CONDENSED CONSOLIDATED INTERIM
FINANCIAL STATEMENTS

THREE AND SIX MONTHS ENDED
JUNE 30, 2016

(Expressed in thousands of Canadian Dollars)

(Unaudited)

Notice of No Auditor Review of

Condensed Consolidated Interim Financial Statements

In accordance with National Instrument51-102 Part 4, subsection4.3(3)(a), ifan auditor has notperformed areviewofthesecondensedconsolidatedinterimfinancial statementstheymustbeaccompaniedbyanotice indicating that the condensed consolidated interim financial statements have not been reviewed by an auditor.

The accompanying unaudited condensed consolidated interim financial statements of the Company have been prepared by and are the responsibility of the Company's management.

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

			June 30			December 31
	Notes		2016			2015
ASSETS
Non-current assets
Mineral property, plant and equipment	3	$	137,162		$	147,088
Total non-current assets			137,162			147,088
Current assets
Available-for-sale financial assets	4		–			1,579
Amounts receivable and prepaid expenses	5		535			1,075
Restricted cash	6(b)		–			453
Cash and cash equivalents	6(a)		12,196			7,509
Total current assets			12,731			10,616
Total Assets		$	149,893		$	157,704
EQUITY
Capital and reserves
Share capital	7(a)	$	445,567		$	435,069
Reserves			95,500			99,035
Deficit			(393,975	)		(379,124	)
Total Equity			147,092			154,980
LIABILITIES
Current liabilities
Payables to related parties	8		268			677
Trade and other payables	9		2,533			2,047
Total current liabilities			2,801			2,724
Total Liabilities			2,801			2,724
Total Equity and Liabilities		$	149,893		$	157,704

Commitments (note 12)

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

These consolidated financial statements are signed on the Company's behalf by:

/s/ Ronald W. Thiessen	/s/ Christian Milau
Ronald W. Thiessen	Christian Milau
Director	Director

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

			Three months ended June 30						Six months ended June 30
	Notes		2016			2015			2016			2015
Expenses
Exploration and evaluation expenses	3, 11	$	1,294		$	1,484		$	3,319		$	3,558
General and administrative expenses	11		1,844			1,567			3,974			3,383
Legal, accounting and audit			3,318			2,922			7,172			6,170
Share-based compensation	7(d)		186			41			342			401
Loss from operating activities			6,642			6,014			14,807			13,512
Foreign exchange (gain) loss			(68	)		23			82			107
Interest income			(1	)		(63	)		(6	)		(81	)
Amount receivable written off			15			–			15			–
Gain on sale of available-for-sale financial assets			–			–			(70	)		–
Loss on sale of plant and equipment			–			–			23			–
Loss before tax			6,588			5,974			14,851			13,538
Deferred Income tax (recovery) expense			–			(196	)		–			(1,514	)
Loss for the period		$	6,588		$	5,778		$	14,851		$	12,024
Other comprehensive loss (income)
Items that may be subsequently reclassified to loss
Foreign exchange translation difference	3, 7(e)		791			1,864			9,666			(9,318	)
Decrease in fair value of available-for-sale financial assets	4		–			28			–			120
Derecognition of available-for-sale financial assets	4		–			–			(105	)		–
Other comprehensive loss (income) for the period		$	791		$	1,892		$	9,561		$	(9,198	)
Total comprehensive loss for the period		$	7,379		$	7,670		$	24,412		$	2,826
Basic and diluted loss per common share	10	$	0.03		$	0.04		$	0.07		$	0.09

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

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

			Six months ended June 30
	Notes		2016			2015
Operating activities
Loss for the period		$	(14,851	)	$	(12,024	)
Non-cash or non operating items
Amount receivable written off			15			–
Deferred income tax (recovery)			–			(1,514	)
Depreciation			104			131
Interest received on cash held			(6	)		(81	)
Gain on disposal of available-for-sale financial assets			(70	)		–
Loss on sale of plant and equipment			23			5
Share-based compensation			342			401
Unrealized exchange (gain) loss			290			104
Changes in working capital items
Restricted cash			453			61
Amounts receivable and prepaid expenses			515			448
Trade and other payables			629			550
Payables to related parties			(409	)		(108	)
Net cash used in operating activities			(12,965	)		(12,027	)
Investing activities
Acquisition of plant and equipment	3		–			(28	)
Proceeds from disposal of equipment	3		–			70
Proceeds from disposal of available-for-sale financial assets	4		1,754			–
Interest received on cash and cash equivalents			6			81
Net cash from investing activities			1,760			123
Financing activities
Net proceeds from prospectus financing - allocated to shares	7(b)		10,395			–
Net proceeds from prospectus financing - allocated to warrants	7(b)		5,721			–
Net proceeds from the private placement of special warrants	7(c)		–			3,375
Proceeds from the exercise of share purchase options	7(c)		66			–
Net cash from financing activities			16,182			3,375
Net increase (decrease) in cash and cash equivalents			4,977			(8,529	)
Effect of exchange rate fluctuations on cash and cash equivalents			(290	)		(104	)
Cash and cash equivalents at beginning of the period			7,509			9,447
Cash and cash equivalents at end of the period	6(a)	$	12,196		$	814
Supplementary cash flow information	6(a)

