Northern Dynasty Minerals : Interim financial statements/report - English

CONDENSED CONSOLIDATED INTERIM

FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED

MARCH 31, 2020 AND 2019

(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)

			March 31	December 31
	Notes		2020		2019
ASSETS
Non-current assets
Restricted Cash	5(b)	$	874	$	805
Mineral property, plant and equipment	3		150,181		138,867
Total non-current assets			151,055		139,672
Current assets
Amounts receivable and prepaid expenses	4		692		914
Cash and cash equivalents	5(a)		7,267		14,038
Total current assets			7,959		14,952
Total Assets		$	159,014	$	154,624
EQUITY
Capital and reserves
Share capital	6	$	594,051	$	587,448
Reserves	6		117,690		107,163
Deficit			(566,821)		(556,106)
Total equity			144,920		138,505
LIABILITIES
Non-current liabilities
Trade and other payables	10		941		934
Total non-current liabilities			941		934
Current liabilities
Warrant liabilities	7		19		43
Loans payable	8		-		1,360
Payables to related parties	9		313		1,095
Trade and other payables	10		12,821		12,687
Total current liabilities			13,153		15,185
Total liabilities			14,094		16,119
Total Equity and Liabilities		$	159,014	$	154,624
Nature and continuance of operations (note 1)
Commitments and contingencies (note 14)
Events after the reporting date (note 15)

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

These condensed consolidated interim 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 (Income) Loss

(Unaudited - Expressed in thousands of Canadian Dollars, except for share information)

		Three months ended March 31
	Notes		2020		2019
Expenses
Exploration and evaluation expenses	3, 12	$	7,234	$	12,050
General and administrative expenses	3, 12		2,407		2,349
Legal, accounting and audit			987		891
Share-based compensation	6(d), (f)		447		704
Loss from operating activities			11,075		15,994
Foreign exchange (gain) loss			(333)		260
Interest income			(42)		(70)
Finance expense			39		27
Gain on revaluation of warrant liabilities			(24)		-
Loss before tax			10,715		16,211
Deferred income tax (recovery) expense			-		-
Net loss		$	10,715	$	16,211
Other comprehensive (income) loss
Items that may be subsequently reclassified to net loss
Foreign exchange translation difference	6(g)		(10,773)		2,872
Other comprehensive (income) loss		$	(10,773)	$	2,872
Total comprehensive (income) loss		$	(58)	$	19,083
Basic and diluted loss per share	11	$	0.02	$	0.05

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)

		Three months ended March 31
	Notes		2020		2019
Operating activities
Net loss		$	(10,715)	$	(16,211)
Non-cash or non operating items
Depreciation	3		159		163
Interest income			(42)		(70)
Interest on credit facility loans	8		9		-
Gain on revaluation of warrant liabilities	7		(24)		-
Share-based compensation			447		704
Unrealized exchange differences			(243)		(14)
Changes in working capital items
Amounts receivable and prepaid expenses			227		848
Trade and other payables			(576)		2,856
Payables to related parties			371		(215)
Net cash used in operating activities			(10,387)		(11,939)
Investing activities
Interest received on cash and cash equivalents			35		42
Net cash from investing activities			35		42
Financing activities
Proceeds from issuance of common shares	6(b)		-		15,337
Transaction costs in the issuance of common shares	6(b)		(10)		(1,236)
Proceeds from private placement financings	6(b)		6,015		3,242
Transaction costs for the private placement financings	6(b)		(95)		(112)
Proceeds from the exercise of share purchase options and warrants	6(c), (d)		-		118
Payments of principal portion of lease liabilities			(96)		(92)
Repayment of credit facility loans	8, 9(a)		(2,523)		-
Additional costs paid for issue of special warrants			-		(2)
Net cash from financing activities			3,291		17,255
Net (decrease) increase in cash and cash equivalents			(7,061)		5,358
Effect of exchange rate fluctuations on cash and cash equivalents			290		16
Cash and cash equivalents - beginning balance			14,038		14,872
Cash and cash equivalents - ending balance	5(a)	$	7,267	$	20,246
Supplementary cash flow information (note 5(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
								Equity -		Foreign
								settled		currency				Share	Subscriptions
			Number of				share-based		translation	Investment		Purchase		received for
			shares			compensation		reserve	revaluation		Warrants		shares
			(note 6(a)		Amount			reserve		(note 6(g))		reserve		(note 6(c))		(note 6(b))		Deficit	Total equity
	Balance at January 1, 2019		313,417,856	$	517,327	$	66,938	$	38,686	$	(17)	$	12,189	$	-	$	(486,913)	$	148,210
	Shares issued on exercise of options per option plan	6(d)	155,000		76			-		-						-				76
	Shares issued on exercise of options not issued per option plan	6(c)	36,300		15			-		-		-		-		-		-		15
	Shares issued upon exercise of warrants	6(c)	49,685		27			-		-		-		-		-		-		27
	Shares issued pursuant to restricted share unit plan	6(f)	85,294		117			(56)		-		-		-		-		-		61
	Fair value allocated to shares issued on exercise of options and warrants		-		99			(74)		-		-		(25)		-		-		-
	Share issued on bought deal financing, net of transactions costs	6(b)	17,968,750		14,101			-		-		-		-		-		-		14,101
	Share issued on conversion of special warrants, net of transaction costs	6(b)	10,150,322		8,190			-		-		-		(8,190)		-		-		-
	Share issued pursuant to private placement, net of transaction costs	6(b)	3,769,476		3,130			-		-		-		-		-		-		3,130
	Share-based compensation	6(d) & (f)	-		-			661		-		-		-		-		-		661
	Net loss		-		-			-		-		-		-		-		(16,211)		(16,211)
	Other comprehensive loss net of tax		-		-			-		(2,872)		-		-		-		-		(2,872)
	Total comprehensive loss																			(19,083)
	Balance at March 31, 2019		345,632,683	$	543,082	$	67,469	$	35,814	$	(17)	$	3,974	$	-	$	(503,124)	$	147,198
	Balance at January 1, 2020		422,942,680	$	587,448	$	70,150	$	32,365	$	(17)	$	3,972	$	693	$	(556,106)	$	138,505
	Share issued pursuant to private placements, net of transaction costs	6(b)	13,688,823		6,613			-		-		-		-		(693)		-		5,920
	Additional transaction costs for public offering in December 2019		-		(10)			-		-		-		-		-		-		(10)
	Share-based compensation	6(d)	-		-			447		-		-		-		-		-		447
	Net loss		-		-			-		-		-		-				(10,715)		(10,715)
	Other comprehensive income net of tax		-		-			-		10,773		-		-		-		-		10,773
	Total comprehensive income																			58
	Balance at March 31, 2020		436,631,503	$	594,051	$	70,597	$	43,138	$	(17)	$	3,972	$	-	$	(566,821)	$	144,920

