profitable production or proceeds from the disposition of the Pebble Project. At September 30, 2013, the Group had cash and cash equivalents on hand of $22.5 million for its operating requirements. With the withdrawal of the Group’s partner in the Pebble Partnership (note 3), the Group is currently reviewing all Pebble Partnership programs, timelines and budgets so as to prioritize the allocation of financial resources to advance the Pebble Project in the most efficient manner, following the transfer of control of the Pebble Project to the Group.

   
2.

SIGNIFICANT ACCOUNTING POLICIES


(a)

Statement of Compliance

   

These Financial Statements have been prepared in accordance with IAS 34, Interim Financial Reporting, as issued by the International Accounting Standards Board ("IASB") and interpretations issued by the IFRS Interpretations Committee ("IFRIC"s). They do not include all of the information required by International Financial Reporting Standards ("IFRS") for complete annual financial statements, and should be read in conjunction with the Group’s consolidated financial statements as at and for the year ended December 31, 2012, which were filed under the Company’s profile on SEDAR at www.sedar.com. Accordingly, accounting policies applied other than as noted in (c), (d) and (e) are the same as those applied in the Group’s annual financial statements.

   

Certain comparative amounts have been reclassified to conform to the presentation adopted in the current period.

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Northern Dynasty Minerals Ltd.
Notes to the Condensed Consolidated Interim Financial Statements
For the three and nine months ended September 30, 2013 and 2012
(Unaudited – Expressed in thousands of Canadian Dollars, unless otherwise stated, except per share or option)

(b)

Basis of Preparation

   

These Financial Statements have been prepared on a historical cost basis using the accrual basis of accounting, except for cash flow information and for financial instruments classified as available-for-sale, which are stated at their fair value.

   
(c)

Basis of Consolidation

   

The Group adopted IFRS 10, Consolidated Financial Statements ("IFRS 10"), on January 1, 2013, which replaces parts of IAS 27, Consolidated and Separate Financial Statements that deal with consolidated financial statements, and SIC 12, Consolidation – Special Purpose Entities. IFRS 10 establishes control as the basis for determining which entities are consolidated in an entity’s financial statements. An investor controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. IFRS 10 sets out principles for the presentation and preparation of consolidated financial statements when an entity controls one or more other investees.

   

The Group has determined that the adoption of IFRS 10 does not affect the consolidation status of any of its subsidiaries or investees. These Financial Statements incorporate the financial statements of the Company and its subsidiaries listed below:


      Ownership  
  Name of Subsidiary Place of Incorporation Interest Principal Activity
  3537137 Canada Inc. Canada 100% Holding Group
  0796412 BC Ltd. British Columbia, Canada 100% Not active
  Northern Dynasty Partnership1 Alaska, USA 100% Holding Group
  U5 Resources Inc.2 Nevada, USA 100% Holding Company

  1

Holds 50% interest in Pebble Mines Corp. and 49.95% interest in the Pebble Partnership (note 3). Pebble Mines Corp, the general partner, has a 0.1% ownership interest in the Pebble Partnership.

  2

Holds the claims purchased from Liberty Star (note 4).


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

   
(d)

Joint Arrangements

   

The Group adopted IFRS 11, Joint Arrangements ("IFRS 11"), with effect from January 1, 2013. This standard replaces IAS 31, Interests in Joint Ventures and SIC-13, Jointly Controlled Entities – Non- Monetary Contributions by Venturers. Accordingly, the Group has amended its accounting policy for the classification of arrangements which are subject to joint control. The Group now classifies any such arrangement as a joint operation or joint venture depending on the rights and obligations of the parties to the joint arrangement. For the arrangement to be classified as a joint operation, the parties that have joint control (referred to as "joint operators") have rights to the assets and obligations for the liabilities relating to the arrangement. In such circumstances the Group as a joint operator recognizes its portion of assets, liabilities, revenues and expenses in accordance with the contractual arrangement.