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

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

	Notes	Share capital						Reserves
								Foreign
						Equity settled		currency						Share
						share-based		translation			Investment			Purchase
		Number of				compensation		reserve			revaluation			Warrants
		shares		Amount		reserve		(note 7	(e))		reserve			(note 7	(c))		Deficit			Total equity
Balance at January 1, 2015		95,009,864	$	389,227	$	55,294	$	17,179		$	6		$	11,552		$	(345,295	)	$	127,963
Special warrants issued net of transaction costs	7(c)	–		–		–		–			–			3,375			–			3,375
Conversion of special warrants into common shares		25,684,721		10,661		–		–			–			(10,661	)		–			–
Share-based compensation	7(d)	–		–		401		–			–			–			–			401
Loss for the period		–		–		–		–			–			–			(12,024	)		(12,024	)
Other comprehensive income (loss) for the period net of tax		–		–		–		9,318			(120	)		–			–			9,198
Total comprehensive loss for the period																				(2,826	)
Balance at June 30, 2015		120,694,585	$	399,888	$	55,695	$	26,497		$	(114	)	$	4,266		$	(357,319	)	$	128,913
Balance at January 1, 2016		221,939,376	$	435,069	$	56,197	$	40,479		$	(107	)	$	2,466		$	(379,124	)	$	154,980
Common shares issued upon exercise of share purchase options	7(c)	211,500		66		–		–			–			–			–			66
Fair value allocated to shares issued on options exercised	7(c)	–		37		–		–			–			(37	)		–			–
Common shares issued pursuant to prospectus financing	7(b)	38,000,000		10,395		–		–			–			–			–			10,395
Warrants issued pursuant to prospectus financing	7(b)	–		–		–		–			–			5,721			–			5,721
Share-based compensation	7(d)	–		–		342		–			–			–			–			342
Loss for the period		–		–		–		–			–			–			(14,851	)		(14,851	)
Other comprehensive (loss) income for the period net of tax		–		–		–		(9,666	)		105			–			–			(9,561	)
Total comprehensive loss for the period																				(24,412	)
Balance at June 30, 2016		260,150,876	$	445,567	$	56,539	$	30,813		$	(2	)	$	8,150		$	(393,975	)	$	147,092

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 six months ended June 30, 2016 and 2015

(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") under the symbol "NAK". The Company’s corporate office is located at 1040 West Georgia Street, 15^th floor, Vancouver, British Columbia.

The condensed consolidated interim financial statements ("Financial Statements") of the Company as at and for the three and six months ended June 30, 2016, include financial information for the Company and its subsidiaries (note 2(c)) (together referred to as the "Group" and individually as "Group entities"). The Company is the ultimate parent. The Group’s core mineral property interest is the Pebble Copper-Gold-Molybdenum Project (the "Pebble Project") located in Alaska, United States of America ("USA" or "US").

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 Group’s mineral property interests, 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; the Group obtaining the necessary permits to mine; and future profitable production or proceeds from the disposition of the Pebble Project.

As at June 30, 2016, the Group has $12.2 million in cash and cash equivalents for its operating requirements. The Group has prioritized the allocation of available financial resources in order to meet key corporate and Pebble Project expenditure requirements in the near term. Subsequent to the reporting date, the Company completed a private placement for gross proceeds of approximately $2 million (note 13). These funds are to be used for working capital purposes. Additional financing will be required in order to progress any material expenditures at the Pebble Project. Additional financing may include any of or a combination of debt equity and/or contributions from possible new Pebble Project participants. There can be no assurances that the Group will be successful in obtaining additional financing. If the Group is unable to raise the necessary capital resources and generate sufficient cash flows to meet obligations as they come due, the Group may, at some point, consider further reducing or curtailing its operations. As such there is material uncertainty that casts substantial doubt about the Company’s ability to continue as a going concern.