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 months ended March 31, 2020 and 2019

(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 NYSE American Exchange ("NYSE American") under the symbol "NAK". The Company's corporate office is located at 1040 West Georgia Street, 15thfloor, Vancouver, British Columbia.

The condensed consolidated interim financial statements ("Financial Statements") of the Company as at and for the three months ended March 31, 2020, include financial information for the Company and its subsidiaries (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"). All US dollar amounts when presented are expressed in thousands, unless otherwise stated.

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.

During the three months ended March 31, 2020, the Company raised net proceeds of $5,920 from private placements of common shares (note 6(b)).

As at March 31, 2020, the Group had $7,267 (December 31, 2019 - $14,038) in cash and cash equivalents for its operating requirements and a working capital deficiency of $5,194. These financial statements have been prepared on the basis of a going concern, which assumes that the Group will be able to raise sufficient funds to continue its exploration and development activities and satisfy its obligations as they come due. Subsequent to the reporting period, the Group raised gross proceeds of approximately $17,313 thorough the completion of an underwritten public offering and a private placement of common shares (note 15). For the three months ended March 31, 2020 and 2019, the Group incurred a net loss of $10,715 and $16,211, respectively, and had a deficit of $566,821 as at March 31, 2020. The Group has prioritized the allocation of its financial resources in order to meet key corporate and Pebble Project expenditure requirements in the near term. Additional financing will be required in order to progress any material expenditures at the Pebble Project and for working capital requirements. 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 reducing or curtailing its operations. As such, there is material uncertainty that raises substantial doubt about the Group's ability to continue as a going concern.

The Group through the Pebble Limited Partnership ("Pebble Partnership") initiated federal and state permitting for the Pebble Project under the National Environmental Protection Act ("NEPA"), by filing documentation for a Clean Water Act ("CWA") 404 permit with the US Army Corps of Engineers ("USACE") in December 2017. The USACE published a draft Environmental Impact Statement ("EIS") in February 2019 and completed a 120-day public comment period on the draft EIS on July 2, 2019. On July 30, 2019, the US Environmental Protection Agency ("EPA") announced that it has taken action to withdraw a Proposed Determination initiated under Section 404(c) of the CWA in 2014 to attempt to pre-emptively veto the Pebble Project before it received an objective, scientific regulatory review under NEPA. The Proposed Determination was ultimately withdrawn in July 2019.

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Northern Dynasty Minerals Ltd.

