UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                    FORM 10-K

(Mark One)
x Annual report  pursuant to Section 13 or 15(d) of the Securities  Exchange Act
of 1934 [Fee Required]

For the fiscal year December 31, 1996 or
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 [No Fee Required] For the transition period from  ______________________
to ______________________

                         Commission File Number 0-9370
                               -------------------
                                   USMX, INC.
             (Exact name of registrant as specified in its charter)
                               -------------------

          Delaware                                  84-1076625
      (State or other                           (I.R.S. Employer
      jurisdiction of                           Identification No.)
      incorporation or
       organization)

    141 Union Boulevard, Suite 100
          Lakewood, Colorado                                 80228
   (Address of principal executive                         (Zip Code)
               offices)
                                 (303) 985-4665
                    Registrant's telephone number, including
                                    area code

        Securities registered pursuant to Section 12(b) of the Act: None
                    Securities registered pursuant to Section
                               12(g) of the Act:

                          Common Stock, $.001 Par Value
                                (Title of class)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes X  No

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. Disclosure contained herein o Disclosure not contained herein  X

The  aggregate  market value of the voting stock held by  non-affiliates  of the
Registrant  was  approximately  $11,404,330.  This  calculation  is based on the
closing  price of the stock as reported on The Nasdaq  Stock Market on March 20,
1997.

The  number  of  shares  of  the  Registrant's  $.001  par  value  common  stock
outstanding as of March 20, 1997 was 16,184,182.




<PAGE>

                      DOCUMENTS INCORPORATED BY REFERENCE
                   Items 10, 11, 12 and 13 are anticipated to
                 be included in the definitive proxy statement

<PAGE>


<TABLE>
<CAPTION>

                                Table of Contents


<S>                                                                                                  <C>
Items 1 and 2.     Business and Properties...........................................................2
                  Introduction.......................................................................2
                  History of Operations..............................................................3
                  The Illinois Creek Project.........................................................4
                  The Thunder Mountain Project.......................................................9
                  Montana Tunnels....................................................................12
                  Exploration........................................................................13
                  Mexico                                                                             14
                  RISK FACTORS                                                                       16
                  General Risks Related to the Mining Industry.......................................17
                  Specific Risks Related to USMX.....................................................20
                  Specific Risks Related to Dakota...................................................24
                  Risks Related to the Merger........................................................26
                  Employees..........................................................................26
                  Financial Information about Foreign and Domestic Operations and Export Sales.......26
                  Glossary of Terms..................................................................28
Item 3.     Legal Proceedings........................................................................33
Item 4.     Submission of Matters to a Vote of Security Holders......................................33
Item 5.     Market For The Registrant's Common Equity And Related Stockholder Matters................34
Item 6.     Selected Financial Data..................................................................35
Item 7.     Management's Discussion and Analysis of Financial Condition and Results of Operations....37
                  Going Concern Uncertainty..........................................................37
                  Liquidity and Capital Resources....................................................37
                  Results of Operations..............................................................39
Item 8.     Financial Statements and Supplementary Data..............................................44
Item 9.     Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.....70
Item 14.   Exhibits, Financial Statement Schedules, and Reports on Form 8-K..........................70
INDEX TO EXHIBITS....................................................................................71

</TABLE>



<PAGE>



                                     PART I


Items 1 and 2.     Business and Properties.

Introduction.

         Capitalized  terms not defined in the text are defined in the  Glossary
of Terms on pages 28 through 32.

         USMX,  Inc. (the "Company" or "USMX") is a Delaware  corporation  which
was founded in 1979. USMX exclusively  engaged in exploration for precious metal
properties  until 1988 when it developed  the Green Springs Mine in east central
Nevada.   During  the  period  1988  through  1995,  while  USMX  continued  its
exploration activity it also produced  approximately 273,000 ounces of gold from
Green Springs and three additional  mines and successfully  closed and reclaimed
the Green Springs Mine.  USMX was the recipient of awards for its performance in
the areas of  environmental  protection,  reclamation  and  safety.  Mining  was
completed in October 1995 at USMX's  remaining  production  unit, the Goldstrike
Mine,  in  southwestern  Utah.  USMX  expects  to  complete  reclamation  of the
Goldstrike Mine in 1997.

         USMX  views  exploration  as an  important  means  of  growth,  and has
historically explored several projects annually. During 1996, USMX continued its
exploration efforts on a limited basis outside of the United States, principally
in Mexico.

         USMX's  principal  focus in 1996 was the  development  of its  Illinois
Creek  Project (the  "Project")  in west central  Alaska.  In February 1996 USMX
completed  its  feasibility  study of the Project and received a commitment  for
project financing.  In May 1996 key permits necessary for mining,  heap leaching
and dam construction  were received and USMX commenced  construction of the mine
and  related  facilities.  The Air  Quality  Permit was  received  in June 1996.
Effective July 11, 1996, USMX acquired leasehold and other property interests in
the Project from North Pacific Mining Corporation ("NPMC"), a subsidiary of Cook
Inlet Region ("CIRI"), in exchange for 1,540,663 shares of USMX Common Stock. As
a result of this transaction,  NPMC owns approximately 9.5% of USMX's issued and
outstanding Common Stock. In addition,  NPMC received a 5% net return royalty on
production from the Illinois Creek Upland Mining Lease.  Also effective July 11,
1996,  USMX entered into the  Rothschild  Credit  Agreements  for a  $22,000,000
facility to finance the development and construction costs of the Project.

         During 1996 USMX  substantially  completed  construction of a 90-person
man camp, a 6.5 mile road to connect the camp with the deposit area and the site
of the process  facility,  a double  synthetic,  modified valley fill heap leach
pad, a rotary kiln to produce calcined lime and a carbon gold recovery plant. In
addition,  approximately  115,000 tons of overliner material and run-of-mine ore
were placed on the leach pad.  Minor  construction  and a leak test of the leach
pad will have to be completed before start-up currently scheduled for mid-May of
1997.  Leaching is  scheduled  to commence  upon  successful  completion  of the
leakage  test of the liner  system and  completion  of loading  ore on the first
leach cell. If the initial leak test is successful and normal weather  prevails,
the first gold production is anticipated by early summer of 1997.

         On January 3, 1997 the Company  entered  into an agreement in principle
to merge  ("Merger") with Dakota Mining  Corporation  ("Dakota").  The Merger is
subject to,  among other  things,  stockholder  approval.  A  definitive  Merger
Agreement  was executed on February 5, 1997.  On March 17, 1997,  Dakota filed a
Registration  Statement  with the  Securities  and Exchange  Commission  ("SEC")
regarding this transaction, including a preliminary draft Joint Proxy
Statement/Prospectus.  The Annual Meeting is tentatively scheduled for
May 20, 1997.


History of Operations

         USMX's  first  producing  mine,  the  Green  Springs  Mine,   commenced
production in June 1988. USMX completed mining, crushing and stacking operations
at Green Springs in June 1990.  Reclamation of pits,  haul roads and waste dumps
commenced in 1990 and continued through 1993. Rinsing of the heaps was initiated
during 1992 to meet final  closure  requirements.  During  1993,  rinsing of the
heaps and  reclamation of the plantsite were  completed.  During the life of the
Green  Springs  Mine,  USMX  received  environmental  and safety awards for this
operation  while  producing a total of 69,331 ounces of gold.  USMX received the
1992 State of Nevada  Governor's  Award for  Excellence in Mine  Reclamation  in
connection  with several of USMX's Nevada mines which included the Green Springs
Mine. The Governor's award, made jointly by the State of Nevada,  U.S. Bureau of
Land  Management  and U.S.  Forest Service was awarded to USMX in recognition of
outstanding  achievement  in  innovative  design,  superior  mine  planning  and
commitment to reclamation from project commencement to closure.

         USMX  commenced  open pit mining at the  Casino  Mine in Nevada in June
1990 and completed  mining in May 1991. In July 1991,  USMX commenced  mining at
the Winrock Mine. Mining and crushing were completed at the Winrock Mine in June
1992. The Casino and Winrock Mines shared a common heap leaching facility.  USMX
produced a total of 48,953 ounces of gold from the Casino/Winrock  project prior
to its sale on August 27, 1993.

         In May 1990, USMX completed the purchase of the Alligator Ridge Mine in
Nevada,  which  included  partially  leached  gold ore on heaps,  gold  recovery
facilities,  a mining fleet, a mill, and  approximately  26,000 acres of mineral
interests in the Alligator Ridge trend. During its tenure at the Alligator Ridge
Mine, USMX produced 50,188 ounces of gold. Construction of the crushing and gold
recovery  facilities at a satellite  facility,  designated  the Yankee Mine, was
completed  during the first quarter of 1992. USMX produced 26,220 ounces of gold
at the Yankee Mine between the time of initial gold  production in June 1992 and
its sale on August 27, 1993. USMX's  Casino/Winrock,  Alligator Ridge and Yankee
Mines,  together  with  surrounding  exploration  prospects,  were  sold  in two
separate  transactions  in 1993  for a  total  of $20  million  cash,  plus  the
assumption  by  the  buyer  of  related   obligations,   including   reclamation
liabilities.

         Effective  November 1, 1992,  USMX  acquired  from Tenneco  Corporation
("Tenneco"), the stock of Tenneco Minerals Company-Utah ("TMC-Utah"),  owner and
operator of the Goldstrike Mine located  approximately 35 miles northwest of St.
George,  Utah.  Soon  after  the  acquisition,  the  name of this  wholly  owned
subsidiary was changed to USMX of Utah, Inc. Gold production from the Goldstrike
Mine since November 1, 1992, was 77,182 ounces,  including  6,266 ounces of gold
produced in 1995.  During 1995, USMX was recognized for its reclamation  efforts
at the Goldstrike  Mine when it received the 1995 Earth Day Award from the State
of Utah Department of Natural Resources and Division of Oil, Gas and Mining.

         Access  to the  Goldstrike  Mine  is by  State  Highway  212 to a point
approximately 21 miles northwest of St. George,  then by well-maintained  gravel
road over a  distance  of  approximately  14  miles.  Mining  operations  at the
Goldstrike  Mine were  completed  in October  1994.  Leaching  was  completed in
December 1995.  Disturbed  areas at the Goldstrike  Mine were largely  reclaimed
during 1995 except for the heaps and the plant  site.  Reclamation  of the heaps
was begun  during  1995 with  rinsing of the second heap  commencing  in January
1996,  and  expected  to  continue  through  1997.  A  pilot  test  utilizing  a
bio-reactor for the passive treatment of heap effluent was initiated in mid-1996
and is expected to be completed  in early 1997.  Once rinsing of the second heap
is complete and a closure plan has been approved by the regulatory agencies, the
heap will be  recontoured,  covered with topsoil and seeded with various  native
plant species.  In addition,  the process plant will be dismantled and the plant
site reclaimed.

         USMX has  provided  approximately  $1,700,000  to the  State of Utah as
reclamation  surety.  The primary  lease  covering the mine permit area has been
terminated; however, a post termination agreement, dated July 16, 1996, provides
for USMX's continued occupancy during ongoing reclamation activities.



The Illinois Creek Project

     History

         The  Illinois  Creek  Project  is  a  moderate   grade,   near  surface
gold-silver deposit. It consists of two State of Alaska Mining Leases,  totaling
62,480  acres.  The  Illinois  Creek  Project  is part  of a large  polymetallic
district  covering 400 square miles in the southern Kaiyuh  Mountains.  The area
was first explored by Anaconda  Minerals as part of a joint venture with CIRI in
1980.  Subsequent  to Anaconda  Minerals'  activities,  the area was explored by
Goldmor Group,  Ltd., NPMC, and Echo Bay in association with NPMCUSMX  commenced
its exploration activities in August 1994. USMX has drilled 61 core holes and 89
reverse  circulation holes,  totaling  approximately  32,000 feet. This drilling
succeeded  in  increasing  the  minable  reserve  to  about  442,000   contained
equivalent ounces of gold and provided  geotechnical  information  necessary for
pit design and engineering.

         USMX made  payments to NPMC  totaling  $100,000 in 1994 to evaluate the
Illinois  Creek  property,  which  consists of the Illinois  Creek Upland Mining
Lease and the Round Top Upland Mining Lease. USMX  subsequently  entered into an
agreement with NPMC effective  December 16, 1994,  which was amended on February
6, 1996 (the "NPMC  Agreement")  to acquire these  leases.  Pursuant to the NPMC
Agreement,  USMX agreed to make a $1,000,000  non-refundable  payment to NPMC in
cash or shares of USMX Common Stock.  USMX elected to make the payment in Common
Stock,  and based upon the average market price of the Common Stock on Nasdaq as
provided  in the NPMC  Agreement,  USMX was  required  to issue to NPMC  449,754
Shares of Common  Stock.  USMX also agreed that,  upon  obtaining  the necessary
permits and if no material adverse economic change had occurred, USMX would make
a production  decision  and issue to NPMC an  additional  $3,000,000  in cash or
Common Stock.  USMX received the key permits related to the Project in May 1996,
and  determined  that no material  adverse  economic  change had  occurred  with
respect to the Project economics.  USMX made a production decision and agreed to
issue to NPMC an additional 1,090,909 shares of Common Stock. The calculation of
the number of shares was based on the average  market  price of the Common Stock
on Nasdaq as provided in the NPMC Agreement.

         Effective July 11, 1996, USMX issued the aggregate of 1,540,663  Common
Stock to NPMC. As a result of this transaction,  NPMC owns approximately 9.5% of
USMX's  issued  and  outstanding  Common  Stock.  USMX also  granted a  security
interest  to  NPMC  in  the  property,  which  is  subject  to  a  subordination
arrangement  with  Rothschild  on the Project (see below).  USMX had also agreed
with  NPMC to file a  Registration  Statement  relating  to the  resale of these
shares,  which  Registration  Statement has been filed and declared effective by
the  SEC.  USMX has  agreed  to use its best  efforts  to keep the  Registration
Statement  effective  until  NPMC has sold  these  shares  or until  June  1999,
whichever occurs sooner.

         In  addition  to the Common  Stock,  NPMC has the right to enter into a
mining venture agreement with USMX pursuant to which USMX would transfer to NPMC
an undivided 25% interest in both Illinois Creek Mining leases,  or to receive a
5% net  return  royalty.  NPMC  chose to  receive  a 5% net  return  royalty  on
production  from the Illinois  Creek Upland Mining  Lease.  No decision has been
made  regarding the property  covered by the Round Top Upland  Mining Lease,  as
USMX has not completed significant exploration work there.

         If USMX  delineates  the  existence of  additional  ore reserves on the
lease known as the Illinois Creek Upland Mining Lease, which increases the total
proven ore reserves to at least 1,000,000 ounces of equivalent gold ore reserves
beyond the  mineralization  stated in USMX's February 1996  feasibility  report,
then  NPMC  will have the right to elect to  participate  in  subsequent  mining
operations with respect to those additional  reserves for a 25% working interest
by reimbursing  USMX 120% of NPMC's 25% share of  exploration,  development  and
capital  costs  incurred by USMX  subsequent to February 1996 which are directly
related to delineation and/or production of the additional reserves.

         Pursuant to the NPMC  Agreement,  USMX has until  December  16, 1997 to
achieve  ("Commercial  Production")  which is defined as the  delivery to a bona
fide purchaser of minerals  produced for a minimum period of 45 consecutive days
at not less than 70% of the pro forma  production  capacity  as set forth in the
Project  feasibility  report.  This period may be extended at the option of USMX
for two additional  one-year  periods upon payment by USMX of a $300,000 advance
royalty, adjusted for inflation, for each one-year extension. The NPMC Agreement
terminates on December 16, 1999 if USMX has not achieved  commercial  production
by that date.

     Location, Access, Terrain and Climate

         The  Illinois  Creek  Project  site is located in the  southern  Kaiyuh
Mountains   in  the  western   interior  of  Alaska.   The  project  is  located
approximately 57 miles southwest of Galena and 23 miles east of the Yukon River.
It is equidistant from Fairbanks and Anchorage which lie approximately 320 miles
to the east and southeast of the Project respectively.

         Access to the site is by air. Equipment and supplies are transported to
the site by land,  sea and air. At the present time the most  economical  way to
transport freight to the site is from Seattle,  Washington to Anchorage,  Alaska
by barge. From Anchorage, it travels by truck or rail to Nenana. From Nenana, it
is moved down river on barge to Galena. From Galena, it is transported by air to
the site. The mine site is connected to the airstrip by a 6.5 mile road.

         The climate is sub-arctic and characterized by large, seasonal extremes
in temperature  and daylight.  Average winter  temperatures  are -7(Degree) F to
20(Degree)F;  mean summer  temperatures  range from  35(Degree)F to 67(Degree)F.
Regional extremes are -63(Degree)F to 93(Degree)F.  Precipitation averages 15 to
18 inches  annually,  including 81 inches of snow. Snow depth at the site ranges
from 24 to 36  inches  during a  typical  winter.  Historically,  August  is the
heaviest rainfall month with an average of 5.3 inches.

         Freeze-up of the Yukon River  normally  occurs in late October to early
November  and  breakup  normally  occurs in early to mid May.  Accordingly,  the
shipping  schedule on the Yukon River is typically  limited to a period  between
approximately May 25 and September 25.

     Proven and Probable Mineral Reserves

         The  following  table sets forth the proven and probable  mineable gold
ore reserves  located on the Illinois  Creek  Project as of September  24, 1996.
These reserves are based on a cutoff grade of 0.025 ounce of gold equivalent per
ton of ore.

     Proven and probable  mineable ore reserves are estimates of quantities  and
grades of ore which can be economically recovered based on assumptions of a $400
per ounce future gold price.  These reserves have been prepared by USMX. The ore
reserves  presented in this report are estimates only and may require  revisions
based on actual production experience. Fluctuations in the market price of gold,
as well as increased  production  costs or reduced  recovery  rates,  may render
reserves  containing  relatively lower grades of mineralization  uneconomical to
recover   and   may   ultimately   result   in  a   restatement   of   reserves.
<TABLE>
<CAPTION>



                                                                                                    Contained
                                          Contained Gold                        Gold Equivalent        Gold
       Ore Tons          Gold Grade          Ounces           Silver Grade          Grade         Equivalent Ounces
     -----------        -----------       --------------      ------------     -----------------  -----------------
<S>                     <C>                  <C>              <C>              <C>                    <C>
    6,219,470(1)        .064 oz/ton          398,046          1.422 oz/ton     0.069 oz/ton(2)        429,143

<FN>
(1)  In addition there are approximately 575,000 tons of material with grades between 0.015 oz/ton and the cut-off grade of 0.025
     oz/ton which must be stripped and may be placed on the heap if economics warrant it.
(2)  Gold Equivalent grade is calculated using a gross recovery for silver of 25% and a gold to silver price ratio of 80.

</FN>
</TABLE>

     Metallurgy

         Metallurgical  recovery  from the  run-of-mine  ore is  projected to be
approximately  80% of  contained  gold  and 25% of  contained  silver.  Seasonal
leaching of gold is  currently  planned,  however,  year round  leaching  may be
conducted if operations prove this to be effective.

     Geology

         The deposit occurs as a large gossan zone striking  east-northeast  and
dipping  40(Degree)  to  70(Degree)  to the  southeast,  hosted  within  a thick
sequence of quartzites which are carbonate rich. The gossan has been intersected
by drilling  over a strike  length of 12,000 feet and to a depth of greater than
1,500 feet.  Oxidation of the  mineralization is complete to a depth of at least
1,100 feet below the present surface.  Economic  gold-silver  mineralization  is
present in portions of the gossan,  and is associated  with  elevated  levels of
copper and/or lead,  hydrothermal or remobilized  silica,  earthy hematite,  and
poorly defined structural features. Supergene enrichment of both gold and silver
in near surface locations is also apparent.

     Plan of Operations

         USMX has constructed a 90-person camp northwest of an airstrip which is
6.5 miles by road from the mine  site.  Water for ore  processing  comes  from a
source  located near the  mid-point of the main access road from the airfield to
the mine site and electrical  power is generated using diesel powered  generator
sets. Waste heat from the generators will be used to heat the process  building.
In addition to the process facility, a rotary kiln, an assay laboratory, a truck
maintenance  shop  and  an   administration   building  have  been  constructed.
Communications are by satellite phone systems.

         The deposit has been  developed as a conventional  open-pit mine.  USMX
currently  plans to conduct  mining  during May through  October.  Depending  on
weather conditions, USMX may attempt to extend this season. Trucks and front-end
loaders  will be used to mine,  haul and  deposit the ore in a valley fill lined
impoundment.        Heap        leaching        followed        by        carbon
adsorption/desorption/electrowinning  will be  used to  extract  the  gold.  The
process  system is  designed  to  recover  the annual  scheduled  amount of gold
production  in eight  months.  Lime is used to condition the ore and is produced
on-site  utilizing a local source of limestone.  The burnt lime is calcined in a
diesel-fired  rotary  kiln,  which has been  erected at the site.  This  locally
produced lime is less expensive than purchasing and  transporting  calcined lime
to the site.

         The mine operating schedule will be ten hours per shift, two shifts per
day, six days per week.  Present plans provide for three crews which will rotate
on a four-week on, two-week off schedule.  USMX expects to employ  approximately
54 people at Illinois  Creek,  with a like number of personnel to be employed by
the mine contractor.

         Construction of mine  facilities  began in March 1996 and was projected
to be completed in September  1996. The approved  capital  expenditures  for the
development of Illinois  Creek was $22 million.  However,  the project  incurred
cost  overruns  in  several  areas  and  experienced  delays  due to  unexpected
inclement weather. As a result,  construction is now expected to be completed in
May 1997 and the total  pre-production  capital costs are currently estimated at
about $43.9 million,  including  approximately  $7.6 million in working capital.
This does not include property  acquisition  costs of $4 million paid to NPMC as
outlined above. As of December 31, 1996, USMX's investment in Illinois Creek was
approximately  $33.7  million  including  $4.0  million of property  acquisition
costs.

     Project Financing

         Effective  July 11,  1996,  USMX  entered  into the  Rothschild  Credit
Agreements  for  a  $22,000,000   facility  to  finance  the   development   and
construction costs of the Project.  USMX transferred its interest in the Project
to its  wholly-owned  subsidiary,  USMX of  Alaska,  Inc.  ("AK")  which  is the
borrower  of  $19.5  million  of  the  $22  million   facility.   Under  certain
circumstances,  the loan to AK may be in the form of a gold loan, in which event
the  maximum  credit  amount  would be the  number of  ounces  of gold  equal to
$19,500,000  divided  by the price of gold in London.  However,  USMX has agreed
with NPMC that it will not  convert  the loan to a gold loan  until such time as
the Project has achieved Commercial Production as defined in the NPMC Agreement.

         All  Proceeds  related to the Project are to be deposited in an account
dedicated to the Project operations (the "Proceeds Account"). In addition, AK is
required to maintain a minimum balance in the Proceeds  Account equal to the sum
of (i) the greater of $1,500,000 or a formula  amount based on the present value
of future  net cash flow  from the  Project,  (ii) the  lesser  of  $250,000  or
interest  payable to  Rothschild  for the following  three months,  and (iv) any
other payments due to Rothschild for the following three months.

         AK is not permitted to make  withdrawals  from the Proceeds Account for
non-Project purposes or to pay dividends until ("Completion") has occurred.  The
requirements for Completion include the construction of the Project  facilities,
which  facilities and the equipment  thereon must be  mechanically  complete and
electrically operable ("Mechanical  Completion"),  the achievement of production
in amounts and grades,  costs and reserves similar to the development  plan, and
the absence of any default in the Credit  Agreements.  The note  evidencing  the
$19.5 million obligation bears interest, payable quarterly, at 2.25% above LIBOR
until  Completion  and 1.879%  thereafter  for the remainder of the  approximate
four-year term of the loan.  Principal  payments will be made in seven amortized
installments  on  September  30 and  December  31,  of  each  year.  AK  paid an
establishment fee of $292,500 to Rothschild for the facility.

         The balance of the facility is  represented by a $2.5 million note made
by USMX which  originally  provided  for  conversion  into Common  Shares at the
conversion  price of $3.40 per share at the  option  of  Rothschild  at any time
during  the  approximate  four-year  term of the  note.  USMX may  also  require
conversion if the note is not in default and the daily closing price of the USMX
Common Stock on Nasdaq  exceeds  $4.75 for 30  consecutive  trading  days.  As a
result of an amendment  October 1996, the  conversion  price has been reduced to
$1.74.  USMX has also agreed to register  the USMX Common Stock for resale under
certain  circumstances.  The $2.5 million loan bears interest at 2% above LIBOR,
payable no less frequently than semi-annually.

         As of December 31, 1996,  substantially all of the $22 million facility
had been drawn down. In accordance  with the  requirements of the related Credit
Agreements, USMX deposited the entire proceeds of the $2.5 million loan into the
Proceeds  Account and such  proceeds  are not  available  for general  corporate
purposes.  Payments may be made to USMX from the  Proceeds  Account in an amount
sufficient for USMX to make interest payments. AK will not be permitted to repay
the $2.5 million to USMX or other advances by USMX in the approximate  amount of
$3.4 million unless certain  conditions  are satisfied,  principally  related to
repayment of the notes to Rothschild and satisfactory  operation of the Project.
USMX has pledged to Rothschild its shares in AK as well as its notes from AK for
advances made by USMX.  Rothschild  and Dakota have agreed to terminate the $2.5
million  note for payment of $1.5 million and transfer of the balance due to the
$19.5 million note. See "Dakota Line of Credit" and "Intercreditor Agreement."

         USMX  is  also a  guarantor  of the  $19.5  million  loan  to AK  until
Completion. In addition, USMX will be a continuing guarantor of AK's covenant to
comply with environmental laws.

         AK  must  deliver  to   Rothschild,   among  other  things,   financial
information,   reserve,   hedging  and  operating  reports,  and  must  use  all
commercially reasonable efforts to maintain,  develop and operate the Project in
accordance  with the  present  development  plan  and  prudent  mining  industry
practices.  AK must comply with applicable laws and maintain its property rights
in the Project,  including payment of royalties which may become due to NPMC. In
addition, except for limited circumstances, without Rothschild's consent, AK may
not incur any additional  indebtedness,  permit any liens on the Project, assume
or  guarantee  indebtedness  of others,  invest in  others,  merge or change its
capital structure, sell the assets of the Project, or permit Project reserves or
future net cash flows to decline  materially from the present  development plan.
AK must also achieve  Mechanical  Completion by July 31, 1997, and Completion by
November 30, 1997.

         USMX has also agreed with Rothschild  that, so long as the $2.5 million
note  made  by  USMX  is  unpaid,  or  any  other  obligation  of  USMX  remains
unsatisfied,  including  USMX's  guarantee  of the loan to AK, USMX will,  among
other things, comply with all applicable laws, provide Rothschild with financial
reports and continue to engage principally in the mining business.  In addition,
except for limited  circumstances,  without Rothschild's  consent,  USMX may not
incur  indebtedness  (other than indebtedness after Completion to develop mining
properties  where the sole recourse of the lender is the mining  property  being
developed), permit any liens on the Project, assume or guarantee indebtedness of
others,  invest  in  others,  merge  (unless  after  Completion  and USMX is the
survivor of the Merger) or change its capital  structure,  pay any  dividends or
sell the assets of the Project.