In July 2014, the United States Environmental Protection Agency (the "EPA") announced a proposal under Section 404(c) of the Clean Water Act to restrict and impose limitations on all discharges of dredged or fill material ("EPA Action") associated with mining the Pebble deposit. The Company believes that the EPA does not have the statutory authority to impose conditions on the development at Pebble prior to the submission of a detailed development plan and its thorough review by federal and state agencies, including review under the National Environmental Protection Act ("NEPA"). The Pebble Limited Partnership (the “Pebble Partnership”), a wholly-owned subsidiary of the Company, along with the State of Alaska and the Alaska Peninsula Corporation, an Alaska Native village corporation with extensive land holdings in the Pebble Project area, filed for an injunction to stop the EPA Action with the US Federal Court in Alaska (the "Court"). However, the Court has deferred judgment thereon until the EPA has issued a final determination. The Company appealed the Court’s decision to the 9^th Circuit Court of Appeals. The appeal was denied in May 2015. The Pebble Partnership still holds the option to pursue its statutory authority case in the instance that EPA finalizes a pre-emptive regulatory action under the Clean Water Act 404(c). In September 2014, the Pebble Partnership initiated a second action against the EPA in federal district court in Alaska charging that the EPA violated the Federal Advisory Committee Act ("FACA"). In November 2014, the U.S. federal court judge in Alaska granted, in relation to the FACA case, the Pebble Partnership’s request for a preliminary injunction, which, although considered by the Company as a significant procedural milestone in the litigation, does not resolve the Pebble Partnership’s claims that the EPA Actions with respect to the Bristol Bay Assessment and subsequent 404(c) regulatory process, violated FACA. In June 2015, the EPA’s motion to dismiss the FACA case was rejected and as a result the FACA case is moving forward. The Company expects its legal rights will be upheld by the Court and that the Company will ultimately be able to apply for the necessary permits under NEPA. On October 14, 2014, the Pebble Partnership filed suit in the federal district court in Alaska charging that the EPA has violated the Freedom of Information Act ("FOIA") by improperly withholding documents related to the Pebble Project, the Bristol Bay Watershed Assessment and consideration of a pre-emptive 404(c) veto under the Clean Water Act.

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Northern Dynasty Minerals Ltd.

Notes to the Condensed Consolidated Interim Financial Statements

For the three and six months ended June 30, 2016 and 2015

(Unaudited - Expressed in thousands of Canadian Dollars, unless otherwise stated, except per share or option)

The EPA has moved for summary judgment claiming that its search for and disclosure of documents was adequate. The Pebble Partnership has opposed the motion pointing out several deficiencies in the EPA’s search parameters and pointing out the agency’s overly broad assertion of the deliberative process privilege to withhold documents. On August 24, 2015, the U.S. federal court judge granted in part and deferred in part the EPA’s motion for summary judgement on the FOIA litigation. The court accepted the EPA’s position that it had made an adequate search for documents but left the matter open should the EPA not meet its obligations in the FACA litigation or if additional documents surface. Additionally, the judge ordered the EPA to produce a sample of 183 partially or fully withheld documents so that it could conduct an in camera review of the sample and test the merits of the EPA’s withholdings under the deliberative process privilege. Before producing this sample to the Court, the EPA chose to voluntarily release 115 documents (or 63% of the sample ordered by the Court), relinquishing its claim of privilege as to these documents.

In briefings before the Court, the Pebble Partnership argued that the voluntary release of 63% of the agency’s same documents conclusively demonstrated that the EPA had been over broad in its assertion of the deliberative process privilege, particularly because the content of the voluntarily released documents was not in fact deliberative. The Court agreed, finding that the EPA "improperly withheld documents in full," and that "many of the documents that defendant released should have been released to begin with because the portions that defendant released were not deliberative." It then ordered the EPA to review an additional 65 documents. Of these 65 documents, the EPA voluntarily released 55 documents in whole or in part (or 85% of the documents). Given the EPA’s high rate of release, the Pebble Partnership submitted a brief to the Court arguing that the EPA should be forced to review the remaining documents being withheld and arguing that judgment should not be granted to the agency at this time. A decision has not yet been issued. The Court agreed, concluding that it had "no confidence that [the EPA] has properly withheld documents, either in full or in part, pursuant to the deliberative process privilege." The Court reiterated its earlier finding that EPA had been withholding documents that "should never have been withheld to begin with." As a result, the Court ordered the Agency to re-evaluate all remaining documents the EPA is withholding in response to the Pebble Partnership’s January 2014 FOIA request and to submit these documents for in camera review. After this review, the Court issued an order resolving Pebble’s challenges to the remaining withholdings and forcing EPA, yet again, to produce additional documents that the agency had been improperly withholding for over two years.

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, 2015, which were filed under the Company’s profile on SEDAR at www.sedar.com. Accounting policies applied herein are the same as those applied in the Group’s annual financial statements other than those as discussed in (d) and (e) below. These Financial Statements were authorized for issue by the Audit and Risk Committee on August 9, 2016.

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Northern Dynasty Minerals Ltd.

Notes to the Condensed Consolidated Interim Financial Statements

For the three and six months ended June 30, 2016 and 2015

(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

These Financial Statements incorporate the financial statements of the Company, the Company’s subsidiaries, and entities controlled by the Company and its subsidiaries listed below:

Name of Subsidiary 1	Place of Incorporation	Principal Activity	Ownership
3537137 Canada Inc. 2	Canada	Holding Company. Wholly-owned subsidiary of the Company.	100%
Pebble Services Inc.	Nevada, USA	Management and services company. Wholly-owned subsidiary of the Company.	100%
Northern Dynasty Partnership	Alaska, USA	Holds 99.9% of the Pebble Limited Partnership and 100% of Pebble Mines Corp.	100% (indirect)
Pebble Limited Partnership	Alaska, USA	Holding Company and Exploration of the Pebble Project.	100% (indirect)
Pebble Mines Corp.	Delaware, USA	General Partner. Holds 0.1% of Pebble Limited Partnership.	100% (indirect)
Pebble West Claims Corporation 3	Alaska, USA	Holding Company. Subsidiary of the Pebble Limited Partnership.	100% (indirect)
Pebble East Claims Corporation 4	Alaska, USA	Holding Company. Subsidiary of the Pebble Limited Partnership.	100% (indirect)
U5 Resources Inc. 5	Nevada, USA	Holding Company. Wholly-owned subsidiary of the Company.	100%
Cannon Point Resources Ltd.	British Columbia, Canada	Not active. Wholly-owned subsidiary of the Company.	100%
MGL Subco Ltd.	British Columbia, Canada	Not active. Wholly-owned subsidiary of the Company.	100%
Delta Minerals Inc.	British Columbia, Canada	Not active. Wholly-owned subsidiary of MGL Subco Ltd.	100% (indirect)
Imperial Gold Corporation	British Columbia, Canada	Not active. Wholly-owned subsidiary of Delta Minerals Inc.	100% (indirect)
Yuma Gold Inc.	Nevada, USA	Not active. Wholly-owned subsidiary of Imperial Gold Corporation.	100% (indirect)

Notes:

1.	An inactive wholly-owned subsidiary, 0796412 BC Ltd., was dissolved on February 17, 2016.
2.	Holds 20% interest in the Northern Dynasty Partnership. The Company holds the remaining 80% interest.
3.	Holds the Pebble Project claims.
4.	Holds certain of the Pebble Project claims and claims located south and west of the Pebble Project claims.
5.	Holds certain mineral claims located north of the Pebble Project claims.

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Northern Dynasty Minerals Ltd.

Notes to the Condensed Consolidated Interim Financial Statements

For the three and six months ended June 30, 2016 and 2015

(Unaudited - Expressed in thousands of Canadian Dollars, unless otherwise stated, except per share or option)

(d) Amendments, Interpretations, Revised and New Standards Adopted by the Group

The Group adopted the following amendments and annual improvements that became effective January 1, 2016:

• Amendments to IAS 1, Presentation of Financial Statements

• Amendments to IAS 16, Property, Plant and Equipment

• Amendments to IAS 27, Separate Financial Statements

• Amendments to IAS 28, Investments in Associates

• Amendments to IAS 38, Intangible Assets

• Amendments to IFRS 10, Consolidated Financial Statements

• Amendments to IFRS 11, Joint Arrangements

• Annual improvements to IFRS 2012 – 2014 Cycle ("AIP 2012-2014")

The amendments and annual improvements had no material effect on the Financial Statements.

(e) Accounting Standards, Amendments and Revised Standards Not Yet Effective

Effective for annual periods commencing on or after January 1, 2018

• IFRS 9, Financial Instruments ("IFRS 9")

• IFRS 15, Revenue from Contracts with Customers ("IFRS 15")

The Group anticipates that the adoption of IFRS 9 and IFRS 15 will have no material impact on its financial statements given the extent of its current use of financial instruments in the ordinary course of business and the current stage of development in the Group’s operations.

Effective for annual periods commencing on or after January 1, 2019

• IFRS 16, Leases ("IFRS 16") and revised IAS 17, Leases ("IAS 17").

The Group anticipates that the adoption of IFRS 16 which will replace IAS 17 will not have a significant impact other than the accounting for office, accommodation and storage leases the Group may have entered into where the minimum lease term is more than 12 months. As of the date of these financial statements, the Group has not entered into any long term lease (refer note 12(a)).

(f) Significant Accounting Estimates and Judgments

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, 2015.

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Northern Dynasty Minerals Ltd.

Notes to the Condensed Consolidated Interim Financial Statements

For the three and six months ended June 30, 2016 and 2015

(Unaudited - Expressed in thousands of Canadian Dollars, unless otherwise stated, except per share or option)

3. MINERAL PROPERTY, PLANT AND EQUIPMENT

The Group’s exploration and evaluation assets are comprised of the following:

Six months ended June 30, 2016		Mineral Property		Plant and
		interest 1		equipment			Total
Cost
Beginning balance	$	112,541	$	1,032		$	113,573
Additions during the period		–		–			–
Dispositions during the period		–		(151	)		(151	)
Ending balance	$	112,541	$	881		$	113,422
Accumulated depreciation
Beginning balance	$	–	$	(481	)	$	(481	)
Charge for the period 2		–		(104	)		(104	)
Eliminated on disposal		–		128			128
Ending balance	$	–	$	(457	)	$	(457	)
Foreign currency translation difference		23,994		203			24,197
Net carrying value – Ending balance	$	136,535	$	627		$	137,162

Year ended December 31, 2015		Mineral Property		Plant and
		interest 1		equipment			Total
Cost
Beginning balance	$	112,541	$	1,155		$	113,696
Additions during the year		–		28			28
Dispositions during the year		–		(151	)		(151	)
Ending balance	$	112,541	$	1,032		$	113,573
Accumulated depreciation
Beginning balance	$	–	$	(278	)	$	(278	)
Charge for the year		–		(279	)		(279	)
Eliminated on disposal		–		76			76
Ending balance	$	–	$	(481	)	$	(481	)
Foreign currency translation difference		33,743		253			33,996
Net carrying value – Ending balance	$	146,284	$	804		$	147,088

Notes

1.	Comprises the Pebble Project, a contiguous block of 2,402 mineral claims covering approximately 417 square miles located in southwest Alaska, 19 miles (30 kilometers) from the villages of Iliamna and Newhalen, and approximately 200 miles (320 kilometers) southwest of the city of Anchorage.
2.	Depreciation is included in exploration and evaluation expenses.