Notes to the Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2020 and 2019

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

2. SIGNIFICANT ACCOUNTING POLICIES

1. Statementof 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 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, 2019 ("2019 annual financial statements").
   These Financial Statements were authorized for issue by the Audit and Risk Committee on May 14, 2020.
2. Use of Judgments and Estimates
   In preparing these Financial Statements, management has made judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.
   There was no change in the use of significant estimates and judgments during the current periods as compared to those described in Note 2 in the Group's 2019 annual financial statements, other than as follows:
   On March 11, 2020, the current outbreak of COVID-19 was declared a pandemic, creating an unprecedented global health and economic crisis. COVID-19's impact on global markets has been significant through March 2020 and subsequent to the date of the Financial Statements. The situation continues to evolve rapidly. On March 26, 2020, in accordance with the order of the Governor of Alaska, the Group's 100% owned Pebble Partnership, along with all other nonessential offices in Alaska, closed its offices for the health and safety of its personnel. Notwithstanding the closure, the Group has maintained its staff and employees, and continues to support the NEPA EIS process remotely to help ensure that the project schedule published by the USACE of a final EIS and a Record of Decision ("ROD") by mid-2020 remains on track. Technical review meetings were completed before the implementation of the Governor's order in response to COVID-19.
   The Group's plans to advance the development of the Pebble Project are dependent upon the continued progress of our approval and permitting process with the USACE, the EPA and Alaskan state agencies, as well as our ability to continue the work required in connection with this process through our employees and our contractors. While the Group has not been notified of any delay, it is possible that government efforts to curtail the COVID-19 outbreak will result in delays in our permitting process, including a possible delay in the release by the USACE of their final EIS and the progress through to a ROD. In addition, our personnel may be delayed in completing the required work that we are pursuing in connection with this process due to quarantine, self-isolation, social distancing, restrictions on travel, restrictions on meetings and work from home requirements. The extent to which the coronavirus impacts our operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the outbreak, new information that may emerge concerning the severity of the coronavirus and the actions taken to contain the coronavirus or treat its impact, among others. Moreover, the spread of the coronavirus globally is expected to have a material adverse effect on global and regional economies and to continue to negatively impact stock markets, including the trading price of the Company's shares. These adverse effects on the economy, the stock market and the Company's share price could adversely impact our ability to raise capital, with the result that our ability to pursue development of the Pebble Project could be adversely impacted, both through delays and through increased costs. Any of these developments, and others, could have a material adverse effect on our business and results of operations and could delay our plans for development of the Pebble Project.

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Northern Dynasty Minerals Ltd.

Notes to the Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2020 and 2019

(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:

Three months ended March 31, 2020		Mineral Property		Plant and
			interest 1	equipment 2		Total
Cost
Balance December 31, 2019 and Ending balance		$	112,541	$	3,018	$	115,559
Accumulated depreciation
Beginning balance			-		(1,615)		(1,615)
Depreciation 3			-		(159)		(159)
Ending balance			-		(1,774)		(1,774)
Foreign currency translation difference			36,121		275		36,396
Net carrying value -March 31, 2020		$	148,662	$	1,519	$	150,181

Notes to table:

1. Comprises the Pebble Project, a contiguous block of 2,402 mineral claims covering approximately 417 square miles located in southwest Alaska, 17 miles (30 kilometers) from the villages of Iliamna and Newhalen, and approximately 200 miles (320 kilometers) southwest of the city of Anchorage.
2. Includes ROU Assets, which relate to the use of office space, a copier, hangers, yard storage and one vehicle. The following comprises ROU Assets:

Three Months ended March 31, 2020		Land and
		Buildings		Equipment		Total
BalanceDecember 31, 2019 and Ending balance	$	1,591	$	53	$	1,644
Accumulated depreciation
Beginning balance		(411)		(9)		(420)
Depreciation 3		(102)		(4)		(106)
Ending balance		(513)		(13)		(526)
Foreign currency translation difference		24		2		26
Net carrying value - March 31, 2020	$	1,102	$	42	$	1,144

3. For the three months ended March 31, 2019, total depreciation was $163 of which ROU Asset depreciation was $106. ROU Asset depreciation of $58 (2019 - $55) is included in general and administrative expenses. The remainder is included in exploration and evaluation expenses.

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Northern Dynasty Minerals Ltd.

Notes to the Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2020 and 2019

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

4. AMOUNTS RECEIVABLE AND PREPAID EXPENSES

		March 31	December 31
		2020		2019
Sales tax receivable	$	70	$	177
Amounts receivable		128		239
Prepaid expenses		494		498
Total	$	692	$	914

5. CASH AND CASH EQUIVALENTS AND RESTRICTED CASH

1. Cash and cash equivalents
   The Group's cash and cash equivalents at March 31, 2020, and December 31, 2019, consisted of cash on hand and was invested in business and savings accounts.
   Supplementary cash flow information Non-cashinvesting and financing activities: In the three months ended March 31, 2019:
2. • Common shares were issued on settlement ofequity-settled restricted share units (note 6(f)).
   • Special warrants were converted for no additional consideration (note 6(b)).
3. Restricted cash
   The Group has cash deposited with a United States financial institution that has been pledged as collateral to the surety provider for a US$2,000 surety bond placed with the Alaskan regulatory authorities for a performance guarantee related to any potential reclamation liability as a condition of the Miscellaneous Land Use Permit granted to the Pebble Partnership for its ongoing activities on the Pebble Project. The cash deposit will be released once any reclamation work required has been performed and assessed by the Alaskan regulatory authorities. The cash is invested in a money market fund. For the three months ended March 31, 2020, income of $2 (2019 - $4) has been recognized which has been re-invested.