         USMX has also agreed with  Rothschild  that it shall not permit its (a)
current  ratio  to  be  less  than  2.0  to  1.0;  (b)   consolidated   tangible
shareholders'  equity to be less than  $17,500,000;  and (c) total  consolidated
liabilities to exceed 175% of its consolidated  tangible  shareholders'  equity,
and that it would deposit  $1,500,000  in the Proceeds  Account by September 30,
1996, which it was unable to do. In October 1996 Rothschild  agreed with USMX to
waive these  conditions  and to not take any actions  until  December  31, 1996,
conditioned upon USMX's agreements to, among other things, file a prospectus for
a public  offering by November 1, 1996 with  appropriate  securities  regulatory
authorities and complete the offering by December 31, 1996,  adjust the price at
which  Rothschild  may elect to convert the $2.5 million loan into USMX's Common
Stock to the offering price in the public  offering (or in a private  placement)
are sold or if no sale, at the average trading price of the Common Stock for the
last ten trading days of 1996 and to pay to  Rothschild a fee of $100,000  which
fee is payable upon the first to occur of (i) a date upon which such payment can
be made without materially  reducing the working capital reasonably  required by
USMX for continued operations or (ii) April 15, 1997.

         Although USMX did file a prospectus  for a public  offering by November
1, 1996, it determined to proceed with the Merger instead of a public  offering.
USMX has entered into a loan  agreement  with Dakota,  and Rothschild and Dakota
have  entered  into  an  agreement  which  provides  for,  among  other  things,
forbearance  by  Rothschild  under  certain  circumstances  of the  exercise  of
Rothschild's  rights  under the  Rothschild  Credit  Agreements  with USMX.  See
"Dakota Line of Credit" and "Intercreditor Agreement."



     Dakota Line of Credit

         As part of the Merger transactions,  Dakota and USMX agreed that Dakota
will  provide a $5  million  line of credit to USMX to provide  interim  working
capital  to  sustain  USMX's   operations,   principally  the  construction  and
development of the Illinois  Creek Mine,  until the Merger is  consummated.  The
line of  credit  bears  interest  at the  rate of one per  cent  above a  quoted
floating  prime  rate  and is due  August  31,  1997 or  earlier  if the  Merger
Agreement  is  terminated  before such date.  The  proceeds  will be used to pay
certain  ongoing  operating  expenses  of USMX,  primarily  in  connection  with
start-up activities associated with the Illinois Creek Mine and to partially pay
trade creditors of USMX and its  subsidiaries in accordance with a plan approved
by   Rothschild   and   Dakota.   The   $5,000,000   Loan   Agreement   contains
representations,   warranties,  covenants  and  negative  covenants  typical  in
short-term financing transactions.

         The line of credit is  evidenced by two  promissory  notes with similar
terms but different amounts and different  security.  The $2 million  promissory
note ("Note 1") is secured by a second  priority  position in all of the capital
stock of AK owned by USMX. AK holds title to the Illinois Creek Mine. The second
promissory  note for $3 million ("Note 2") is secured by a first position on all
of the capital  stock of MXUS S.A. de C.V.,  USMX's  Mexican  Subsidiary,  and a
first  position on USMX's  interest in the Thunder  Mountain  property in Idaho.
USMX and Dakota agreed to grant Rothschild a second priority  security  position
in the security for Note 2.

         Funding for the $5 million line of credit was  provided  from a portion
of the proceeds of a Special  Warrant  offering made by Dakota in February 1997.
See Item 7.

     Intercreditor Agreements

         In  connection  with the  extension of the $5 million line of credit by
Dakota to USMX and  consummation  of the Merger,  the consent of Rothschild  was
required.  Further,  Dakota,  as the potential  owner of USMX,  desired  certain
changes to the  Rothschild  loan facility in order to avoid  immediate  defaults
under such  facility  after  closing of the  Merger.  Accordingly,  the  parties
negotiated an  Intercreditor  Agreement which provides,  among other things,  as
follows:

   (a) The  consent of  Rothschild  to the Merger  and the  extension  of the $5
   million line of credit from Dakota to USMX on the terms described above.

   (b) Rothschild's  agreement to share, pari passu with Dakota, in any proceeds
   from  foreclosure  on the  capital  stock of AK in the  ratio  of the  amount
   outstanding  under Note 1 to $22 million,  but with Rothschild  retaining the
   right to deal with such security.

   (c) Dakota's  agreement to fund at least $2 million of its line of credit for
   costs and expenses at the Illinois Creek Mine according to a plan prepared by
   USMX and approved by Rothschild and Dakota.

   (d) The  agreement  of  Dakota  to  guarantee  USMX's  obligations  under the
   Rothschild Credit  Agreements until  "commercial  completion" of the Illinois
   Creek Mine.

   (e) The agreement of Rothschild  to forebear  from  exercising  its rights to
   declare and enforce defaults (except payment or bankruptcy  defaults) of USMX
   or  AK  under  the  Rothschild   Credit  Agreements  until  the  earliest  of
   consummation  of the Merger,  termination of the $5 million line of credit or
   June 30, 1997.

   (f) For  amendment of certain terms and  covenants in the  Rothschild  Credit
   Agreements,  to be  effective  upon  closing  of the  Merger,  which  include
   revisions to the  definition of  "commercial  completion,"  and amendments to
   certain financial covenants.

   (g) Dakota's and Rothschild's rights to share in the collateral  terminate if
   the Merger is consummated or the $5 million line of credit is extinguished.

   (h) At the closing of the Merger,  a $2.5  million  convertible  loan to USMX
   under the Rothschild  Credit  Agreements  will be  extinguished by payment of
   $1.5  million by Dakota and adding  the  balance to the  outstanding  amounts
   under the project  financing  portion of the such  Agreements.  In  addition,
   certain fees  payable by USMX to  Rothschild  in the amount of $100,000  will
   become due and payable at the closing of the merger.

   (i) Rothschild,  Dakota and Gerald Metals,  Inc. ("Gerald") have also entered
   into an Intercreditor agreement in connection with the foregoing transactions
   and the extension by Gerald of additional  working  capital credit to Dakota.
   This  Intercreditor  agreement  provides that Rothschild  shall enjoy a first
   priority  position  on assets  owned by the USMX Group and Gerald will hold a
   first  priority  position on all Dakota  assets except the USMX Group assets,
   following the Merger. Gerald has received a collateral assignment of Dakota's
   rights in Note 2 to secure  its  extension  of  additional  credit  under its
   working capital facility to Dakota.




The Thunder Mountain Project

     Introduction

         USMX is  exploring  the merits of  conducting  gold and  silver  mining
activities at the Dewey Mine in the Thunder  Mountain Mining District in eastern
Valley County,  Idaho,  approximately  100 miles northeast of Boise,  Idaho. The
proposed Dewey mining  operations are part of the Thunder  Mountain  Project and
consist of the  development of a gold and silver ore deposit located on patented
mining claims  administered  by the Idaho  Department of Lands. In January 1996,
USMX submitted a Notice of Intent to Operate  ("NOI") with the Idaho  Department
of Lands. Following review by an Idaho Joint Review Process Committee consisting
of state and federal agencies, it was determined by the U.S. Forest Service, the
lead federal agency,  that an  Environmental  Impact Statement would be required
for the project.  In June 1996, an Initial Plan of  Operations  was published to
initiate  the  process  under  the  National   Environmental   Protection   Act.
Preparation of a feasibility study is expected to be ongoing  throughout 1997 to
refine the project design and economics.

     History

         Gold was discovered in the Thunder Mountain area in 1894 at the site of
what is now  known as the  Dewey  Mine.  During  the  period  from  the  initial
discovery until 1942, various operators reportedly produced approximately 31,000
ounces  of gold and  16,000  ounces of silver  from  both  underground  lode and
surface  placer  workings.  Renewed  interest in the  district  began in earnest
during the early 1970's due to rising gold prices.  After exploration by several
major mining companies,  a portion of the property, the Sunnyside Mine area, was
placed into production by Coeur d'Alene Mines  Corporation  ("Coeur d'Alene") as
an open pit, heap leach operation in 1986.  Between 1986 and 1990, Coeur d'Alene
reportedly produced 120,000 ounces of gold and 240,000 ounces of silver from the
combined  Sunnyside,  Goldbug and  Lightning  Peak pits.  After  reclaiming  the
property,  Coeur d'Alene  terminated its leases with Thunder Mountain Gold, Inc.
in  December  1990.  At the  adjacent  Dewey  Mine,  the  Dewey  Mining  Company
constructed  a 450 ton per day mill and the property was operated as an open pit
mine ("Golden  Reef Joint  Venture")  during 1981. In the mid 1980's,  the Dewey
Mine became the subject of  litigation  which was resolved in favor of the Dewey
Mining Company late in 1991.

         Effective July 9, 1993,  USMX entered into an Exploration and Option to
Purchase  Agreement  ("Thunder  Mountain  Agreement") with Dewey Mining Company,
Thunder  Mountain Gold,  Inc. and two individuals  (the foregoing  companies and
individuals  described  below  collectively  as  "Owners").  The Owners  control
approximately  5,500 acres in the Thunder Mountain Mining District consisting of
both patented and unpatented mining claims. Pursuant to the terms of the Thunder
Mountain Agreement, USMX was granted the sole and exclusive right to explore for
and develop  minerals on the property in exchange for advance  royalty  payments
totaling  $100,000.  In  addition,  USMX  committed to spend,  and did spend,  a
minimum of $500,000 evaluating the property prior to April 1, 1995.

         The Thunder Mountain  Agreement  requires that, before USMX can put the
property into commercial production, it must prepare and deliver to the owners a
feasibility  study  regarding  the  project.  USMX has  extended the term of the
agreement  through  April 30,  1997.  However,  the Thunder  Mountain  Agreement
further  provides  USMX with the option for a final  extension  until  April 30,
1998, in exchange for an additional  advance  royalty  payment of $250,000.  The
advance  royalty  payments  made may be  recovered by USMX for seven years after
payment  should the Owners elect to receive  royalties  under options (a) or (c)
below.  The Thunder  Mountain  Agreement  terminates  if USMX fails to deliver a
feasibility  study to the Owners by the end of the last year's  extension  under
the Agreement or if USMX  exercises its right to terminate the Thunder  Mountain
Agreement at any time.

         Within 90 days after USMX provides the Owners with a feasibility study,
the Owners may elect to (a) participate in subsequent efforts to the extent of a
30% working  interest,  plus  receive a 1.5%  royalty,  or (b) receive a 30% net
profits interest, or (c) receive a 5% net return royalty from production. If the
Owners elect to receive a 5% net return royalty,  USMX will be obligated to make
advance royalty payments of: (1) $200,000 within thirty days after  commencement
of Commercial Production (as defined in the Thunder Mountain Agreement), and (2)
$250,000  each year  thereafter.  If the  Owners  fail to  notify  USMX of their
election  prior to the end of the 90 day election  period they will be deemed to
have made an election to receive a 5% net return royalty.

         The Thunder Mountain  Agreement provides that once the Owners have made
their  election,  USMX shall have one year  within  which to achieve  Commercial
Production. If USMX fails to achieve Commercial Production within one year, USMX
must either  reconvey  the property to the Owners or extend by one year the time
period  within which  Commercial  Production  must commence by paying an advance
royalty of $200,000 to the Owners. If Commercial Production has not begun by the
end of the  extension  period,  USMX may  obtain a final  extension  of one year
within which to achieve Commercial Production by paying the Owners an additional
advance royalty of $250,000.

         In addition to the advance  royalty  payments and the work  commitments
outlined  above,  USMX is  obligated  to pay all fees  necessary to maintain the
unpatented  mining  claims  through  August 31 of the calendar year in which the
extension year expires.

         The area of USMX's primary activity lies approximately  4,000 feet west
of the  Sunnyside  deposit  previously  mined by Coeur  d'Alene.  The results of
USMX's drilling in 1993 were favorable, including a number of intersections that
exceed 100 feet in  thickness  and  average in excess of 0.10 ounces of gold per
ton. USMX was also successful in extending the deposit along strike into an area
that was not  previously  drilled.  During  1994,  USMX  drilled  a total of 104
exploration and development holes on the property, helping to define the margins
and high grade core of the Dewey  deposit.  As of December  31,  1996,  USMX has
expended a total of $3.7 million on the property.

     Location, Access, Terrain and Climate

         The Dewey Mine lies  within the  Thunder  Mountain  District in eastern
Valley County,  Idaho. Access to the District is obtained via U.S. Highway 95 to
Cascade, Idaho, then east 42 miles to Landmark, Idaho on Forest Highway 22, then
north  and  east  approximately  57 miles on U.S.  Forest  Service  roads to the
property.  The Thunder  Mountain  Mining  District is  currently  accessible  by
vehicle about seven months out of the year from late May to late November.

         Local  elevations  range from  approximately  7,300 to 9,000 feet.  The
District  forms an enclave of patented and federal lands within the Frank Church
Wilderness  Area  administered by the Krassel  District of the Payette  National
Forest.

         Due to the location of the  property,  and based on the  experience  of
operations  previously  conducted  at the  Dewey  Mine  and at  nearby  existing
operations,  future  mining  operations  of USMX would be seasonal,  except that
processing can be conducted year around.

     Plan of Operations

         The Dewey  Mine  deposit  is a bulk  tonnage,  heap-leachable  ore body
located on  patented  lode mining  claims in the central  portion of the Thunder
Mountain Mining District.  It is presently  anticipated that  conventional  open
pit/heap leach  techniques will be used with the fluid  management  system to be
designed as a zero discharge  system.  Due to the remote location of the deposit
USMX would be required to generate its own electrical power.

         USMX may use a contract miner to develop and operate the open pit mine.
If the Merger is consummated,  some aspects of the Thunder  Mountain  operations
may  be  combined  with  Dakota's  nearby   Stibnite   operations  for  improved
efficiency.

     Geology

         The  Thunder  Mountain  Mining  District  is  localized  in the central
portion  of a  caldera  complex  underlain  by  Challis  volcanics  as  well  as
graben-fill, pyroclastic-derived sediments. The Dewey Mine ore deposit is hosted
by  pyroclastic  sediments,  while the  Sunnyside,  Goldbug and  Lightning  Peak
deposits  previously mined by Coeur d'Alene were hosted by the volcanics.  Known
concentrations of economic gold  mineralization  are controlled by a combination
of structure and stratigraphy.

     Permitting

         During 1995 and 1996,  geotechnical and baseline environmental work was
conducted and USMX re-evaluated the project using the heap leach process for the
recovery of gold.  On January  31,  1996,  USMX  submitted a Notice of Intent to
Operate  ("NOI")  with the Idaho  Department  of Lands  ("IDL") and U.S.  Forest
Service-Payette National Forest ("PNF").

         Permits, plans and approvals from federal, state and local agencies are
to be obtained  utilizing the Idaho Joint Review  Program,  details of which are
published in a February  1996 State of Idaho  publication  titled  "Joint Review
Program". This program was initiated on January 31, 1996 with the publication of
the NOI which was forwarded to the IDL. A joint review of the NOI by the IDL and
the PNF determined that a Federal  Environmental  Impact Statement and Record of
Decision would be required for the Project prior to initiation of development. A
third-party  consultant,  Science Applications  International  Corporation,  was
selected by the agencies to develop the EIS.

         Subsequently,  meetings were  organized by the IDL and the PNF in which
permit  requirements,  baseline  data  requirements  and design  standards  were
discussed on air,  climate,  soils and subsoils,  geology,  engineering  for the
waste rock facility,  roads and heap leach facility.  Baseline data requirements
were  completed  in the  summer  of 1996.  Since  permitting  has only  recently
commenced, it is difficult to predict when necessary permits might be received.

     Feasibility Study

         Substantially  all the field  work for the  feasibility  study has been
completed and it is USMX's intention to complete an internal  feasibility study.
Most of USMX's  resources  are being  directed  to the  Illinois  Creek  Project
consequently,  work on the feasibility  study and permitting at Thunder Mountain
may be delayed.


Montana Tunnels

         The  Montana  Tunnels  property  is  located  in  the  Colorado  Mining
District,  Jefferson County,  Montana, 22 miles south of Helena. Montana Tunnels
consists of approximately  9,300 acres of patented ground plus about 1,000 acres
of other mineral rights.  This property was developed and is operated by Pegasus
Gold. Mine and mill  construction  commenced in March 1986,  milling  operations
began in March 1987, and full  operating  status was achieved by Pegasus Gold in
October 1987.

         The  Montana  Tunnels  Mine  involves  open pit mining  operations  and
conventional milling technology.  The Montana Tunnels ore is processed through a
circuit  which  incorporates  crushing,  grinding,  and  selective  flotation to
produce lead and zinc  concentrates,  and a gravity circuit for recovery of free
gold.  The majority of gold and silver value is  associated  with the base metal
concentrates.  As of December 31, 1996,  Pegasus Gold estimated that the Montana
Tunnels Mine has proven and probable  ore reserves of  approximately  17,095,000
tons.

         Pending completion of the sales transaction  described below, USMX owns
a net  profits  interest in the Montana  Tunnels  Mine.  USMX is entitled to the
greater of a five  percent  net  profits  royalty  interest  or minimum  advance
royalties of $60,000 per month until certain construction,  land acquisition and
associated  financing  and other  costs  have been  recovered  by  Pegasus  Gold
("Payback"),  and a 50 percent net profits royalty interest thereafter.  Payback
is defined in the  agreement  with  Pegasus Gold to occur when 90 percent of net
profits equals the sum of $250,000,  plus the project costs incurred  subsequent
to January 1, 1986,  plus interest costs imputed on these costs until  September
30, 1987, the date of full operation status.  Net profits,  as defined,  include
deduction  from revenues of such costs as direct  operating  and  administration
expenses,  allowable new capital  expenditures,  property  payments,  management
fees, interest on debt and equity financing,  repayment of gold loans, repayment
of certain debt obligations,  and taxes other than income taxes. Payback has not
been achieved,  and it is unclear whether  Payback will ever be achieved.  Since
inception of the contract USMX has only received the minimum advance royalties.

         In  order  to  obtain  additional  funding  for its  operations  and to
partially fund the cost overruns experienced at the Illinois Creek Project, USMX
borrowed $2.5 million from Pegasus Gold in May 1996.  The  obligation is secured
by USMX's royalty  interest in the Montana Tunnels  Property.  In June 1996 USMX
and Pegasus  Gold agreed to the sale of USMX's  interest in the Montana  Tunnels
Property to Pegasus  Gold for $4.5  million,  subject to the  approval by USMX's
stockholders.  Pending completion of the transaction, Pegasus Gold provided USMX
an  additional  $2  million  which was deemed an  amendment  to the terms of the
outstanding  $2,500,000 loan (the "Loan"). The $60,000 per month minimum advance
royalty has been applied as payment of the principal and accrued interest on the
Loan.

         In March 1997, Pegasus Gold and USMX entered into a formal Purchase and
Sale Agreement (the "Montana  Tunnels  Royalty  Agreement").  A closing is to be
held within five days after USMX stockholder approval. The USMX stockholders are
scheduled  to consider  this  proposal  at the annual  stockholder  meeting.  At
closing of the  transaction,  all rights related to the Montana  Tunnels Royalty
Agreement  will be  conveyed  to  Pegasus  Gold in  satisfaction  of all  unpaid
principal and interest on the Loan, and the security  interests  granted by USMX
to  Pegasus  Gold and the net  profits  royalty  interest  will be  deemed to be
terminated.  At the  closing,  USMX will  deliver  all of its  right,  title and
interest  in and to the  royalty  interest  and  Pegasus  Gold will  deliver  an
acknowledgment of repayment of the Loan.

         In determining to sell the net profits royalty interest, the USMX Board
of Directors  evaluated the history of payment of the minimum advance royalties,
terms of current and future  smelter  contracts,  estimated  variables  in metal
prices, site visits conducted by employees of USMX and USMX's outside consultant
and interviews  with key staff members of the Montana Tunnels Mine and employees
of Pegasus Gold.  Based on the scheduled  production  termination at the Montana
Tunnels Mine in the year 2000, it was  determined  that the net present value of
the minimum  advance  royalties was $2.7 million.  The USMX Board concluded that
the  purchase  price was  reasonable  in view of its  determination  that it was
unlikely that USMX would receive royalty payments substantially greater than the
purchase price.


Exploration

         Due to continued  threat of adverse  amendment to or replacement of the
U.S.  mining laws as well as to other  existing  regulations,  USMX continued to
direct its exploration activity to the evaluation of private lands in the United
States,   and   opportunities  in  Latin  America.   Exploration  for  minerals,
particularly for gold, is highly speculative in nature,  involves many risks and
frequently  is  non-productive.  There can be no assurance  that USMX's  mineral
exploration efforts will be successful.  Once  mineralization is discovered,  it
usually  takes a number of years from the initial  phases of  exploration  until
production is possible, during which time the economic feasibility of production
may change.  Substantial  expenditures  are required to  establish  ore reserves
through drilling, to determine metallurgical processes to extract the metal from
the ore and, in the case of new properties,  to construct  mining and processing
facilities.  As a result of these uncertainties,  no assurance can be given that
USMX's  exploration  programs  will result in the  expansion or  replacement  of
existing reserves.

     Ophir

         This  property is located in western  Alaska,  approximately  250 miles
northwest  of  Anchorage.  In July 1996 USMX was  granted  the right to  explore
approximately 13,000 acres in the Ophir Mining District pursuant to an Exclusive
Mineral  Exploration Permit with the State of Alaska Mental Health Trust Unit, a
division of the Alaska Department of Natural  Resources.  Access to the property
is by charter air service from  Anchorage to public or private  airstrips,  then
over state maintained roads to the property.  Alternative  transport is by barge
up the Kuskokwim River to Sterling Landing,  the eastern terminus of the current
road system.

         Placer gold  production  from the District has been  significant and is
estimated  at greater than  600,000  troy  ounces,  including  over 200,000 troy
ounces  from  streams  proximal  to the  property.  Placer  gold  production  is
continuing from five drainages in the District.

         In the District, Cretaceous graywackes and mudstones have been intruded
by late Cretaceous to early Tertiary  gold-mineralized  granite  porphyry sills,
dikes, and small stocks. These intrusive rocks and/or their alteration zones are
the source of gold in the placer deposits.  The exploration objective will be to
define ore in bedrock with  sufficient  size potential and gold grade to justify
development.

         During August 1996,  USMX  conducted  preliminary  geological  mapping,
geochemical  sampling and  geophysics,  with additional  exploration  activities
planned for 1997. USMX's  investment in this property was approximately  $99,800
at December 31, 1996.

     Cala Abajo, Puerto Rico

         During 1992, 1993 and 1994, USMX acquired an equity interest  currently
totaling  approximately  80% of the  outstanding  common stock of Southern  Gold
Resources (USA), Inc. ("Southern Gold"), a Colorado  corporation.  On October 5,
1992,  Southern Gold was granted an exclusive  exploration  permit by the Puerto
Rican  government  covering 2,170 acres that include the Cala Abajo  copper/gold
deposit in  western-central  Puerto Rico. The prospecting permit may be extended
year to year for a maximum 10 year period and gives  Southern Gold the exclusive
right to conduct exploration and environmental studies and to negotiate a mining
lease covering the permit area. In September 1996 the permit was extended by the
Puerto Rican  government  through  September  1997.  Through 1995, USMX incurred
approximately $1.0 million in drilling, metallurgical test work, engineering and
base line environmental studies.

         In 1995,  the  Commonwealth  of Puerto  Rico  amended its mining law to
prohibit  open pit mining of metal  deposits  on the  island.  The effect of the
mining  law,  as  currently  amended,  was to render  Southern  Gold's  plan for
development of the Cala Abajo deposit uneconomic. Accordingly, USMX's investment
was written off in 1995.  Southern Gold has notified the Puerto Rican government
of its belief  that the  government's  action  was  unjustified  and  harmful to
Southern  Gold.  Southern  Gold is  considering  whether  any  other  action  is
warranted.

     Other United States Mineral Properties

         USMX has  additional  mineral  properties,  located  in Utah,  Montana,
Wyoming, Alaska and Nevada in the United States. These additional properties are
currently being explored solely by USMX.
<TABLE>
<CAPTION>

                                                                                            Investment as of
Property                                 State                  Status                      December 31, 1996
--------                                 -----                  ------                      -----------------

<S>                                      <C>                    <C>                               <C>
Mineral Mountain                         Utah                   Has small resource                $13,000

Baggs Creek/Hidden Hand                  Montana                Has small resource                   0

Round Top                                Alaska                 Part of Illinois Creek             45,000

Jack Springs                             Nevada                 Has small resource                  -0-

</TABLE>



Mexico

         USMX is currently investigating several opportunities located primarily
in the northern  Mexican  states of Sonora,  Chihuahua  and  Coahuila.  The more
significant projects USMX is currently evaluating are described below.

     Amargosa.

         This  property is located  approximately  95  kilometers  southeast  of
Juarez in the state of  Chihuahua.  The  property is  accessible  from Juarez on
Highway  2,  southeast  for  90  kilometres  to El  Porvenir,  then  via  poorly
maintained   dirt  roads  to  the  project.   USMX   controls  by   denouncement
approximately  15,100 acres.  USMX must meet certain  minimum work  requirements
arising from Mexican  mining law to maintain  its rights to the  properties.  In
addition,  if the properties are placed into production,  USMX will be obligated
to pay a net  smelter  return  royalty of 2.75% on  production  from most of the
properties.

         A  significant  amount of  exploration  was  conducted  on the Amargosa
polymetallic  massive  sulfide  targets  in 1994.  Results of this  drilling  at
Amargosa were geologically  interesting;  however,  continuity of mineralization
between holes was not demonstrated.

         A strong magnetic  anomaly has been partially  defined at the edge of a
ground  geophysical  survey,   caused  by  a  pyrrohite  body.  Massive  sulfide
mineralization  is  associated  with and adjacent to the anomaly.  Although this
property  continues  to hold a great  deal of  geologic  interest,  no  economic
mineralization  has yet been  identified.  Accordingly,  management  recorded an
impairment  loss of $1.0  million  in 1995  and  USMX's  carrying  value in this
property was reduced to zero in 1996.

     Boludo Goldfields.

         Early in 1994, USMX acquired by lease and purchase option approximately
5,400 acres in the Boludo Goldfields  placer district located  approximately 121
kilometres  southwest of Nogales in northwest Sonora.  Access to the property is
via paved highway and well maintained  dirt road.  During 1994, 328 backhoe pits
were dug at Boludo by USMX to test for placer gold.  In addition,  several drill
holes were put down in the hard rock targets.  This drilling  failed to identify
significant  mineralization.  In  1995,  USMX  entered  into an  agreement  with
Resource Trend Pty Ltd, an Australian  mining  company,  which firm has informed
USMX that it intends to  commence  production  in 1997.  USMX  retains a royalty
interest on future  production  from the  property.  USMX's  investment  in this
project was approximately $487,000 as of December 31, 1996.

