United States
                       Securities and Exchange Commission
                             Washington, D.C. 20549

                                    FORM 10-K

     [X]  Annual  Report  Pursuant  to  Section  13 or 15(d)  of the  Securities
     Exchange Act of 1934 For the fiscal year ended December 31, 1996

                                                         OR

[    ]  Transition  Report  Pursuant  To Section  13 or 15(d) of the  Securities
          Exchange Act of 1934

                         Commission File Number 0-17583

                            Dakota Mining Corporation
             (Exact name of registrant as specified in its charter)

      Canada                                   84-1094683
(State or other jurisdiction                 (I.R.S. Employer
of incorporation or organization)           Identification No.)


410 Seventeenth Street, Suite 2450
        Denver, Colorado                                  80202
(Address of principal executive offices)                (Zip Code)

       Registrant's telephone number, including area code: (303) 573-0221

               Securities registered pursuant to Section 12(b) of
                                        the Act:

                                                   Name of each exchange
              Title of each class           on which each class is registered
         Common Shares, No Par Value              American Stock Exchange
                                                 The Toronto Stock Exchange
                                                    Berlin Stock Exchange
                                                  Frankfort Stock Exchange

               Securities registered pursuant to Section 12(g) of
                         the Act:
                                      none
                                (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.

The  aggregate  market  value of  voting  stock  held by  non-affiliates  of the
Registrant was $48.8 million as at March 21, 1997.

Number of shares outstanding at March 21, 1997:               35,479,472

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions  of the  Management  Information  Circular  and Joint  Proxy  Statement
(Registration  No.333-23453)  ("Joint Proxy  Statement") for  Registrant's  1997
Annual  and  Special  Meeting  of  Shareholders  to be  held  May 22,  1997  are
incorporated by reference into Part III of this Form 10-K.


<PAGE>


<TABLE>
<CAPTION>



                                                 TABLE OF CONTENTS


<S>                                                                                                             <C>
PART I............................................................................................................4

         ITEM 1:  BUSINESS........................................................................................4
         ITEM 2:   PROPERTIES....................................................................................10
         ITEM 3: LEGAL PROCEEDINGS...............................................................................19
         ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.............................................19

PART II..........................................................................................................19

         ITEM 5: MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.......................19
         ITEM 6: SELECTED FINANCIAL DATA.........................................................................21
         ITEM 7:  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS..........22
         ITEM 8: CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA........................................35
         ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS  ON ACCOUNTING AND FINANCIAL DISCLOSURE...........55

PART III.........................................................................................................55


PART IVI.........................................................................................................55

         ITEM 14:  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K...............................55

GLOSSARY OF CERTAIN MINING TERMS.................................................................................58


SIGNATURES.......................................................................................................61

</TABLE>


<PAGE>



On March 21, 1997 the noon buying rate in New York City for cable  transfers  in
Canadian  dollars,  as  certified by the Federal  Reserve Bank of New York,  was
US$1.00 =  Cdn$1.382.  The noon rate for the United  States  dollar in Canada on
March 21, 1997 as reported by the Bank of Canada, was US$1.00 = Cdn$1.3799.

All dollar  amounts  are  expressed  in  currency  of the United  States  unless
otherwise stated.


<PAGE>



66


PART I

Reference is made to the glossary  beginning on page 57 of this Annual Report on
Form 10-K with respect to the definitions of certain mining terms used herein.

ITEM 1:  BUSINESS

General

         The  principal  business  office  of  the  Registrant,   Dakota  Mining
Corporation (the "Company", "Registrant" or "Dakota"), is located at Suite 2450,
410 Seventeenth Street, Denver, Colorado 80202 and its telephone number is (303)
573-0221.  The  registered and records office of the Company is located at Suite
1700, 1030 West Georgia Street, Vancouver, British Columbia V6E 2Y3.

         The Common Shares of the Company trade on the American  Stock  Exchange
("AMEX") and The Toronto Stock  Exchange  ("TSE") under the trading symbol "DKT"
and on the Berlin and Frankfort  Stock Exchanges under the trading symbol "DMC".
Under the rules of the TSE, the Company was granted  "senior  issuer"  status in
May of 1989. A senior  issuer is a company which is exempt from section 19.09 of
the General By-law of the TSE.  Section 19.09 of the General By-law requires all
non-exempt  companies to give prompt notice to the TSE of any proposed  material
change in the business or affairs of the company.

         Dakota was  formed as a result of an  amalgamation  of Brohm  Resources
Inc. and MFC Mining Finance  Corporation under the provisions of The Company Act
(British   Columbia)   effective   August  2,  1988.  Under  the  terms  of  the
amalgamation,  Dakota was renamed MinVen Gold Corporation. On December 16, 1988,
Dakota was continued under the Canada Business Corporations Act (the "CBCA").

         On  September  13,  1993,  the   shareholders   of  Dakota  approved  a
recapitalization of Dakota's outstanding common shares as part of an arrangement
structured as a plan of arrangement (the "Arrangement") under Section 192 of the
CBCA.  As a  part  of  the  Arrangement,  all of the  common  shares  of  Dakota
outstanding  as of September 15, 1993 (the "Old Common  Shares") were  exchanged
for new Common Shares no par value ("Dakota  Common  Shares"),  and common share
purchase  warrants  ("Arrangement   Warrants")  and  the  name  of  MinVen  Gold
Corporation was changed to Dakota Mining Corporation.

         Under Canadian GAAP, the  Arrangement  was accounted for as a financial
reorganization  utilizing  "fresh  start"  accounting.  Generally,  prior period
figures are not included in the financial  statements of an enterprise  that has
comprehensively  revalued its assets and  liabilities as a result of a financial
reorganization.  This is  consistent  with the concept  that the  enterprise  is
starting anew using a "fresh start" basis of accounting. Accordingly, results of
operations and cash flow  activities  prior to September 15, 1993, the effective
date of the Arrangement,  have not been included in the consolidated  statements
of operations and cash flows as of December 31, 1993, rather these  consolidated
financial  statements  are  limited to the  post-Arrangement  period  commencing
September 16, 1993.