6. CAPITAL AND RESERVES

1. Authorized Share Capital
   At March 31, 2020, the authorized share capital comprised an unlimited (2019 - unlimited) number of common shares ("shares") with no par value.
2. Financings
   January 2020 Private Placements

In January 2020, the Group completed private placements of 13,688,823 shares for gross proceeds of approximately $6,708 (US$5,065). Of this, $6,009 was received in January 2020 on the placement of 12,262,323 shares as the Group received $699 in December 2019 for subscriptions to 1,426,500 shares. After transaction

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Northern Dynasty Minerals Ltd.

Notes to the Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2020 and 2019

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

costs of $95 (of which $6 was incurred in 2019), net proceeds to the Group was $6,613 (of which $693 was recognized in December 2019).

March 2019 Bought Deal

The Group completed a bought deal offering of 17,968,750 shares at US$0.64 per share for gross proceeds of US$11,500 ($15,337). The Group incurred transaction costs of $1,236, which includes a 6% commission paid to the underwriters, and raised net proceeds of $14,101.

March 2019 Private Placement

The Group completed a private placement of 3,769,476 shares at $0.86 (US$0.64) per share for gross proceeds of approximately $3,242 (US$2,412). After transaction costs of $112, the Group raised net proceeds of $3,130.

February 2019 Conversion of Special Warrants

10,150,322 special warrants issued in a private placement in were converted into shares on a one-for-one basis for no additional consideration to the Group. Additional transaction costs of $2 were incurred in the period.

1. Share Purchase Warrants and Options not Issued under the Group's Incentive Plan

The following reconciles outstanding warrants and non-employee options (options that were not issued under the Group's incentive plan (see below)), each exercisable to acquire one common share, for the three months ended March 31, 2020 and 2019 respectively:

	Cannon	Mission
	Point	Gold	Other	Special	Broker
	options	warrants	warrants	warrants	warrants
Continuity	(note 1)	(note 1)	(note 2)	(note 3)	(note 4)	Total
Beg. Balance	327,700	3,964,701	27,074,399	10,150,322	-	41,517,122
Exercised	(36,300)	(49,685)	-	(10,150,322)	-	(10,236,307)
Bal. Mar 31, 2019	291,400	3,915,016	27,074,399	-	-	31,280,815
Issued	-	-	466,666	-	244,000	710,666
Exercised	(68,150)	(150,390)	-	-	-	(218,540)
Bal.Dec 31, 2019
andMar 31, 2020	223,250	3,764,626	27,541,065	-	244,000	31,772,941
		Weighted Averages per option/warrant
Asat Mar 31 2020
Exercise price	$ 0.38	$ 0.55	$ 0.65	-	-	$ 0.64
Exercise price US
dollars	-	-	-	-	US$ 0.41	US$ 0.41
Remaining life in
years	2.15	0.27	1.19	-	0.23	1.08
As at Dec 31, 2019
Exercise price	$ 0.38	$ 0.55	$ 0.65	-	-	$ 0.64
Exercise price US
dollars	-	-	-	-	US$ 0.41	US$ 0.41
Remaining life in
years	2.40	0.52	1.45	-	0.48	1.33

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Northern Dynasty Minerals Ltd.

Notes to the Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2020 and 2019

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

Notes to tables:

1. 1. The Group exchanged options and warrants to purchase shares in the Company, which were outstanding in Cannon Point Resources Ltd. ("Cannon Point") and Mission Gold Ltd. ("Mission Gold") on the acquisition of these companies in October 2015 and December 2015 respectively.
   2. Warrants were issued pursuant to the June 2016 prospectus financing, July 2016 private placement and and the 2019non-revolving term loan credit facility agreement (note 8).
   3. The special warrants were issued in a private placement at an exercise price of $0.83 (US$0.62) per special warrant in December 2018.
   4. The Broker Warrants were issued to the underwriters pursuant to the June 2019 prospectus financing and expire June 24, 2020.
2. Share Purchase Option Compensation Plan
   The following reconciles the Group's share purchase options ("options") issued and outstanding pursuant to the Group's incentive plan for the three months ended March 31, 2020 and 2019:

		Weighted average
	Number of	exercise price
Continuity of options	options	($/option)
Beginning Balance	24,606,732	1.03
Exercised	(155,000)	0.49
Balance March 31, 2019	24,451,732	1.03
Granted	6,610,500	0.99
Expired	(4,235,000)	1.54
Exercised	(1,030,666)	0.54
Forfeited	(10,700)	0.82
Cancelled	(33,600)	1.10
Balance December 31, 2019	25,752,266	0.96
Forfeited	(6,000)	0.99
Balance March 31, 2020	25,746,266	0.96

For the three months ended March 31, 2020, the Group recognized share-based compensation ("SBC") of $447 (2019 - $651) for options.

The following table summarizes information on options as at March 31, 2020:

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Northern Dynasty Minerals Ltd.

Notes to the Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2020 and 2019

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

	Options outstanding	Options exercisable
		Weighted average		Weighted average
		remaining		remaining
	Number of	contractual		contractual
	life	Number of	life
Exercise prices ($)	options	(years)	options	(years)
0.48	450,000	0.96	450,000	0.96
0.49	5,105,000	1.28	5,105,000	1.28
0.50	2,316,666	0.56	2,316,666	0.56
0.76	5,538,000	2.62	5,538,000	2.62
0.99	6,604,500	4.50	3,305,250	4.50
1.75	5,732,100	1.85	5,732,100	1.85
Total and weighted average
contractual life per option	25,746,266	2.45	22,447,016	2.15

The weighted average exercise price for exercisable options as at March 31, 2020 was $0.95 (December 31, 2019 - $0.95) per option.