     Noche Buena.

         The Noche Buena Project was acquired by USMX in 1992.  USMX controls by
denouncement  of  concessions,  approximately  18,800 acres,  subject to Mexican
mineral property taxes and work obligations.

         The  property  is  located  in  northwestern  Sonora  approximately  45
kilometres northwest of the city of Caborca in the state of Sonora.  Access from
Caborca is via  Highway 2 north for 60  kilometres  then west via dirt roads for
approximately 10 kilometres.

         USMX  conducted  exploration  on  the  concessions  in  1993  and  1994
outlining a drill indicated gold resource of 70,000 ounces, which is open in all
directions.  The project was joint  ventured  to Minera  Kennecott,  the Mexican
entity of RTZ-CRA,  on July 15, 1995,  under terms  whereby  Kennecott  can earn
majority  interest in the project by paying USMX $850,000,  spending  $2,500,000
over a period of five years and  delivering  to USMX a feasibility  study.  Upon
delivery of a feasibility  study USMX has the option to participate in the joint
venture at 35% or elect a 4 to 4.5% net smelter royalty depending on gold price.

         Kennecott  has  expanded on the  drilling  conducted by USMX as well as
completed  geochemical and geophysical  surveys over the property.  Based on the
encouraging  results of this work,  it is expected that  Kennecott  will conduct
additional  drilling on this property in 1997.  As of December 31, 1996,  USMX's
investment in Noche Buena was approximately $257,000.

     Samalayuca.

         Samalayuca is located  approximately  40 kilometres  south of Juarez in
the state of Chihuahua, and is accessed via Highway 45 to the town of Samalayuca
then via dirt roads west a few  kilometres  to the  property.  USMX  controls by
lease agreement and denouncement approximately 19,000 acres. The lease, executed
on August 12, 1992,  provides for a twenty year term. If the exploration work is
successful,  the owners  will be paid a 3% net  smelter  return  royalty on base
metals and a 4% net smelter return royalty on precious  metals produced and sold
from the property.  USMX or its joint venture  partner must make annual  advance
royalties of $25,000 and must meet certain minimum work requirements.

         The property is a sediment hosted,  stratabound  copper/silver property
with primary  chalcocite  mineralization.  In the past (pre 1975),  local miners
shipped  copper bearing  quartzite to the El Paso smelter as flux.  These miners
were paid for the copper content of this material which ranged from one to three
percent. Previous mining ceased when copper prices fell in the mid 1970's.

         USMX has  conducted  short hole air track  drilling  as well as limited
rotary and core drilling since acquisition of the property. Results of this work
have been inconclusive due to structural complexity and associated oxidation and
the depletion of copper values in the near surface environment.

         During  1995,  the  property was joint  ventured  with a subsidiary  of
Phelps Dodge Corporation.  Phelps Dodge has conducted  geophysical  surveys over
the property and has recently  completed a first phase drilling  program.  As of
December 31, 1996, USMX had invested a total of $508,000 in the property.

     Sierra Mojada.

         This property is located  approximately 200 kilometres north of Torreon
in the state of Coahuila. Access is via improved dirt road north from Torreon or
by railroad from Monclova.  USMX controls by denouncement  approximately  15,900
acres in the district.

         Production  from  the  district  in  the  past  has  been  significant,
consisting of copper, zinc, lead and silver. The district was discovered in 1878
with most of the past production occurring between 1890 and 1945.

         On July 26,  1996 USMX  entered  into a joint  venture  agreement  with
Metalline  Mining Company to further explore and develop the property.  USMX may
elect to participate for a 35% working interest or receive a net smelter royalty
after earn-in by Metalline.
USMX's investment in this project was  approximately  $34,000 as of December 31,
1996.

     Other Mexican Mineral Properties.

<TABLE>
<CAPTION>

         USMX has additional mineral properties in Mexico as follows.

                                                                                                 Investment as of
      Property                                            State                 Status           December 31, 1996
      --------                                            -----                 ------           -----------------

      <S>                                                <C>              <C>                          <C>
      Altar, Los Apaches                                 Sonora              Joint Venture              $240,000
      El Ocuca, Las Rastras                              Sonora              Joint Venture              $146,000
      San Miguel                                         Sonora           Available for Lease           $ 36,000



</TABLE>

     Ecuador

         In 1995,  USMX  acquired all of the  outstanding  capital stock of Mega
Minerals S.A., an Ecuadorian  company.  The assets of the Ecuadorian  company at
the time of  acquisition  consisted  of title to eight  exploration  concessions
comprising  approximately  80,600  acres and the right to acquire  title to four
additional  exploration  concessions  comprising  approximately 5,900 acres. The
twelve  concessions  are  located in the  Nambija-Zamora  gold belt of  southern
Ecuador.  Initial  exploration  on these  concessions  has  yielded  encouraging
results.  Follow-up  geological  mapping  and  geochemical  sampling  of  stream
sediments  anomalous in base and precious metals have identified a two kilometer
by three kilometer zone of skarn type alteration with associated base metals and
gold mineralization. An exploration program is being planned to further evaluate
the  discovery.   USMX  is  seeking  to  interest  other  mining   companies  in
participating  in a  joint  venture.  USMX's  expenditures  in  Ecuador  through
December 31, 1996 totaled $335,000.


RISK FACTORS

         In evaluating  USMX the following  factors among others which relate to
both USMX and Dakota should be considered because of the pending Merger.  Dakota
is engaged in the business of investing in and operating  precious metals mining
projects,  producing gold and silver and exploring for, acquiring and developing
precious  metals  properties  throughout  the world.  Dakota  currently has 100%
interest in Gilt Edge Mine located near Deadwood,  South Dakota,  a 40% interest
in Golden  Reward Mine  located near Lead,  South Dakota and a 100%  interest in
Stibnite Mine located in Valley County  Idaho.  Information  related to Dakota's
risks  was provided to  USMX by Dakota and was included in a preliminary draft
joint  proxy  statement filed  with  the  Securities  and Exchange Commission
by USMX and Dakota on March 17, 1997.

         The  following  cautionary  statements  are made pursuant to the United
States  Private  Securities  Litigation  Reform Act of 1995 in order for USMX to
avail itself of the "safe  harbor"  provisions of the Act. The  discussions  and
information  in this  report may contain  both  historical  and  forward-looking
statements.  To the extent that this report contains forward-looking  statements
regarding the financial condition,  operating results, business prospects or any
other  aspect of Dakota or USMX,  please be  advised  that  Dakota's  and USMX's
actual  financial  conditions,  operating  results and business  performance may
differ   materially   from  that  projected  or  estimated  in   forward-looking
statements.  USMX has attempted to identify, in context,  certain of the factors
that it currently  believes may cause actual  future  results to differ from its
current  expectations.  The  differences  may be caused by a variety of factors,
including but not limited to fluctuations in the price of gold, adverse economic
conditions, adverse government regulation, both foreign and domestic, inadequate
capital,  unexpected  costs, the imposition of new, or the increase of existing,
tariffs, lower revenues and net income than forecasted,  higher than anticipated
labor costs,  the possible  acquisition of new businesses that do not perform as
anticipated,  the possible  fluctuation and volatility of operating  results and
financial  condition,  inability to carry out exploration and production  plans,
loss of key executives,  changes in interest rates,  inflationary  factors,  and
other  specific  risks that may be alluded to in this report or in other reports
issued by Dakota or USMX. USMX cautions the reader that this list of factors may
not be exhaustive.


General Risks Related to the Mining Industry

         Nature of Mineral Exploration and Production

         Exploration  for and, if  warranted,  production  of minerals is highly
speculative  and  involves  greater  risks  than  many  other  businesses.  Many
exploration  programs do not result in the discovery of  mineralization  and any
mineralization  discovered  may not be of  sufficient  quantity or quality to be
profitably  mined.  Uncertainties  as to the  metallurgical  amenability  of any
minerals discovered may not warrant the mining of these minerals on the basis of
available technology. Moreover, short-term factors relating to the ore reserves,
such as the need for orderly  development of ore bodies or the processing of new
or different  grades,  may impair the  profitability of a mine in any particular
accounting  period.  Mining  operations  are also  subject  to a number of other
hazards  and  risks  such as  encountering  unusual  or  unexpected  formations,
environmental pollution, industrial accidents, rock movements and flooding, many
of which cannot be insured against.

         Project Development Risks

         USMX and Dakota from time to time engage in the  development of new ore
bodies.  The ability of USMX and Dakota to sustain or increase the present level
of gold  production is dependent in part on the  successful  development of such
new ore bodies  and/or  expansion of existing  mining  operations.  The economic
feasibility of any such development project, and all such projects collectively,
is  based  on,  among  other  things,   estimates  of  reserves,   metallurgical
recoveries, capital and operating costs of such projects and future gold prices.
Development   projects  are  also  subject  to  the  successful   completion  of
feasibility  studies,  issuance  of  necessary  permits  and receipt of adequate
financing.

         Development  projects  have no  operating  history  upon  which to base
estimates  of  future  cash  operating  costs  and  capital   requirements.   In
particular, estimates of reserves, metal recoveries and cash operating costs are
to a large extent based on the  interpretation  of geologic  data  obtained from
drill holes and other sampling  techniques and feasibility  studies which derive
estimates of cash operating costs based on anticipated tonnage and grades of ore
to be mined and processed,  the configuration of the ore body, expected recovery
rates  of  metals  from  the  ore,  comparable  facility  and  equipment  costs,
anticipated  climate  conditions and other factors.  As a result, it is possible
that actual cash operating costs and economic returns of any and all development
projects may materially differ from the costs and returns initially estimated.

         Exploration

         Mineral  exploration,  particularly for gold, is highly  speculative in
nature,  involves  many risks and  frequently  is  unsuccessful.  While USMX and
Dakota are seeking to expand  reserves  through  exploration  of North and South
America,  there can be no assurance that exploration  efforts will result in the
discovery  of gold  mineralization.  If reserves  are  developed,  it may take a
number of years and substantial expenditures from the initial phases of drilling
until  production  is possible,  during which time the economic  feasibility  of
production may change.  No assurance can be given that the exploration  programs
will result in developing or increasing reserves.

         Competition and Scarcity of Mineral Lands

         Although  many  companies  and  individuals  are  engaged in the mining
business,  including  large  established  mining  companies,  there is a limited
supply of desirable  mineral lands  available for claim staking,  lease or other
acquisition  in the  United  States  and  other  areas  where  USMX  and  Dakota
contemplate conducting exploration and/or production activities. USMX and Dakota
may be at a competitive  disadvantage in acquiring suitable mining properties as
they must  compete  with other  individuals  and  companies,  many of which have
greater financial  resources and larger technical staffs than USMX or Dakota. As
a result  there  can be no  assurance  USMX or  Dakota  will be able to  acquire
attractive properties.

         Government Regulation

         USMX's and Dakota's  mining  operations are subject to various laws and
regulations concerning  prospecting,  developing,  production,  exports,  taxes,
labor  standards,   occupational  health,  waste  disposal,   toxic  substances,
environmental protection, mine safety and other matters. USMX and Dakota seek to
make good faith  efforts to comply  with all  applicable  laws and  regulations.
Instances of non-compliance or new laws or regulations  governing operations and
activities of mining companies, however, could have a material adverse impact on
the business of USMX and Dakota.

         Environmental Matters

         Mining is subject to potential  risks and  liabilities  associated with
pollution of the environment  and the disposal of waste products  occurring as a
result of mineral exploration and production. Environmental liability may result
from mining activities conducted by others prior to USMX's or Dakota's ownership
of a property.  Insurance for environmental risks (including potential liability
for  pollution or other  hazards as a result of the  disposal of waste  products
occurring  from  exploration  and  production)  is not generally  available at a
reasonable  price to companies  within the  industry.  To the extent USMX and/or
Dakota is subject to environmental liabilities,  the payment of such liabilities
would  reduce  funds  otherwise  available  to the  companies  and could  have a
material adverse effect on the companies.

         In the context of  environmental  compliance and permitting,  including
the approval of reclamation  plans,  USMX and Dakota must comply with standards,
laws and  regulations  which  may  entail  greater  or lesser  costs and  delays
depending  on the  nature  of the  activity  to be  permitted,  constructed  and
operated and how  stringently  the regulations are implemented by the applicable
regulatory  authority.  It is possible that the costs and delays associated with
compliance  with such laws,  regulations  and permits  could  become such that a
company would not proceed with the  development of a project or the operation or
further  development  of a  mine.  Laws,  regulations  and  regulatory  policies
involving the  protection  and  remediation  of the  environment  are constantly
changing at all levels of government and are generally becoming more restrictive
and the costs imposed on the development and operation of mineral properties are
increasing as a result of such changes. USMX and Dakota have made, and expect to
make in the  future,  significant  expenditures  to  comply  with  such laws and
regulations.

         The  Environmental  Protection Agency ("EPA") continues the development
of a solid waste  regulatory  program  specific to mining  operations  under the
Resource  Conservation and Recovery Act ("RCRA").  Of particular  concern to the
mining industry is a proposal by the EPA titled "Recommendation for a Regulatory
Program  for  Mining  Waste  and  Materials  Under  Subtitle  D of the  Resource
Conservation  and Recovery Act" ("Strawman  II") which,  if  implemented,  would
create a system of  comprehensive  federal  regulation  of the entire mine site.
Many of these  requirements  would be duplicative of existing state regulations.
Strawman II as currently  proposed  would regulate not only mine and mill wastes
but also numerous production facilities and processes which could limit internal
flexibility in operating a mine. To implement  Strawman II as proposed,  the EPA
must seek additional statutory  authority,  which is expected to be requested in
connection with Congress' reauthorization of RCRA.

         Mining  companies in the United States are also subject to  regulations
under (i) the Comprehensive  Environmental Response,  Compensation and Liability
Act of 1980 ("CERCLA") which regulates and establishes liability for the release
of  hazardous  substances  and (ii) the  Endangered  Species Act  ("ESA")  which
identifies  endangered species of plants and animals and regulates activities to
protect these species and their habitats.  Revisions to CERCLA and ESA are being
considered by Congress;  the impact on USMX and Dakota of these revisions is not
clear at this time.  Environmental  laws and regulations  enacted and adopted in
the  future may have a  significant  impact  upon  Dakota's  and  USMX's  future
operations. USMX and Dakota cannot now accurately predict or estimate the impact
of any such future laws or regulations on its operations.

         Mining Risks and Insurance

         The business of gold mining is  generally  subject to a number of risks
and  hazards,  including  environmental  hazards,  industrial  accidents,  labor
disputes,  the encounter of unusual or unexpected geological  conditions,  slope
failures,  changes in the regulatory  environment and natural  phenomena such as
inclement  weather   conditions,   floods,   blizzards  and  earthquakes.   Such
occurrences could result in damage to, or destruction of, mineral  properties or
production facilities, personal injury or death, environmental damage, delays in
mining,  monetary losses and possible legal liability.  USMX and Dakota maintain
insurance  against  risks that are  typical in the gold mining  industry  and in
amounts that USMX and Dakota believe to be reasonable, but which may not provide
adequate coverage in certain unforeseen circumstances. Insurance against certain
risks  (including  certain  liabilities  for  environmental  pollution  or other
hazards as a result of exploration and production) is not generally available to
USMX, Dakota or to other companies within the industry.

         Proposed Changes in Mining Laws

         Several  recent  legislative  developments  have affected or may in the
future affect the cost of and the ability of mining  claimants to use the Mining
Law of 1872, as amended, to acquire and use federal lands for mining operations.
Since  October  1994, a moratorium  has been  imposed on  processing  new patent
applications for mining claims. Also, since 1993, a rental or maintenance annual
fee of $100 per claim has been imposed by the Federal  government  on unpatented
mining  claims in lieu of the prior  requirement  for  annual  assessment  work.
During the last  several  Congressional  sessions,  bills  have been  repeatedly
introduced  in the U.S.  Congress  which would  supplant or radically  alter the
General  Mining Law. As of the end of 1996, no such bills had been passed.  Such
bills have proposed,  among other things,  to  permanently  eliminate or greatly
limit the right to a mineral patent,  impose  royalties,  and impose new federal
reclamation, environmental control and other restoration requirements. Recently,
the Secretary of the Interior  directed the Bureau of Land  Management to form a
task force to prepare and publish for public  comment  revisions to the hardrock
mining  surface  management  regulations  implemented  in  1981.  The  Secretary
suggested that such revised regulations  address  implementation of a technology
based  standard  in conduct  of  hardrock  mining,  development  of  performance
standards  for  hardrock  mining  and  reclamation,   increasing  regulation  of
operations  of less than five  acres,  and  increasing  coordination  with state
regulators.  As of March 17, 1997, no such bills have been passed or regulations
proposed  or  promulgated.  If  enacted  or  promulgated,  such  legislation  or
regulations could impair the ability of USMX and Dakota to economically  develop
mineral resources on federal lands. The extent of the changes, if any, which may
be  made  by  Congress  to the  General  Mining  Law or by the  Bureau  of  Land
Management to the surface  mining  regulations  is not  presently  known and the
potential impact on USMX and Dakota as a result of future  Congressional  action
is not presently determinable.

     Need for Substantial Capital

         The business of precious  metals  mining  requires  very large  capital
expenditures  in advance of anticipated  revenues from  operations.  There is no
assurance  that USMX or Dakota will be able to obtain all of the financing  that
they require on acceptable terms and conditions.



     Fluctuation in the Price of Gold

         Because  their  revenues  of USMX  and  Dakota  are or will be  derived
primarily from the sale of gold, their earnings for USMX and Dakota are directly
related  to gold  prices.  Gold  prices  fluctuate  widely and are  affected  by
numerous factors beyond their control, including expectations for inflation, the
relative exchange rate of the dollar, global and regional demand,  political and
economic  conditions,  expectations  for inflation and production costs in major
gold producing  regions  including  South Africa and Russia.  In addition,  gold
prices have on occasion  been  subject to very rapid  short-term  changes due to
speculative activities of investors. Gold prices are also affected by world-wide
production  levels,   which  have  increased  in  recent  years.   Market  price
fluctuations  of gold may  render  uneconomic  the  mining of  mineral  deposits
containing  relatively  lower grades of  mineralization.  If the market price of
gold falls  significantly  below their  production  costs of USMX and Dakota and
remains  at such a  level  for  any  sustained  period,  their  will  experience
substantial  cash  losses,  may not be able to  recover  its  investment  in its
properties, and may be required to discontinue its operations. Only a portion of
Dakota's expected gold production is hedged in forward sales contracts.


Specific Risks Related to USMX

     Going Concern Uncertainty of USMX; Illinois Creek Project Commitments

         At December 31, 1996,  USMX had a working  capital  deficiency of $27.1
million.  During 1996 USMX devoted or committed  substantially all of its liquid
resources  to  development  of the Illinois  Creek  Project.  During  1996,  the
estimated   development   costs  for  the  Illinois   Creek  Project   increased
substantially,  partially  due to  weather-related  delays  and  other  problems
arising  from the  complexities  of  developing  a mine in Alaska using only air
transport.  At December 31, 1996,  USMX had unpaid  commitments to suppliers and
contractors  of  approximately  $5.7 million for work  completed in 1996.  It is
estimated  that an additional  $8.8 million,  including  $4.9 million of working
capital,  will be  required  to bring  the mine to  production.  USMX's  lending
arrangements  with  Rothschild,  its  principal  lender,  require it to maintain
minimum  balances  in a Proceeds  Account  for use only in  connection  with the
Illinois Creek Project and to maintain certain  financial ratios related to such
Project and to USMX.  USMX was  required to deposit $1.5 million to the Proceeds
Account by September 30, 1996, which requirement was not satisfied. USMX is also
not in compliance  with other  covenants of the  Rothschild  Credit  Agreements.
USMX's  auditors  have  included an  explanatory  paragraph in their report that
states that these matters,  among others,  raise  substantial doubt about USMX's
ability to continue as a going concern and that the financial statements of USMX
do not  include  any  adjustments  that might  result  from the  outcome of this
uncertainty.

         In  connection  with the  Merger,  USMX  obtained a $5 million  line of
credit from Dakota.  In addition,  Rothschild  has agreed with Dakota to forbear
from  exercising its rights to declare and enforce  defaults  (except payment or
bankruptcy  defaults)  of USMX until the latest of  consummation  of the Merger,
termination  of the $5 million line of credit from Dakota or June 30, 1997.  See
"Dakota Line of Credit."

         If USMX is unable to maintain compliance with its credit obligations to
Rothschild, it risks a possible foreclosure of Rothschild's security interest in
the Illinois  Project and legal action for monetary  damages  against USMX. USMX
does not presently have capital  resources  available to satisfy its obligations
to Rothschild.  Accordingly, if the Merger is not consummated, USMX will need to
obtain other financing or attempt to merge or engage in another form of business
combination with an entity with available cash resources.  USMX has made no such
arrangements  and there can be no  assurance  that USMX would be  successful  in
obtaining any such arrangements.

         USMX commenced mining  operations at the Illinois Project in late 1996,
but  postponed  gold  production  due to the onset of  winter.  If the Merger is
completed by May 1997, USMX forecasts  achieving gold production in early summer
1997.  Any revenues from gold sales as well as any other funds  deposited to the
Proceeds  Account  by USMX may not be  withdrawn  for USMX's  general  corporate
purposes  until  Completion has occurred.  As defined in the  Rothschild  Credit
Agreements,  the  requirements  for Completion  include the  construction of the
Project facilities,  which facilities and equipment thereon must be mechanically
complete and electrically operable ("Mechanical Completion"), the achievement of
production  amounts and grades,  costs and reserves  similar to the  development
plan,  and the absence of any default in the credit  agreements.  Completion has
not occurred,  and there can be no assurance  that the conditions for Completion
will be satisfied. Moreover, USMX projects that the earliest date the conditions
could be  satisfied  would be in the fall of 1997.  Accordingly,  USMX  could be
severely  constrained  in its ability to conduct  operations and to pursue other
mining  opportunities  pending  Completion.  There  can  be  no  assurance  that
Completion  will be  achieved or that there will not be a  significant  delay in
achieving Completion. See "Intercreditor Agreements."

     Profitability

         Although  USMX  reported  net  income  for each of the six years  ended
December 31, 1994,  USMX  reported a net loss of $3.3 million for the year ended
December 31, 1996 and a net loss of $6.9 million for the year ended December 31,
1995.  At December 31, 1996,  USMX had an  accumulated  deficit of $3.1 million.
USMX does not  anticipate  obtaining  operating  revenues  in 1997 from any mine
other than  Illinois  Creek.  If USMX fails to put the mine in  operation or the
operations  do not achieve  expected  levels of  production,  USMX's  ability to
generate revenues will be materially adversely affected. Future profitability is
also  dependent  upon  USMX   successfully   locating,   acquiring,   financing,
constructing, and operating additional mines at a cost that is sufficiently less
than the prevailing price of the commodity being mined, of which there can be no
assurance.

     Certain Illinois Creek Project Risks

         Completion and operation of the Illinois Creek Project involve numerous
risks, including the following:

     Pre-Production Work and Testing

         The development of the mine and construction of the related  facilities
were  substantially  completed in October 1996. In the fall of 1996,  the mining
contractor  placed   approximately   115,000  tons  of  overliner  material  and
run-of-mine  ore on the leach pad. USMX is required to  successfully  complete a
test to  demonstrate  that the  synthetic  pad  liner  meets  certain  leak test
criteria.  After  completion  of this test to the  satisfaction  of  appropriate
regulatory  authorities,  which is expected to occur in May of 1997,  USMX would
begin  placing  ore and  cyanide  solutions  to the heap  with  gold  production
anticipated  shortly  thereafter.  However,  there are numerous risks associated
with  the  start-up  of a new mine  and  there  can be no  assurance  that  gold
production will be achieved as forecasted.

     Reserves

         Ore reserves for the Illinois  Creek Project are estimates made by USMX
which have been reviewed by MRI and Roscoe Postle  Associates Inc.  ("RPA"),  an
independent  mining  consulting  firm. USMX has not commenced  production at the
Illinois Creek Project,  and there can be no assurance that the indicated amount
of gold will be recovered.  The reserves have been  calculated  from  drill-hole
assay   results.   Several   programs  of   trenching,   diamond   drilling  and
reverse-circulation  drilling  have  been  carried  out  on the  Illinois  Creek
Project.  Assay results have been analyzed and several  checks of the assay data
have been conducted as a quality  control  procedure.  Modeling is used to yield
estimates in reserves  determined  by optimum  economic  mining  limits.  In the
opinion of RPA, the Illinois Creek Project  reserves are estimated in accordance
with standard  engineering  methods and the  estimation  approach and procedures
used are in keeping with standard industry practice. However, RPA has noted that
there are some issues  which can impact on the  estimate  of the average  grade,
including   the  handling  of  high-gold   assays,   which  may  result  in  the
overestimation  of the average grade of the deposit in the order of 10%. RPA has
noted that  differences  of this  magnitude in gold grades are not unusual.  RPA
also has stated its belief that most of the  reserves  should be  classified  as
probable.  Reserve  estimates may require  revisions based on actual  production
experience.  Fluctuations  in the  market  price of gold,  as well as  increased
production  costs or reduced  recovery  rates,  may render  reserves  containing
relatively  lower  grades of  mineralization  uneconomical  to  recover  and may
ultimately  result in a restatement  of reserves.  The reserves for the Illinois
Creek Project have been calculated  assuming a realizable price for gold of $400
per ounce. The price of $400 per ounce was selected based on trading on the gold
spot market and the gold forward  market.  USMX has entered into certain hedging
arrangements.  See "Hedging Activities." However, there can be no assurance with
respect  to the  future  price of gold and its  effect  on USMX's  reserves  and
operations.

     Transportation

         The  Illinois  Creek  Project  site is located in the  southern  Kaiyuh
Mountains  in the western  interior of Alaska.  The  Illinois  Creek  Project is
located  approximately  57 miles  southwest  of Galena  and 23 miles east of the
Yukon  River.  It  is  equidistant   from  Fairbanks  and  Anchorage  which  lie
approximately 320 miles to the east and southeast of such Project, respectively.

         The only  access  to the site is by air.  Equipment  and  supplies  are
transported  to the  site by  land,  sea and air.  The  most  economical  way to
transport freight to the site is from Seattle,  Washington to Anchorage,  Alaska
by barge;  from  Anchorage,  freight moves by truck or rail to  Nenana;and  from
Nenana,  it is moved down river on barge to Galena.  From Galena, it is flown to
an airstrip at the site.  If it is not possible to utilize  this  transportation
route costs  increase.  For  instance,  when it is not  possible to barge on the
Yukon River,  freight must be flown to the site from Anchorage or Fairbanks at a
higher cost.

     Weather

         The climate is subarctic and  characterized by large seasonal  extremes
in  temperature  and daylight.  Significant  periods of inclement  weather could
adversely affect  operations at the Illinois Creek Project which would, in turn,
delay production and related cash flow from such Project.  Inclement weather can
also cause  flights to be delayed  or  reflown  at  additional  costs.  Based on
expected weather conditions, USMX presently intends to conduct mining during May
through October.