         On  February  5, 1997,  Dakota  entered  into a Merger  Agreement  (the
"Merger  Agreement")  with USMX,  Inc.  ("USMX").  Under the terms of the Merger
Agreement, holders of USMX Common Stock will receive one Dakota Common Share for
every  1.1  share of USMX  Common  Stock  and USMX  will  become a  wholly-owned
subsidiary of Dakota.  In  connection  with the  transaction,  Dakota will issue
approximately  14.7 million Dakota Common Shares to existing USMX  stockholders.
The Dakota  Common  Shares had an  approximate  market value of $23.2 million or
$1.58 per share,  based upon an average trading price for Dakota's Common Shares
for a reasonable  period before and after the Merger was announced.  Dakota will
account for the Merger as a "purchase". Based upon the opinion of an independent
major accounting firm, Dakota anticipates that the Merger will not be taxable to
Dakota and should not be taxable to shareholders  of Dakota or USMX.  Completion
of the Merger  remains  subject to  shareholder  approval,  review by regulatory
authorities,  and other  customary  conditions.  Dakota  expects to complete the
Merger in May, 1997.


         The following chart sets forth Dakota's corporate  structure  including
all material subsidiaries and their respective jurisdictions of incorporation.


   Chart showing corporate structure including all material subsidiaries and
                their respective jurisdictions of incorporation.




Dakota carries out its operations  through its direct and indirect  wholly-owned
subsidiaries as noted above.

Business of Dakota

         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.






"Map Showing Dakota Producing Mines"



         Dakota also has a 25% interest in Cactus Mine  located near  Lancaster,
California.  The entire ore deposit at Cactus Mine has been mined and while gold
recovery occurred  throughout 1996 in connection with heap leach  neutralization
activities,   Cactus  Mine  is  not  expected  to  significantly  affect  future
operations of Dakota.

         Dakota  currently  holds  limited  interests  in certain  other  mining
claims,  mineral claims and Crown granted  mineral  claims in British  Columbia.
Although no work  programs with respect to these  existing  claims are currently
under way,  Dakota  continues  to seek the  acquisition  of  additional  mineral
interests outside of the United States.

         Reference is made to Item 2:  Properties  for  discussion  of operating
activities during 1996 on a mine-by-mine basis.

Business Conditions

         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.   Dakota  from  time  to  time  engages  in  the
development of new ore bodies.  The ability of 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. 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.

         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  Dakota  contemplates   conducting  exploration  and/or  production
activities.  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
Dakota.

         Government  Regulation.  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.  Dakota
seeks  to make  good  faith  efforts  to  comply  with all  applicable  laws and
regulations.

         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 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 Dakota is subject to environmental  liabilities,  the payment of such
liabilities would reduce funds otherwise available to the company and could have
a material adverse effect on the company.

         In the context of  environmental  compliance and permitting,  including
the approval of reclamation plans,  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.  Dakota has made,  and expects 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 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 future operations.

          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.

         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. Dakota maintains insurance against risks that are typical in the gold
mining industry and in amounts that Dakota believes 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 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
March 21, 1997, 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 21, 1997,
no such bills have been passed or regulations proposed or promulgated.

         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 Dakota will be able to obtain all of the
financing that it requires on acceptable terms and conditions.

         Fluctuation in the Price of Gold. Because Dakota's revenues are or will
be derived  primarily  from the sale of gold,  Dakota's  earnings  are  directly
related  to gold  prices.  Gold  prices  fluctuate  widely and are  affected  by
numerous factors beyond Dakota's 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.

         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.

         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.


         Permitting  Matters.  The  ultimate  Anchor  Hill  open pit  design  at
Dakota's Gilt Edge Mine 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").  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
the  development  of the Meadow  Creek  Plan.  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.

         Sources and Availability of Raw Materials. Dakota uses several reagents
in the  processes of  extracting  gold and silver.  Dakota  believes  that these
reagents  will  continue to be available  from a number of sources at acceptable
prices.

         Patents, Trademarks, Licenses, Franchises,  Concessions, and Government
Contracts. Dakota does not own any patents, trademarks,  licenses, franchises or
concessions,  except mining  interests  granted by governmental  authorities and
private  landowners.  No portion of its business is subject to re-negotiation of
profits or  termination  of  contracts  or  subcontracts  at the election of any
government.

         Seasonality.  All of the  open-pit  facilities  in which  Dakota has an
interest  are  seasonal  operations  that are not able to  operate or operate at
reduced rates during the winter months.

         Major   Customers.   Sales  of  gold  and  silver  (dore)  bullion  and
concentrates   derived  from  Dakota's   mines  are  made  through   open-market
transactions  to unaffiliated  companies.  Because of the nature of the precious
metals  markets,  Dakota  believes  that the loss of any one of these  customers
would not affect its business.

         Employees. At December 31, 1996, Dakota employed 81 employees directly,
including 9 persons at its  executive  offices.  Another 15 persons are employed
indirectly through Dakota's joint venture operations at Cactus and Golden Reward
Mines. All projects are operated using non-union labor.

ITEM 2:   PROPERTIES

         Reference  hereafter,  is  occasionally  made to  sulfide  or oxide ore
deposits.  Sulfide  ores  are  mineralized  rock in  which  much of the  gold is
contained  in  sulfide.  Such  sulfide  ore  deposits  are  generally  mined and
processed  by means of crushing  the ore into fine  particles  and  floating the
particles in a solution to separate the gold. This process is capital  intensive
and often not an economic means of processing lower grade ore bodies.