1. Deferred Share Units ("DSUs")
   As at March 31, 2020, a total of 458,129 DSUs were issued and outstanding (March 31 and December 31, 2019 - 458,129). There have been no new grants of DSUs since 2017.
2. Restricted Share Units ("RSUs")
   The following reconciles RSUs outstanding for the three months ended March 31, 2020 and 2019 respectively:

		Weighted average
	Number of	fair value
Continuity of RSUs	RSUs	($/RSU)
Beginning Balance	196,753	1.27
Shares issued	(85,294)	1.37
Withheld	(75,582)	1.14
Balance March 31, 2019	35,877	2.23
Shares issued	(25,792)	1.57
Withheld	(10,085)	1.27
Balance December 31, 2019 and March 31, 2020	-	-

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Northern Dynasty Minerals Ltd.

Notes to the Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2020 and 2019

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

1. Foreign Currency Translation Reserve

Balance January 1, 2019	$	38,686
Loss on translation of foreign subsidiaries		(2,872)
Balance March 31, 2019		35,814
Loss on translation of foreign subsidiaries		(3,449)
Balance December 31, 2019		32,365
Gain on translation of foreign subsidiaries		10,773
Balance March 31, 2020	$	43,138

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.

7. WARRANT LIABILITIES

As the Broker Warrants (note 6(c)) have a US dollar exercise price, they have been treated as cash-settled warrant liabilities. They were recognized at fair value on date of issue as a financing cost with subsequent changes in fair value being recognized in loss. The following table reconciles the change in fair value of the warrant liabilities:

		March 31	December 31
		2020		2019
Beginning balance	$	43	$	-
Fair value on issue recognized as a financing cost		-		50
Fair value gain on revaluation recognized in loss for period		(24)		(7)
Ending balance	$	19	$	43

The fair value at March 31, 2020 was estimated using the Black-Scholesoption-pricing model with the following assumptions:

Assumptions	2020
Risk-free interest rate	1.22%
Expected volatility 1	93.74%
Expected life	0.2 years
Share price used	$0.54
Expected dividend yield	Nil

Note

1. Expected volatility is based on the historical and implied volatility of the share price on the TSX.

Page | 13

Northern Dynasty Minerals Ltd.

Notes to the Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2020 and 2019

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

8.	LOANS PAYABLE
				March 31	December 31
				2020		2019
		Beginning balance	$	1,360	$	-
		Loans provided during the period		183		2,317
		Accrued interest		9		14
		Repayment of loans		(1,364)		-
		Loans transferred to payables to related parties (note 9)		(188)		(971)
		Total	$	-	$	1,360

In November 2019, the Group entered into an unsecured non-revolving term loan credit facility agreement (the "Credit Facility") with a syndicate of lenders (the "Lenders"), two of whom are related parties, of up to $3,500. Loans provided by the Lenders earned interest at 10% per annum and were paid on repayment of the loans (see below). Pursuant to the Credit Facility, the repayment of the loans and accrued interest was to occur on a date that is the earlier of i) May 25, 2020 and ii) the date the Group has completed one or more equity or debt financings raising an aggregate of US$20,000.

As consideration for entering into the Credit Facility, the Group issued to the Lenders, on a pro rata basis, 466,666 share purchase warrants, each warrant exercisable into one share at the exercise price of $0.75 per share until December 2, 2021, of which 153,333 warrants were issued to the two related parties.

In January and February 2020, the loans including accrued interest were repaid to the Lenders. For the three months ended March 31, 2020, the Group accrued interest of $9, of which $5 (December 2019 - $4) related to the two related parties, and has been included in the finance expense in the loss for the period.

9. RELATED PARTY BALANCES AND TRANSACTIONS

The components of transactions to related parties is as follows:

		March 31	December 31
Payables to related parties		2020		2019
Key management personnel (a)
Loans payable	$	-	$	971
Loans payable beginning balance		971		-
Provided by key management personnel		183		967
Accrued interest		5		4
Repayment of loans		(1,159)		-
Other		87		-
Hunter Dickinson Services Inc. (b)		226		124
Total payables to related parties	$	313	$	1,095

Balances and transactions between the Company and its subsidiaries, which are related parties of the Company, have been eliminated on consolidation. Details between the Group and other related parties are disclosed below:

Page | 14

Northern Dynasty Minerals Ltd.