Page | 11

Northern Dynasty Minerals Ltd.

Notes to the Condensed Consolidated Interim Financial Statements

For the three and six months ended June 30, 2016 and 2015

(Unaudited - Expressed in thousands of Canadian Dollars, unless otherwise stated, except per share or option)

4. AVAILABLE-FOR-SALE FINANCIAL ASSETS

The Group’s available-for-sale financial asset was comprised of investments in marketable securities of Canadian publicly listed companies. The Group disposed of the marketable securities during the period ended June 30, 2016.

5. AMOUNTS RECEIVABLE AND PREPAID EXPENSES

		June 30		December 31
		2016		2015
Sales tax receivable	$	182	$	164
Amounts receivable		170		514
Prepaid expenses		183		397
Total	$	535	$	1,075

6. CASH AND CASH EQUIVALENTS AND RESTRICTED CASH

(a) Cash and Cash Equivalents

		June 30		December 31
		2016		2015
Business and savings accounts	$	12,196	$	7,509

Supplementary cash flow information

Non-cash investing and financing activities:

 • In the six months ended June 30, 2015, the Company converted Special Warrants on a one-for-one basis into common shares at no additional cost to the holder (note 7(c)).

(b) Restricted Cash

During the period ended June 30, 2016, the Group drew $393 from restricted cash for demobilization costs incurred in the last quarter of 2015 and returned the remaining balance of $60 to Anglo American plc.

7. CAPITAL AND RESERVES

(a) Authorized Share Capital

At June 30, 2016, the authorized share capital comprised an unlimited (December 31, 2015 – unlimited) number of common shares with no par value. All issued shares are fully paid.

(b) Prospectus Financing

In June 2016, the Group completed a prospectus offering of 38,000,000 units in the capital of the Company at a price of $0.45 per unit for gross proceeds of approximately $17,100 (the "Gross Proceeds"). Each Unit consisted of one common share and one common share purchase warrant, which entitles the holder to purchase an additional common share at an exercise price of $0.65 per common share until June 10, 2021.

Page | 12

Northern Dynasty Minerals Ltd.

Notes to the Condensed Consolidated Interim Financial Statements

For the three and six months ended June 30, 2016 and 2015

(Unaudited - Expressed in thousands of Canadian Dollars, unless otherwise stated, except per share or option)

As of the reporting date, the Group incurred a total of $983 in issuance costs related to agents, advisory, regulatory and legal fees. The Group apportioned the Gross Proceeds and issuance costs between share capital and warrants based on the relative fair values of the common shares and warrants on date of issue. Accordingly, net proceeds of $10,395 was allocated to share capital and $5,721 to warrants.

(c) Share Purchase Warrants and Options not Issued under the Group’s Incentive Plan

The following reconciles warrants and non-employee options (options which are not issued under the Group’s incentive plan (note 7(d)), each exercisable to acquire one common share, at the beginning and end of the period:

			Six months ended June 30, 2016
Exercise
price per		Balance at						Balance
common		beginning		Exercised/				at end of
share ($)	Expiry date	of period	Issued	converted		Expired		period
Options issued pursuant to the acquisition of Cannon Point1
0.29	January 29, 2016	150,400	–	(150,400	)	–		–
0.37	January 29, 2016	220,900	–	(61,100	)	(159,800	)	–
0.40	January 29, 2016	150,400	–	–		(150,400	)	–
0.43	January 29, 2016	37,600	–	–		(37,600	)	–
0.37	July 23, 2017	18,800	–	–		–		18,800
0.37	June 30, 2019	56,400	–	–		–		56,400
0.40	June 30, 2019	225,600	–	–		–		225,600
0.37	March 10, 2021	9,400	–	–		–		9,400
0.40	March 10, 2021	150,400	–	–		–		150,400
0.37	December 15, 2021	37,600	–	–		–		37,600
0.40	December 12, 2022	75,200	–	–		–		75,200
0.29	December 8, 2024	37,600	–	–		–		37,600
Total		1,170,300	–	(211,500	)	(347,800	)	611,000

Page | 13

Northern Dynasty Minerals Ltd.