         Oxide ore deposits are sulfide deposits that have been oxidized. Unlike
sulfide  deposits,  gold can be extracted from oxide deposits through the use of
cyanide heap leaching  solutions.  Because  cyanide heap leaching is generally a
less expensive  process than crushing and floating sulfide ores, lower grade ore
bodies can be more  economically  mined.  For this  reason,  Dakota has incurred
costs to  investigate  methods  of  treating  sulfide  deposits  to render  them
amenable to cyanide  leaching  processing.  See  "Properties  - Gilt Edge Mine -
Sulfide Deposit." Each ore body has unique  metallurgical  characteristics,  and
oxide and sulfide ores are commonly intermingled.

         Gilt Edge Mine.  Gilt Edge Mine is a year round open pit heap  leaching
operation.   The  following  table  sets  forth  certain  historical  production
information for Gilt Edge Mine:

<TABLE>
<CAPTION>

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

<S>                                             <C>            <C>             <C>          <C>              <C>
Ore crushed (thousands of tons)                  1,583            572              -             -              773

Average grade gold (ounces/tons)                 0.023          0.043              -             -            0.056

Average recovery (%)                             72.8%          39.6%              -             -            60.0%

Ounces produced

         Gold                                   26,150          9,748          2,374         9,423           26,836

         Silver                                 38,223         19,436          5,670        18,524           45,201

Per ounce of gold sold

         Cash Cost ($)                            $439           -(1)           -(1)          $301             $308

         Total Cost ($)                           $500           -(1)           -(1)          $366             $381

<FN>

(1)      During 1994 and through to August 1995,  Gilt Edge Mine was on stand-by
         pending the issue of operating  permits for new mining areas. All costs
         incurred  in  this  period  to care  for  and  maintain  the  mine  and
         production  facilities have been categorized as "stand-by  costs".  All
         proceeds  from the sale of gold and silver during this period were used
         to offset stand-by costs. Cost per ounce figures are not meaningful.
</FN>
</TABLE>




          General. Dakota owns 100% of Gilt Edge Mine. Gilt Edge Mine is located
near  Deadwood,  South  Dakota,  approximately  40 miles from Rapid City,  South
Dakota,  where there is  scheduled  commercial  airline  service.  Access to the
property is from Highway 385 on a secondary road maintained by the county.  Gilt
Edge Mine is located within the Black Hills National Forest on private land that
is  leased  from  various  unaffiliated  third  parties.  Unless  production  is
continuing or the leases are otherwise  extended,  such leases expire at various
times through  2012.  The property  consists of 308 patented and 323  unpatented
claims covering approximately 7,725 acres.

          Ownership of the mineral  rights under  certain  lease  agreements  is
transferable  to Dakota upon payment of an aggregate of $3.67 million,  of which
$1.3  million  has  been  paid  to  date.   Current   production   royalties  of
approximately 2% with annual minimum royalty payments of approximately  $228,200
are paid to parties dealing at arm's length with Dakota.  All current production
royalty  payments are applied to the $3.67  million  lease  buy-out  price noted
above.

          Pursuant to an  agreement  between  Dakota and  Repadre  International
Corporation  ("Repadre")  dated  March 8,  1995,  Repadre  has a 1-3/4%  royalty
interest  in  certain  properties  and a 3/4%  royalty  interest  in  the  other
properties at Gilt Edge Mine in consideration  for having made a credit facility
available  to Dakota.  These  royalties  are in  addition  to the 2%  production
royalties described above.

         All mining, hauling and road maintenance at Gilt Edge Mine is performed
by a mining contractor.

         Conventional  open-pit  mining  methods  are used with  ores  processed
through a heap-leach  processing facility.  The Gilt Edge Mine site includes one
planned  open-pit mine known as Anchor Hill and two historic  open-pit  mines, a
7,000 ton per day crushing  plant,  a 14 acre heap leach pad, a 1,000 gallon per
minute  Merrill-Crowe  zinc  precipitation  processing  plant,  solution storage
facilities and ancillary  facilities  including two water  treatment  processing
plants, laboratory, warehouse, pump house, maintenance shops, and administrative
buildings.  The plant and  equipment are in good  condition  and are  adequately
maintained.

         Anchor Hill Oxide Deposit.  As of January 1996, Dakota had obtained all
requisite state and county permits  required for the initial  development of the
Anchor Hill oxide deposit.  Gold production from this deposit commenced in April
1996. Based on presently  established  proven and probable  reserves and planned
mining rates, the Anchor Hill deposit will produce gold for approximately  three
years.  Dakota is also  conducting site  exploration  and  development  drilling
activities  in order to enlarge the  presently  known oxide  reserves.  Refer to
"Reserves"  below.  Several  promising  targets  have been  identified  and gold
mineralizations  have been  confirmed.  Dakota  expects to expend  approximately
$500,000 per year over the next three years in connection with this program.

         Sulfide Deposit. Since 1989, Dakota has been evaluating the possibility
of mining the large  sulfide  deposit which has been fully  delineated  and lies
directly beneath the two open pits which were mined prior to 1992.

         In September 1992,  following  laboratory  tests conducted by Dakota on
mineralization  from Gilt  Edge Mine  showing  that the  sulfide  mineralization
responded  to  conventional  cyanide  leaching,  a bulk heap  leach  test of the
material was instituted. A 42,000 ton bulk sample of the material was crushed to
a  minus  1/4  inch in  size  and  was  subjected  to  conventional  heap  leach
procedures.  The bulk test was  concluded  in  November  1993  after 383 days of
leaching with actual gold  recoveries  at 49.4%.  Extrapolated  gold  recoveries
after two full years of leaching were calculated to be in excess of 61%.

         Based upon the bulk test results,  Dakota  commissioned  two studies to
evaluate  the  commercialization  of this  large  gold  resource,  including  an
estimate of future capital costs and utilization of  bio-oxidation  processes to
treat sulfide ores at Gilt Edge.