Notes to the Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2020 and 2019

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

1. Transactions and Balances with Key Management Personnel ("KMP")
   The aggregate value of transactions with KMP, being the Group's directors, Chief Executive Officer ("CEO"), Chief Financial Officer ("CFO"), Company Secretary, Executive Vice President ("EVP"), Environment and Sustainability, Vice President ("VP"), Corporate Communications, VP, Engineering and VP, Public Affairs, and Pebble Partnership ("PLP") senior management including the PLP CEO, Executive VP ("EVP"), Public Affairs, Senior VP ("SVP"), Corporate Affairs, SVP Engineering, VP, Permitting, Chief of Staff and Chair of Pebble Mines Corp ("PMC Chair"), was as follows for the three months ended March 31, 2020 and 2019:

Transactions		2020		2019
Compensation
Amounts paid and payable to HDSI for services of KMP employed
by HDSI 1	$	614	$	632
Amounts paid and payable to KMP 2		1,217		1,176
Bonuses paid to KMP 3		264		310
Interest payable on loans received from KMP 5		5		-
		2,100		2,118
Share-based compensation 4		297		537
Total compensation	$	2,397	$	2,655

Notes to previous table:

1. 1. The Group's CEO, CFO, Board Chair and senior management, other than disclosed in note 2 below, are employed by the Group through Hunter Dickinson Services Inc. ("HDSI") (refer (b)).
   2. Representsshort-term employee benefits, including director's fees paid to the Group's independent directors, and salaries paid and payable to the PLP CEO, PMC Chair and PLP EVP, SVPs, VP and Chief of Staff. The SVP Engineering is employed by the Group through a wholly-owned US subsidiary of HDSI ("HDUS"). The Group reimburses HDUS for costs incurred.
   3. In 2020, incentive bonuses were paid to the PLP CEO, PLP SVP Corporate Affairs and PLP Chief of Staff. In 2019, incentive bonuses were paid to the CFO, EVP, Environment and Sustainability, VP, Corporate Communications, SVP, Engineering, VP, Permitting, and to the Company Secretary.
   4. Includes cost of RSUs and share purchase options issued and/or vesting during the respective periods.
   5. The Group's Board Chair and CEO advanced a total of $1,150 to the Group pursuant to the Credit Facility (note 8), $967 in December 2019, and $183 in January 2020. The Group repaid the loans including interest accrued in January 2020.
2. Transactions and Balances with other Related Parties
   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.
   For the three months ended March 31, 2020, and 2019, transactions with HDSI were as follows:

Page | 15

Northern Dynasty Minerals Ltd.

Notes to the Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2020 and 2019

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

Transactions		2020		2019
Services rendered by HDSI:
Technical
Engineering	$	73	$	369
Environmental		95		171
Socioeconomic		91		115
Other technical services		32		61
		291		716
General and administrative
Management, corporate communications, secretarial, financial and
administration		539		659
Shareholder communication		168		165
		707		824
Total for services rendered		998		1,540
Reimbursement of third party expenses
Conferences and travel		76		66
Insurance		51		-
Office supplies and information technology		110		96
Total reimbursed		237		162
Total	$	1,235	$	1,702

10. TRADE AND OTHER PAYABLES

		March 31	December 31
Current liabilities		2020		2019
Falling due within the year
Trade 1
$	12,543	$	12,401
Lease liabilities 2		278		286
Total	$	12,821	$	12,687
Non-current liabilities
Lease liabilities 2	$	941	$	934
Total	$	941	$	934

Notes:

1. At March 31, 2020 and December 31,2019, trade payables in current liabilities includes legal fees due to legal counsel of US$5,274, due December 24, 2020, and US$635 payable on completion of a partnering transaction.
2. Lease liabilities relate to lease of offices, a copier, site hangers, yard storage and one vehicle, which have remaining lease terms of one to 122 months and interest rates of 7.5% - 10.5% over the term of the leases.

Page | 16

Northern Dynasty Minerals Ltd.

Notes to the Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2020 and 2019

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

During the three months ended March 31, 2020, the Group recognized $30 (2019 - $27) in interest expense on lease liabilities.

The following table provides the schedule of undiscounted lease liabilities as at March 31, 2020:

		Total
Less than one year	$	384
One to five years		884
Later than 5 years		352
Total undiscounted lease liabilities	$	1,620

The Group had short-term lease commitments of less than a year relating to property leases totaling $93 as of January 1, 2020. During the three months ended March 31, 2020, the Group incurred short-term lease commitments of $62 and expensed $65.

11. BASIC AND DILUTED LOSS PER SHARE

The calculation of basic and diluted loss per share for the three months ended March 31, 2020 and 2019 was based on the following:

		2020		2019
Loss attributable to common shareholders	$	10,715	$	16,211
Weighted average number of shares outstanding (000s)		434,012		326,902

For the three months ended March 31, 2020, basic and diluted loss per share does not include the effect of employee share purchase options outstanding (2020 - 25,746,266, 2019 - 24,451,732), non-employee share purchase options and warrants (2020 - 31,772,941, 2019 - 31,280,815), DSUs (2020 - 458,129, 2019 - 458,129), and RSUs (2020 - nil, 2019 - 35,877), as they are anti-dilutive.