Page 7



Northern Dynasty Minerals Ltd.
Notes to the Condensed Consolidated Interim Financial Statements
For the three and nine months ended September 30, 2013 and 2012
(Unaudited – Expressed in thousands of Canadian Dollars, unless otherwise stated, except per share or option)

For the arrangement to be classified a joint venture, the parties that have joint control (referred to as "joint venturers") have rights to the net assets of the arrangement, which is determined by considering the structure and form of the arrangement, the terms agreed by the parties in the contractual arrangement and other facts and circumstances. When the Group is a joint venturer, it recognizes the joint venture using the equity method of accounting in accordance with IAS 28, Investments in Associates and Joint Ventures (as revised in 2011).

   

The Pebble Partnership

   

The Group reviewed and assessed the structure and legal form, the terms of the contractual arrangement, and other facts and circumstances in relation to its interest in the Pebble Partnership and has determined that, under IFRS 11, its interest in the Pebble Partnership is a joint venture and, hence, will continue to be accounted for under the equity method of accounting until such time the Group no longer jointly controls the Pebble Partnership (see below). The investment is carried in the statement of financial position at cost and adjusted by post-acquisition changes in the Group’s share of the net assets of the joint venture, less any impairment losses. As the Group’s investment is carried in US dollars, the investment is translated at the end of each reporting period (note 3).

   

With the withdrawal the Group’s joint partner (note 3), the Group will be consolidating the Pebble Partnership and the Pebble Project from the date the transfer of control is effective (note 13).

   
(e)

Amendments, Interpretations, Revised and New Standards Adopted by the Group

   

Effective January 1, 2013 the Group adopted several new and revised standards, which are described as follows:

   

Interest in other entities

   

The Group adopted a package of five new and revised standards relating to interests in other entities namely:


  IFRS 10, Consolidated Financial Statements;
  IFRS 11, Joint Arrangements;
  IAS 27, Separate Financial Statements (as revised in 2011);
  IAS 28, Investments in Associates and Joint Ventures (as revised in 2011); and
  IFRS 12, Disclosure of Interests in Other Entities ("IFRS 12").

The Group has described the impact of these new and revised standards in (c) and (d) above. With respect to the adoption of IFRS 12, the requirements of the standard are applicable for the Group’s 2013 annual consolidated financial statements. IFRS 12 contains enhanced disclosure requirements to help financial statement users evaluate the nature of, and risks associated with, its interests in subsidiaries and other entities and the effects of those interests on its financial statements. The Group expects that additional disclosures will be included in its 2013 annual consolidated financial statements.

Presentation of financial statements

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

Page 8



Northern Dynasty Minerals Ltd.
Notes to the Condensed Consolidated Interim Financial Statements
For the three and nine months ended September 30, 2013 and 2012
(Unaudited – Expressed in thousands of Canadian Dollars, unless otherwise stated, except per share or option)

Other new and revised standards

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

 

IFRS 13, Fair Value Measurement – The standard did not require any adjustment to fair value measurement techniques used by the Group;

 

IFRIC 20, Stripping Costs in the Production Phase of a Surface Mine – not applicable to the Group as the Pebble Project is not in production; and

 

Amendment to IFRS 7, Financial Instruments: Disclosures – The amendment had no impact as the Group has no financial assets and liabilities which were offset on the Statement of Financial Position or were subject to a master netting arrangement.


(f)

Significant Accounting Estimates and Judgments

   

The Group has applied judgment in determining the classification of its interests in other entities. As part of this process, the Group determined the level of control or joint control and whether the Group has rights to assets and liabilities or to net assets of the arrangement based on the legal structure and contractual terms of the arrangement and, when relevant, other facts and circumstances. The Group has concluded that its interest in the Pebble Partnership represents a joint venture in accordance with IFRS 11 (refer (d) above).

   

Except as described above, there was no change in the use of estimates and judgments during the current period as compared to those described in Note 2 in the Group’s Consolidated Financial Statements for the year ended December 31, 2012.