     Environment

         Mining is subject to potential  risks and  liabilities  associated with
pollution of the environment  and the disposal of waste products  occurring as a
result of mineral  exploration  and  production.  The Illinois  Creek Project is
permitted as a "zero discharge facility". As such, operation will require strict
control of the water balance to ensure that no discharge  occurs. If a discharge
occurs the operation could be temporarily  shut down and the cleanup costs could
be substantial.  Upon closure,  reclamation activities will be closely monitored
and effluent  from the  decommissioned  facility will be required to meet strict
water quality standards.

     Community Relations

         USMX has  established  good relations with residents of the local area.
If USMX were unable to continue this rapport,  the Illinois  Creek Project could
be negatively impacted.

     Thunder Mountain Project, Uncertainty of Future Financing

         USMX has filed a Notice of Intent to Operate with the Idaho  Department
of Lands  describing  USMX's  proposed gold and silver mining  activities in the
Thunder  Mountain  Project.  Depending  upon USMX's  progress in  obtaining  the
necessary  permits,  the  market  price of gold,  feasibility  study  and  other
factors,  USMX may  determine to seek to develop the Thunder  Mountain  Project.
Management  estimates that substantial capital will be required for construction
of facilities and other development activities at Thunder Mountain.  USMX has no
commitments for outside financing for the Thunder Mountain Project and there can
be no assurance such financing  would be available,  or, if available,  that the
terms would be beneficial to USMX.

         USMX's  ability to obtain  outside  financing for the Thunder  Mountain
Project or other future projects will depend, among other things, upon the price
of gold and perceptions of future prices. Therefore,  availability of funding is
dependent largely upon factors outside USMX's control,  and cannot be predicted.
USMX does not know  from what  specific  sources  it will be able to derive  any
required  funding.  Any  such  financing,  if  available,   could  increase  the
indebtedness of USMX or dilute current stockholders' positions. If USMX acquires
such funding through debt a substantial  portion of USMX's cash flow may need to
be devoted to the  payment of  principal  and  interest on such debt which could
render USMX more vulnerable to competitive  pressure or economic  downturns.  If
USMX is not able to raise  additional  funds (and there can be no assurance that
it can, or that if it can,  such funds will be on terms  acceptable  to USMX) it
will not be able to fund certain  exploration and development  activities on its
own.

     Hedging Activities

         Although USMX has  historically  used,  and plans to use in the future,
spot  deferred  contracts  in its hedging  program to protect  earnings and cash
flows from the impact of gold price fluctuations.  USMX was required pursuant to
its lending arrangements with Rothschild to enter into hedging transactions.  In
1996 USMX hedged  approximately  140,900 ounces of the expected gold  production
from the Illinois  Creek Project at an average  selling price of $409 per ounce.
Spot  deferred  contracts  that are  designated as hedges of the price of future
production  are accounted  for as such.  Spot  deferred  contracts  that are not
identified as hedges of specific  anticipated  future  production  are marked to
market with unrealized gains or losses recognized in earnings as they occur.

         Spot  deferred   contracts  are  agreements  between  a  seller  and  a
counterparty whereby the seller commits to deliver a set quantity of gold, at an
established  date in the future and at agreed prices.  The established  price is
equal to the spot  price  for gold  plus  "contango."  Contango  is equal to the
difference  between the prevailing market rate for dollar deposits less the gold
lease rate, for comparable  periods,  and represents  compensation to the seller
for holding gold until a future date.  Contango rates ranged from  approximately
0% to 5 1/2% during 1996.

         At the scheduled future delivery date, the seller may, at the option of
the  counterparty,  deliver  into the contract or defer the delivery to a future
date. This option allows the seller to maximize the price realized by selling at
the spot  market  price if such  price at that time  were to be higher  than the
forward contract price. Each time the seller defers delivery,  the forward sales
price  is  increased  by the  then  prevailing  contango  for the  next  period.
Generally,  the counterparty will allow the seller to continue to defer contract
deliveries  providing that there is sufficient  scheduled production from proven
and probable reserves to fulfill the commitment.

         Risk of loss  with  these  spot  deferred  contracts  arises  from  the
possible  inability of a  counterparty  to honor  contracts  and from changes in
USMX's anticipated  production of gold. However,  nonperformance by any party to
such financial instruments is not anticipated.

         USMX is typically  required by the  counterparties to maintain a margin
account.  Should  the  cumulative  liquidation  cost  of  USMX's  spot  deferred
positions  exceed the cumulative  value of such positions by an amount in excess
of the margin  account,  USMX could be subject to margin call.  The  liquidation
cost is what USMX would have to pay on the  liquidation  date to purchase  fixed
forward  delivery  contracts to meet its spot deferred  deliveries.  The cost of
fixed forward  delivery  contracts is based on the spot price on the liquidation
date plus  contango  through the delivery  date.  As of December  31, 1996,  the
liquidation  cost of  USMX's  existing  hedge  position  was not  material.  The
aggregate  unrealized  excess of the net market  value of USMX's  forward  sales
contracts over the spot gold price of $368 per ounce as of December 31, 1996, is
approximately $5,875,000.  The aggregate unrealized gain of USMX's forward sales
contracts  accounted  for as  hedges  of future  production  were  approximately
$5,033,000 at December 31, 1996.

         USMX has also  written  silver call options  expiring at various  dates
over the next forty  months,  which if  exercised,  would  become spot  deferred
contracts with delivery deferred as previously  described.  At December 31, 1996
USMX had sold  825,300  ounces of silver call option  contracts  all at a strike
price of $5.50 per ounce  expiring  on dates  ranging  from  September  28, 1997
through  December  29,  1999.  Call  options  premiums   received   amounted  to
approximately  $424,000.  These  contracts are marked to market with  unrealized
gains or losses recognized in earnings as they occur.

     Title to Properties

         Certain of USMX's mineral  rights consist of unpatented  mining claims.
Unpatented  mining  claims  are unique  property  interests  that are  generally
considered  to be  subject  to  greater  title  risk than  other  real  property
interests.  The greater  title risk results from the  unpatented  mining  claims
being  dependent on strict  compliance  with a complex body of federal and state
statutory  and  decisional  law,  much of  which  compliance  involves  physical
activities on the land, and from the lack of public  records which  definitively
control the issues of validity and ownership.

     Contractor Claim

         One of the  construction  contractors on the Illinois Creek Property in
Alaska working under an  approximately  $3 million contract with the Company has
submitted  invoices  and  claims  totaling  approximately  $7  million  for work
completed in 1996.  At December 31,  1996,  the Company had paid the  contractor
$1,772,000 and has recorded an additional liability to the contractor,  based on
the Company's  estimate of its obligation under the contract of $2,414,000.  The
unpaid invoices and claims are currently being reviewed, and it is likely that a
significant  portion of the invoices and claims will be disputed by the Company.
The contractor has threatened legal proceedings if the dispute is not informally
resolved.  The Company  and its  representatives  are  currently  reviewing  the
relevant facts and until that review is complete the Company cannot estimate the
magnitude of any potential liability,  possible  counterclaims by the Company or
the outcome of  arbitration  or litigation if the dispute  cannot be resolved by
negotiation.  On November 8, 1996, the construction contractor also filed a lien
on the  Illinois  Creek  Property.  The lien is related to certain  invoices and
claims submitted through that date.

     No Dividends

         USMX anticipates that it will use its earnings,  if any, to finance its
operations and growth. USMX does not anticipate paying dividends and, because of
certain  debt  covenants,  is  restricted  from  paying  any  dividends  to  its
stockholders.

     Volatility of Price for Common Stock

         The market  prices for shares of the USMX Common Stock have been highly
volatile  in  recent  years.  See  "Description  of USMX  Capital  Stock-Trading
History."  The market  price may be highly  volatile in the future  depending on
news  announcements of USMX, gold price volatility and changes in general market
conditions.


Specific Risks Related to Dakota

     Uncertainty of Title

         Certain of Dakota's mining properties are unpatented mining claims, and
Dakota has only possessory title with respect to such  properties.  The validity
of unpatented  mining claims is often  uncertain and may be contested.  Although
Dakota has attempted to acquire satisfactory title to its properties, Dakota, in
accordance with mining industry  practices,  has not obtained title opinions and
title insurance, with the attendant risk that title, particularly on undeveloped
properties, may be defective.

     Lack of Profitability

         Dakota's  operating  history has resulted in losses from  operations in
each of its last five fiscal  years.  No assurance can be given that Dakota will
ever operate at a profit.  While certain of Dakota's  mining  properties  may be
operated at a profit during a given fiscal year,  Dakota's operations as a whole
may be  unprofitable  due to  exploration,  development,  and operating costs on
other properties.  Other items that may adversely effect  profitability  include
selling expenses, general and administrative costs, allowances for depreciation,
depletion and amortization of assets, and interest expense.

     Working Capital and Financing Requirements

         Dakota  has  a  limited  working   capital.   If  Dakota's   continuing
exploration  activities  indicate  economically  minable properties now owned or
hereafter  acquired by Dakota,  Dakota  will be  required to expend  potentially
large sums to put such  properties  into  production.  There can be no assurance
that Dakota will be able to obtain such additional funding.

     Market Price of Dakota Shares

         Assuming  that all of the Dakota  Common Shares to be issued in respect
to the Merger  (including Common Shares issuable upon the exercise of USMX stock
options) are issued,  a total of 15.8 million  additional  Common Shares will be
available for trading in the public market. The increase in the number of Dakota
Common Shares in the market and the possibility of sales of such shares may have
a depressive effect on the price of Dakota's Common Shares.

     Dividend Policy

         No  dividends  have been paid by  Dakota to date.  For the  foreseeable
future,  it is  anticipated  that Dakota will use earnings to finance its growth
and that dividends will not be paid to shareholders.

     Joint Ventures

         Some of the mines in which Dakota owns an interest are operated through
joint ventures with other mining companies.  Any failure of such other companies
to meet their  obligations  to Dakota or to third  parties could have a material
adverse effect on the joint ventures.

     Royalties

         Dakota's  mining  properties  are  subject to various  royalty and land
payment  agreements.  Failure by Dakota to meet its  payment  obligations  under
these  agreements  could  result  in  the  loss  of  Dakota's  related  property
interests.

     Environmental Matters

         Reclamation   plans  which  are   approved  by  various   environmental
regulatory authorities are subject to on-going review and modification. Although
Dakota  believes that the  reclamation  plans  developed and implemented for its
mine sites are reasonable under current conditions,  any future re-determination
of reclamation  conditions or requirements could significantly increase Dakota's
costs of implementation of such plans.

     Permitting Matters

         An  expansion  at the Gilt Edge mine  called the Anchor  Hill open pit,
contemplates  that  approximately  37 acres of public  lands will be  disturbed,
principally  for pit wall  layback  and waste  removal.  Accordingly,  Dakota is
required to complete an  Environmental  Impact  Statement (the "Gilt Edge EIS").
The Gilt Edge EIS,  which has been underway  since January 1994,  was delayed in
1995  pending  receipt of the state and  county  operating  permits.  Dakota now
expects to  finalize  the Gilt Edge EIS by the spring of 1997 If,  however,  the
Gilt Edge EIS is not  completed in a timely  manner,  Gilt Edge Mine  operations
scheduled to commence in 1998 will be delayed.

         Operations at Stibnite Mine after 1997 are subject to the completion of
an  Environmental  Impact  Statement  (the  "Stibnite  EIS").  Completion of the
Stibnite EIS was delayed during 1996 as a result of prioritizing completion of a
development  project at the mine.  Dakota now expects the EIS to be completed in
the fall of 1997.  If,  however,  the Stibnite EIS is not  completed in a timely
manner, Stibnite Mine operations scheduled to commence in 1998 will be delayed.

     Matters Affecting Golden Reward Mine

         A significant portion of proven and probable reserves located at Golden
Reward Mine, are  encumbered by surface rights and facilities  some of which are
owned by third parties. In order to access these reserves and mineral resources,
Golden Reward Mine will be required to relocate its existing  crushing  facility
and to possibly  reduce its existing  leach pad capacity by 25% or to require or
otherwise compensate the third parties for their facilities. No assurance can be
given that Golden  Reward Mine will be successful in its efforts to remove these
encumbrances.

         No  operations  at Golden  Reward  Mine are  planned  for 1997.  Before
operations  can  recommence,  Golden  Reward Mine will be required to obtain new
operating permits in order to mine certain of these encumbered reserves.  Dakota
estimates that it will take between nine to 15 months from  commencement  of the
application process to obtain said permits.  There can be no assurance that such
permits will be obtained  within such time  periods,  if at all. The owners have
disagreed  regarding  certain  operational and financial  matters for the Golden
Reward  Mine,   including   planned  future   operations  and  related   funding
requirements. The resolution of these matters is not presently determinable.




Risks Related to the Merger

     Operations of the Combined Company

         Although the initial  members of the Board of Directors  and the senior
management  of  the  combined  company  resulting  from  the  Merger  have  been
identified,  most  operational  and  strategic  decisions  with  respect  to the
combined  company  have not yet been  made and no formal  business  plan for the
combined   company   exists  at  this  time.   The  timing  and  manner  of  the
implementation  of decisions  made with  respect to the ongoing  business of the
combined company  following the Merger will materially  affect the operations of
the combined  company.  Given the range of potential  outcomes arising from such
decisions and the interrelationships  among decisions to be made, in many cases,
it is not  possible to quantify  the impact of such  decisions on the results of
operations and financial  condition of the combined  company.  Any  integration,
consolidation,  reconfiguration  or other  modification of Dakota and USMX would
involve several significant risks, including, but not limited to, the following:

     Management

         Restructuring  or integration of the operations of Dakota and USMX will
require the dedication of management  resources,  which could distract attention
from the day-to-day  operations of the separate  businesses of each company.  If
the management of the combined company is unable to effectively  manage any such
restructuring or integration,  the operating results and financial  condition of
the combined company could be materially  adversely affected.  In the event that
the operations of Dakota and USMX are  restructured or integrated,  there can be
no assurance that the combined  company will be able to retain the key personnel
currently employed in the separate operations of each company.

     Expenses

         The  integration,   consolidation  or  restructuring  of  the  business
operations  of Dakota and USMX could  result in the  incurrence  of  significant
expenses  by the  combined  company  following  the  Merger,  which could have a
material adverse effect on the operating results of the combined company.



Employees

         The number of persons employed by the Company at March 25, 1997 was 28.

Financial Information about Foreign and Domestic Operations and Export Sales.

         The Company had no production  from foreign  mining  operations and did
not make export sales during 1996.

     During 1991, the Company  incorporated USMX Mining,  Inc. under the British
Columbia Company Act in anticipation of a potential  acquisition in the Province
of British Columbia that was not consummated.  USMX Mining, Inc. had no material
assets or obligations as of December 31, 1996.

         During 1992,  1993,  1994 and 1995, MXUS S. A. de C. V., a wholly owned
subsidiary of the Company, acquired the exploration rights to several properties
in Mexico located in the states of Chihuahua,  Sonora, Coahuila and Jalisco. The
Company expended approximately $75,000 in Mexico in 1996 on these properties and
on general reconnaissance.  As of December 31, 1996, the Company's investment in
Mexican properties amounted to approximately $1.7 million.

         In  1992,  the  Company  caused  the  incorporation  of a  Costa  Rican
subsidiary,  USMX de Costa Rica S. A., to facilitate  potential  acquisitions in
Costa Rica. To date, no material  expenditures or obligations have been incurred
by this subsidiary.

         In 1994,  the Company  caused the  formation  of a Chilean  subsidiary,
Compania Minera USMX de Chile Limitada,  to facilitate  exploration in Chile. To
date,  no  material  expenditures  or  obligations  have been  incurred  by this
subsidiary.

         In 1995, the Company  purchased the  outstanding  capital stock of Mega
Minerals,  S.A., an Ecuadorian company. As of December 31, 1996, the Company had
expended  approximately  $335,000 in mining concessions and exploration thereof.
To date, no significant  mineralization  has been encountered on the concessions
and the carrying value of the concessions was reduced to $0 in 1996.

<PAGE>


Glossary of General Terms


Dakota
Dakota Mining Corporation, a corporation continued under the laws of Canada, and
where the context so requires means Dakota and its Subsidiaries.

Dakota Common Shares
The common shares, no par value, in the capital of Dakota.

Merger
The merger of USMX and Dakota Merger Corporation whereby USMX becomes the
surviving corporation and a wholly owned subsidiary of Dakota as contemplated
in the Merger Agreement.

Merger  Agreement
The agreement  dated February 5, 1997 between  Dakota,  Dakota Merger
Corp.   and  USMX   relating   to  the  Merger   annexed  to  the  Joint   Proxy
Statement/Prospectus as Appendix A.

Montana Tunnels Royalty Agreement
The  agreement  dated  March 17, 1997 among USMX,  USMX of  Montana,  Inc.,  and
Pegasus Gold.

Pegasus Gold
Pegasus Gold Corporation, a Nevada corporation, which is a principal
stockholder of USMX.

Rothschild
N M Rothschild & Sons, Limited.

Rothschild Credit Agreements
Those  certain  Credit  Agreements  dated July 11, 1996  between  USMX,  USMX of
Alaska,  Inc. and  Rothschild  and all  instruments  and documents  delivered in
connection therewith, and all modifications, extensions and renewals thereof.

TSE
The Toronto Stock Exchange

USMX
USMX,  Inc., a  corporation  formed  under the laws of  Delaware,  and where the
context so requires means USMX and its Subsidiaries.

USMX Common Stock
The shares of the common stock, par value $.001 per share of USMX.

USMX Group
USMX and its Subsidiaries.

<PAGE>


Glossary of Mining Terms

         The following terms are described to aid in understanding this report.
Air Track Drilling
See Drilling.

Anomaly
An anomaly is a geochemical,  geophysical or other observed condition, indicated
by differing empirical physical data, that may
indicate the presence of mineralization in underlying bedrock.

Base Metals
A family of metallic elements, including copper, lead and zinc.

Caldera Complex
A large, basin-shaped volcanic depression created by subsidence,  representative
of a volcanic vent, which is  characterized by a diverse  assemblage of volcanic
intrusive  and  extrusive  rocks.

Carbon  Adsorption
A process in which soluble
complexes of gold and silver  physically adhere without chemical reaction to the
molecular surfaces of activated carbon particles. The process is used to collect
gold and silver from a leach  solution.  The Company uses activated  carbon made
from coconut  shells.  This carbon  contains five to six million  square feet of
molecular surface area per pound.

Cash Costs
Include all site costs incurred for
mining,  crushing, pad loading,  leaching,  processing and mine site general and
administrative  functions.  Such costs exclude  royalties and mining taxes which
costs are triggered not by the production of gold but by its sale. Also excluded
are depreciation of equipment,  amortization of previously capitalized costs and
accrual of reclamation costs. Revenues from the sale of by-products (principally
silver) are deducted from cash costs.

Contained  Ounces
The estimated number of
ounces of precious metals  contained in an orebody which is a gross  measurement
of  ounces  in  the  ground.  The  ounces  ultimately  recovered  from  the  ore
(recoverable  ounces)  will  be  less  than  contained  ounces  due to  inherent
inefficiencies in recovery methods.

Cutoff Grade
The lowest grade of mineralized
material that can be mined and processed  economically.

Denouncement
A process
under Mexican mining law by which an exploration concession may be obtained from
the Mexican  government.  The exploration  concession is granted for a period of
six years. If a mineable resource is delineated, then an exploitation concession
with a term of fifty years can be  obtained.

Dilution
An estimate of the amount
of waste or low grade mineralized rock that is unintentionally  mined as part of
normal mining  practices in extracting  ore.

Dore
Unrefined  bullion that is an
alloy of gold and silver and various impurities which will be further refined to
almost pure metals.

Drill-Defined  Mineralization
Ore reserves, except that all
legal  requirements  for  extraction  of minerals  have not yet been  satisfied.

Drilling
Air Track  Drilling
Small  diameter,  short hole,  percussion  drilling
using compressed air.

Core Drilling
Drilling using a hollow  diamond-studded bit
that cuts out a rock core.  This core is extracted from inside the drill rod for
geological  examination and assay.

Infill Drilling
Drilling  between  existing
holes to better  define the  geology or to improve  the  reliability  of the ore
reserve  calculation.

Rotary Drilling
Drilling with a bit that breaks the rock
into chips.  The chips are continually  flushed from the hole (outside the drill
pipe) and are  collected  in  sequence  for  geological  examination  and assay.

Reverse Circulation Drilling
A type of rotary drilling that uses a double walled
drill pipe.  Compressed  air, water or other drilling  medium is forced down the
space  between the two pipes to the drill bit, and the drilled chips are flushed
back up to the surface  through  the center tube of the drill pipe.

Flotation
A milling  process for mineral  concentration  based on the  selective
adhesion of minerals to air bubbles in a water and ground-ore  mixture.  Air and
specific  chemicals are introduced into the mixture.  The finely ground minerals
float to the surface  forming a metal rich  concentrate  that is skimmed off the
surface.  The  resulting  concentrates  are shipped to a smelter where the final
products are  produced.

Graben
A block,  generally  long compared to its width,
that has been  downthrown  along  faults  relative to the rocks on either  side.

Grade
The metal or mineral  content of rock, ore or drill samples.  With respect
to precious metals, grade is generally expressed as troy ounces per ton of rock.

Gravity  Concentration
A method of recovering  precious  metals and other heavy
constituents  from  ore in  which  the ore may be  physically  reduced  in size,
combined with water and then processed utilizing gravity to separate the heavier
precious  metals  from the waste  material.

Heap  Leaching
A low cost  leaching
process in which ore is placed in a heap on an  impermeable  pad.  The  solvent,
which in the case of gold is a weak cyanide solution, is sprinkled over the heap
and is later  collected  after  percolating  through the ore and  dissolving the
metals,  allowing subsequent gold recovery.

Hydrothermal  Alteration
Changes in
rocks or  minerals  caused by heated  solutions.

Joint  Venture
An  arrangement
whereunder two or more parties agree to jointly participate in the evaluation of
a mineral  property.

Leaching
The extraction of a soluble metallic element from
ore by dissolving the metal in a solvent.

Leach Pad
An impermeable foundation or
pad used as a base for ore during  heap  leaching.  The pad  prevents  the leach
solution  from  escaping  from the circuit.

Massive   Sulfide   Mineralization
A  sulfide  deposit   characterized   by  a
concentration of interconnected  sulfides totaling in excess of 30% of the total
rock, as opposed to a disseminated or veinlike  deposit.

Mill
A plant where ore
is ground,  often to fine powder,  and the minerals and metals are  concentrated
and  extracted  by physical or chemical  processes.

Mineable
That portion of a
mineral deposit from which it is economically feasible to extract ore.

Mineral
A  naturally  occurring,   usually  inorganic  and  crystalline  substance  with
characteristic  physical  and  chemical  properties  that are due to its  atomic
arrangement.

Mineralization
Mineral  bearing  rock.  Mineralization  generally
refers to the presence of gold,  silver,  or other minerals and metals which may
not qualify as a commercially  mineable orebody without completion of additional
evaluation.

Net Profits  Royalty (Net Profits  Interest)
A royalty based on the
pretax profit (proceeds) remaining after recapture of certain operating, capital
and other costs.  The type and manner of  computation  of such capital and other
costs may vary  considerably.

Net Smelter Return Royalty (Net return royalty)
A royalty based on the actual sale price received for the subject metal less the
cost of smelting and/or refining the material at an off-site refinery or smelter
along with off-site  transportation costs.

Orebody A mineral deposit that can be
mined at a profit under existing economic conditions.

Ore Reserves That part of
a mineral deposit which could be economically and legally  extracted or produced
at the time of the reserve determination.

Proven Ore Reserves
Reserves for which
(a)  quantity is  computed  from  dimensions  revealed  in  outcrops,  trenches,
workings or drill holes; grade is computed from the results of detailed sampling
and (b) the sites for inspection, sampling and measurement are spaced so closely
and the  geologic  character  is so well  defined  that size,  shape,  depth and
mineral content of reserves are well-established.

Probable Ore Reserves
Reserves
for which quantity and grade are computed from information  similar to that used
for proven reserves, but the sites for inspection, sampling, and measurement are
farther apart or are otherwise less adequately  spaced. The degree of assurance,
although  lower  than  that  for  proven  reserves,  is high  enough  to  assume
continuity  between points of observation.

Ounce
Troy ounce which is equivalent
to 31.103 grams. A troy ounce is approximately  9.7% heavier than an avoirdupois
ounce.  Accordingly,  there are 14.58  troy  ounces in an  avoirdupois  pound as
opposed to 16 avoirdupois  ounces.

Oxide Ore
Mineralized  rock in which some of
the original minerals have been oxidized.  Significant for heap leach operations
since oxidation often changes the original  minerals to a more soluble form, and
may also permit a more complete  permeation of cyanide solutions  throughout the
mineralized  rock so  that  particles  of  gold  in the ore may be more  readily
dissolved in the leaching process.

Patented Mining Claim
A mining claim, usually
comprising  about 20 acres in area,  to which the U.S.  Government  has conveyed
title to the  owner.

Placer  Deposit  A  surficial  mineral  deposit  formed by
mechanical  concentration of mineral particles from weathered debris,  and which
contains heavy minerals and metals such as gold.

Polymetallic A type of deposit
that contains a suite of minerals or metals that may be valuable.  Often copper,
lead,  zinc,  silver  and  gold  may  occur  together.

Pyroclastic  Rock
A rock
consisting of unreworked  solid material  explosively or aerially ejected from a
volcanic  vent.

Recoverable  Ounces
Those ounces  contained in ore which can be
ultimately produced and shipped from the mine.

Recovery Rate The percentage of a
metal  recovered  in  a  mineral   separation   process.   Recovery  rates  vary
considerably  depending on physical,  metallurgical and economic  circumstances.

Refining
A process for removing  impurities  from metals by introducing  air and
fluxes into the molten metal. The impurities are removed as gas or slag.

Reserve
See Ore Reserves

Reverse Circulation Drilling
See Drilling.
Run of Mine Ore

Ore that is  loaded  onto  heaps  directly  from the mine  without  having  been
crushed.

Stratabound
A  situation  in  which  mineralization  is  essentially
contained in or confined to a particular  sedimentary or volcanic  unit.

Strike
The compass  direction  that the long axis of a geological  feature  takes as it
intersects the  horizontal.

Stripping Ratio
The tonnage ratio between waste and
ore in an open pit mine.

Sulfide
A mineral compound characterized by the linkage
of sulfur with a metal.  Gold  mineralization  characterized  by the presence of
sulfides is often more difficult to leach, and therefor less economic.

Supergene Enriched Deposit
A deposit in which the mineralization has been concentrated due
to oxidation and movement by groundwater  with subsequent  reprecipitation  in a
reducing  environment at or near the water table.

Unpatented  Mining Claim
That portion of public  mineral  lands which a party has staked or marked out in
accordance  with federal and state mining laws to acquire the exclusive right to
explore  for and  exploit the  minerals  which may occur on such lands.

Working Interest
The  interest in a mineral  property  which  entitles the owner of such
interest to  participate  in the  exploration,  development,  and operation of a
mineral  property,  and to share in the  revenues  generated  and related  costs
incurred.