1. EMPLOYMENT COSTS
   During the three months ended March 31, 2020, the Group recorded $3,833 (2019 - $3,728) in salaries and benefits, including share-based payments of $447 (2019 - $651) and amounts paid to HDSI for services provided to the Group by HDSI personnel (note 9(b)).
2. FINANCIAL RISK MANAGEMENT
   The Group is exposed in varying degrees to a variety of financial instrument related risks. The Board approves and monitors the risk management processes, inclusive of documented investment policies, counterparty limits, and controlling and reporting structures. The type of risk exposure and the way in which such exposure is managed is provided as follows:

1. Credit Risk
   Credit risk is the risk of potential loss to the Group if a counterparty to a financial instrument fails to meet its contractual obligations. The Group's credit risk is primarily attributable to its liquid financial assets, including cash and cash equivalents, restricted cash and amounts receivable. The Group limits the exposure to credit risk by only investing its cash and cash equivalents and restricted cash with high-credit quality financial institutions in business and saving accounts, guaranteed investment certificates, in government treasury bills, low risk

Page | 17

Northern Dynasty Minerals Ltd.

Notes to the Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2020 and 2019

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

corporate bonds and money market funds which are available on demand by the Group when required. Amounts receivable (note 4) exclude receivable balances with government agencies and refundable deposits. The Group's maximum exposure at the following reported dates was:

		March 31	December 31
Exposure		2020		2019
Amounts receivable	$	128	$	239
Restricted cash		874		805
Cash and cash equivalents		7,267		14,038
Total exposure	$	8,269	$	15,082

1. Liquidity Risk
   Liquidity risk is the risk that the Group will not be able to meet its financial obligations when they become due. The Group ensures, as far as reasonably possible, it will have sufficient capital in order to meet short to medium term business requirements, after taking into account cash flows from operations and the Group's holdings of cash and cash equivalents and restricted cash, where applicable. The Group however, has noted material uncertainty that raises substantial doubt about the Group's ability to continue as a going concern (note 1) notwithstanding that it has been successful in the past in raising funds when needed. The Group's cash and cash equivalents at the reporting date were invested in business and savings accounts (note 5(a)).
   The Group's financial liabilities are comprised of current trade and other payables (note 10) and payables to related parties (note 9), which are due for payment within 12 months from the reporting date, and non-current trade payables, which are due for payment more than 12 months from the reporting date. The carrying amounts of the Group's financial liabilities represent the Group's contractual obligations.
2. Foreign Exchange Risk
   The Company is subject to both currency transaction risk and currency translation risk: the Pebble Partnership, Pebble Services Inc. and U5 Resources Inc. have the US dollar as functional currency, and certain of the Company's corporate expenses are incurred in US dollars. The operating results and financial position of the Group are reported in Canadian dollars in the Group's consolidated financial statements. As a result, the fluctuation of the US dollar in relation to the Canadian dollar will have an impact upon the losses incurred by the Group as well as the value of the Group's assets and the amount of shareholders' equity. The Group has not entered into any agreements or purchased any instruments to hedge possible currency risks.
   The exposure of the Group's US dollar-denominated financial assets and liabilities to foreign exchange risk at the following reported dates was:

Page | 18

Northern Dynasty Minerals Ltd.

Notes to the Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2020 and 2019

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

		March 31	December 31
		2020		2019
Financial assets:
Amounts receivable	$	270	$	263
Cash and cash equivalents and restricted cash		5,094		14,090
		5,364		14,353
Financial liabilities:
Non-current trade payables		(941)		(932)
Warrant liabilities		(19)		(43)
Current trade and other payables		(12,101)		(12,426)
Payables to related parties		(115)		(24)
		(13,176)		(13,425)
Net financial liabilities exposed to foreign currency risk	$	(7,812)	$	(928)

Based on the above net exposures and assuming that all other variables remain constant, a 10% change in the value of the Canadian dollar relative to the US dollar would result in a gain or loss of $781 (December 31, 2019 - $93) in the reported period. This sensitivity analysis includes only outstanding foreign currency denominated monetary items.

1. Interest Rate Risk
   The Group is subject to interest rate cash flow risk with respect to its investments in cash and cash equivalents. The Group's policy is to invest cash at fixed rates of interest and cash reserves are to be maintained in cash and cash equivalents or short-term low risk investments in order to maintain liquidity, while achieving a satisfactory return for shareholders. Fluctuations in interest rates when cash and cash equivalents mature impact interest income earned.
   Assuming that all other variables remain constant, a 100 basis points change representing a 1% increase or decrease in interest rates would have resulted in a decrease or increase in loss of $27 (2019 - $43) for the three month period.
2. Capital Management
   The Group's policy is to maintain a strong capital base to maintain investor and creditor confidence and to sustain future development of the business. The capital structure of the Group consists of equity, comprising share capital and reserves, net of accumulated deficit. There were no changes in the Group's approach to capital management during the period. The Group is not subject to any externally imposed capital requirements.
3. Fair Value
   The fair value of the Group's financial assets and liabilities approximates the carrying amount.
   Financial instruments measured at fair value are classified into one of three levels in the fair value hierarchy according to the relative reliability of the inputs used to estimate the fair values. The three levels of the fair value hierarchy are:
4. • Level 1 - Unadjusted quoted prices in active markets for identical assets or liabilities;
   • Level 2 - Inputs other than quoted prices that are observable for the asset or liability either directly or indirectly; and
   • Level 3 - Inputs that are not based on observable market data.