   
(g)

Accounting Standards, Amendments and Revised Standards Not Yet Effective

   

Effective for the Group’s financial years commencing on January 1, 2014

   

Amendments to IAS 32, Financial Instruments: Presentation ("IAS 32"), clarify existing application issues relating to the offset of financial assets and financial liabilities requirements. Specifically, the amendments clarify the meaning of "currently has a legal enforceable right of set-off" and "simultaneous realization and settlement". The amendments apply to annual periods beginning on or after January 1, 2014.

   

Amendments to IAS 36, Impairment of Assets ("IAS 36"), clarify the recoverable amount disclosures for non-financial assets, including additional disclosures about the measurement of the recoverable amount of impaired assets when the recoverable amount was based on fair value less costs of disposal. The amendments apply retrospectively for annual periods beginning on or after 1 January 2014. Earlier application is permitted except an entity shall not apply those amendments in periods (including comparative periods) in which it does not also apply IFRS 13.

   

Effective date to be determined

   

IFRS 9, Financial Instruments, Classification and Measurement ("IFRS 9"), is the first phase of three phases to replace IAS 39, Financial Instruments: Recognition and Measurement, in its entirety. In July 2013, the IASB tentatively decided to defer the mandatory effective date and leave that date open pending the finalization of other phases of IFRS 9.

Page 9



Northern Dynasty Minerals Ltd.
Notes to the Condensed Consolidated Interim Financial Statements
For the three and nine months ended September 30, 2013 and 2012
(Unaudited – Expressed in thousands of Canadian Dollars, unless otherwise stated, except per share or option)

The Group anticipates that the adoption of the amendments to IAS 32 and IFRS 9 will have no material impact on its consolidated financial statements given the extent of its use of financial instruments in the ordinary course of business. The amendment to IAS 36 will result in additional disclosure if and when the Group impairs non-financial assets.

   
3.

INVESTMENT IN THE PEBBLE LIMITED PARTNERSHIP

   

On July 26, 2007, the Group converted a wholly-owned general partnership that held its Pebble Property interest into a limited partnership, the Pebble Partnership. Anglo American plc ("Anglo American") through a wholly-owned subsidiary subscribed for 50% of the Pebble Partnership's equity effective July 31, 2007. The Group (through a wholly-owned subsidiary) and Anglo American had equal rights in the Pebble Partnership. To maintain its 50% interest in the Pebble Partnership, Anglo American was required to commit staged cash investments into the Pebble Partnership aggregating to US$1.5 billion to fund comprehensive exploration, engineering, environmental and socioeconomic programs and, if warranted, development of the Pebble Project. To September 30, 2013, Anglo American has funded US$556 million ($577 million). The Pebble Partnership agreement provided for equal project control rights for both partners with no operator’s fees payable to either party.

   

On September 15 2013, Anglo American gave notice to the Group that pursuant to the terms of the Pebble LPA it is withdrawing from the Pebble Partnership, PMC and the Pebble Project. Under the terms of the Pebble LPA, upon expiry of the 60 day notice (the "Notice Period") or on such earlier date as may be mutually agreed upon between the partners, Anglo American will be deemed to have withdrawn from the Pebble Partnership and PMC and the Group, through the exercise of its call option under the Pebble LPA, will acquire Anglo American’s interest in the Pebble Partnership, PMC and the underlying Pebble Project for a cash payment which is not significant to these Financial Statements.

   

The Group has determined that its investment in the Pebble Partnership is a joint venture under IFRS 11 and continues to apply the equity method in accounting for this interest (note 2(d)). Since the inception of the Pebble Partnership, the Group has not recognized any share of the losses in the Pebble Partnership as the Group has no obligation in respect to these losses and the agreement with Anglo American states that the distribution of losses funded by Anglo American are allocated 100% to Anglo American until the total investment of US$1.5 billion is met. For the nine months ended September 30, 2013, the Pebble Partnership incurred losses totaling $59,519 (2012 –$74,508). Cumulative losses since inception of the Pebble Partnership to September 30, 2013, total $581,629 (2012 – $493,755). The accounting policies of the Pebble Partnership are the same as those followed by the Group. The Group’s investment in the Pebble Partnership is carried in US dollars. Exchange differences arising from the translation of the Group’s investment in the Pebble Partnership are recognized directly in the foreign currency translation reserve through other comprehensive income or loss.