         One study was  undertaken  to  substantiate  the economic  viability of
utilizing a heap leach facility to process certain sulfide gold bearing material
at Gilt Edge Mine  using the  results  obtained  from the large  scale bulk test
noted above.  However,  management of Dakota has not yet  concluded  that such a
facility will be constructed in the near future. Rather, Dakota is continuing to
evaluate alternatives which, if successful, could further enhance Gilt Edge Mine
by allowing  Dakota to process a greater  portion of the known sulfide  deposit.
Such alternatives include  investigation of a pre-treatment  process,  including
bio-oxidation of sulfide ores prior to cyanidation  leaching as described below,
and conventional mill grinding of ores.

         To date  Dakota  has  spent  approximately  $717,600  on  studying  the
feasibility of the bio-oxidation  process at Gilt Edge. Results gathered to date
are  encouraging  and indicate that for each 1% increase in oxidation there is a
corresponding  approximately  1%  increase  in  recovery.  Due to the  promising
results to date in exploring for  additional  oxide  reserves at Gilt Edge Mine,
Dakota has refocused its efforts to expanding its oxide reserves as noted above.
Accordingly,  no significant  expenditures  are contemplated in the next year to
further develop these sulfide resources.

         Geology.  Mineralized deposits covered by Gilt Edge Mine properties are
associated with an early Tertiary alkalic igneous complex.  Multiple stock, dike
and sill  intrusions,  comprised  of  alkalic  trachyte  porphyries,  have  been
emplaced into Precambrian  metamorphic and Cambrian  sedimentary  basement rocks
along major northeast and northwest trending fracture zones. Gold mineralization
is  disseminated  within the  porphyritic  intrusions  and  concentrated  within
fracture  and breccia  zones cross  cutting all rock types.  In  addition,  gold
mineralization  as  replacement  stratiform or manto type bodies,  occurs within
favorable  (chemically  reactive) strata of the flat lying Cambrian  sedimentary
rocks.

         Exploration.  There  is  exploration  potential  for  other  oxide  and
sulphide gold deposits on the Gilt Edge Mine  properties.  Most of the potential
oxide  tonnages  are in small  "pockets"  (relative  to the much more  extensive
sulphide  mineralization)  that  could  prolong  mine  life  to the  point  that
development  of  sulphide  gold  deposits  takes  place.  The Anchor  Hill oxide
deposit,  from which production  commenced in 1996, remains as the largest oxide
deposit defined to date. In addition, the Southeast Langley oxide deposit, which
will compliment Anchor Hill production in 1997, will require additional drilling
to fully delineate the reserves in that area. Finally, 1996 exploration drilling
intersected  significant  mineralized  intervals in two exploration  targets not
drilled  previously.  These  areas (Ruby  Ridge and West  Anchor)  are  directly
adjacent to existing mine and operating  facilities and no resource estimate has
been calculated for these areas.

         Additional  drilling in 1997 will be completed in the Southeast Langley
and the two new areas to fully assess the reserve  potential.  Field geochemical
work and  mapping has  identified  at least two  additional  areas which will be
drilled for the first time in 1997.

         Reserves.  The table below sets forth the permitted in-place proven and
probable  oxide reserves at Gilt Edge Mine as of December 1, 1996; as audited by
DMBW, Inc., independent professional geological consultants ("DMBW"):

<TABLE>
<CAPTION>

                                                    Grade oz.             Contained            Waste to Ore
                   Area               Tons           /ton Au              Ounces Au                Ratio
           -----------------        ---------       --------              ---------            -------------
           <S>                      <C>                <C>                  <C>                   <C>
           Anchor Hill              7,231,372          0.029                210,465               1.74:1
           Southeast Langley          403,379          0.029                 11,588               1.13:1
                                      -------         -----                  ------               ------

           Total                    7,634,651          0.029                222,053               1.71:1
                                    =========          =====                =======               ======
--------------------------------------------------------------------------------------------------------------------
</TABLE>

         Permitting and  Environmental  Matters.  Dakota has obtained all of the
requisite  state and county permits that are required for the development of the
Anchor Hill oxide deposit.  However, the ultimate open pit design contemplates a
disturbance  of  approximately  37 acres of U.S.  National  Forest Service lands
principally for pit wall layback.  Accordingly,  Dakota must finalize an ongoing
Environmental  Impact  Statement  (the  "Gilt  Edge Mine  EIS") to  develop  the
ultimate open pit mine design.  The Gilt Edge Mine EIS,  which has been underway
since January  1994, is expected to be finalized in May 1997.  Assuming the Gilt
Edge Mine EIS is completed on a timely basis, no disruption to mining operations
is expected in 1997.  To date,  Dakota has  expended  $151,409 for the Gilt Edge
Mine  EIS and  expects  to  spend  an  additional  $58,000  in 1997  for a total
expenditure of $209,409 through to its completion.

         On  February  21,  1997,  Gilt Edge  Mine  received  a draft  Notice of
Violation  ("NOV")  from the State of South  Dakota  regarding  an  unauthorized
discharge  of  approximately  5,500  gallons of mine  water due to an  equipment
failure.  Gilt Edge Mine had previously reported the discharge which occurred in
November  1996.  The NOV requests a fine of $5,400 and that Dakota  increase its
efforts to properly treat and discharge  excess mine waters  presently stored at
the  minesite.  Dakota is  presently  assessing  the  nature  and  extent of the
requested  additional water treatment procedures requested by the State of South
Dakota and cannot presently  determine what  incremental  costs, if any, that it
may likely incur as a result of the NOV.

Reference  is also made to  "Management's  Discussion  and Analysis of Financial
Condition  and Results of  Operation  --  Environmental  Matters and  Government
Regulation."

         Severance Tax.  Production  from Gilt Edge Mine is subject to severance
taxes  payable  to the  State of South  Dakota at the rate of $4.00 per ounce of
gold produced together with a defined net profit tax of 10%.