Page | 19

Northern Dynasty Minerals Ltd.

Notes to the Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2020 and 2019

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

The fair value hierarchy gives the highest priority to Level 1 inputs and the lowest priority to Level 3 inputs. Fair value measurements, which are determined by using valuation techniques, are classified in their entirety as either Level 2 or Level 3 based on the lowest level input that is significant to the measurement.

The fair value measurement of the warrant liabilities (note 7) until their expiry are categorized within Level 2 of the hierarchy as it is exposed to market risk as they employ the quoted market price of shares and foreign exchange rates.

14. COMMITMENTS AND CONTINGENCIES

1. Legal Proceedings
   On February 14, 2017, short seller investment firm Kerrisdale Capital Management LLC published a negative piece (the "Kerrisdale Report") regarding the Pebble Project. Three putative shareholder class actions were filed against the Company and certain of its current officers and directors in US federal courts, specifically the Central District of California (Los Angeles) and the Southern District of New York (New York City). The cases are captioned: Diaz v. Northern Dynasty Minerals Ltd. et al, Case No.17-cv-01241(C.D. Cal.), Kirwin v. Northern Dynasty Minerals Ltd. et al, Case No.17-cv-01238(S.D.N.Y.)and Schubert v. Northern Dynasty Minerals, Ltd., et al., Case No.1:17-CV-02437(S.D.N.Y.). The complaints relied on the claims made in the Kerrisdale Report and alleged damages to a class of investors who purchased shares of the Company prior to the publication of the Kerrisdale Report and allege liability for losses pursuant to Section 10(b) of the Exchange Act of 1934 and SEC Rule 10b-5 thereunder, as well as control person liability against the individual defendants pursuant to Section 20(a) of the Exchange Act.
   The plaintiffs in both the Kirwinand Schubertactions voluntarily dismissed their claims without prejudice. The plaintiffs in the Diazaction continued to litigate and filed an amended complaint. The Company filed a motion to dismiss the amended complaint in the Diazaction, which the plaintiffs opposed. In April 2018, the United States District Court for the Central District of California (the "California District Court") granted the Company's motion and dismissed the plaintiffs' amended complaint in full, noting that its reliance on the sources in the Kerrisdale Report was an insufficient basis to allege securities fraud. The Court allowed the plaintiffs an opportunity to amend their complaint, which they did in June 2018. The Company again moved to dismiss the new complaint, and briefing on the motion concluded in November 2018.
   On February 22, 2019, the California District Court again dismissed all of the securities class action claims brought against the Company and certain of its officers and directors in the Diazaction, this time without leave to amend. The Court ruled in favor of the Company and its officers and directors on all claims and ordered the case closed.
   In March 2019, the Diazplaintiffs filed a notice of an appeal of the district court's dismissal order, and their appeal was filed with the Ninth Circuit Court of Appeals, in California, in June 2019. The Company filed its response in August 2019 and the plaintiffs submitted their reply in October 2019, closing the briefing before the appellate court. Subsequent to the reporting period, in April 2020, the appellate court decided that a hearing was unnecessary and, on May 8, 2020, the three appellate judge panel issued a memorandum decision affirming the district court's dismissal of the plaintiffs' claims. The plaintiffs may request a rehearing by the appellate court in the coming weeks, and if so, the Company will continue to defend itself vigorously in this action.
2. Short-termlease commitments
   As of March 31, 2020, the Group has $100 in short-term lease commitments. These leases have fixed monthly payments for the remaining term.

Page | 20

Northern Dynasty Minerals Ltd.

Notes to the Condensed Consolidated Interim Financial Statements

For the three months ended March 31, 2020 and 2019

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

1. PipelineRight-of-Way Bond Commitment
   The Group posted a bond of US$300 with the Alaskan regulatory authorities for a performance guarantee related to any potential reclamation liability as a condition for a pipeline right-of-way to a subsidiary of the Pebble Partnership, the Pebble Pipeline Corporation. The Group is liable to the surety provider for any funds drawn by the Alaskan regulatory authorities.

15. EVENTS AFTER THE REPORTING DATE

1. Market Offering
   On May 13, 2020, the Group closed an underwritten public offering of 14,375,000 shares of the Company at a price of $0.70 per share for gross proceeds of approximately $10,063. The offering was completed pursuant to an underwriting agreement dated April 29, 2020, among the Company and Cantor Fitzgerald Canada Corporation, as lead underwriter and bookrunner, and a syndicate of underwriters including BMO Nesbitt Burns Inc., H.C. Wainwright & Co., LLC and TD Securities Inc. (collectively, the "Underwriters"). The Underwriters were paid a 5% cash commission.
2. Private Placement
   On May 13, 2020, the Group completed a non-brokered private placement of 10,357,143 shares at $0.70 per share for gross proceeds of $7,250. The shares are subject to applicable resale restrictions, including a four-month hold period under Canadian securities legislation.

Page | 21