  Investment in the Pebble Partnership   September 30     December 31  
      2013     2012  
  Carrying value at the beginning of the period/year $  99,336   $  101,542  
     Foreign currency translation (note 7(c))   3,534     (2,206 )
  Carrying value at the end of the period/year $  102,870   $  99,336  

Page 10



Northern Dynasty Minerals Ltd.
Notes to the Condensed Consolidated Interim Financial Statements
For the three and nine months ended September 30, 2013 and 2012
(Unaudited – Expressed in thousands of Canadian Dollars, unless otherwise stated, except per share or option)

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

  Assets and Liabilities   September 30     December 31  
      2013     2012  
  Non-current assets $  105,009   $  101,344  
  Current assets   3,149     11,890  
  Total assets $  108,158   $  113,234  
  Current liabilities   7,199     9,902  
  Total liabilities $  7,199   $  9,902  

  Losses   Three months ended September 30     Nine months ended September 30  
      2013     2012     2013     2012  
  Net loss for the period $  24,968   $  34,798   $  59,519   $  74,508  
  Net cumulative losses         $  581,629   $  493,755  

The Group has not included the net loss and net cumulative losses of the Pebble Partnership in the Financial Statements of the Group.

   
4.

EXPLORATION AND EVALUATION ASSETS


      September 30     December 31  
      2013     2012  
  Total $  1,055   $  1,055  

Pursuant to a letter agreement dated June 29, 2010 with Liberty Star Uranium & Metals Corp. and its subsidiary, Big Chunk Corp. (together, "Liberty Star"), the Group acquired 60.7 square kilometers of mineral claims located to the west of the Pebble Project mineral claims in consideration for a US$1,000,000 ($1,055) cash payment.

   
5.

AMOUNTS RECEIVABLE AND PREPAID EXPENSES


      September 30     December 31  
      2013     2012  
  Sales tax receivable $  57   $  177  
  Loan receivable   5,176     4,639  
  Prepaid expenses   272     187  
  Total $  5,505   $  5,003  

Loan Receivable

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

Page 11



Northern Dynasty Minerals Ltd.
Notes to the Condensed Consolidated Interim Financial Statements
For the three and nine months ended September 30, 2013 and 2012
(Unaudited – Expressed in thousands of Canadian Dollars, unless otherwise stated, except per share or option)

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

      September 30     December 31  
      2013     2012  
  Balance of the principal amount:            
     Cash advance (US$3,000,000) $  3,091   $  2,985  
     Expenses incurred on behalf of Liberty Star (US$730,174)   752     726  
  Total principal amount receivable (US$3,730,174)   3,843     3,711  
  Accumulated accrued interest (US$1,293,613/US$933,012)   1,333     928  
  Balance at the end of period/year (US$5,023,787/US$4,663,186) $  5,176   $  4,639  

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

  (i)

the Group acquired certain mineral claims from Liberty Star in the vicinity of the Pebble Project mineral claims (note (4)); and

     
  (ii)

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

In October 2012, as the joint venture agreement contemplated in the Letter Agreement was not executed, the Group delivered a notice of repayment of the Loan to Liberty Star. In November 2012, the Group and Liberty Star negotiated a loan settlement agreement and an amendment thereto (together; the "Loan Settlement Agreement") whereby the Group agreed to extinguish the Loan in consideration for receiving title to certain of Liberty Star’s mineral claims which were held as collateral for the Loan. At September 30, 2013, Liberty Star had not completed valid transfer of these claims to the Group and in accordance with the terms of the Loan Settlement Agreement, the Loan Settlement Agreement had not closed and the Group retained all its rights under the Letter Agreement. Accordingly, the Group has continued to recognize the Loan as a financial asset in these Financial Statements.