<PAGE>


Item 3.     Legal Proceedings.

     Thereare  currently no legal  proceedings  to which the Company is a party.
     However, litigation has been threatened . See "Items 1. and 2,." and "Items
     7. and 8."

Item 4.     Submission of Matters to a Vote of Security Holders.

         No matter was submitted to a vote of the Company's  stockholders during
the fourth quarter of the fiscal year covered by this Report.



<PAGE>



                                     PART II


Item 5.  Market  For The  Registrant's  Common  Equity And  Related  Stockholder
         Matters.

         The Company's common stock trades on The Nasdaq National Market tier of
The Nasdaq Stock MarketSM under the symbol "USMX" and the Toronto Stock Exchange
under the symbol "USM".  The Nasdaq Stock  MarketSM is the  principal  market on
which the Company's  shares are traded.  The following  table shows the high and
low prices and the volume  traded of the  Company's  shares on The Nasdaq  Stock
MarketSM for 1995 and 1996.  The closing price of the Company's  Common Stock on
January 2, 1997, the day preceding the public  announcement  of the Merger,  was
$1.75 on The Nasdaq Stock MarketSM .
<TABLE>
<CAPTION>


                                           High           Low             Volume
                                        -----------    ----------     ----------------
                  1995
                  <S>                         <C>           <C>           <C>

                  First Quarter               2.75          2.06          1,082,500
                  Second Quarter              2.94          2.13          1,648,700
                  Third Quarter               2.63          1.97          1,881,700
                  Fourth Quarter              2.06          1.75          1,347,100

                  1996
                  First Quarter               3.25          1.94          2,576,600
                  Second Quarter              3.13          2.44            837,100
                  Third Quarter               2.75          2.06          1,057,100
                  Fourth Quarter              2.44          1.44          1,672,800
</TABLE>


         At March 17, 1997, the  approximate  number of holders of record of the
Company's  Common Stock was  approximately  4,000.  This number does not include
beneficial  owners  holding shares through  nominee or "street"  names.  No cash
dividends have been paid by the Company. It has been the Company's policy to use
funds derived from its earnings for exploration,  development and other business
activities.  The Company  currently intends to continue this policy and does not
anticipate  paying cash dividends in the near future.  Any  determination to pay
cash  dividends in the future will be made by the  Company's  Board of Directors
after consideration of the Company's financial condition, business prospects and
other  relevant  factors.  At  present,  the  Company is  precluded  from paying
dividends pursuant to the Rothschild Credit Agreements.



<PAGE>



Item 6.     Selected Financial Data


         The  selected  financial  data should be read in  conjunction  with the
Consolidated  Financial  Statements and the notes thereto which appear elsewhere
in this Report.
<TABLE>
<CAPTION>


                   Summary Consolidated Financial Information
       (dollars in thousands, except per share amounts and operating data)



                                                                 Years Ended December 31,


                                              1996             1995           1994           1993            1992
                                             -----------   ------------   ------------   ------------   --------------

Statement of Operations Data:
<S>                                        <C>              <C>              <C>         <C>               <C>
Revenue (gold sales plus net other
income)............................             $2,323         $3,922         $14,866    $24,252(1)        $18,043

Gross profit (loss)................                 --          (605)           1,641            880         1,658

Prospecting costs..................                643             684            739            667            651

Abandonment and impairment of mineral
properties.........................              1,416           4,431            261            938             21

Income (loss from continuing
operations.........................            (3,302)         (6,906)            204          2,602             37

Net income (loss)..................            (3,302)         (6,906)            204          2,602             37

Net income (loss per share.........            $(0.22)         $(0.47)          $0.01          $0.17          $0.00(2)


Operating Data:
Ounces of gold sold................                 --           7,000         35,575         50,429         47,356
Average realized price per ounce                    --            $383           $383           $360           $360
Average market price per ounce                    $388            $384           $384           $360           $344

Ounces of gold produced:
  Alligator Ridge are(3)...........                 --              --             --         23,454         41,120
  Green Springs                                     --              --             --             --          2,353
  Goldstrike(4)....................                 --           6,266         34,486         31,934          4,496
                                        --------------- --------------- -------------- -------------- --------------
     Total.........................             --               6,266         34,486         55,388         47,969
                                        ==============         ========     ==========       ========        =======

Cash costs per ounce:
  Alligator Ridge area (3).........                 --              --             --           $268           $285
  Green Springs                                     --              --             --             --            198
  Goldstrike(4)....................             --                $233           $229            305            270
                                        --------------- --------------- -------------- -------------- --------------
     Combined......................             --                $233           $229           $289           $280
                                        ==============         ========     ==========       ========        =======

Total cost per ounce:
  Alligator Ridge area (3).........                 --              --           $328           $328           $336
  Green Springs                                     --              --             --             --            162
  Goldstrike(4)....................               $233            $233            326            326            282
                                        --------------- --------------- -------------- -------------- --------------
     Combined......................               $233            $233           $327           $327           $331
                                        ==============         ========     ==========       ========        =======

</TABLE>
<TABLE>
<CAPTION>

                                                                       December 31,

                                            1996            1995            1994           1993               1992
                                            -----           -----           -----          -----              ----
Financial Condition Data:
<S>                                          <C>               <C>            <C>            <C>            <C>
Working capital....................          $(27,132)          $5,094        $14,105        $19,362        $12,903
Current assets.....................             $2,261          $5,834        $14,923        $21,573        $16,427
Total assets.......................            $50,155         $17,469        $24,190        $28,808        $28,741
Current liabilities................            $29,393            $740           $818         $2,211         $3,524
Long term liabilities..............             $4,221            $885           $361         $1,074         $3,290
Stockholders' equity...............            $16,541         $15,844        $23,011        $25,523        $21,927

<FN>

(1)    Includes gain from the sale of USMX's Alligator Ridge assets totaling $5 million.
(2)    Less than $0.01
(3)   Sold August 27, 1993
(4)   The Goldstrike Mine was acquired effective November 1,1992.
</FN>
</TABLE>





<PAGE>


Item 7. Management's  Discussion and Analysis of Financial Condition and Results
        of Operations.


Going Concern Uncertainty

         USMX  has  suffered  recurring  losses  and  cash  flow  deficits  from
operations and currently has no mines in operation.  At December 31, 1996,  USMX
has an  accumulated  deficit  of  approximately  $3,056,000,  a working  capital
deficiency of  approximately  $27,132,000  and is not in compliance with certain
covenants of its long term debt agreements. In addition,  significant additional
funds will be  required to bring  USMX's  Illinois  Creek Mine into  production.
USMX's  auditors  have included an  explanatory  paragraph in their opinion that
states  that these  matters  raise  substantial  doubt about  USMX's  ability to
continue as a going concern and that the financial statements do not include any
adjustment that might result from the outcome of this uncertainty.

         USMX has entered into a Merger  Agreement  with  Dakota.  The Merger is
subject to approval by the TSE,  stockholder  and creditor  approval,  review by
other regulatory authorities, and other customary conditions. In connection with
the  Merger,  Dakota  has  loaned to USMX $5  million to be used to pay for work
completed  and ongoing work at the Illinois  Creek Mine prior to the Merger.  In
connection with the Merger,  USMX's principal lender,  agreed with Dakota not to
accelerate  the due date of any loans to USMX or to  exercise  any rights it may
have to collateral  security  (except for payment or bankruptcy  defaults) until
the earlier of the  consummation  of the Merger,  the  termination of the Merger
Agreement in accordance with its terms, or June 30, 1997.

         Should USMX be unable to complete the Merger with  Dakota,  the ability
of USMX to continue as a going concern is dependent on the continued forbearance
of  Rothschild,  obtaining  sufficient  additional  financing  to  complete  the
Illinois Creek Mine, and the commencement of profitable  operations at the mine.
Future  profitability of the mine is dependent on USMX's ability to produce gold
from the mine in  quantities  and at costs  consistent  with those  projected by
USMX.


Liquidity and Capital Resources

         Working capital at December 31, 1996, was negative $27.1 million.  Cash
and cash equivalents amounted to $238,000.  Cash and cash equivalents  decreased
during 1996 by $5 million primarily as a result of investment in property, plant
and equipment of approximately  $25.7 million,  including  deferred  exploration
costs of $0.5 million and  development  costs of $25.2 million ($23.9 million at
Illinois Creek, Alaska and $1.2 million at Thunder Mountain,  Idaho), investment
in reclamation surety and restricted cash accounts of $2.5 million and cash used
in operations of $3.9 million. These costs were partially offset by $1.3 million
in proceeds from the sale of USMX's holdings in Alta Gold Co. common stock.

         In  addition,  USMX  obtained  $4.5  million in loans from Pegasus Gold
secured by USMX's interest in the Montana  Tunnels  property and a $22.0 million
financing  facility from  Rothschild for the  construction of the Illinois Creek
Mine and related  facilities,  including working capital.  At December 31, 1996,
USMX had drawn  approximately  $21.4 million against the facility.  See Items 1.
And 2. for a detailed discussion of this financing.

         USMX completed its  feasibility  study of the Illinois Creek Project in
February  1996.  After  approval  of the project by USMX's  Board of  Directors,
clearing,  site preparation,  and road building  activities began in March 1996.
Upon  receipt  of a  commitment  for the $22  million  financing  facility  from
Rothschild,  and required permits and regulatory approvals in May,  construction
of the mine and related facilities was begun.  Construction and mine development
was  terminated in November 1996 due to weather,  but the leach pads  processing
plant, rotary kiln and ancillary  facilities were essentially  completed at that
time.

         The  original  Illinois  Creek  development  budget was $22.6  million,
including $4.7 million in estimated working capital. In the process of obtaining
bids from construction contractors,  USMX determined that the forecast needed to
be increased by  approximately  $2.8  million to $25.4  million.  As a result of
weather  induced  delays,  complexities  of  developing  a mine  using  only air
transport and other complexities of developing a mine in a remote area, USMX had
incurred costs at December 31, 1996, of  approximately  $30.7 million related to
the development of the property, including approximately $2.8 million of working
capital.  At December 31, 1996,  USMX had unpaid  obligations  to suppliers  and
contractors  of  approximately  $5.7 million for work  completed in 1996.  It is
estimated  that an additional  $8.8 million,  including  $4.9 million of working
capital, will be required to bring the mine to production. Subject to receipt of
additional  financing as described  below,  gold production at Illinois Creek is
scheduled for summer, 1997.

         One of the  construction  contractors on the Illinois Creek Property in
Alaska working under an  approximately  $3 million contract with the Company has
submitted  invoices  and  claims  totaling  approximately  $7  million  for work
completed in 1996.  At December 31,  1996,  the Company had paid the  contractor
$1,772,000 and has recorded an additional liability to the contractor,  based on
the Company's  estimate of its obligation under the contract of $2,414,000.  The
unpaid invoices and claims are currently being reviewed, and it is likely that a
significant  portion of the invoices and claims will be disputed by the Company.
The contractor has threatened legal proceedings if the dispute is not informally
resolved.  The Company  and its  representatives  are  currently  reviewing  the
relevant facts and until that review is complete the Company cannot estimate the
magnitude of any potential liability,  possible  counterclaims by the Company or
the outcome of  arbitration  or litigation if the dispute  cannot be resolved by
negotiation.  On November 8, 1996, the construction contractor also filed a lien
on the  Illinois  Creek  Property.  The lien is related to certain  invoices and
claims submitted through that date.

         In  addition  to  construction  and  working  capital  requirements  at
Illinois  Creek,  USMX is  required by the terms of the credit  agreements  with
Rothschild to maintain  minimum  balances in a Proceeds  Account for use only in
connection with the Project and to maintain certain  financial ratios related to
the Project and to USMX. Per the terms of the Rothschild Credit Agreements, USMX
agreed to deposit $1.5 million in the  Proceeds  Account by September  30, 1996.
USMX was unable to comply with this  requirement and Rothschild  agreed to waive
this  and  certain  financial  ratio   requirements  until  December  31,  1996,
conditional upon USMX's agreements to, among other things, (A) file a prospectus
with the appropriate Canadian securities  regulatory  authorities by November 1,
1996,  and complete an offering by December  31,  1996,  (B) adjust the price at
which  Rothschild  may elect to convert the $2.5  million  loan into USMX Common
Stock to the price at which the shares are sold in an  offering,  or if no sale,
at the average  trading  price for the last ten trading  days of 1996 and (C) to
pay the Lender a fee of US$100,000  which fee is payable upon the first to occur
of (i) a date upon which such  payment can be made without  materially  reducing
the working capital reasonably required by USMX for continued operations or (ii)
April 15, 1997.  At December 31, 1996,  USMX had not  completed the offering and
was unable to comply with the  requirement  that it deposit  $1.5 million in the
Proceeds Account. As a result of the covenant violations,  at December 31, 1996,
the loans from Rothschild have been classified as a current liability.  USMX has
determined to accept the Merger offer from Dakota Mining and not to proceed with
the offering.

         On January 3, 1997,  USMX  entered  into an  agreement  in principle to
merge  with  Dakota.  On  February  5, 1997,  USMX  signed a  definitive  Merger
Agreement with Dakota whereby USMX  Stockholders  will receive one Dakota Common
Share  for  every  1.1  shares  of USMX  Common  Stock  and USMX  will  become a
wholly-owned  subsidiary of Dakota. As part of the Merger Agreement,  Dakota and
USMX  agreed that Dakota  would  provide a $5 million  line of credit to USMX to
provide interim  working capital to sustain USMX operations  until the Merger is
consummated.  The  proceeds  are to be used  to pay  certain  ongoing  operating
expenses  primarily in connection with start-up  activities  associated with the
Illinois Creek Mine and to partially pay trade creditors.

         In February  1997,  Dakota offered by way of private  placement  25,000
Special  Warrants at a price of Cdn.  $1,000 per Special  Warrant  resulting  in
gross proceeds of Cdn. $25 million.  Each Special Warrant entitles the holder to
receive one 7.5% unsecured  subordinated  convertible debenture in the amount of
Cdn.  $1,000.  Of the  proceeds,  U.S.  $5 million  have been  released  and the
remaining  proceeds  have been  deposited in escrow  pending  completion  of the
Merger and  approval by the Dakota  Shareholders  of the  issuance of the Common
Shares  underlying  the  Debentures.  This  offering  was a condition  of USMX's
obligation  to proceed with the Merger.  A  substantial  portion of the proceeds
will be used to pay suppliers and contractors for work completed at the Illinois
Creek Mine and to  complete  construction  and  provide  working  capital at the
Illinois Creek Mine.

         The line of credit is  evidenced by two  promissory  notes with similar
terms but different amounts and different  security.  The $2 million  promissory
note ("Note 1") is secured by a second  priority  position in all of the capital
stock of USMX of Alaska, Inc. owned by USMX. USMX of Alaska, Inc. holds title to
the Illinois Creek Mine. The second promissory note for $3 million ("Note 2") is
secured by a first  position on all of the  capital  stock of MXUS S.A. de C.V.,
USMX's  Mexican  Subsidiary,  and a first  position  on USMX's  interest  in the
Thunder Mountain property in Idaho. USMX and Dakota agreed to grant Rothschild a
second priority  security position in the security for Note 2. (See Items 1. And
2.) Funding for the line of credit was  provided  from a portion of the proceeds
of a Special Warrant offering by Dakota described above.

         USMX has filed a Notice of Intent to Operate with the Idaho  Department
of Lands  describing  USMX's  proposed gold and silver mining  activities in the
Thunder Mountain  Project.  Management  estimates that the project would require
substantial  capital to place it into production,  including working capital. If
the project is sufficiently  attractive to warrant continued development and the
necessary  permits are obtained,  construction  could begin in 1998.  Production
could begin in 1998 or 1999 depending on the construction  schedule.  Management
believes  that  USMX  will  need to obtain  additional  capital  to put  Thunder
Mountain into production.

         USMX's  balance  sheet at December  31,  1996  reflects a total of $0.8
million in accrued reclamation  liabilities  associated with its acquisition and
operation of the Goldstrike  Mine.  Reclamation  activities in 1996 have focused
primarily  on  recontouring,   topsoiling  and  planting  heap  number  one  and
completion  of rinsing of heap  number two.  Commencement  of  recontouring  and
topsoiling  of heap number two as well as the  dismantling  of the process plant
and  reclamation of the plant site will begin once USMX has obtained  acceptance
by the State of Utah of USMX's final closure.  The goal is to achieve closure by
the end of 1997.  This  reclamation  is expected to be financed with  internally
available cash  balances,  cash generated from the sale of gold produced as a by
product of heap rinsing and approximately $1.6 million cash previously  provided
to the State of Utah as reclamation surety.


Results of Operations

         USMX  realized  a net loss for the year ended  December  31,  1996,  of
$3,302,000  compared with a $6,906,000  loss for 1995 and net income of $204,000
for  1994.  The  loss  for  1996  includes  mineral  property  abandonments  and
impairments of $1,416,000 compared to $4,431,000 for 1995 and $261,000 for 1994.
General and administrative costs increased to $3,621,000 in 1996 from $2,548,000
in 1995 and  $2,185,000 in 1994, as the result of added office space and related
expenses  arising from increased  staffing  requirements to develop the Illinois
Creek  and  Thunder  Mountain  properties.  The 1996  results  include a gain of
approximately  $936,000  from  the sale of  common  stock  held  for  investment
purposes and an unrealized  gain of $884,000  resulting from the roll forward of
four gold forward sales  contracts and the sale of various  silver call options.
The 1994  results  include a  $497,000  income  tax  credit  resulting  from the
difference  between the  estimated  1993 federal  income tax  provision  and the
actual liability reflected on the 1993 income tax returns.

         Fluctuations  in USMX's  results of operations  from year to year arise
primarily  from four  factors:  (1)  changes  in the volume of gold sold and the
selling  price of gold,  (2)  changes in the cost of gold sold,  (3) the cost of
mineral   properties   abandoned   during  any  given  period,   and  (4)  asset
dispositions.



<PAGE>




     Change in the Volume of Gold Sold and Selling Price of Gold

         The following table analyzes the variance in gold sales revenue for the
years ended December 31, 1996, 1995, and 1994:

<TABLE>
<CAPTION>

Revenue Variance Analysis

Year Ended December 31,                                            1996                 1995                   1994

<S>                                                          <C>                  <C>                    <C>
Ounces of gold sold................................                  --                6,900                 35,575
Average price realized per ounce...................                $ -                  $388                 $  383

Change in revenue attributable to:
Less ounces sold...................................           $ (2,678,000)      $  (10,972,000)         $   5,342,000)
Higher (lower) price...............................                  --          $     35,000            $     820,000

Decrease in gold sales revenue compared to the
  preceding year...................................          $  (2,678,000)      $  (10,937,000)         $  (4,522,000)



</TABLE>

     Change in Costs Applicable to Sales

     Cost of Gold Sold

         No gold  was  sold  in  1996  compared  to the  cost  of  gold  sold of
$2,890,000  or  approximately  $419  per  ounce  in  1995,  and  $11,203,000  or
approximately  $315 per ounce in 1994. The  fluctuation in the cost of gold sold
is a result of the change in the cost of production  throughout the life of each
mine as illustrated in the table below.
<TABLE>
<CAPTION>


Year Ended December 31,                                           1996              1995               1994
                                                            --------------      -----------        -------------
<S>                                                              <C>               <C>                <C>
Cash production costs incurred............................          -               $ 233              $ 229
Depreciation, depletion, amortization and reclamation
accruals..................................................                                                48
                                                                --------          --------          ----------
Production cost per ounce produced........................        $ -               $ 233              $ 277
                                                                  ====              =====              =====

Gold sales revenue                                                $ -               $ 388               $383

Production cost per ounce sold............................        $ -               $ 212               $269
Change in inventories and deferred........................          -                 207                 46
                                                                --------          --------           ---------
Cost of gold sold.........................................          -                 419                315
Mining taxes..............................................          -                   2                  3
Production royalties......................................          -                  55                 19
                                                                --------          --------           ---------
Costs applicable to sales.................................          -                 476                 337
                                                                --------          --------           ---------
Gross profit (loss).......................................        $ -               $ (88)              $ 46
                                                                  ====              =====               =====

</TABLE>

         Cash production  costs per ounce of gold produced at USMX's  Goldstrike
Mine  increased  to $233 for 1995  from $229 for 1994  despite  the fact that no
mining, crushing or pad loading costs were incurred after October 1994 because a
significant  portion  of  processing  costs are  fixed  and,  therefore,  do not
decrease as production decreases.  As the result of a reduction of the estimated
remaining  recoverable  ounces  of  gold  at  the  Goldstrike  Mine,  change  in
inventories and deferred  production  costs increased to $207 per ounce sold for
1995 from $46 in 1994.

     Mining Taxes and Royalties

         During 1995, USMX incurred $14,000 in mining taxes compared to $106,000
in 1994.  The decrease in mining taxes in 1995 and 1994 is  attributable  to the
decrease in ounces sold  compared to the previous  year as a result of declining
production at the  Goldstrike  Mine.  Also,  USMX  incurred  $379,000 in royalty
expense  for 1995  compared  to $665,000  in 1994.  The  increase in  production
royalties per ounce of gold sold is  attributable to the monthly minimum royalty
paid at Goldstrike through January of 1996.



Cost  of  Mineral  Properties   Abandoned  and  Provisions  for  Impairments  of
Investments in Mineral Properties

         USMX  periodically  reviews the carrying values of its  properties.  In
1996, management determined that properties with an aggregate historical cost of
$674,000 no longer held  sufficient  promise to justify the cost of maintenance.
The  properties  abandoned  in  1996  were  Goldstrike  ($345,000),   Elk  Creek
($93,000),  Baggs Creek ($69,000), Putu Chile ($61,000), two other properties in
the  United  States  ($17,000)  and six small  properties  in Mexico  ($89,000).
Property abandonments were $758,000 and $261,000 in 1995 and 1994, respectively.
The properties  abandoned in 1995 were Tule Canyon  ($65,000),  Divide ($63,000)
and three  other  properties  in the  United  States  ($202,000)  and La Cienega
($111,000),  Jalisco  Copper  ($164,000)  and four  other  properties  in Mexico
($153,000).  The properties  abandoned in 1994 were the Ancho Canyon, New Mexico
($221,000) and the South Pass,  Wyoming  placer  properties  ($40,000),  both of
which were acquired during that year.

         During 1996 USMX wrote down the carrying value of the Nambija  property
in Ecuador and the  Amargosa  and La Reserva  properties  in Mexico by $335,000,
$326,000 and $81,000 respectively.  The carrying value of each of the properties
was reduced to zero.  Although the three  properties  appear to have  geological
potential, to date, no significant economic mineralization has been encountered.
The La Reserva  property  is  currently  being  explored in joint  venture  with
another mining company.  The Nambija and Amargosa  properties are being held for
possible  future joint venture  exploration.  In the fourth quarter of 1995, the
carrying value of the Amargosa  polymetallic  prospect in Chihuahua,  Mexico was
reduced by $1.0 million.

         In 1995,  the  Commonwealth  of Puerto Rico adopted  legislation  which
amended the mining law to prohibit  future  mining of metallic  deposits by open
pit methods.  Although USMX is considering various strategies and responses, the
effect of the mining law, as  currently  amended,  is to render  USMX's plan for
development  of the Cala Abajo  deposit  uneconomic.  As a result,  in 1995 USMX
reduced the carrying  value of this  property to zero and recorded an impairment
loss of $1.1 million.

         Gold production at USMX's  Goldstrike Mine in Utah declined  sharply in
August  and  September  of 1995.  This  decline  in gold  recovery  triggered  a
reevaluation of the estimated remaining recoverable gold ounces in the heaps. As
a result, the carrying value of deferred mining and processing costs was reduced
to the fair market value of the remaining  gold bullion and dore at the refinery
and USMX recorded an impairment loss of $1.6 million.


     Asset Dispositions and Gain on Sale of Common Stock

         In April 1994, USMX sold its interest in the Kinsley  Mountain  Project
in Elko  County,  Nevada to Alta Gold Co.  ("Alta").  In addition to the $20,000
previously  received,  USMX received $380,000 in cash and Alta restricted common
stock with a then market value of $200,000. In April 1995, USMX received a final
cash payment of $400,000 and additional Alta restricted common stock with a then
market value of $200,000.  USMX  received,  and retained at December 31, 1995, a
total of 352,711 shares of Alta restricted  common stock.  The cash proceeds and
discounted  value of the stock  received  were  recorded as a  reduction  to the
carrying value of the property on USMX's books. In 1995, USMX recorded a loss on
this transaction of $1,000.  During 1996 USMX sold all of the outstanding shares
of Alta common stock for $1,281,000 and recorded a gain on the sale of $936,000.


     Other Costs and Expenses

         General and  administrative  costs increased to $3,621,000 in 1996 from
$2,548,000  in 1995,  as the result of added office  space and related  expenses
arising from increased  staffing  requirements to develop the Illinois Creek and
Thunder Mountain properties.  General and administrative expenses were higher in
1995  than  1994  principally  due to legal  and  other  professional  fees paid
relative  to the Cala Abajo  project and to  salaries  and  related  expenses of
additional  corporate staff. Legal and professional  consultants were engaged to
evaluate  the  impact  of a  change  in  Puerto  Rican  mining  law  and  USMX's
alternatives concerning the Cala Abajo Project.

         Prospecting costs in 1996 were comparable to Prospecting costs in 1995.
Prospecting  costs in 1995 were lower than 1994 as a result of the  concentrated
effort by USMX's  exploration  staff to  complete  development  drilling  at the
Illinois Creek, Alaska property.

         Interest  income  decreased to $275,000 in 1996 compared to $525,000 in
1995, as the result of decreasing cash balances during 1996. Interest income for
1995 was comparable to 1994.

         Interest  expense  increased to $511,000 in 1996 compared to $14,000 in
1995,  as the  result  of  long  term  debt  incurred  during  1996  related  to
development of the Illinois Creek property and a $4.5 million loan received from
Pegasus Gold, a stockholder of USMX. Interest expense for 1995 was comparable to
1994.

         Income tax expense  primarily  represents  current and deferred federal
income  taxes.  The entire  income tax  benefits  for 1996 and 1995 are  related
primarily to net operating  losses carried back to prior years. The 1994 benefit
results primarily from the difference  between the estimated 1993 federal income
tax provision and the actual liability reflected on the 1993 income tax returns.
See Note 10 to the Consolidated Financial Statements for a reconciliation of the
provision  for income  taxes for 1996,  1995 and 1994 to the  statutory  federal
income tax rate.

     Trends Which May Affect Future Results of Operations

         As  previously  stated,  fluctuations  in USMX's  results of operations
arise  primarily  from four factors:  (1) changes in the volume and cost of gold
sold,  (2)  changes  in the  selling  price  of gold,  (3) the  cost of  mineral
properties  abandoned  during any given period and (4) asset  dispositions.  The
following is management's view of trends in these factors.

     Changes in the Volume and Cost of Gold Sold

         USMX's ability to achieve  forecasted gold production will be dependent
upon  many  factors,  some of  which,  such as the  price  of gold  and  climate
conditions, are beyond the control of USMX.