Notes to the Condensed Consolidated Interim Financial Statements

For the three and six months ended June 30, 2016 and 2015

(Unaudited - Expressed in thousands of Canadian Dollars, unless otherwise stated, except per share or option)

			Six months ended June 30, 2016
Exercise
price per		Balance at						Balance
common		beginning		Exercised/				at end of
share ($)	Expiry date	of period	Issued	converted		Expired		period
Warrants issued pursuant to the acquisition of Mission Gold1
0.55	July 9, 2020	13,801,672	–	–		–		13,801,672
3.00	September 14, 2017	2,871,676	–	–		–		2,871,676
Total		16,673,348	–	–		–		16,673,348
Warrants issued pursuant to prospectus financing2
0.65	June 10, 2021	–	38,000,000	–		–		38,000,000
Grand Total		17,843,648	38,000,000	(211,500	)	(347,800	)	55,284,348

Notes:

1.	The Group exchanged options and warrants to purchase shares in Cannon Point Resources Ltd. ("Cannon Point") and warrants to purchase shares in Mission Gold Ltd. ("Mission Gold") for options and warrants to purchase shares in the Company pursuant to the acquisition of Cannon Point in October 2015 and Mission Gold in December 2015 respectively.
2.	The Group issued warrants pursuant to the June 2016 prospectus offering of 38,000,000 units in the capital of the Company, each unit comprised of a common share and share purchase warrant (note 7(b)). The warrants were listed on the TSX.

At June 30, 2016, warrants and non-employee options had a weighted average exercise price of $0.74(December 31, 2015 – $0.93) and a weighted average remaining life of 4.52 years (December 31, 2015 – 3.94 years).

The following table reconciles warrants for the corresponding period in 2015:

		Six months ended June 30, 2015
Exercise
price per		Balance at					Balance
common		beginning		Exercised/			at end of
share ($)	Expiry date	of period	Issued	converted		Expired	period
Special warrants issued for cash 1
nil	Not applicable	27,622,642	8,340,093	(25,684,721	)	–	10,278,014

Note:

^1. In the period ended June 30, 2015, the Group completed a second tranche of a private placement financing of share purchase warrants ("Special Warrants") at a price of $0.431 per Special Warrant for cash raising gross proceeds of approximately $3,595. Each of the Special Warrants was convertible, without payment of any additional consideration by the holder, into one common share of the Company, either at the option of the holder or automatically within a maximum of a two year period from the issuance date. The Group incurred a total of $189 in advisory, finders’, regulatory, and legal fees on the financing.

Page | 14

Northern Dynasty Minerals Ltd.

Notes to the Condensed Consolidated Interim Financial Statements

For the three and six months ended June 30, 2016 and 2015

(Unaudited - Expressed in thousands of Canadian Dollars, unless otherwise stated, except per share or option)

(d) Share Purchase Option Compensation Plan

The following reconciles the Group’s share purchase options ("options") issued pursuant to the Group’s incentive plan outstanding for the six months ended June 30, 2016 and 2015:

	2016			2015
			Weighted			Weighted
			average			average
			exercise			exercise
	Number of		price	Number of		price
Continuity of options	options		($/option)	options		($/option)
Balance at beginning of period	9,755,600		1.27	7,687,000		1.95
Granted	600,000		0.48	–		–
Expired	(27,000	)	15.44	(1,241,800	)	3.00
Forfeited/cancelled	(93,800	)	1.09	(202,500	)	2.43
Balance at end of period	10,234,800		1.18	6,242,700		1.72

For options granted in the six months ended June 30, 2016 (2015 – nil granted), the weighted average fair value was estimated at $0.26 per option and was based on the Black-Scholes option pricing model using the following weighted average assumptions:

Assumptions		2016
Risk-free interest rate		0.73%
Expected life		5.0 years
Expected volatility 1		80.13%
Grant date share price	$	0.43
Expected dividend yield		Nil

Note:

^1. Expected volatility is based on the historical and implied volatility of the Company’s common share price on the TSX.

Page | 15

Northern Dynasty Minerals Ltd.

Notes to the Condensed Consolidated Interim Financial Statements

For the three and six months ended June 30, 2016 and 2015

(Unaudited - Expressed in thousands of Canadian Dollars, unless otherwise stated, except per share or option)

The following tables summarizes information about the Group’s options outstanding at June 30, 2016 and 2015:

2016	Options outstanding			Options exercisable
			Weighted			Weighted
		Weighted	average		Weighted	average
		average	remaining		average	remaining
	Number of	exercise	contractual	Number of	exercise	contractual
Exercise	options	price	life	options	price	life
prices ($)	outstanding	($/option)	(years)	exercisable	($/option)	(years)
0.48	600,000	0.48	4.71	–	–	–
0.50	3,589,500	0.50	3.67	1,208,172	0.50	3.66
0.72	200,000	0.72	3.21	133,334	0.72	3.21
0.89	1,180,500	0.89	2.70	1,113,498	0.89	2.73
1.77	4,189,800	1.77	2.22	4,197,400	1.77	2.21
3.00	475,000	3.00	1.00	475,000	3.00	1.00
	10,234,800	1.18	2.89	7,127,404	1.48	2.48

2015	Options outstanding			Options exercisable
			Weighted			Weighted
		Weighted	average	Number of	Weighted	average
		average	remaining	share	average	remaining
	Number of	exercise	contractual	purchase	exercise	contractual
Exercise	options	price	life	options	price	life
prices ($)	outstanding	($/option)	(years)	exercisable	($/option)	(years)
0.72	200,000	0.72	4.21	66,667	0.72	4.21
0.89	1,180,500	0.89	3.70	745,166	0.89	3.72
1.77	4,360,200	1.77	3.16	4,360,200	1.77	3.16
3.00	475,000	3.00	2.00	475,000	3.00	2.00
15.44	27,000	15.44	0.71	27,000	15.44	0.71
	6,242,700	1.72	3.20	5,674,033	1.81	3.14

(e) Foreign Currency Translation Reserve

The foreign currency translation reserve represents accumulated exchange differences arising on the translation, into the Group’s presentation currency (the Canadian dollar), of the results of operations and net assets of the Group’s subsidiaries with a US dollar functional currency.