The Group believes that, at September 30, 2013, although the Loan was past due 313 days, the Group does not consider it impaired as the Group is awaiting court judgment on the valid transfer of the Settlement Claims in settlement of the loan. Notwithstanding, the Group has reasonable expectation that it will recover the carrying amount of the Loan by enforcing the legal rights conferred by the Letter Agreement and/or the Loan Settlement Agreement including, but not limited to, the right to receive all or any portion of the mineral claims held as collateral for the Loan.

Page 12



Northern Dynasty Minerals Ltd.
Notes to the Condensed Consolidated Interim Financial Statements
For the three and nine months ended September 30, 2013 and 2012
(Unaudited – Expressed in thousands of Canadian Dollars, unless otherwise stated, except per share or option)

6.

CASH AND CASH EQUIVALENTS


      September 30     December 31  
      2013     2012  
  Business and savings accounts $  3,116   $  5,921  
  Guaranteed investment certificates   19,423     21,616  
  Total $  22,539   $  27,537  

7.

CAPITAL AND RESERVES


(a)

Authorized Share Capital

   

At September 30, 2013, the authorized share capital comprised an unlimited (2012 – unlimited) number of common shares with no par value. All issued shares are fully paid.

   
(b)

Share Purchase Option Compensation Plan

   

The following reconciles the Group’s share purchase options outstanding for the nine months ended September 30, 2013 and 2012:


      2013     2012  
            Weighted           Weighted  
      Number of     average     Number of     average  
      share purchase     exercise price     share purchase     exercise price  
  Continuity of share options   options     ($/option)     options     ($/option)  
  Balance at beginning of period   7,611,530     7.00     8,306,782     8.71  
   Granted           2,199,500     3.00  
   Exercised   (10,100 )   3.00     (17,000 )   5.00  
   Expired   (1,668,330 )   7.75     (1,930,052 )   6.01  
   Forfeited   (64,000 )   4.26     (47,800 )   8.17  
   Cancelled   (2,000,900 )   11.76     (861,000 )   15.44  
  Balance at end of period   3,868,200     4.27     7,650,430     7.00  

The following table summarizes share purchase options exercised in 2013:

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

The following table summarizes share purchase options exercised in 2012:

            Weighted average     Weighted average  
      Share purchase     exercise price     market share price  
  Period   options exercised     ($/option)     on exercise ($)  
  January 27, 2012   17,000     5.00     7.85  

Page 13



Northern Dynasty Minerals Ltd.
Notes to the Condensed Consolidated Interim Financial Statements
For the three and nine months ended September 30, 2013 and 2012
(Unaudited – Expressed in thousands of Canadian Dollars, unless otherwise stated, except per share or option)

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

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

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

      Share purchase options outstanding     Share purchase options exercisable  
                  Weighted                 Weighted  
      Number of     Weighted     average     Number of     Weighted     average  
      share     average     remaining     share     average     remaining  
      purchase     exercise     contractual     purchase     exercise     contractual  
      options     price     life     options     price     life  
  Exercise prices ($)   outstanding     ($/option)     (years)     exercisable     ($/option)     (years)  
  3.00   2,094,700     3.00     2.14     2,094,700     3.00     2.14  
  5.00 – 5.35   1,643,000     5.01     0.36     1,643,000     5.01     0.36  
  15.44   130,500     15.44     0.87     130,500     15.44     0.87  
      3,868,200     4.27     1.34     3,868,200     4.27     1.34  

(c)

Foreign Currency Translation Reserve


      Nine months ended September 30  
      2013     2012  
  Balance at beginning of period $  347   $  2,470  
  Exchange gain (loss) on translation of investment in the Pebble Partnership   3,534     (3,374 )
  Deferred income tax on investment   (128 )   124  
  Balance at the end of period $  3,753   $  780  

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

   
8.