         Estimates of mineralization, metallurgical recovery, and cash operating
costs  are to a large  extent  based  on the  interpretation  of  geologic  data
obtained from drill holes and other sampling  techniques and feasibility reviews
which derive estimates of cash operating costs based on anticipated  tonnage and
grades  of ore to be mined and  processed,  the  configuration  of the ore body,
expected  recovery  rates  of  metals  from  the ore,  comparable  facility  and
equipment costs, anticipated climate conditions and other factors.  Accordingly,
actual volumes of gold produced and actual cash operating  costs may differ from
the volumes and costs initially estimated.

         USMX's  operations will be subject to all of the operating  hazards and
risks normally incident to operation of mineral  properties,  such as unusual or
unexpected geological formations,  environmental hazards,  industrial accidents,
labor  disputes,  equipment  incapability  or failures,  and  inclement  weather
conditions.  Such  occurrences  could  result in damage to, or  destruction  of,
mineral  properties  or  production   facilities,   personal  injury  or  death,
environmental  damage,  delays in mining,  monetary  losses and  possible  legal
liability.  Moreover,  USMX's  mining  operations  will be subject to  extensive
federal, state and local laws and regulations governing production, taxes, labor
standards,  occupational health,  waste disposal,  protection and remediation of
the environment, reclamation, mine safety, toxic substances and other matters.

         Compliance  with such laws and  regulations  has  increased the cost of
planning, designing, drilling, developing,  constructing,  operating and closing
other mines and facilities  previously  operated by USMX. In addition,  USMX has
expended significant  resources,  both financial and managerial,  to comply with
environmental protection regulations and permitting requirements and anticipates
that it will continue to do so in the future. Although USMX believes that it has
made  adequate  provision  to  comply  with  such  regulations,  there can be no
assurance that additional significant costs and liabilities will not be incurred
to  comply  with  current  and  future  environmental   protection  regulations.
Moreover,  it is possible that future developments,  such as increasingly strict
environmental  protection laws, regulations and enforcement policies, and claims
for damages to property  and persons  resulting  from USMX's  operations,  could
result in substantial costs and liabilities in the future.

     Changes in the Selling Price of Gold

         Another  significant  uncertainty  facing USMX which could  potentially
impact its financial position,  profitability and liquidity in the short term is
the price of gold. The gold price is a function of a number of factors including
investors'  expectations  with  respect  to  inflation,  the  strength  of world
currencies, decisions by central banks regarding their gold reserves, and supply
and demand  factors,  none of which is under the  control of USMX's  management.
During 1996 gold reached a six year high of $415 per ounce early in the year and
a three year low of $369 per ounce late in the year. The average market price of
gold was $388 an ounce  during 1996  compared to $384 per ounce  during 1995 and
1994.

         In order to protect itself from possible  declining gold prices,  USMX,
from  time  to  time,  enters  into  hedging  agreements  with  major  financial
institutions.  As of December  31, 1996,  USMX had entered  into  forward  sales
contracts  for  140,900  ounces of gold  deliverable  at various  dates  through
December 31, 1999 at an average selling price of $409 per ounce.  Delivery under
these spot  deferred  contracts  can be  deferred  at USMX's  option up to forty
months depending on the individual contract.  The aggregate unrealized excess of
the net market value of USMX's forward sales  contracts over the spot gold price
of $368 per ounce as of December 31, 1996, is approximately $5,875,000.

         USMX has also  written  silver call options  expiring at various  dates
over the next forty  months,  which if  exercised,  would  become spot  deferred
contracts with delivery deferred as previously described.  At December 31, 1996,
USMX had sold  825,300  ounces of silver call option  contracts  all at a strike
price of $5.50 per ounce  expiring  on dates  ranging  from  September  28, 1997
through  December  29,  1999.  Call  options  premiums   received   amounted  to
approximately $424,000.

     Cost of Mineral Properties Abandoned

         The cost of mineral properties abandoned in any period is a function of
the results of USMX's  exploration  efforts and  economic  considerations.  USMX
makes every effort to maximize the results of its exploration efforts.  However,
exploration  for  economically  recoverable  metals involves  significant  risk.
Accordingly,  while it is  probable  there  will be  abandonment  losses  in the
future, it is not possible to predict either the timing or amount.







<PAGE>



Item 8.     Financial Statements and Supplementary Data.

                           USMX, INC. AND SUBSIDIARIES
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
                         At December 31, 1996 and 1995,
              For the years ended December 31, 1996, 1995 and 1994


                                                                     Page

                                                               ---------------
          Independent Auditors' Reports                                44

          Consolidated Financial Statements:

             Consolidated Statements of Financial Position          45 - 46
             Consolidated Statements of Operations                     47
             Consolidated Statements of Stockholders' Equity           48
             Consolidated Statements of Cash Flows                  59 - 50
             Notes to Consolidated Financial Statements             51 - 67





<PAGE>



                          Independent Auditors' Report

The Board of Directors and Stockholders
USMX, Inc. and subsidiaries:

We have audited the accompanying  consolidated  statements of financial position
of USMX, Inc. and subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of operations,  stockholders' equity, and cash flows for
each of the years in the three  year  period  ended  December  31,  1996.  These
consolidated  financial  statements  are  the  responsibility  of the  Company's
management.  Our  responsibility is to express an opinion on these  consolidated
financial statements based on our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all material  respects,  the  financial  position of USMX,  Inc. and
subsidiaries  as of  December  31,  1996  and  1995,  and the  results  of their
operations and their cash flows for each of the years in the  three-year  period
ended  December 31, 1996,  in  conformity  with  generally  accepted  accounting
principles.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company  will  continue  as a  going  concern.  As  discussed  in  Note 2 to the
financial statements, the Company has incurred cost overruns associated with the
construction  of the Illinois Creek Mine, has cash flow deficits from operations
and currently has no mines in operation.  At December 31, 1996,  the Company has
an  accumulated   deficit  of  $3,056,000,   a  working  capital  deficiency  of
approximately $27,132,000 and is not in compliance with certain covenants of its
long term debt  agreements.  In addition,  significant  additional funds will be
required  to bring the  Company's  Illinois  Creek Mine into  production.  These
matters raise  substantial  doubt about the  Company's  ability to continue as a
going concern.  Management's plans in regard to these matters are also described
in Note 2. The financial  statements do not include any  adjustments  that might
result from the outcome of this uncertainty.




                              KPMG PEAT MARWICK LLP

March 11, 1997




<PAGE>
USMX, INC. and Subsidiaries
Consolidated Statements of Financial Position
<TABLE>
<CAPTION>

                                                                                       December 31,
                                                                                1996                 1995
--------------------------------------------------------------------------------------------------------------
                                                                                  (Amounts in thousands)
<S>                                                                        <C>                        <C>
Assets
Current assets:
    Cash and cash equivalents                                              $         238             $  5,226
    Restricted cash                                                                  108                    -
    Deferred mining and processing costs                                             200                    -
    Consumable inventories                                                           488                    -
    Federal income taxes receivable                                                  424                  381
    Other                                                                            803                  227
--------------------------------------------------------------------------------------------------------------
      Total current assets                                                         2,261                5,834
--------------------------------------------------------------------------------------------------------------

Property, plant and equipment, at cost:
    Undeveloped mineral properties                                                 1,826                2,913
    Mineral properties under development                                          12,043                6,345
    Construction in progress                                                      27,905                    -
    Developed mineral properties                                                     920                  920
    Mine buildings and equipment                                                   3,042                2,451
    Vehicles, furniture and equipment                                                703                  662
--------------------------------------------------------------------------------------------------------------
                                                                                  46,439               13,291
    Less accumulated depreciation,
      depletion and amortization                                                 (3,532)               (3,475)
--------------------------------------------------------------------------------------------------------------
        Net property, plant and equipment                                         42,907                9,816
--------------------------------------------------------------------------------------------------------------

Commodity futures contracts, at market                                             1,144                    -
Reclamation surety and other assets                                                3,843                1,819
--------------------------------------------------------------------------------------------------------------
  Total assets                                                                 $  50,155              $17,469
--------------------------------------------------------------------------------------------------------------
                                                                                   (Continued)

</TABLE>


<PAGE>



USMX, INC. and Subsidiaries
Consolidated Statements of Financial Position
(Concluded)
<TABLE>
<CAPTION>

                                                                                      December 31,
-------------------------------------------------------------------------------------------------------------
                                                                                1996                1995
-------------------------------------------------------------------------------------------------------------
                                                                                 (Amounts in thousands)
<S>                                                                            <C>                   <C>
Liabilities and Stockholders' Equity
Current liabilities:
    Current portion of long term debt                                          $  21,355             $     -
    Current portion of note payable to related party                                 355                   -
    Accounts payable                                                               6,708                 312
    Accrued salaries                                                                  84                  73
    Accrued reclamation                                                              843                 304
    Other accrued liabilities                                                         48                  51
-------------------------------------------------------------------------------------------------------------
      Total current liabilities                                                   29,393                 740
-------------------------------------------------------------------------------------------------------------


Note payable to related party, less current portion                                3,923                   -
Deferred commodity option premiums, at market                                        298                   -
Estimated reclamation liability                                                        -                 885

Stockholders' equity:
    Preferred stock, $.001 par value, 20,000,000
      shares authorized, none issued                                                   -                   -
    Common stock, $.001 par value, 45,000,000
      shares authorized, 16,184,000 shares issued
      and outstanding as of December 31, 1996,
     14,644,000 shares issued and outstanding
      as of December 31, 1995                                                         16                  15
    Additional paid-in capital                                                    19,581              15,583
    Retained earnings (Accumulated deficit)                                      (3,056)                 246
-------------------------------------------------------------------------------------------------------------
      Total stockholders' equity                                                  16,541              15,844
Commitments and contingencies (Note 15)
-------------------------------------------------------------------------------------------------------------
        Total liabilities and stockholders' equity                             $  50,155            $ 17,469
-------------------------------------------------------------------------------------------------------------

</TABLE>

The accompanying notes are a part of these consolidated financial statements.




<PAGE>



USMX, INC. and Subsidiaries
Consolidated Statements of Operations
<TABLE>
<CAPTION>


                                                                                        Years Ended December 31,
-----------------------------------------------------------------------------------------------------------------------
                                                                                   1996           1995           1994
-----------------------------------------------------------------------------------------------------------------------
                                                                                         (Amounts in thousands)

<S>                                                                             <C>            <C>            <C>
Sales of gold                                                                   $      -       $  2,678       $ 13,615


Costs applicable to sales:
  Cost of gold sold                                                                    -          2,890         11,203
  Mining taxes                                                                         -             14            106
  Production royalties                                                                 -            379            665
--------------------------------------------------------------------------   ------------------------------------------
                                                                                       -          3,283         11,974
--------------------------------------------------------------------------   ------------------------------------------

      Gross profit (loss)                                                              -          (605)          1,641

General and administrative expenses                                                3,621          2,548          2,185
Prospecting costs                                                                    643            684            739
Asset abandonments, write downs and impairments                                    1,416          4,431            261

--------------------------------------------------------------------------   ------------------------------------------
     Loss from operations                                                         (5,680)        (8,268)        (1,544)

Other income (expense):
  Unrealized gains on commodity futures and option contracts                         884              -              -
  Gain on common stock held for investment                                           936              -              -
  Royalty income (received from related party)                                       720            720            720
  Interest income                                                                    275            525            518
  Interest expense (including $184,000 to related parties in 1996)                  (511)           (14)           (22)
  Other, net                                                                          19             13             35
--------------------------------------------------------------------------   ------------------------------------------
                                                                                   2,323          1,244          1,251
--------------------------------------------------------------------------   ------------------------------------------
Loss before income taxes                                                         (3,357)         (7,024)           (293)
Income tax benefit                                                                  (55)           (118)           (497)
--------------------------------------------------------------------------   ------------------------------------------
Net income (loss)                                                               $(3,302)       $ (6,906)           $204
--------------------------------------------------------------------------   ------------------------------------------

Net income (loss) per common share                                              $ (0.22)       $  (0.47)         $ 0.01
--------------------------------------------------------------------------   ------------------------------------------

Weighted average common and common equivalent shares outstanding                  15,285         14,755         14,860
--------------------------------------------------------------------------   ------------------------------------------


</TABLE>

The accompanying notes are a part of these consolidated financial statements.




<PAGE>



USMX, INC. and Subsidiaries
Consolidated Statements of Stockholders' Equity

<TABLE>
<CAPTION>



                                                 Common Stock                                                  Retained
                                       --------------------------------   Additional                           Earnings
                                          Number of                        Paid-in           Treasury        (Accumulated
                                           Shares            Amount        Capital            Stock            Deficit)
---------------------------------------------------------------------------------------------------------------------------
                                                                     (Amounts in thousands)
<S>                                        <C>               <C>           <C>                 <C>              <C>
Balance at December 31, 1993                    15,589       $     16      $   18,559          $      -         $     6,948


Shares issued as compensation                        2              -               7                 -                  -
Exercise of stock options                          198              -             314                 -                  -
Previously issued shares submitted in
  partial payment for options                        -              -              14              (14)                  -
exercised
Repurchase of common stock                           -              -               -             (3,215)                -
Treasury stock retired                          (1,003)            (1)         (3,213)             3,213                 -
Income tax benefit arising from
  the disqualifying disposition of
  incentive stock options                            -              -             179                 -                  -
Net income                                           -              -               -                 -                204

---------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1994                    14,786             15          15,860              (16)              7,152

Shares issued as compensation                        3              -              11                 -                  -
Exercise of stock options                            3              -               6                 -                  -
Repurchase of common stock                           -              -               -              (278)                 -
Treasury stock retired                           (148)              -           (294)               294                  -
Net loss                                             -              -               -                 -             (6,906)

---------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995                    14,644             15          15,583                 -                246

Shares issued for acquisition of                 1,540              1           3,998                 -                  -
assets
Net loss                                             -              -               -                 -             (3,302)

---------------------------------------------------------------------------------------------------------------------------

Balance at December 31, 1996                    16,184       $     16        $ 19,581              $  -          $  (3,056)

---------------------------------------------------------------------------------------------------------------------------


</TABLE>

The accompanying notes are a part of these consolidated financial statements.


<PAGE>


USMX, INC. and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>

                                                                                         Years Ended December 31,
------------------------------------------------------------------------------------------------------------------------
                                                                                       1996         1995         1994
------------------------------------------------------------------------------------------------------------------------
                                                                                           (Amounts in thousands)
<S>                                                                                <C>           <C>          <C>
Cash flows from operating activities:
  Cash from sales of precious metals                                                $    -       $  2,678     $ 13,615


  Cash paid to suppliers and employees                                               (4,285)      (4,831)      (12,279)
  Mining taxes paid                                                                        -         (14)         (106)
  Royalties paid in cash                                                                   -        (379)         (665)
  Royalties received                                                                     720          720           720
  Interest received                                                                      275          525           518
  Interest expense                                                                     (511)         (14)          (22)
  Other income, net                                                                       19           13            35
  Income taxes paid, net of refunds received                                              12           11         1,311
------------------------------------------------------------------------------------------------------------------------
           Net cash provided by (used in) operating activities                       (3,770)      (1,291)         3,127
------------------------------------------------------------------------------------------------------------------------

Cash flows from investing activities:
  Additions to property, plant and equipment                                        (25,679)      (5,674)       (4,221)
  Proceeds from sales of property and equipment                                           24          449           380
  Increase in restricted cash accounts, net                                            (108)            -             -
  Increase in reclamation surety and other assets                                    (2,369)            -         (171)
  Proceeds from sale of common stock held for investment                               1,281            -             -
  Other, net                                                                               -            -            80
------------------------------------------------------------------------------------------------------------------------
           Net cash used in investing activities                                    (26,851)      (5,225)       (3,932)
------------------------------------------------------------------------------------------------------------------------

Cash flows from financing activities:
  Proceeds from issuance of common stock                                                   -            6           314
  Repurchase of common stock                                                               -        (278)       (3,215)
  Proceeds of notes payable                                                           25,855            -             -
  Repayment of notes payable                                                           (222)            -             -
------------------------------------------------------------------------------------------------------------------------
           Net cash provided by (used in) financing activities                        25,633        (272)       (2,901)
------------------------------------------------------------------------------------------------------------------------

Net decrease in cash and cash equivalents                                            (4,988)      (6,788)       (3,706)
Cash and cash equivalents at beginning of year                                        5,226       12,014        15,720
------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year                                            $   238      $ 5,226      $ 12,014
------------------------------------------------------------------------------------------------------------------------
                                                                                                (Continued)

</TABLE>

The accompanying notes are a part of these consolidated financial statements.


<PAGE>


USMX, INC. and Subsidiaries
Consolidated Statements of Cash Flows
(Concluded)
<TABLE>
<CAPTION>

                                                                                       Years Ended December 31,
------------------------------------------------------------------------------------------------------------------------
                                                                                     1995          1994          1993
------------------------------------------------------------------------------------------------------------------------
Reconciliation of Net Income to Net Cash                                                  (Amounts in thousands)
Provided by Operating Activities

<S>                                                                              <C>             <C>            <C>
  Net income (loss)                                                              $   (3,302)     $ (6,906)      $   204

  Adjustments to reconcile  net income  (loss) to net cash provided by (used in)
    operating activities:
      Depreciation, depletion and amortization charged to costs and expenses             109          134         1,484
      Asset abandonments, write downs and impairments                                  1,416        2,928           261
      Gain on sale of common stock held for investment                                 (936)            -             -
      Unrealized gain on commodity futures and option contracts                        (884)            -             -
      Other, net                                                                           -         (15)            14
      Changes in operating assets and liabilities:
        (Increase) decrease in deferred mining and processing costs                    (200)        2,344         1,647
        (Increase) decrease in consumable inventories                                  (488)           34            27
        Depreciation, depletion and amortization
          included in ending inventories                                                   -            -           619
        (Increase) decrease in federal income taxes receivable                          (43)        (107)           744
        (Increase) in other current assets                                             (576)            -             -
        Increase (decrease) in accounts payable                                        1,434          116        (1,044)
        Increase (decrease) in accrued salaries                                           11           41          (153)
        Increase (decrease) in other accrued liabilities                                 295         (45)           (35)
        Increase (decrease) in accrued and estimated reclamation liabilities           (346)          335          (874)
        Other changes in assets and liabilities, net                                   (260)        (150)           233
------------------------------------------------------------------------------------------------------------------------
           Net cash provided by (used in) operating activities                   $   (3,770)      $(1,291)       $3,127
------------------------------------------------------------------------------------------------------------------------

Supplemental Disclosure of Noncash
Investing and Financing Activities

The Company issued 1,540,663 shares of the Company's common stock to North
Pacific Mining  Corporation to acquire leasehold and other property interests in
the Illinois Creek Project in Alaska.
Assets acquired                                                                   $    4,000       $    -         $   -
Market value of common stock issued                                                    4,000            -             -
------------------------------------------------------------------------------------------------------------------------
Cash paid                                                                         $        -       $    -         $   -
------------------------------------------------------------------------------------------------------------------------

The Company received $400,000 and $380,000 cash, plus 184,438 and 168,273
shares of Alta Gold Co. common stock, in 1995 and 1994 respectively, as
payment for the purchase of the Company's interest in the Kinsley Mountain
Property.
Payment received                                                                    $      -        $  560        $  540
Discounted market value of common stock received                                           -           160           160
------------------------------------------------------------------------------------------------------------------------
Cash received (included in proceeds from sale of property and equipment)            $      -        $  400        $  380
------------------------------------------------------------------------------------------------------------------------

</TABLE>


The accompanying notes are a part of these consolidated financial statements.


<PAGE>



USMX, INC. and Subsidiaries
Notes to Consolidated Financial Statements

Note 1. - The Company

         USMX, INC. (the "Company") is a Delaware  corporation  which engages in
the exploration for, and development and operation of precious metal properties.
The Company also evaluates base metal and non-metallic  situations.  The Company
conducts its operations directly and through various operating subsidiaries. All
references herein to the Company include all subsidiaries of USMX, INC.

Note 2. - Summary of Significant Accounting Policies

Basis of presentation

         The financial  statements have been prepared  assuming the company will
continue as a going concern. Certain factors, discussed below, raise substantial
doubt about the Company's ability to continue as a going concern.  The financial
statements do not include any adjustments  that might result from the outcome of
this uncertainty.

         The Company has incurred cost overruns associated with the construction
of the Illinois Creek Mine, has cash flow deficits from operations and currently
has no mines in operation.  At December 31, 1996, the Company has an accumulated
deficit of $3,056,000, a working capital deficiency of approximately $27,132,000
and is not in compliance with certain covenants of its long term debt agreements
(see Note 8). In  addition,  significant  additional  funds will be  required to
bring the Company's Illinois Creek Mine into production.

         The Company has entered into a definitive  Merger Agreement with Dakota
Mining  Corporation  ("Dakota")  (see Note 16).  The  Merger is  subject  to the
approval of the Toronto  Stock  Exchange,  stockholder  and  creditor  approval,
review by other  regulatory  authorities,  and other  customary  conditions.  In
connection  with the  Merger,  Dakota  has  agreed to loan the  Company  US $5.0
million to be used to pay for work  completed  and ongoing  work at the Illinois
Creek Mine prior to the Merger.  Concurrent  with the Merger  Agreement,  Dakota
entered into an intercreditor agreement with the Company's principal lender, N M
Rothschild  & Sons  Limited  ("Rothschild"),  whereby  Rothschild  agreed not to
accelerate  the due date of any loans to USMX or to  exercise  any rights it may
have to collateral security until the earlier of the consummation of the Merger,
the  termination of the Merger  agreement in accordance  with its terms, or June
30,1997.

         Should the Company be unable to complete  the Merger with  Dakota,  the
ability of the  Company to  continue  as a going  concern  is  dependent  on the
continued  forbearance of Rothschild,  obtaining sufficient additional financing
to  complete  the  Illinois  Creek  Mine,  and the  commencement  of  profitable
operations  at the  mine.  Future  profitability  of the mine is  dependent  the
Company's  ability  to  produce  gold from the mine in  quantities  and at costs
consistent with those projected by the Company.

Principles of consolidation

         The  consolidated  financial  statements  include  the  accounts of the
Company and its  wholly-owned and majority owned  subsidiaries.  All significant
intercompany transactions and balances have been eliminated in consolidation.

Use of estimates

         Management  makes various  estimates and assumptions in determining the
reported  amounts of  assets,  liabilities  revenues  and  expenses,  and in the
disclosure of commitments  and  contingencies.  These  estimates and assumptions
will change with the passage of time and the  occurrence of future  events,  and
actual results will differ from the estimates.



<PAGE>



Note 2. - Summary of Significant Accounting Policies (continued)

Cash and Cash Equivalents

         The Company considers cash in banks and all highly liquid  investments,
purchased with a maturity of three months or less, to be cash equivalents.

Production Costs

         Production costs incurred are charged to Deferred mining and processing
costs as incurred. Cost of gold sold is based on the currently estimated life of
mine  average  cost.  The amount  carried  in the  Company's  balance  sheet for
Deferred  mining and  processing  costs is the lower of the  difference  between
production costs incurred to date and the amount charged to Cost of gold sold to
date or net realizable value.

Mineral Properties

         The Company's policy is to charge to operations,  costs associated with
identifying  prospective  mineral  properties  and to  capitalize  the  costs of
acquiring,  exploring and developing unproven mineral properties. For properties
subsequently  placed  into  production,  the  applicable  capitalized  costs are
amortized using the  units-of-production  method,  based on the ratio of tons of
ore  mined or  processed  during  the year to the  estimated  total  proven  and
probable ore reserves of the project.

         Capitalized  costs related to sold or abandoned  properties are charged
against operations at the time the property is sold or abandoned.  Proceeds from
rentals and option fees relating to undeveloped  mineral properties in which the
Company has an economic interest are credited against capitalized property costs
and no gain is recognized until all costs have been fully recovered.

Construction in Progress

         Pre-production, development and asset construction costs related to new
mines and major programs at existing mines are  capitalized to  Construction  in
progress during the construction  phase.  Upon completion of  construction,  the
costs are transferred to the appropriate asset accounts.

Interest Capitalized

         Interest costs incurred during the  construction  of qualifying  assets
are capitalized as part of the asset cost.

Depreciation and Amortization

         Mine    buildings   and   equipment   are    depreciated    using   the
units-of-production  method based on the ratio of tons of ore mined or ounces of
gold  produced  during the period to the  estimated  total  proven and  probable
reserves of the related property.  Vehicles,  furniture and office equipment are
depreciated  using the  straight-line  and the  declining  balance  methods over
estimated  useful  lives of two to five  years.  The cost of normal  repairs and
maintenance is charged to operations as incurred. Significant expenditures which
increase the life of an asset are capitalized and depreciated over the estimated
remaining  useful life of the asset.  Upon retirement or disposition of property
and equipment, related gains or losses are recorded in operations.



<PAGE>



Note 2. - Summary of Significant Accounting Policies (continued)

Impairment of Assets

         In 1996  the  Company  adopted  Financial  Accounting  Standards  Board
Statement  of  Financial  Accounting  Standards  No.  121,  Accounting  for  the
Impairment of  Long-Lived  Assets and for  Long-Lived  Assets to Be Disposed Of,
("SFAS  121").  Under SFAS 121,  the Company  periodically  reviews the carrying
value  of its  assets  by  comparing  the net book  value  of each  asset to the
estimated  undiscounted  future cash flows from the asset. If the net book value
exceeds the undiscounted future cash flow, an impairment is recorded. Changes in
estimates and  assumptions  that underlie  management's  estimate of future cash
flow from the Company's assets can materially  impact future carrying values and
operating  results.  The  adoption  of SFAS 121 had no effect  on the  Company's
financial statements.

Reclamation Costs

         The Company records a liability for the estimated cost to reclaim mined
land by recording  charges to  production  costs for each ton of ore mined.  The
amount  charged is based on  management's  estimate of  reclamation  costs to be
incurred.  The  estimate  is based on the work which is to be  performed  as set
forth in the reclamation plan approved by the agencies  responsible for granting
the related  mining  permits.  The accrued  reclamation  liability is reduced as
reclamation  expenditures  are  made.  Certain  reclamation  work  is  performed
concurrently with mining.  However, the majority of reclamation  expenditures is
made after mining operations cease.

Revenue Recognition

         The Company  recognizes revenue as precious metals are delivered to the
purchaser.

Commodity Futures Contracts

         In order to protect  against  the impact of falling  gold  prices,  the
Company  enters  into  hedging  transactions,  the goal of which is to provide a
minimum price for future production,  and allow the Company to take advantage of
short term  increases  in the gold  price.  Hedging  transactions  include  spot
deferred and forward sales contracts and option contracts.  Contracted prices on
spot deferred and forward sales and options are recognized in gold sales as gold
produced is delivered to meet the commitment.  The results of hedging activities
are  included in revenue  when gold is  delivered  against the  contract  or, if
delivery  under the contract is  deferred,  the contract is marked to market and
the Company  recognizes an unrealized gain or loss in operations.  Spot deferred
and forward contracts that are not identified as hedges of specific  anticipated
future  production  are  recorded  at market,  with  unrealized  gains or losses
recorded in operations.