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 (note 2(c)). 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 ("KMP"), being the Group’s directors, Chief Financial Officer ("CFO") and senior management including the Senior Vice President ("VP") Corporate Development, VP Corporate Communications, VP Engineering, VP Public Affairs, Chief Executive Officer of the Pebble Partnership ("PLP CEO"), Chairman of Pebble Mines Corp ("PMC Chair"), Senior VP Corporate Affairs of the Pebble Partnership ("PLP Senior VP") and Company Secretary, was as follows:

Page | 16

Northern Dynasty Minerals Ltd.

Notes to the Condensed Consolidated Interim Financial Statements

For the three and six months ended June 30, 2016 and 2015

(Unaudited - Expressed in thousands of Canadian Dollars, unless otherwise stated, except per share or option)

		Three months ended June 30				Six months ended June 30
Transactions		2016		20153		2016		20153
Compensation
Amounts paid to HDSI for services of
KMP employed by HDSI1	$	492	$	495	$	1,158	$	909
Amounts paid and payable to KMP2,4		666		603		1,228		1,037
		1,158		1,098		2,386		1,946
Share-based compensation		149		33		225		299
Total compensation	$	1,307	$	1,131	$	2,611	$	2,245

Notes:

1.	The Group’s Chairman, CEO, CFO and senior management (other than disclosed in 2 below) are employed by the Group through Hunter Dickinson Services Inc. (refer (b)). In the period ended June 30, 2015, no Chairman, CEO and CFO fees were accrued or paid by the Group.
2.	The Group directly employs its independent directors, PLP CEO, PMC Chair and PLP Senior VP. Payments represent short term employee benefits incurred, including salaries and directors fees. In the period ended June 30, 2015, no independent directors’ fees were accrued or paid. These fees were paid in 2016.
3.	The amounts paid to HDSI for services of KMP employees employed by HDSI for the three months ended June 30, 2015 has been changed in order to correct an immaterial disclosure error relating to the three months ended March 31, 2015. There is no impact on the Group’s condensed consolidated interim statements of loss and comprehensive loss (income) or loss per share.
4.	As of the reporting date, the Group has accrued for $89 in directors’ fees.

(b) Transactions and Balances with other Related Parties

Hunter Dickinson Services Inc. ("HDSI") is a private company that provides geological, engineering, environmental, corporate development, financial administrative and management services to the Group and its subsidiaries at annually set rates pursuant to a management services agreement. The annually set rates also include a component of overhead costs such as office rent, information technology services and general administrative support services. HDSI also incurs third party costs on behalf of the Group which are reimbursed by the Group at cost. Several directors and other key management personnel of HDSI, who are close business associates, are also key management personnel of the Group.

The aggregate value of transactions and outstanding balances with HDSI were as follows:

		Three months ended June 30				Six months ended June 30
Transactions		2016		2015		2016		2015
Services rendered by HDSI:	$	964	$	972	$	2,024	$	1,891
Technical		338		354		626		656
Engineering		44		53		81		155
Environmental		107		178		201		351
Socioeconomic		182		1		334		1

Page | 17

Northern Dynasty Minerals Ltd.

Notes to the Condensed Consolidated Interim Financial Statements

For the three and six months ended June 30, 2016 and 2015

(Unaudited - Expressed in thousands of Canadian Dollars, unless otherwise stated, except per share or option)

Northern Dynasty Minerals Ltd.

Notes to the Condensed Consolidated Interim Financial Statements

For the three and six months ended June 30, 2016 and 2015

(Unaudited - Expressed in thousands of Canadian Dollars, unless otherwise stated, except per share or option)

		Three months ended June 30				Six months ended June 30
Transactions		2016		2015		2016		2015
Other technical services		5		122		10		149
General and administrative		626		618		1,398		1,235
Management, corporate communications, secretarial, financial and administration 1		496		433		1,108		878
Shareholder communication		130		185		290		357
Reimbursement of third party expenses		115		131		265		357
Conferences and travel		47		30		91		71
Insurance		-		1		42		51
Office supplies and information technology		68		100		132		235
Total value of transactions	$	1,079	$	1,103	$	2,289	$	2,248

Note:

^1. In 2015, no Chairman, CEO and CFO fees were accrued or paid by the Group.