RELATED PARTY BALANCES AND TRANSACTIONS

   

Balances and transactions between the Company and its subsidiaries, which are related parties of the Company, have been eliminated on consolidation and are not disclosed in this note. Details between the Group and other related parties are disclosed below:


(a)

Transactions and balances with Key Management Personnel

   

The aggregate value of transactions with key management personnel, being directors and senior management including the Senior Vice President, Corporate Development; Vice President ("VP") Corporate Communications, VP, Engineering and VP, Public Affairs, were as follows:

Page 14



Northern Dynasty Minerals Ltd.
Notes to the Condensed Consolidated Interim Financial Statements
For the three and nine months ended September 30, 2013 and 2012
(Unaudited – Expressed in thousands of Canadian Dollars, unless otherwise stated, except per share or option)

      Three months ended September 30     Nine months ended September 30  
  Compensation   2013     2012     2013     2012  
  Short-term employee benefits (i) $  545   $  720   $  1,745   $  1,540  
  Share-based compensation       842     230     2,520  
  Total $  545   $  1,562   $  1,975   $  4,060  

  (i)

Short-term employee benefits include salaries and directors fees.


(b)

Transactions and balances with other Related Parties

   

The aggregate value of transactions and outstanding balances with other related parties were as follows:


      Three months ended     Nine months ended  
      September 30     September 30  
  Transactions   2013     2012     2013     2012  
  Entity with significant influence over the Group (i)                
   Services rendered to the Group $  810   $  1,016   $  2,758   $  2,545  
  Reimbursement of third party expenses incurred on behalf of the Group   240     144     638     911  
  Total paid by the Group $  1,050   $  1,160   $  3,396   $  3,456  

      September 30     December 31  
  Balances receivable from related parties   2013     2012  
  Jointly controlled entity (ii) $  –   $  3  
  Total $  –   $  3  

      September 30     December 31  
  Balances payable to related parties   2013     2012  
  Entity with significant influence over the Group (i) $  19   $  148  
  Total $  19   $  148  

  (i)

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

     
  (ii)

The Group incurred costs on behalf of the Pebble Partnership (note 3), which were reimbursed at cost.

Page 15



Northern Dynasty Minerals Ltd.
Notes to the Condensed Consolidated Interim Financial Statements
For the three and nine months ended September 30, 2013 and 2012
(Unaudited – Expressed in thousands of Canadian Dollars, unless otherwise stated, except per share or option)

9.

TRADE AND OTHER PAYABLES


      September 30     December 31  
  Falling due within the year   2013     2012  
     Trade payables $  331   $  261  

10.

BASIC AND DILUTED LOSS PER SHARE

   

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


      Three months ended September 30     Nine months ended September 30  
      2013     2012     2013     2012  
  Loss attributable to common shareholders $  1,702   $  4,881   $  5,111   $  12,716  
  Weighted average number of common shares outstanding   95,009,864     94,995,764     95,006,534     94,993,717  

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

   
11.

EMPLOYMENT COSTS

   

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


      Three months ended September 30     Nine months ended September 30  
      2013     2012     2013     2012  
  Exploration and evaluation expenses $  150   $  232   $  586   $  670  
  General and administration expenses   722     815     2,325     1,999  
  Share-based compensation       1,260     641     4,739  
  Total $  872   $  2,307   $  3,552   $  7,408  

12.

COMMITMENTS AND CONTINGENCIES

   

Due to the nature of the Group’s operations, various legal and tax matters are outstanding from time to time. In the opinion of management, there are no matters that could have a material effect on the Group’s condensed consolidated interim financial statements which require additional disclosure.

   
13.

EVENTS AFTER THE REPORTING PERIOD

   

As of the date of issuance of these Financial Statements the Notice Period, and hence the acquisition of control of the Pebble Partnership and the underlying Pebble Project by the Group, was not completed. Once transfer of control is completed, the Group will no longer equity account for its investment in the Pebble Partnership, instead the Group will consolidate the Pebble Partnership and the underlying Pebble Project going forward.

Page 16