         Golden  Reward Mine . Golden  Reward Mine is a year round open pit heap
leaching operation. The following table sets forth certain historical production
information for Golden Reward Mine:

<TABLE>
<CAPTION>


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

<S>                                                      <C>         <C>         <C>         <C>        <C>
Ore crushed (thousands of tons)                             665       1,683       1,829       1,513      2,127

Average grade gold (ounces/tons)                          0.037       0.040       0.040       0.033      0.038
Average recovery (%)                                          -       72.7%       71.8%       71.2%      63.7%
Ounces produced
  Gold                                                   21,430      47,569      52,556      35,549     51,135

  Silver                                                  9,078      13,061      12,795      30,776     67,712


Per ounce of gold sold

  Cash Cost ($)                                            $298        $229        $263        $362       $381

  Total Cost ($)                                           $462        $401        $370        $471       $494


Gold                                                      8,572      19,078      21,022      14,220     24,909
Silver                                                    3,631       5,451       5,118      12,310     13,020


</TABLE>


         General.  Golden Reward Mine is situated within the historic Ruby Basin
Mining District in the northern Black Hills,  approximately four miles southwest
of Lead,  South  Dakota.  Access  to the mine is from  Highway  85 via the paved
Fantail  Gulch  Road.  The  property  leased by  Golden  Reward  L.P.  comprises
approximately  6,450 acres of land consisting of 426 patented and 194 unpatented
claims. All present and immediate future activities are on patented lands leased
from third  parties.  The leases  require  annual  minimum  payments of $400,000
($160,000 for Dakota's account) with royalty rates ranging from 1% to 5%.

         Dakota has a 40% interest in Golden Reward Mine.  From inception of the
project through February 27, 1992,  Dakota's ownership interest in Golden Reward
Mine was 33-1/3%. Dakota's ownership interest in Golden Reward Mine was adjusted
from  33-1/3% to 54%  effective  February 28, 1992 as a result of a former joint
venture  partner's  failure to pay certain  cash call  obligations  that were in
default.  On October 8,  1992,  Dakota  acquired  that joint  venture  partner's
remaining  interest  in the  assets  of Golden  Reward  Mine.  Immediately  upon
attaining a 100%  ownership  interest in Golden  Reward Mine,  Dakota sold a 60%
ownership  interest in Golden Reward Mine to Wharf Resources,  Ltd. ("Wharf") of
Toronto,  Ontario.  Thereafter,  Wharf and Dakota  contributed  their respective
ownership  interests  into a newly formed  limited  partnership,  Golden  Reward
Mining Company, L.P. ("Golden Reward L.P."). The limited partnership is governed
by a partnership agreement dated October 8, 1992.

         The mine has exhausted all of its presently permitted mineral reserves.
Present  activities pertain only to care and maintenance which costs are minimal
to Dakota.  Future mining  activities,  if any, are dependent upon Golden Reward
L.P.  acquiring  certain  land  surface  rights and new  operating  permits.  No
assurance  can be given  that  Golden  Reward  L.P.  will be  successful  in its
endeavors.


         Operations.  Mining at Golden Reward Mine takes place in satellite pits
using conventional open-pit mining methods. Ore and waste is drilled and blasted
and then the ore is trucked to the crusher.  The ore is crushed to a nominal 5/8
inch product,  and is  transported  by conveyor to a rail mounted  stacker which
loads the ore on to the  "on/off"  leach  pad.  This  consists  of 12 cells each
capable of holding 50,000 tons of ore. Gold  extraction  from the solution is by
means of Merrill-Crowe recovery plant. All facilities are in excellent condition
and well maintained.

         Geology.  Golden  Reward  Mine is  located in the Black  Hills  igneous
intrusive belt, an east-west  trend of Eocene Age with intrusive  activity being
70 miles in length.  These igneous rocks are typically alkalic and are generally
porphyritic   in  texture  with  Tertiary   porphyry  the  most   volumetrically
significant  intrusive  rock in the area.  All  intrusive  rock  types at Golden
Reward Mine host gold  mineralization.  The tertiary  intrusive rocks consist of
porphyritic  dykes, sills and dyke-sill  complexes.  These dykes typically occur
along  high-angle  structures  or  schistocyte  planes in the  steeply  inclined
Precambrian rocks. The sills within the Deadwood Formation, the dominant exposed
sedimentary   rock,   usually   follow   bedding   planes  or  shale   horizons.
Mineralization occurs in fracture zones radiating from these igneous-sedimentary
contacts.

         Historically,  gold  production  at  Golden  Reward  Mine has come from
high-angle  structures or  "verticals"  and associated  replacements  within the
dolomitic  rocks  of  the  Cambrian  Deadwood  Formation.  The  majority  of the
mineralization  at the present  operation is oxide and occurs in the nearly flat
lying Cambrian Deadwood Formation.

         Ski Area.  Golden  Reward  Mine is  located  next to the Terry Peak Ski
Area, a regionally  popular Winter  recreation site. Due to the sensitive nature
of this area to  recreational  activities,  Golden Reward L.P. has  instituted a
reclamation  planning project for the area, which includes  sequentially  mining
the various areas and  reclaiming the areas which were  previously  mined as new
mine areas are opened.  Golden  Reward L.P.  owns a 31% interest in the ski area
for which it paid $1.3 million in 1986. A new lodge was constructed and new snow
making equipment installed in 1989 and the project is now  self-sufficient.  The
operations  of the Terry Peak Ski Area are not  material  to the  operations  of
Golden Reward L.P. The cost of the  investment has been accounted for as part of
the cost of the  property  and is being  amortized  over the life of the  Golden
Reward Mine.