         The Company  also has written  silver call option  contracts.  Premiums
received  are  deferred and  recognized  in income as the options  expire or are
exercised.  The open  contracts  are marked to market and the deferred  premiums
adjusted  accordingly,  with  changes  in the  market  value  of  the  contracts
reflected in unrealized gains or losses on commodity future and option contracts
in the consolidated statement of operations.

By-product Revenues

         Revenues from sales of by-products  (principally silver) are treated as
a reduction of the cost of sales.

Stock Options

     The Company  applies APB  Opinion  No. 25 and  related  interpretations  in
accounting  for its stock option plans.  Accordingly no  compensation  costs are
recognized for stock options granted at fair market value.

Note 2. - Summary of Significant Accounting Policies (concluded)

Income Taxes

         The Company follows Financial  Accounting  Standards Board Statement of
Financial  Accounting  Standards No. 109,  Accounting  for Income Taxes,  ("SFAS
109").  Under the asset and liability method of SFAS 109,  deferred income taxes
are  recognized  for the future tax  consequences  attributable  to  differences
between  the  financial  statement  carrying  amounts  of  existing  assets  and
liabilities and their respective tax bases.  Deferred tax assets and liabilities
are measured  using enacted tax rates expected to apply to taxable income in the
years in which those  temporary  differences  are  expected to be  recovered  or
settled.  The effect on deferred taxes of a change in tax rates is recognized in
income in the period that includes the enactment date.

Net Income (Loss) per Common Share

         Net income  (loss) per common  share is based on the  weighted  average
number of shares of common stock and common stock equivalents outstanding during
the year, unless they are anti-dilutive.

Reclassifications

         Certain amounts in the accompanying  consolidated  financial statements
for the years  ended  December  31,  1994 and 1995,  have been  reclassified  to
conform to the classifications used in 1996.

Note 3. - Deferred Mining and Processing Costs

         Deferred mining and processing costs in the  accompanying  consolidated
statements of financial  position  represent mining,  pad loading and processing
costs  associated  with  gold in  various  stages of  production.  Approximately
$200,000 of costs were  capitalized as of December 31, 1996  associated with ore
stockpiled and ore placed on the leech pad at the Illinois Greek Mine.

         During 1995 the Company  recorded an impairment of deferred  mining and
processing costs of $1,620,000 relating to the Goldstrike Mine (see Note 7).

Note 4. - Undeveloped Mineral Properties

         Capitalized  costs  at  December  31,  1996 and  1995  associated  with
undeveloped mineral properties were as follows:


<TABLE>
<CAPTION>

                                         1996                   1995
                                --------------------    ---------------------
           <S>                    <C>                     <C>
           United States          $    166,000            $    584,000
           Mexico                    1,660,000               2,081,000
           Chile                          -                     18,000
           Ecuador                        -                    230,000
                               ====================    ---------------------
                Total              $ 1,826,000             $ 2,913,000
                               ====================    ---------------------

</TABLE>

Note 5. - Mineral Properties Under Development

     At December 31, 1996 and 1995,  the Company had two mineral  properties  in
     various stages of feasibility and development as follows:


<TABLE>
<CAPTION>


                                           1996                     1995
                                   --------------------    ---------------------
       <S>                          <C>                    <C>
       Illinois Creek, Alaska         $  8,368,000            $  4,038,000
       Thunder Mountain, Idaho           3,675,000               2,307,000
                                   ====================    ---------------------
             Total                    $ 12,043,000            $  6,345,000
                                   ====================    ---------------------

</TABLE>


<PAGE>


Illinois Creek, Alaska

         The  Illinois  Creek  Project  is  a  moderate   grade,   near  surface
gold-silver deposit. It consists of two State of Alaska Mining Leases,  covering
62,480  acres.  The  project  is  located  in the  western  interior  of  Alaska
approximately 57 miles southwest of Galena and 320 miles northwest of Anchorage.
The exploration and feasibility  phases were completed in 1995. Site development
and construction  commenced in May 1996, with anticipated  completion  scheduled
for June 1997.

         Pursuant to an agreement  (the  "Agreement")  with North Pacific Mining
Corporation  ("NPMC"),  the owner of the  underlying  leases,  the Company  made
initial  payments to NPMC of $100,000 in 1994 to  evaluate  the  Illinois  Creek
property.  The Company was required to make an additional  payment to NPMC of $4
million  in cash or common  stock of the  Company in  exchange  for title to the
underlying  leases. The Company chose to make the payment in stock and effective
July 11, 1996,  1,540,663  shares of the  Company's  common stock were issued to
NPMC.  The  number  of shares  of  common  stock  issued to NPMC was equal to $4
million divided by the 30-day average of the price of the Company's stock on the
Nasdaq Stock Market.  In addition to these payments,  NPMC will receive a 5% net
return royalty.

         Pursuant to the Agreement,  the Company has until December 16, 1997, to
achieve Commercial Production (as defined) from the property. This period may be
extended at the option of the Company for two  additional  one year periods upon
payment by the Company of additional advance royalties of approximately $300,000
for each one year extension.  The Agreement  terminates on December 16, 1999, if
the Company has not  achieved  Commercial  Production  from the property by that
date.

         The  obligations  of the Company to NPMC are secured by a  subordinated
security  interest in all of the Illinois  Creek  Project  assets.  The security
interest terminates at Commercial Production.

Thunder Mountain, Idaho

         The Company  proposes to conduct gold and silver  mining  activities at
the Dewey Mine in the Thunder Mountain Mining District in eastern Valley County,
Idaho,  approximately  100 miles northeast of Boise,  Idaho.  The proposed Dewey
mining  operations are part of the Thunder  Mountain  Project and consist of the
development of a gold and silver ore deposit  located on patented  mining claims
administered by the Idaho Department of Lands.

         Effective  July 9, 1993, the Company  entered into an  Exploration  and
Option to Purchase Agreement  ("Agreement")  with Dewey Mining Company,  Thunder
Mountain Gold, Inc. and two individuals (the foregoing companies and individuals
described  below are  collectively  referred  to as the  "Owners").  The  Owners
control  approximately  5,500  acres in the  Thunder  Mountain  Mining  District
consisting of both patented and unpatented mining claims.  Pursuant to the terms
of the  Agreement,  the  Company was  granted  the sole and  exclusive  right to
explore for and develop minerals on the property in exchange for advance royalty
payments totaling $100,000. In addition, the Company committed to spend, and did
spend, a minimum of $500,000 evaluating the property prior to April 1, 1995.

Note 5. - Mineral Properties Under Development (Concluded)

         The Agreement  requires  that,  before the Company can put the property
into  commercial  production,  it must  prepare  and  deliver  to the  Owners  a
feasibility study regarding the project.  In 1995 and 1996, the Company extended
the term of the agreement through April 30, 1997, by making  additional  advance
royalty  payments in the aggregate  amount of $350,000.  The  Agreement  further
provides the Company with the option for a final extension until April 30, 1998,
in exchange for an additional  advance royalty payment of $250,000.  The advance
royalty  payments  made may be  recovered  by the  Company for seven years after
payment  should the Owners elect to receive  royalties  under options (a) or (c)
described  below.  The  Agreement  terminates  if the Company fails to deliver a
feasibility  study to the Owners by the end of the last year's  extension  under
the  Agreement or if the Company  exercises its right to terminate the Agreement
at any time.

         Within 90 days after the Company provides the Owners with a feasibility
study,  the Owners may elect to (a)  participate  in  subsequent  efforts to the
extent of a 30% working interest,  plus receive a 1.5% royalty, or (b) receive a
30%  net  profits  interest,  or  (c)  receive  a 5%  net  return  royalty  from
production.  If the Owners elect to receive a 5% net return royalty, the Company
will be obligated to make advance  royalty  payments of $200,000  within  thirty
days after commencement of Commercial  Production (as defined in the Agreement),
and $250,000 each year thereafter.

         The Agreement  provides that, once the Owners have made their election,
the Company shall have one year within which to achieve  Commercial  Production.
If the  Company  fails to achieve  Commercial  Production  within one year,  the
Company must either  re-convey  the property to the Owners or extend by one year
the time period within which  Commercial  Production  must commence by paying an
advance  royalty of $200,000 to the Owners.  If  Commercial  Production  has not
commenced by the end of the extension  period,  the Company may obtain one final
extension of one year within which to achieve  Commercial  Production  by paying
the Owners an additional advance royalty of $250,000. In addition to the advance
royalty  payments  and the work  commitments  outlined  above,  the  Company  is
obligated to pay all fees  necessary to maintain the  unpatented  mining  claims
through August 31 of the calendar year in which the extension year expires.

Note 6. - Developed Mineral Properties

         The Company's investment in developed mining properties at December 31,
1996 and 1995 is as follows:

<TABLE>
<CAPTION>


                                               1996                     1995
                                       --------------------    ---------------------
     <S>                               <C>                     <C>
     Goldstrike Mine                        $   364,000            $   364,000
     Montana Tunnels                            556,000                556,000
                                       --------------------    ---------------------
           Total Cost                           920,000                920,000
     Less:  Accumulated depletion and
            amortization                        914,000                892,000
                                       ====================    ---------------------
                                         $        6,000           $     28,000
                                       ====================    ---------------------

</TABLE>


Goldstrike Mine



<PAGE>



Note 5. - Mineral Properties Under Development (Concluded

         Effective   November  1,  1992,  the  Company   acquired  from  Tenneco
Corporation,  the stock of Tenneco Minerals Company-Utah,  owner and operator of
the  Goldstrike  Mine located  approximately  35 miles  northwest of St. George,
Utah. Soon after the  acquisition,  the name of this wholly owned subsidiary was
changed to USMX of Utah,  Inc. Gold  production  from the Goldstrike  Mine since
November  1,  1992,  has been  77,182  ounces,  including  6,266  ounces of gold
produced in 1995.

         Mining  operations  at the  Goldstrike  Mine were  completed in October
1994.  Leaching  was  completed in December  1995.  All  disturbed  areas at the
Goldstrike  Mine were  reclaimed  during 1995 except for the heaps and the plant
site. Reclamation of these areas will continue into 1997.

Montana Tunnels

         The Company owns a net profits  royalty  interest in this property and,
accordingly,  the  carrying  value has been  classified  as a producing  mineral
property in the Company's  consolidated  statements  of financial  position (see
Note 1212.).  In June 1996,  the Company and Pegasus Gold Inc.  ("Pegasus"),  an
affiliate,  agreed to the sale of the Company's net profits royalty  interest in
the Montana  Tunnels  property to Pegasus  for  $4,500,000.  The sale is pending
definitive  documentation  and approval of the Company's  stockholders (see Note
8).

Note 7. - Asset abandonments and Write-downs

Mineral Property Abandonments

         Mineral properties that management determined no longer hold sufficient
promise to justify the cost required to maintain  them and which had  historical
costs of $674,000  were  written off in 1996.  The  write-offs  include  several
exploration  targets  near the  Goldstrike  Mine in Utah with  historical  costs
totaling  $345,000 and various other  properties  throughout  the western United
States with total historical  costs of $179,000.  Six small properties in Mexico
with historical costs of $89,000 and one property in Chile with historical costs
of $61,000 were also written off in 1996.

Mineral Property Write-downs

         During 1996 the Company  wrote down the  carrying  value of the Nambija
property  in Ecuador and the  Amargosa  and La Reserva  properties  in Mexico by
$335,000,  $326,000 and $81,000 respectively.  The carrying value of each of the
properties was reduced to zero. To date, no significant economic  mineralization
has been  encountered on the  properties.  The La Reserva  property is currently
being  explored in joint venture with another  mining  company.  The Nambija and
Amargosa   properties   are  being  held  for  possible   future  joint  venture
exploration.

Note 8. - Long Term Debt and Note Payable to Related Party

Long Term Debt

         On July 11, 1996 the Company  closed a $22 million  financing  facility
with  Rothschild.  The facility  consists of a $19.5 million  project loan and a
$2.5 million convertible loan. Proceeds of the loans have been used to partially
fund the development of the Company's Illinois Creek Mine in Alaska. At December
31, 1996, the Company has drawn approximately $21,355,000 against the facility.



<PAGE>



Note 8. - Long Term Debt and Note Payable to Related Party (Continued)

         The $19.5 million project loan bears interest,  payable  quarterly,  at
2.25% above LIBOR until certain tests  related to project  operations  have been
completed to the  satisfaction of the lender and 1.875% above LIBOR  thereafter.
Principal payments are due in seven installments on September 30 and December 31
of each  year,  commencing  September  30,  1997.  The  loan is  payable  by the
Company's  operating  subsidiary  that owns the Illinois  Creek  property and is
secured by a first  priority  interest in the Illinois  Creek Mine  assets.  The
Company has agreed to guarantee the $19.5 million project loan until it has been
demonstrated   that  the  Illinois  Creek  Project  is  operating  in  a  manner
satisfactory  to Rothschild and that no defaults are  outstanding.  In addition,
the  Company  is  a  continuing   guarantor  of  the  covenant  to  comply  with
environmental laws.

         The  Company's  obligations  under its  guarantee  and the $2.5 million
convertible loan are secured by subordinated  security interests in the Illinois
Creek Mine assets and the outstanding shares of the operating  subsidiary formed
to own and develop the mine.

         Amounts drawn  pursuant to the financing  facility are deposited in the
Illinois Creek project  proceeds account and may be used only for the benefit of
the  project.   Such  amounts  are  reflected  in  the  accompanying   condensed
consolidated  statements of financial  position as Restricted  cash. At December
31, 1996, approximately $108,000 remained in the account.

         The $2.5  million  convertible  loan bears  interest at 2% above LIBOR,
payable  semi-annually.  The  note  may be  converted  into  Common  Stock  at a
conversion  price of $1.74  per share at the  option  of the  lender at any time
during the term of the note. The Company may also require conversion of the note
if the note is not in default and the daily  closing  price of the Common  Stock
exceeds $4.75 for 30  consecutive  trading  days.  The  convertible  loan is due
September 30, 2000.

         Assuming the $2.5 million convertible loan is not converted,  aggregate
maturites of the notes payable under the Rothschild's  financing facility are as
follows:


                              Year ended
                              December 31,
                            ---------------- --------------------
                              1997               $    6,000,000
                              1998                    6,000,000
                              1999                    6,000,000
                              2000                    3,355,000
                                               ====================
                                                  $  21,355,000
                                               ====================



         The loan agreements include  financial,  operating and other covenants,
including covenants regarding the maintenance of certain operating and financial
ratios,  limitations  on or  prohibitions  of  dividends,  indebtedness,  liens,
investments,  Mergers,  changes in capital structure and certain other items. At
December  31, 1996 the Company was not in  compliance  with  certain of the loan
covenants.



<PAGE>



Note 8. - Long Term Debt and Note Payable to Related Party (Concluded)

         Under the terms of the $22.0 million Rothschild financing facility, the
Company  agreed to deposit  $1.5 million in an escrow  account by September  30,
1996.  The  Company was unable to comply with this  requirement  and  Rothschild
agreed to waive this and certain  financial  ratio covenant  requirements  until
December 31, 1996,  conditional  upon the Company's  agreements  to, among other
things,  (A)  file  a  prospectus  with  the  appropriate   Canadian  securities
regulatory authorities by November 1, 1996, and complete an offering by December
31, 1996, (B) adjust the price at which Rothschild may elect to convert the $2.5
million  loan into the  Company  common  shares to the price at which the shares
offered are sold, or if no sale,  at the average  trading price for the last ten
trading days of 1996 and (C) to pay  Rothschild  a fee of $100,000  which fee is
payable  upon the first to occur of (i) a date upon  which such  payment  can be
made without materially  reducing the working capital reasonably required by the
Company for  continued  operations or (ii) April 15, 1997. At December 31, 1996,
the Company had not  completed  the  offering  and was unable to comply with the
requirement to deposit $1.5 million in an escrow account.

         As a result of the covenant  violations,  Rothschild has the ability to
declare an event of default and require that the be paid currently. Accordingly,
the loans have been classified as a current  liability.  As discussed in notes 2
and 16,  subsequent  to  December  31,  1996,  Rothschild  has  entered  into an
intercreditor  agreement,  whereby  Rothschild  agreed not to accelerate the due
date of any loans to USMX or to  exercise  any rights it may have to  collateral
security until the earlier of the  consummation  of the Merger with Dakota,  the
termination of the Merger  agreement in accordance  with its terms,  or June 30,
1997.

Note Payable to Related Party

         During  the  second  quarter of 1996 the  Company  arranged  for a $4.5
million,  8.75% fixed rate loan from Pegasus, a shareholder of the Company.  The
loan is repayable  over a 50 month period  beginning  June 1, 1996.  The loan is
collateralized  by the  Company's  net profits  royalty  interest in the Montana
Tunnels property. In lieu of loan payments by the Company, Pegasus has agreed to
offset the $60,000 per month Montana Tunnels  minimum  advance royalty  payments
that are otherwise payable to the Company (see Note 12) against the payments due
under the loan.

         During the second  quarter of 1996 the Company also agreed with Pegasus
to sell its net profits  royalty  interest in the  Montana  Tunnels  property to
Pegasus for $4,500,000. Pegasus is the owner and operator of the Montana Tunnels
Mine. The net profits royalty interest  entitles the Company to the greater of a
5% net profits  royalty  interest or minimum  advance  royalties  of $60,000 per
month until certain  construction,  land acquisition,  associated  financing and
other costs have been  recovered by Pegasus  ("Payback"),  and a 50% net profits
royalty  interest  thereafter.   Payback  is  dependent  upon  several  factors,
including  future metal prices,  production  rates,  and the life of the Montana
Tunnels  Mine.  It is  unclear  whether  Payback  will ever be  achieved.  Since
inception of the  contract,  the Company has only  received the monthly  minimum
advance royalties.

         Loan  proceeds  received by the Company  from  Pegasus will be credited
against the sales price at closing and the loan will be extinguished. Closing of
the  transaction  is subject  to  completion  of  definitive  documentation  and
approval of the Company's stockholders.

Note 9. - Gain on Sale of Common Stock

         In April 1994,  the Company sold its  interest in the Kinsley  Mountain
Project in Elko County  Nevada to Alta Gold Co.  ("Alta").  In April  1995,  the
Company  received a final cash  payment of $400,000 and Alta  restricted  common
stock with a market value of $200,000 based on the average  closing price of the
stock over the 30 trading days prior to issuance. The payment was in addition to
cash of  $400,000  and Alta  restricted  common  stock  with a  market  value of
$200,000  previously  received.  The cash proceeds and  discounted  value of the
stock  received  were  recorded  as a  reduction  of the  carrying  value of the
property.  During 1995,  the carrying  value of the property was reduced to zero
and a $1,000 loss was  recorded.  During  1996 all of the Alta common  stock was
sold for $1,281,000, resulting in a gain of $936,000.

Note 10. - Stock Options

         The  Company  has two stock  option  plans,  the ("1987  Plan") and the
Non-discretionary  Plan for Non-Employee  Directors  ("Directors'  Plan"), which
cover a total of  1,700,000  shares  of  common  stock  available  for  grant to
employees and directors of the Company.

         Under the 1987 Plan, the Company may grant  incentive  stock options as
well as non-incentive  stock options.  Incentive stock options granted under the
1987 Plan are  exercisable  at prices  equal to the  market  value of the common
stock at the date of grant.  The option  prices of  non-incentive  stock options
granted  under  the 1987 Plan may be less than the  market  value of the  common
shares as of the grant date. Options expire at such time as the Option Committee
of the Board of Directors determines, but no later than ten years from the grant
date.

         The  Directors'  Plan was  established  in 1992 to afford  non-employee
directors  an  opportunity  for  investment  in the  Company  and the  incentive
advantages inherent in stock ownership of the Company. Options granted under the
Directors'  Plan are  exercisable  at prices  equal to the  market  value of the
common  stock at the date of grant  and are  exercisable  in full on the date of
grant.

         Shares  acquired  pursuant  to the  Directors'  Plan  may not be  sold,
transferred  or  otherwise  disposed  of for a  period  of at least  six  months
following  the date of  grant.  Under  the  terms of the  Directors'  Plan,  the
directors who elected to participate were each issued options to purchase 10,000
shares of the Company's common stock upon adoption of the plan. Thereafter, each
non-employee  director who elects to  participate  is  automatically  granted an
option to purchase 10,000 shares of the Company's  common stock upon joining the
Board. In addition,  on October 1 of each year each participant is automatically
granted an option to purchase an additional 5,000 shares.  Options granted under
the  Directors'  Plan  expire  ten years from the date of grant  except  that an
option will expire,  if not exercised,  ninety days after the optionee ceases to
be a director of the Company.

         The Company applies APB Opinion No. 25 and related  interpretations  in
accounting  for its option plans.  Accordingly,  no  compensation  cost has been
recognized  for  options  granted at fair  market  value  under the  plans.  Had
compensation   cost  for  the  Company's  stock  option  plans  been  determined
consistent  with SFAS 123, the Company's net income and earnings per share would
have been reduced to the pro forma amounts indicated below:


                                                 1996             1995
                                                 ----             ----

          Net (loss)
            As reported                    $  (3,302,000)    $  (6,906,000)
            Pro forma                      $  (3,493,000)    $  (6,954,000)

          Net (loss) per common share
            As reported                    $       (0.22)    $    (0.47)
            Pro forma                      $       (0.23)    $    (0.47)





<PAGE>



Note 10. - Stock Options (Concluded)

         Changes in stock  options for the years ended  December 31, 1994,  1995
and 1996, are as follows:

<TABLE>
<CAPTION>

                                                                              Option Price
                                                                Shares           Per Share
                                                          ---------------    --------------
         <S>                                              <C>                  <C>
         Outstanding at December 31, 1993                      757,550          $1.13-5.50
         Exercised                                            (198,300)          1.13-3.06
         Expired or canceled                                   (39,000)          3.06-5.50
         Granted                                               275,000           2.69-4.13
                                                          ---------------

         Outstanding at December 31, 1994                      795,250           1.16-5.50
         Exercised                                              (3,000)               2.06
         Expired or canceled                                  (791,750)          1.16-5.50
         Granted                                             1,137,250           1.16-5.50
                                                          ---------------

         Outstanding at December 31, 1995                    1,137,750           1.16-5.50
         Exercised                                                   -                   -
         Expired or canceled                                   581,000           1.88-5.50
         Granted                                               811,000           2.44-2.94
                                                          ---------------

         Outstanding at December 31, 1996                    1,367,750          $1.13-5.50
                                                          ===============

</TABLE>

         During  1995,  the terms of  options  to acquire  724,750  shares  were
extended to ten years from the original date of grant.  For accounting  purposes
the extension was treated as the  cancellation  of the existing  options and the
granting of new options.

         At December 31, 1996, 1995 and 1994, the number of options  exercisable
was 707,096,  826,250 and 573,250  respectively,  the weighted  average exercise
price of those options was $3.14, $3.18 and $3.50 respectively, and the weighted
average remaining contractual life was 8.2, 7.8 and 2.2 years respectively.  The
remaining 660,664 options at December 31, 1996, are exercisable at various dates
through August 1999.

         The  weighted  average fair value of options  granted  during the years
ending December 31, 1996 and 1995 were $1.38 and $0.97 respectively,  assuming a
risk free rate of 6%, an  expected  volatility  of 50%,  and a weighted  average
expected life of 9 years.

Note 11. - Employees' Benefit Plans and Incentive Bonus Arrangements

         Effective  July 1, 1987,  the Company  adopted an Employee  Savings and
Investment Plan under section 401(k) of the Internal  Revenue Code, which covers
all  full-time  employees.  The plan is a defined  contribution  plan and allows
employee contributions of up to ten percent of pre-tax compensation,  limited to
the maximum deferral allowed by the Internal Revenue Service.

         The Company may  contribute  at least ten percent and not more than one
hundred percent of the amount  contributed by the employees,  up to a maximum of
six  percent  of pre-tax  compensation.  For 1996,  1995 and 1994,  the Board of
Directors has set the Company's  contribution  at fifty percent of the first six
percent  of  employee  contributions.  For 1996,  1995 and 1994,  the  Company's
contributions were approximately  $53,000,  $57,000, and $59,000,  respectively.
Participants  vest in the Company's  contributions  based upon years of service,
and are fully vested after four years of service.

Note 11 - Employees' Benefit Plans and Incentive Bonus Arrangements (Concluded)

         The Company has an Exploration Discovery Bonus Plan under which bonuses
are paid in cash or in shares of the Company's common stock to certain employees
for discoveries of ore deposits that the Company's Board of Directors determines
can be operated at a profit.  The bonus is based on the net present value of the
deposit and is  calculated  using a sliding  scale  ranging from 2% for deposits
with a net  present  value of up to $10  million,  to 0.85%  of the  first  $100
million of net present value plus 0.25% of that portion of the net present value
of the deposit that exceeds $100  million.  Under the terms of the plan,  70% of
each discovery bonus is divided equally among the Company's  explorationists and
the  remainder  is to be  shared  among  those  individuals  designated  by  the
Company's President as playing an especially important role in the discovery. No
bonuses were paid in 1996, 1995 or 1994 under the plan.

Note 12. - Transactions With Affiliates

         As of December 31, 1996,  Pegasus owned 4,826,000 shares (29.9%) of the
Company's  outstanding common stock. In January 1986, the Company entered into a
revised agreement with Centennial Minerals Ltd., a subsidiary of Pegasus for the
development of the Montana Tunnels property. Pursuant to the agreement,  Pegasus
developed the property,  acquired a 100 percent working interest in the project,
and commenced mine and mill  operations in March 1987. The operations at Montana
Tunnels  achieved  defined  operating  status  on  October  1,  1987.  Under the
agreement,  the Company will receive the greater of a minimum advance royalty of
$60,000 per month or a five percent net profits  interest until Pegasus recovers
payout of capital and other defined costs.

         During the second  quarter of 1996 the Company  agreed with  Pegasus to
sell its net profits royalty interest in the Montana Tunnels Mine to Pegasus for
$4,500,000.  Closing of the  transaction  is subject to completion of definitive
documentation and approval of the Company's  stockholders.  Loan proceeds in the
amount of  $4,500,000  previously  received by the Company  from Pegasus will be
credited  against the sales  price at closing and the loan will be  extinguished
(see Note 7).

     For each of the years ended December 31, 1996,  1995, and 1994, the Company
received $720,000 in royalty income from the Montana Tunnels property.

         In March 1995,  the Company  acquired  all of the  outstanding  capital
stock  of Mega  Minerals  S.A.,  an  Ecuadorian  company.  The  Company  assumed
obligations of  approximately  $120,000,  and agreed to pay the seller a 10% net
proceeds  royalty on any production from the  concessions  after recovery of all
capital expenditures. A director and principal shareholder of the seller is also
a director of the Company.  The assets of Mega  Minerals  S.A.  consist of eight
exploration  concessions and the rights to acquire four  additional  exploration
concessions, all located in the Nambija-Zamora gold belt of southern Ecuador.