		June 30		December 31
Balances payable to HDSI		2016		2015
Entity with significant influence over the Group	$	178	$	677

9. TRADE AND OTHER PAYABLES

		June 30		December 31
Falling due within the year		2016		2015
Trade	$	2,533	$	1,594
Other (note 6(b))		–		453
Total	$	2,533	$	2,047

10. BASIC AND DILUTED LOSS PER SHARE

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

		Three months ended June 30				Six months ended June 30
		2016		2015		2016		2015
Loss attributable to common shareholders	$	6,588	$	5,778	$	14,851	$	12,024
Weighted average number of common shares outstanding (000s)		230,920		130,973		226,513		130,529

For the three and six months ended June 30, 2015, basic loss per share included the effect of Special Warrants issued due to their mandatory conversion requirements with no additional payments being made by the holder. Diluted loss per share does not include the effect of 611,000 share purchase options outstanding as they are anti-dilutive (i.e. the diluted loss per share would be reduced).

Northern Dynasty Minerals Ltd.

Notes to the Condensed Consolidated Interim Financial Statements

For the three and six months ended June 30, 2016 and 2015

(Unaudited - Expressed in thousands of Canadian Dollars, unless otherwise stated, except per share or option)

11. EMPLOYMENT COSTS

During the three and six months ended June 30, 2016, the Group recorded $2,853 and $5,065 (2015 – $2,244 and $4,401) respectively in salaries and benefits, including share-based payments and amounts paid to HDSI (note 8(b)) for services provided to the Group by HDSI personnel. No Chairman, CEO and CFO fees were accrued or paid by the Group during the corresponding period in 2015.

Page | 19

Northern Dynasty Minerals Ltd.

Notes to the Condensed Consolidated Interim Financial Statements

For the three and six months ended June 30, 2016 and 2015

(Unaudited - Expressed in thousands of Canadian Dollars, unless otherwise stated, except per share or option)

12. COMMITMENTS AND CONTINGENCIES

(a) Leases

The Group has the following commitments as of June 30, 2016:

		2016
		(After June 30)		2017		Total
		('000s)		('000s)		('000s)
Anchorage office lease1	US$	163	US$	–	US$	163
Pebble Project site lease2		54		36		90
Total	US$	217	US$	36	US$	253
Total in Canadian dollars3	$	280	$	47	$	327

Notes:

1.	The initial 5 year lease term expires on October 31, 2016.
2.	Lease for a hanger at site. Initial lease term expired on May 1, 2016. The lease was extended for another year and expires May 1, 2017.
3.	Converted at closing rate of $1.2917 per US$ on June 30, 2016, as per the Bank of Canada.

The Group has a sub-lease agreement in respect of a portion of the Anchorage office space subject to the operating lease for an average annual rent, expressed in thousands, of approximately US$75 ($97). The term of the sub-lease expires on October 31, 2016.

(b) Legal

The Group, through the Pebble Partnership, is advancing its multi-dimensional strategy to address the EPA’s preemptive regulatory action under Section 404(c) of the Clean Water Act, through litigation against the EPA contesting the EPA’s statutory authority to act pre-emptively under the Clean Water Act, and alleging violation of FACA and the unlawful withholding of documentation under FOIA (refer note 1). The Group has a contingent liability for additional legal fees and costs that may be due to the Group’s counsel should there be a successful outcome. However, the Group is unable to estimate or determine the length of time that each of the legal initiatives mentioned above will take to advance to specific milestone events or final conclusion. As of the reporting date, if there was a favourable outcome or settlement, the Company estimates there would potentially be additional legal fees of $19.4 million (US$15.0 million at closing Bank of Canada rate on June 30, 2016 of $1.2917 per US$) payable by the Company.

13. EVENTS AFTER THE REPORTING DATE

(a) Private Placement

On July 5, 2016, the Group completed a private placement of 4,444,376 units in the capital of the Company, each unit comprising of one common share and one share purchase warrant, at a price of $0.45 per Unit for gross proceeds of approximately $2,000. Each share purchase warrant is exercisable into one common share at an exercise price of $0.65 per common share until June 10, 2021. The common shares and share purchase warrants are subject to applicable resale restrictions, including a four month hold under Canadian legislation. The share purchase warrants will be listed for trading on the TSX once the hold period expires.

Page | 20

Northern Dynasty Minerals Ltd.

Notes to the Condensed Consolidated Interim Financial Statements

For the three and six months ended June 30, 2016 and 2015

(Unaudited - Expressed in thousands of Canadian Dollars, unless otherwise stated, except per share or option)

(b) Grant of Options

On July 11, 2016, the Group granted 6,206,000 options with an exercise price of $0.49 per option to directors, senior management, employees and service providers. The options vest 1/3 on date of grant, 1/3 on July 11, 2017 and 1/3 on July 11, 2018. The options will expire July 11, 2019 or July 11, 2021.

(c) Grants of Restricted Share Units ("RSU"s) and Deferred Share Units ("DSU"s)

In July 2016, the Group granted a total of 639,031 RSUs with a payout date of July 11, 2017 and an expiry date of July 11, 2019 to the Group’s Chairman, CEO and CFO. The Group also granted a total of 458,129 DSUs to its non-executive directors. 100% of the DSUs vested on date of grant.

Page | 21