         Reserves  and  Mineralized  Deposits.  Shown  below are the  proven and
probable  in-place  oxide ore reserves and other oxide  mineralized  deposits of
Golden  Reward  Mine (100%  interest)  as of  December  31,  1996 as prepared on
January 30, 1997 by Glenn R. Clark,  an independent  professional  engineer (the
"Clark Ore Reserve Report").
<TABLE>
<CAPTION>


                                                                        Grade oz/                 Contained
                                                 Tons                     ton Au                  Ounces Au
--------------------------------------- ------------------------ ------------------------- -------------------------
<S>                                         <C>                              <C>                     <C>
Proven and Probable Reserves
         Permitted                          1.85 million                     0.051                    94,350
         Non-Permitted                      3.35 million                     0.037                   123,950

Defined mineral Deposits
         Permitted                            .2 million                     0.034
         Non-Permitted(1)                    1.0 million                     0.030

<FN>

(1)      Non-permitted   mineralization   represents   extensions   to  existing
         identified  reserves  or  mineralized  deposits on  contiguous  acreage
         controlled by Golden Reward L.P.
</FN>
</TABLE>



         Certain  third  party  surface   rights  or  facilities   encumber  the
development of 1.57 million tons of permitted proven and probable reserves at an
average  grade of 0.052  ounces of gold per ton, or 81,640  ounces of gold,  all
non-permitted  proven and probable  reserves and  non-permitted  defined mineral
deposits.  In order to access such additional reserves and mineralized deposits,
Golden  Reward L.P. will be required to relocate its existing  crusher  facility
and  reduce  its  leach pad  capacity  by  approximately  25% or to  acquire  or
otherwise compensate third parties to acquire or remove their facilities. At the
present time,  Golden  Reward Mine is not actively  pursuing the removal of said
encumbrances.

         The known reserves and defined  mineral  deposits at Golden Reward Mine
are on  patented  or private  lands and would not be  subject to a U.S.  federal
royalty should the U.S. Congress enact a requirement for such a royalty.

     Exploration.  Potential  exists for Golden  Reward Mine to increase its ore
reserves. The development effort has focused on those surface ore deposits which
are amenable to open-pit mining, however,  potential also exists for underground
deposits  which  have  yet to be  evaluated.  Golden  Reward  L.P.  has  not yet
determined  that  such  underground  deposits,  if any,  could  economically  be
developed.

         Other  Matters.  Dakota  and Wharf  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
matter is not presently determinable.

     Severance Taxes.  Golden Reward Mine is subject to a severance tax of $4.00
per  ounce of gold  produced  and 10% of net  profits  as levied by the State of
South Dakota.

     Stibnite  Mine.  Stibnite Mine is a seasonal open pit heap leach  operation
with potential for future expansion of existing oxide production.

         Stibnite Mine recommenced  operations in August 1995 after being placed
on stand-by for substantially all of 1993 and for 1994 while awaiting  operating
permits. In July 1995, Stibnite Mine received all requisite operating permits to
recommence mining and processing activities and now has all requisite permits to
continue   operations   throughout  1996.  See  "Stibnite  Mine  Permitting  and
Environmental  Matters."  The  following  table  sets forth  certain  historical
production information concerning Stibnite Mine.

<TABLE>
<CAPTION>


                                                                 1996        1995       1994(1)     1993       1992
                                                                 ----        ----       ----        ----       ----
<S>                                                           <C>          <C>            <C>      <C>        <C>
Ore crushed (thousands of tons)                                  927          544          -         91         814

Average grade gold (ounces/tons)                               0.031         0.050          -      0.016       0.038

Average recovery (%)                                           81.0%         71.0%(3)       -      89.0%       89.4%

Ounces produced

         Gold                                                 29,352       19,094          -       1,863      27,651

         Silver                                                7,309        5,358          -       1,212      11,683

Per ounce of gold sold

         Cash Cost ($)                                          $441         $366          -       N/A(2)       $323

         Total Cost ($)                                         $558         $407          -       N/A(2)       $330

<FN>

(1)      No operations were conducted in 1994 while the mine was on stand-by awaiting operating permits.
(2)      Costs for 1993 are not meaningful due to reduced level of mining activities pending the issue of
         operating permits.
(3)      Approximately 4,000 ounces of gold remain on the heap leach pads at December 31, 1995 and once recovered
         in 1996 will increase recoveries to approximately 86%.
</FN>
</TABLE>

         General.  Dakota's  original 50% interest in Stibnite Mine was acquired
in 1986 from Pioneer Metals Corporation.  In 1991, Dakota acquired the remaining
50% interest in Stibnite Mine from Pegasus Gold.

         Stibnite Mine is located in central  Idaho's Salmon River  Mountains in
Valley County, approximately 15 miles east of the town of Yellow Pine. Access is
by  secondary  road from State  Highway 55. A landing  strip  suitable for light
aircraft also exists on the property.  The property  comprises  thirty  patented
claims,  28 patented  millsites and 487 unpatented  mining claims covering 8,028
acres leased from third parties.  This land surrounds the Yellow Pine Mine owned
by Hecla Mining Company ("Hecla").

         The leases generally require production royalties that range from 5% up
to 6%. Two leases cover the majority of the  production or targeted areas on the
property  and will expire in the years 2005  through  2010.  The leases  require
advance minimum royalties of approximately $92,500 per year.

         Operations.

         Stibnite Mine is a seasonal,  heap leach operation with mining activity
generally     occurring    from    May    through     November.     Conventional
drill-blast-load-haul methods are used. The ore is then crushed into pieces less
than  one inch in  diameter  and  deposited  on leach  pads for  dilute  cyanide
treatment.  Gold  and  silver  are  recovered  from  the  solution  in a  carbon
absorption plant with the barren ore being rinsed,  neutralized and removed from
the pads.  All facilities and equipment are in good condition and are adequately
maintained.

         All mining,  hauling,  crushing and road  maintenance is performed by a
mining  contractor.  Dakota and contractor  personnel are housed on-site in both
company and privately owned trailers.  Additional  permanent living quarters and
mess hall facilities are provided at the site by Dakota.

         Geology.  The Stibnite Mine district lies in the east-central margin of
the  Idaho  Batholith.  Quartz-monzonite  and  aplite  dikes of this  Cretaceous
intrusive  complex  are the most  common  rock-type  in this  area.  Precambrian
metasediments of the Belt Series are also present. The sediments are composed of
quartzite,  schist,  conglomerate,   calc  silicate  hornfels  and  marble.  The
sediments  form part of a large  roof  pendent  with the  contained  sedimentary
formations,  generally striking in a northwesterly  direction and dipping to the
northeast.