<PAGE>



Note 13. - Income Taxes

         Total income tax benefit for the years ended  December  31, 1996,  1995
and 1994, was $55,000, $118,000 and $497,000 respectively. The entire income tax
benefit of $55,000 for the year ended  December  31,  1996,  is the result of an
adjustment to federal income taxes  receivable  related to net operating  losses
carried  back to prior  years.  Income tax  expense  (benefit)  consists  of the
following:

<TABLE>
<CAPTION>

                                                     Current            Deferred             Total
                                                ------------------    --------------    -----------------
        <S>                                     <C>                   <C>               <C>
        Federal tax provision                           $(55,000)              $-               $(55,000)
        State tax provision                                    -                -                      -
                                                ==================    ==============    =================
        Year ended December 31, 1996                    $(55,000)              $-               $(55,000)
                                                ==================    ==============    =================

        Federal tax provision                          $(118,000)              $-              $(118,000)
        State tax provision                                    -                -                      -
                                                ==================    ==============    =================
        Year ended December 31, 1995                   $(118,000)              $-              $(118,000)
                                                ==================    ==============    =================

        Federal tax provision                          $(416,000)              $-              $(416,000)
        State tax provision                              (81,000)               -                (81,000)
                                                ==================    ==============    =================
        Year ended December 31, 1994                   $(497,000)              $-              $(497,000)
                                                ==================    ==============    =================
</TABLE>




     The  Company's  effective  tax rate for the years ended  December 31, 1996,
1995 and 1994,  differs from the federal  statutory  tax rate for the  following
reasons:
<TABLE>
<CAPTION>


                                                              1996              1995             1994
                                                          --------------    -------------    -------------
     <S>                                                  <C>               <C>               <C>
     Federal statutory rate                                   34.0%             34.0%             34.0%
     Change in valuation allowance                           (40.9%)           (22.4%)             -
     Revision of prior year's estimated tax                    3.8%              1.7%            211.9%
     Cost of sales for tax purposes less than financial
        statements                                             -                 3.0%           (184.5%)
     Exploration and development deducted for tax
        purposes not for financial statements                  -               (13.7%)            77.4%
     Royalty payments deducted for tax purposes not for
        financial statements                                   -                 -                22.3%
     Mineral property disposal, tax gain greater than
        financial statement gain                               -                (2.9%)           (44.4%)
     Statutory depletion over cost basis                       -                 -                16.2%
     Use of alternative minimum tax rate                       -                (0.1%)            29.4%
     State provision and other                                 4.4%              2.1%              7.6%
                                                          ==============    =============    =============
     Effective tax rate                                        1.3%              1.7%            169.9%
                                                          ==============    =============    =============

</TABLE>




<PAGE>



Note 13. - Income Taxes (Concluded)

         The tax effects of temporary  differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1996 and 1995 are presented below:

<TABLE>
<CAPTION>


     Deferred tax assets:                                                 1996                 1995
                                                                   ------------------   ------------------
         <S>                                                       <C>                  <C>
         Reclamation liabilities, accrued for financial
             reporting purposes                                    $        310,000     $        439,000
         Deferred mining and processing costs, due to additional
            costs deferred for tax purposes.                                91,000               90,000
         Alternative minimum tax credit carryforwards                      157,000              157,000
         Net operating loss carryforwards                                3,826,000            3,343,000
         Other                                                                   -                8,000
                                                                   ------------------   ------------------

          Total gross deferred tax assets                                4,384,000            4,037,000
          Less valuation allowance                                      (3,838,000)          (3,612,000)
                                                                   ------------------   ------------------
          Total deferred tax assets                                        546,000              425,000
                                                                   ------------------   ------------------
     Deferred tax liabilities:
         Mineral properties, principally due to the
            capitalization of exploration and development costs
            for financial reporting purposes                              (397,000)            (296,000)
         Unrealized gain on commodity futures contracts
            recognized for tax purposes                                    (62,000)                   -
         Plant and equipment, principally due to accelerated tax
            depreciation.                                                  (87,000)            (129,000)
                                                                   ------------------   ------------------
          Total gross deferred tax liabilities                            (546,000)            (425,000)
                                                                   ==================   ==================
          Net deferred income taxes                                $                    $
                                                                                 -                    -
                                                                   ==================   ==================

</TABLE>


     The change in the  valuation  allowance  for the years ending  December 31,
1996 and 1995 was $226,000 and $3,247,000, respectively.

         As  of  December  31,  1996,   the  Company  has  net  operating   loss
carryforwards for federal income tax purposes of approximately  $9,799,000 which
are available to offset future federal taxable income,  if any, through 2011. As
the result of an audit by the Internal  Revenue  Service ("IRS") during 1996, an
additional $3,151,000 of net operating loss carryforwards were disallowed by the
IRS. The Company is currently  protesting  the IRS  findings.  In addition,  the
Company  has net  operating  loss  carryforwards  for  alternative  minimum  tax
purposes  of  approximately  $8,640,000  which are  available  to offset  future
alternative minimum taxable income, if any, through 2011.

Note 14. - Foreign Operations

         In 1995 the Company  held  significant  identifiable  assets in foreign
jurisdictions,  predominantly  in Mexico.  No  revenue  was  derived  from these
foreign assets.

<TABLE>
<CAPTION>
                                                                     Other Foreign         1995
(Amounts in thousands)            United States        Mexico        Jurisdictions         Total
---------------------------------------------------------------------------------------------------------
<S>                                <C>                <C>               <C>            <C>
Loss from operations               $   5,688          $   1,428         $   1,152      $   8,268
---------------------------------------------------------------------------------------------------------

Identifiable assets                 $ 15,140          $   2,081         $     248       $ 17,469
---------------------------------------------------------------------------------------------------------


</TABLE>


<PAGE>



Note 15. - Commitments and Contingencies

Reclamation Surety

         Pursuant to the mining reclamation and bonding regulations of the State
of Utah,  Department of Natural Resources and the Bureau of Land Management,  in
1993 the Company  provided  reclamation  surety for the  Goldstrike  Mine in the
amount of $2,251,000. In October 1995, the Company was advised that, as a result
of the reclamation work  accomplished by the Company at the Goldstrike Mine, the
required surety had been reduced by  approximately  $514,000 to $1,737,000.  The
required  surety is in the form of a  certificate  of  deposit  in the amount of
$800,000 and letters of credit in the amount of  $937,000.  The  certificate  of
deposit  and  restricted  cash  account  supporting  the  letter of  credit  are
reflected  in   Reclamation   surety  and  other  assets  in  the   accompanying
Consolidated Statements of Financial Position.

         Pursuant to the mining reclamation and bonding regulations of the State
of Alaska,  Department of Natural  Resources,  the Company provided  reclamation
surety for the  Illinois  Creek Mine in the amount of  $1,575,000  in 1996.  The
required surety is in the form of certificates  of deposit  totaling  $1,575,000
and is reflected  in  Reclamation  surety and other  assets in the  accompanying
Consolidated Statements of Financial Position.

Hedging

         As part of its gold  hedging  program  the  Company  has  entered  into
agreements with a major financial institution to deliver gold. Realization under
these agreements is dependent upon the ability of the  counterparties to perform
in  accordance  with the terms of the  agreement.  As of December 31, 1996,  the
Company had entered into forward sales  contracts for 140,900 ounces of gold for
delivery at various dates through  December 31, 1999 at an average selling price
of $409 per ounce.  Delivery under these spot deferred contracts can be deferred
at the Company's option up to forty months depending on the individual contract.
The aggregate unrealized excess of the net market value of the Company's forward
sales  contracts  over the spot gold price of $368 per ounce as of December  31,
1996,  is  approximately  $5,875,000.  The  aggregate  unrealized  gain  on  the
Company's  forward sales contracts  accounted for as hedges of future production
were approximately $5,033,000 at December 31, 1996.

         The Company has also written  silver call options,  which if exercised,
would  become spot  deferred  contracts  with  delivery  deferred as  previously
described.  At December 31, 1996 the Company had sold  825,300  ounces of silver
call option contracts all at a strike price of $5.50 per ounce expiring on dates
ranging from September 28, 1997 through December 29, 1999. Call options premiums
received amounted to approximately $424,000.

Operating Leases

         The Company  leases office space,  office  equipment and vehicles under
operating leases which expire through 2001.

         Effective as of June 15, 1992, the Company entered into a new lease for
its corporate  offices in Lakewood,  Colorado.  The lease was amended  effective
June 1, 1996, to provide for  additional  office space and to extend the initial
term of the lease to May 31, 2001.  The lease contains an option to renew for an
additional five year period at the market rate in effect at the time of renewal.
The lease provides for base rent of $12,917 per month with annual increases each
year beginning June 14, 1997. In addition, the Company is obligated to reimburse
the landlord for the Company's  proportionate  share of increases in real estate
taxes and operating expenses.

         Effective as of July 1, 1996, the Company  entered into a new lease for
its Alaska district offices in Anchorage, Alaska. The term of the lease is three
years, commencing July 1, 1996, and ending June 30, 1999. The lease provides for
aggregate rent of $121,284 payable in equal monthly installments of $3,369.



<PAGE>



Note 15. - Commitments and Contingencies (Concluded)

         The  following  table  sets  forth the  future  minimum  lease  payment
obligations as of December 31, 1996:


                                                    Minimum
                              Year               Lease Payments
                           ---------------    ---------------------
                              1997                    $298,000
                              1998                    $249,000
                              1999                    $191,000
                              2000                    $173,000
                              2001                     $76,000
                          ---------------     ---------------------

         Rent  expense was  $154,000,  $113,000 and $139,000 for the years ended
December 31, 1996, 1995 and 1994, respectively.

Contractor Claim

         One of the  construction  contractors on the Illinois Creek Property in
Alaska working under an  approximately  $3 million contract with the Company has
submitted  invoices  and  claims  totaling  approximately  $7  million  for work
completed in 1996.  At December 31,  1996,  the Company had paid the  contractor
$1,772,000 and has recorded an additional liability to the contractor,  based on
the Company's  estimate of its obligation under the contract of $2,414,000.  The
unpaid invoices and claims are currently being reviewed, and it is likely that a
significant  portion of the invoices and claims will be disputed by the Company.
The contractor has threatened legal proceedings if the dispute is not informally
resolved.  The Company  and its  representatives  are  currently  reviewing  the
relevant facts and until that review is complete the Company cannot estimate the
magnitude of any potential liability,  possible  counterclaims by the Company or
the outcome of  arbitration  or litigation if the dispute  cannot be resolved by
negotiation.  On November 8, 1996, the construction contractor also filed a lien
on the Illinois Creek Property for certain unpaid invoices and claims  submitted
through that date.

Note 16 - Subsequent Events

Definitive Merger Agreement

         On February 5, 1997, the Company signed a definitive  Merger  agreement
with  Dakota  Mining  Corporation  ("Dakota")  whereby the  shareholders  of the
Company  will  receive one share of Dakota  common stock for every 1.1 shares of
the Company's common stock and the Company will become a wholly owned subsidiary
of Dakota (the  "Merger").  The Merger is subject to the approval of the Toronto
Stock Exchange,  stockholder and creditor  approval,  review by other regulatory
authorities, and other customary conditions.

         As part of the Merger  Agreement,  Dakota and the  Company  agreed that
Dakota  would  provide a $5  million  line of credit to the  Company  to provide
interim working capital to sustain the Company's  operations until the Merger is
consummated. The line of credit bears interest at the rate of one per cent above
a  quoted  prime  rate and is due  August  31,  1997 or  earlier  if the  Merger
agreement  is  terminated  before such date.  The proceeds are to be used to pay
certain ongoing operating expenses of the Company,  primarily in connection with
start-up activities associated with the Illinois Creek Mine and to partially pay
trade creditors of the Company and its subsidiaries.



<PAGE>



Note 16 - Subsequent Events (Continued)

         The line of credit is  evidenced  by two notes with  similar  terms but
different amounts and different  security.  A $2 million note ("the first note")
is secured  by a second  priority  position  in the shares of USMX of Alaska and
ranks pari passu with the $22 million loan of Rothschild  (which holds the first
priority position in such collateral).  USMX of Alaska is the subsidiary holding
title to the  Illinois  Creek Mine.  A second note for $ 3 million  ("the second
note") is secured  by a first  position  on all of the shares of USMX's  Mexican
subsidiary and a first position on USMX's  Thunder  Mountain  property in Idaho.
Rothschild was granted a second  priority  security  position in the second note
security.  Funding for the line of credit is being provided from the proceeds of
a Special Warrant offering by Dakota described below.

         In February  1997,  Dakota offered by way of private  placement  25,000
Special  Warrants at a price of Cdn.  $1,000 per Special  Warrant  resulting  in
gross proceeds of Cdn. $25 million.  Each Special Warrant entitles the holder to
receive one 7.5% unsecured  subordinated  convertible debenture in the amount of
Cdn. $1,000. Of the proceeds, US $5.0 million have been released immediately and
the remaining  proceeds have been deposited in escrow pending  completion of the
Merger and  approval by the Dakota  shareholders  of the  issuance of the common
shares underlying the debentures. Completion of this offering was a condition of
the Company's obligation to proceed with the Merger.

N. M. Rothschild & Sons Limited financing facility.

         Rothschild's  consent is required  for the  extension of the $5 million
line of credit and consummation of the Merger. Further, Dakota, as the potential
owner of the Company, desired certain changes to the Rothschild loan facility in
order to avoid  immediate  defaults  under such  facility  after  closing of the
Merger.  Accordingly,  the  Rothschild  and Dakota  negotiated an  Intercreditor
Agreement which provided, among other things:

i)   The consent of Rothschild to the Merger and the extension of the $5 million
     line of credit from Dakota to the Company on the terms described above.

ii)  Rothschild's  agreement to share,  pari passu with Dakota,  in any proceeds
     from foreclosure of the Company's share security in the ratio of the amount
     outstanding  under  the  first  note to $22  million,  but with  Rothschild
     retaining the right to deal with such security.

iii) Dakota's  agreement  to fund at least $2  million of its line of credit for
     costs and expenses at the Illinois  Creek Mine according to a plan prepared
     by the Company and approved by Rothschild and Dakota.

iv)  The agreement of Dakota to guarantee the  Company's  obligations  under the
     Rothschild Credit Agreements until "commercial  completion" of the Illinois
     Creek Mine.

v)   The  agreement of  Rothschild  to forebear  from  exercising  its rights to
     declare and enforce defaults (except payment or bankruptcy defaults) of the
     Company under the Rothschild  Credit  Agreements until  consummation of the
     Merger, termination of the $5 million line of credit or June 30, 1997.

vi)  Rothschild  and Dakota  agreed to amend  certain terms and covenants in the
     Rothschild Credit  Agreements,  to be effective upon closing of the Merger.
     These include revisions to the definition of "commercial  completion",  and
     amendments to certain financial covenants.

vii) Both  parties'  rights to share in  collateral  terminate  if the Merger is
     consummated or the $5 million line of credit is extinguished.



Note 16 - Subsequent Events (Concluded)

viii)At the closing of the Merger,  a $2.5  million  convertible  loan under the
     Rothschild  Credit  Agreements  will be  extinguished  by  payment  of $1.5
     million by Dakota and adding the balance to the  outstanding  amounts under
     the project financing portion of the such Agreements.





<PAGE>






Item 9.     Changes in and  Disagreements  with  Accountants  on Accounting and
            Financial Disclosure.

         There were no disagreements  with the Company's  principal  independent
accountants  on any matter of  accounting  principles  or  practices,  financial
statement disclosures, or auditing scope or procedure.

                                    PART III

         Items 10,  11, 12 and 13  constituting  Part III of this Form 10-K have
been omitted from this Annual Report  pursuant to the  provisions of Instruction
G(3) to Form 10-K, as the Company  intends to file a definitive  proxy statement
pursuant to Regulation 14A under the Securities  Exchange Act of 1934 within 120
days after the close of its last fiscal year.

                                     PART IV

Item 14.   Exhibits, Financial Statement Schedules, and Reports on Form 8-K.

         (a)(1)   Consolidated Financial Statements.

                  See Item 8.

            (2)   Consolidated Financial Statement Schedules.

                  See Item 8.

            (3)   Exhibits.

                  The exhibits listed on the accompanying  Index to Exhibits are
filed as part of this Annual Report.

         (b)      Reports on Form 8-K.

                  The Company  filed a Report on Form 8-K on November  21, 1996,
                  regarding  its Illinois  Creek  Project and  amendments to the
                  Rothschild Credit Agreements.



<PAGE>


                                   SIGNATURES

Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the  Registrant  has duly  caused  this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

                                                     USMX, INC.
                                                    (Registrant)
                   Date:  3/31/97            By:    /s/ Donald P. Bellum
                                            ----------------------------------
                                               Donald P. Bellum, President

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following  persons on behalf of the  Registrant and
in the capacities and on the dates indicated.

<TABLE>

                  <S>                                 <C>

                   Date:  3/25/97                      /s/ Donald P. Bellum
                                                       -----------------------------------------------------
                                                       Donald P. Bellum, President, Chief Executive
                                                       Officer, and Chairman of the Board of Directors

                   Date:  3/25/97                      /s/ Dennis L. Lance
                                                       -----------------------------------------------------
                                                       Dennis L. Lance, Vice President - Exploration

                   Date:  3/25/97                      /s/ Donald E. Nilson
                                                       -----------------------------------------------------
                                                       Donald E. Nilson, Vice President - Finance,
                                                       Secretary, Chief Financial Officer

                   Date:  3/25/97                      /s/ Daniel J. Stewart
                                                       -----------------------------------------------------
                                                       Daniel J. Stewart, Controller

                   Date:
                                                       -----------------------------------------------------
                                                       George J. Allen, Director

                   Date:  3/27/97                      /s/ Phillips S. Baker
                                                       -----------------------------------------------------
                                                       Phillips S. Baker, Director

                   Date:  3/27/97                      /s/ Terry P. McNulty
                                                       -----------------------------------------------------
                                                       Terry P. McNulty, Director

                   Date:  3/27/97                      /s/ Werner G. Nennecker
                                                       -----------------------------------------------------
                                                       Werner G. Nennecker, Director

                   Date:  3/31/97                      /s/ Gregory Pusey
                                                       -----------------------------------------------------
                                                       Gregory Pusey, Director

                   Date:  3/27/97                      /s/ Robert Scullion
                                                       -----------------------------------------------------
                                                       Robert Scullion, Director


</TABLE>

<PAGE>


                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                    FORM 10-K

(Mark One)
y Annual report  pursuant to Section 13 or 15(d) of the Securities  Exchange Act
of 1934 [Fee Required] For the fiscal year December 31, Error!  Reference source
not found.  or X  Transition  report  pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 [No Fee Required] For the transition period from
______________________ to ______________________

Commission File Number 0-9370
                               -------------------
                                   USMX, INC.
             (Exact name of registrant as specified in its charter)
                               -------------------
        Delaware                                        84-1076625
(State or other jurisdiction of            (I.R.S. Employer Identification No.)
incorporation or organization)

   141 Union Boulevard, Suite 100
          Lakewood, Colorado                                   80228
(Address of principal executive offices)                     (Zip Code)

                                 (303) 985-4665
               Registrant's telephone number, including area code


                                    EXHIBITS

<PAGE>

                                INDEX TO EXHIBITS

NUMBER                       DESCRIPTION



Exhibit 2      Agreement and Plan of Merger,  dated February 4, 1997,  among the
               Company, Dakota Mining Corporation and Dakota Merger Corporation,
               filed as an Exhibit to the Company's  Report on Form 8-K filed on
               or  about  February  5,  1997,  is  incorporated  herein  by this
               reference.

Exhibit 3.1    Certificate of Incorporation of the Company,  previously filed as
               an  Exhibit  to the  Company's  Report  on Form 10-K for the year
               ended  December  31,  1987,  is   incorporated   herein  by  this
               reference.

Exhibit 3.2    Bylaws of the  Company,  previously  filed as an  Exhibit  to the
               Company's  Report on Form 10-K for the year  ended  December  31,
               1987, is incorporated herein by this reference.

Exhibit 4      Specimen  Certificate  of  the  $.001  par  value  common  stock,
               previously  filed as an  Exhibit  to the  Company's  registration
               statement on Form S-3 (No.  33-19699),  is incorporated herein by
               this reference.

Exhibit 10.2   The  Company's  1987 Stock  Option Plan,  as amended,  previously
               filed as an Exhibit to the  Company's  registration  statement on
               Form  S-8  (No.   33-49392),   is  incorporated  herein  by  this
               reference.

Exhibit 10.3   The Company's Savings and Investment Plan, previously filed as an
               Exhibit to the  Company's  Report on Form 10-K for the year ended
               December 31, 1987, is incorporated herein by this reference.

Exhibit  10.7  Agreement,  dated  January  1,  1986,  between  the  Company  and
               Centennial  Minerals Ltd.,  previously  filed as Exhibit 10.17 to
               the  Company's  Report  on Form  10-K for the year  ended May 31,
               1986, is incorporated herein by this reference.

Exhibit 10.7A  Amendment  of  Agreement  and Deed  dated July 15,  1991,  by and
               between  Montana  Tunnels  Mining,  Inc.,  USMX, INC. and USMX of
               Montana,  Inc.,  previously  filed as an Exhibit to the Company's
               Report on Form 10-K for the year  ended  December  31,  1991,  is
               incorporated herein by this reference.

Exhibit  10.33 Non-Discretionary  Stock  Option  Plan,  previously  filed  as an
               Exhibit to the  Company's  Report on Form 10-K for the year ended
               December 31, 1991, is incorporated herein by this reference.



Exhibit 10.40  Asset  Purchase  Agreement,  dated  June 11,  1993,  between  the
               Company and Placer Dome U.S. Inc., as amended,  previously  filed
               as an Exhibit to the  Company's  Report on Form 10-K for the year
               ended  December  31,  1993,  is   incorporated   herein  by  this
               reference.

Exhibit 10.42  Employment  Agreement,  dated July 16, 1993,  between the Company
               and  James  A.  Knox,  previously  filed  as an  Exhibit  to  the
               Company's  Report on Form 10-K for the year  ended  December  31,
               1993, is incorporated herein by this reference.

Exhibit 10.44  Exploration  and Option to Purchase  Agreement,  dated  effective
               July 9, 1993,  between the Company and Dewey  Mining  Company and
               Thunder  Mountain  Gold,  Inc.,  Ronald C.  Yanke  and  Donald J.
               Nelson, previously filed as an Exhibit to the Company's Report on
               Form 10-K for the year ended  December 31, 1994, is  incorporated
               herein by this reference.

Exhibit 10.45  Purchase  and Sale  Agreement,  dated April 14,  1994,  among the
               Company,  Cominco American  Resources  Incorporated and Alta Gold
               Co.,  previously  filed as an Exhibit to the Company's  Report on
               Form 10-K for the year ended  December 31, 1994, is  incorporated
               herein by this reference.

Exhibit 10.46  Agreement, dated effective December 16, 1994, between the Company
               and North  Pacific  Mining  Corporation,  previously  filed as an
               Exhibit to the  Company's  Report on Form 10-K for the year ended
               December 31, 1994, is incorporated herein by this reference.

Exhibit 10.46a Letter  dated  February 5, 1996,  amending the  Agreement,  dated
               effective  December  16,  1994,  between  the  Company  and North
               Pacific Mining Corporation, previously filed as an Exhibit to the
               Company's  Report on Form 10-K for the year  ended  December  31,
               1996, is incorporated herein by this reference.

Exhibit 10.47  Post-Termination  Agreement, dated February 16, 1996, between the
               Company and Bull Valley L.L.C.

Exhibit 10.48  Exploration  Discovery Bonus Plan,  dated effective  September 1,
               1989.

Exhibit 10.49  Mine Services and  Earthworks  Contract,  dated January 19, 1996,
               between the Company and D.H. Blattner & Sons, Inc.

Exhibit 10.50  Purchase  and Sale  Agreement,  dated March 20,  1995,  among the
               Company,  Mega Metals, Inc.; Mega Minerals S.A.; Greg Pusey; John
               Dreier and Gary McAdam.

Exhibit 10.51  Option agreement, dated February 4, 1997, between the Company and
               Dakota Mining Corporation,  previously filed as an Exhibit to the
               Company's  Report on Form 8-K filed on or about February 5, 1997,
               is incorporated herein by this reference.

Exhibit 10.52  Support  Agreement,  dated  February 4, 1997,  among the Company,
               Pegasus Gold Inc. and Dakota Mining Corporation, previously filed
               as an  Exhibit  to the  Company's  Report on Form 8-K filed on or
               about February 5, 1997, is incorporated herein by this reference.

Exhibit 10.53  Loan Agreement dated March 11, 1997,  among the Company,  USMX of
               Alaska, inc. and Dakota Mining  Corporation,  filed as an Exhibit
               to the  Registration  Statement  on  Form  S-4 of  Dakota  mining
               Corporation (File No. 333-23453),  is incorporated herein by this
               reference.

Exhibit 10.54  Credit Agreement between USMX of Alaska,  inc. and N M Rothschild
               & Sons Limited,  dated July 11, 1996,  filed as an Exhibit to the
               Company's  Report on Form 8-K,  filed on or about July 24,  1996,
               and First Amendment to Credit Agreement, dated as of November 15,
               1996,  filed as an Exhibit to the  Company's  Report on Form 8-K,
               filed on or about November 21, 1996, are  incorporated  herein by
               this reference.

Exhibit 10.55  Credit  Agreement  between the Company and N M  Rothschild & Sons
               Limited,  dated July 11, 1996,  previously filed as an Exhibit to
               the Company's  Report on Form 8-K on or about July 24, 1996,  and
               the First Amendment to the USMX, Inc. Credit Agreement,  dated as
               of  November  15,  1996,  previously  filed as an  Exhibit to the
               Company's  Report on Form  8-K,  filed on or about  November  21,
               1996, are incorporated herein by this reference.

Exhibit 10.56  Guaranty of the Company to N M Rothschild & Sons  Limited,  dated
               July 11, 1996,  previously  filed as an Exhibit to the  Company's
               Report  on Form  8-K  filed on or about  July 24,  1996,  and the
               Guarantor's  Acknowledgment of First Amendment to USMX of Alaska,
               Inc. Credit  Agreement dated November 15, 1996,  previously filed
               as an Exhibit to the  Company's  Report on Form 8-K,  filed on or
               about  November  21,  1996,  are  incorporated   herein  by  this
               reference.

Exhibit 10.57  Hedging Agreement between USMX of Alaska, Inc. and N M Rothschild
               & Sons  Limited,  dated  July 11,  1996,  previously  filed as an
               Exhibit  to the  Company's  Report  on Form 8-K filed on or about
               July 24, 1996, is incorporated herein by this reference.

Exhibit  10.58 Registration  Rights  Agreement  between  the  Company  and  N  M
               Rothschild & Sons Limited,  dated July 11, 1996, previously filed
               as an  Exhibit  to the  Company's  Report on Form 8-K filed on or
               about July 24, 1996, is incorporated herein by this reference.

Exhibit 22     Subsidiaries of the Company

Exhibit 24.1   Consent of KPMG Peat Marwick LLP