         North-to-northeasterly  trending faulting is strongly  developed in the
area, with three major northeast striking faults identified.

         Gold occurs in fractures and quartz  veining  mainly in  metasediments,
closely  associated  with  pyrite,  marcasite,   pyrrhotite,   chalcopyrite  and
arsenopyrite which has been oxidized near the surface.  Brecciated  quartzite is
the most common rock. The gold bearing oxide zones currently mined are generally
underlain by deeper gold bearing sulfide zones.

         Exploration.  During 1996,  Dakota entered into an agreement with Hecla
to develop the sulfide potential in the Stibnite district. Dakota and Hecla each
hold 50% of the unitized mineral interest. Under the terms of the agreement, the
parties  are  actively  seeking a third  party  mining  company to  develop  the
resource.  Dakota's  oxide heap leach  operations  and resources are not to be a
part of the unitized assets.

         Modest  exploration  programs have been conducted over the past several
years,  principally  within three target  areas.  Drilling  results to date have
produced encouraging results.  These three mineralized areas will be the subject
of a  continuing  drill  program  in  1997  when  it  is  anticipated  that  the
mineralization  and extent of the deposits  will be defined in order to increase
mineable reserves. In addition,  soil and stream geochemical sampling and modest
geophysical  work are  planned  for the coming  year.  Dakota  expects to expend
approximately $531,000 in 1997 for exploration.

         The Stibnite Mine district has good potential to host significant oxide
and sulfide gold deposits.  However,  due to severe cash limitations in the past
few years,  exploration  efforts have been restricted to oxides and to the needs
of short term mine feed. A focused sulfide  drilling  program could enhance this
resource.

         A particular  opportunity  exists at Stibnite Mine due to its strategic
land position surrounding the Yellow Pine sulfide deposit owned by Hecla. Yellow
Pine is undeveloped  and reported by Hecla to contain  approximately  20 million
tons of refractory sulfide material or approximately two to three million ounces
of gold. The potential to define additional sulfide material exists primarily on
Stibnite Mine lands. Furthermore, should the Yellow Pine deposit be developed at
some future date,  Stibnite  Mine lands may be essential  for pit layback,  mill
site, waste and tailing disposal.

     Reserves and Defined Mineralized  Deposits.  An independent audit conducted
by DMBW confirmed reserves as of January 1, 1997 as follows:

<TABLE>
<CAPTION>

                                                        Tons            Grade      Contained Ounces/Au
---------------------------------------    --------------------- ---------------- -----------------------
<S>                                                  <C>                <C>            <C>
Proven and Probable Reserves                         432,190            0.049          21,504

</TABLE>

         Dakota has also identified other  mineralized oxide material outside of
the current reserves of approximately  5.68 million ore tons at an average grade
of .032 opt gold.

         In addition to the defined  mineralized oxide material above,  Dakota's
engineering staff has also located on the property  refractory  sulfide material
of  approximately  5.0 million  tons at a grade of 0.061  ounces of gold per ton
located throughout the property.

         Of the total known mineralization, only the mineralized material in the
West End Pit, and mineralized  material (sulfide) at the Yellow Pine,  Homestake
and Meadow Creek Mines are located on patented or private lands. All other known
mineralization is on unpatented claims, which could be adversely affected in the
event certain  proposed changes in mining laws in the United States are enacted.
See "Business Conditions-Proposed Changes in Mining Laws."

         Permitting and Environmental Matters. Since early 1992, Dakota has been
in the process of preparing an  Environmental  Impact  Statement  (the "Stibnite
Mine EIS") to expand  its mining  operations.  Dakota  does not expect  that the
Stibnite Mine EIS will be finalized until fall 1997. However, operations planned
for 1997 are not affected by the EIS.

     Reference  is made to  "Management's  Discussion  and Analysis of Financial
Condition  and Results of  Operations  -  Environmental  Matters and  Government
Regulations."

ITEM 3: LEGAL PROCEEDINGS

         None.

ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         No matters  were  submitted  to a vote of security  holders  during the
         fourth quarter of the fiscal year ended December 31, 1996.

PART II

ITEM 5:  MARKET  FOR THE  REGISTRANT'S  COMMON  EQUITY AND  RELATED  STOCKHOLDER
         MATTERS

         The Common  Shares of Dakota are listed for trading on the TSE and AMEX
under the trading  symbol "DKT" and on the BSE under the trading  symbol  "DMC."
The following table sets forth for the period  indicated,  the high and low sale
prices per Dakota  Common  Shares as reported  by the TSE and AMEX.  For current
price  information,  Dakota  Shareholders  are  encouraged  to consult  publicly
available sources.

<TABLE>
<CAPTION>

                                                  TSE                                           AMEX
                                   ------------------------------------         -------------------------------------
                                                                Volume                                        Volume
                                    High        Low            (000's)           High        Low              (000's)
                                   ------      -------       -----------        -------     --------       ----------
                                                (Cdn. $)                                      (U.S.$)

<S>                                <C>         <C>           <C>                <C>         <C>            <C>
1995

      First quarter.........       $2.35       $1.50          1,037,941          $1.88      $1.06             387,500

      Second quarter........        2.40        1.70            417,183          2.00        1.25             266,700

      Third quarter.........        2.40        1.80            452,302          1.88        1.25             359,400

      Fourth quarter........        2.25        1.40            213,527          1.75        1.06           1,204,600

1996

      First quarter.........        3.65        1.85          4,081,816          2.84        1.50           3,855,100

      Second quarter........        3.65        2.65          4,261,941          2.50        2.00             641,600

      Third quarter.........        3.30        2.25          3,062,423          2.25        1.63           2,028,900

      Fourth quarter........        2.96        2.00          1,293,870          2.25        1.50           2,509,600


</TABLE>

     At March 21, 1997, Dakota had 35,479,742 Common Shares  outstanding and had
approximately 2,300 shareholders of record.

         Dakota has no fixed  dividend  policy.  Dividend  distribution  will be
considered by the Board of Directors from time to time having regard to Dakota's
operating  results,  capital  requirements and general  financial  condition and
requirements.  No  dividends  have been  paid by  Dakota  at any  time.  For the
foreseeable  future,  it is anticipated  that Dakota will use all available cash
flows to finance its growth and that dividends will not be paid to shareholders.

         Should  Dakota  pay  cash  dividends,   such  cash  dividends  paid  to
non-residents  of Canada are subject to Canadian  withholding tax at the rate of
25%.  Under the  terms of the  Canada-United  States  tax  treaty,  shareholders
resident in the United States are subject to a withholding tax of 15%.

         The articles and by-laws of Dakota contain no restrictions on the right
to hold or vote Dakota's Common Shares.  There are no limitations under the laws
of  Canada  on the  rights  of  foreign  shareholders  and,  in  particular,  no
restriction  on the  remittance of dividends or other  payments to  non-resident
shareholders, subject to applicable withholding taxes discussed below.


     Dakota sold the following  securities  during fiscal 1996 (and prior to the
date hereof in fiscal 1997) without registration under the Securities Act:

1.  On  February  14,   1996,   Dakota   issued   8,700,000   Special   Warrants
internationally  for a price of  Cdn.$2.30  per Special  Warrant  pursuant to an
agency agreement with Canaccord Capital Corporation,  Scotia MacLeod,  Inc., and
Griffiths  McBurney & Partners.  Each Special  Warrant is  convertible  into one
Common Share and 1/2 Common Share Purchase  Warrant at no additional cost. Until
December 14, 1997, two Common Share Purchase  Warrants are exercisable  into one
Common Share for an exercise  price of  Cdn.$2.65.  Dakota  believes,  after due
inquiry,  that approximately  600,000 Special Warrants (exercisable into 600,000
Common Shares and 300,000  Common Share  Purchase  Warrants) and 300,000  Common
Shares underlying the Common Share Purchase Warrants were issued or are issuable
to two "U.S.  persons" (as defined in Rule 902 promulgated  under the Securities
Act)  for  aggregate   purchase  prices  of  Cdn.$1,380,000   and  Cdn.$795,000,
respectively.  Each purchaser who was a "U.S.  person" has represented to Dakota
that such purchaser was purchasing the Special  Warrants for its own account and
not with a view to  resale  or  distribution  and  that  such  purchaser  was an
"accredited  investor" (as defined in Rule 501 promulgated  under the Securities
Act). All other  purchasers  have  represented to Dakota that they are not "U.S.
persons."  Dakota  believes that the offer and sale of all such  securities  was
exempt from  registration  under the  Securities  Act  pursuant to Section  4(2)
thereof and/or Regulation S promulgated thereunder.

2. On February 6, 1997,  Dakota issued 25,000 Special  Warrants  internationally
for a price of Cdn.$1,000 per Special  Warrant  pursuant to an agency  agreement
with Canaccord Capital Corporation,  Scotia MacLeod,  Inc., and Newcrest Capital
Inc.  See  "Management's  Discussion  and Analysis of  Financial  Condition  and
Results  of  Operations--Liquidity   and  Capital   Resources--Special   Warrant
Financing and Issue of Debentures"  for a description  of the Special  Warrants.
Dakota  believes,  after due inquiry,  that no Special  Warrants  were issued to
"U.S.  persons," and each  purchaser has  represented to Dakota that it is not a
"U.S.  person."  Dakota  believes  that,  in the event any  holders  of  Special
Warrants  were deemed to be "U.S.  persons,"  the offer and sale of such Special
Warrants would be exempt from registration  under the Securities Act pursuant to
Section 4(2) thereof and/or Regulation S promulgated thereunder.

3. On March 20, 1997, Dakota issued to Gerald Metals, Inc. ("Gerald") options to
acquire up to 100,000  Common  Shares.  The  options  were  granted to Gerald in
consideration  of the  loans  provided  by  Gerald  and  certain  financial  and
consulting  services.  See  "Management's  Discussion  and Analysis of Financial
Condition and Results of  Operations--Liquidity  and Capital  Resources--Sources
and Uses of Cash." The  options are fully  vested,  currently  exercisable,  and
expire in March 2002. If exercised,  the options entitle Gerald to receive up to
100,000  Common  Shares at an  exercise  price of $1.375 per  share.  Gerald has
represented  to Dakota that it  acquired  the option for its own account and not
with a view to resale or distribution. Dakota believes that the issuance of such
options  was exempt  from  registration  under the  Securities  Act  pursuant to
Section 4(2) thereof and Rule 501 promulgated thereunder.  Dakota has undertaken
to register with the Commission the Common Shares  issuable upon exercise of the
option.


ITEM 6:  SELECTED FINANCIAL DATA

         The  selected  financial  data in  Table I has  been  derived  from the
audited  consolidated  financial  statements  of  Dakota  and  should be read in
conjunction  therewith,  including  notes  thereto,  included  elsewhere in this
Annual  Report on Form 10-K.  Dakota  utilizes the United  States  dollar as its
reporting  currency.  All  financial  data  presented  below are in thousands of
United States dollars except per share and other data.
<TABLE>
<CAPTION>


                                                       TABLE I


                                                                1996              1995                 1994
                                                             ----------          --------          -----------
Income Statement Data
<S>                                                            <C>               <C>                <C>

        Revenue                                                $ 24,556           $17,209           $    8,442

        Exploration costs                                           499                87                  203
        Loss from operations                                   (15,274)           (8,718)              (5,663)
        Other income (expense)                                  (7,796)             (272)                 (76)
        Net loss                                               (23,070)           (8,990)              (5,739)
        Net loss per share                                       (0.73)            (0.35)               (0.33)
        Dividends per share                                        0.00              0.00                 0.00
Balance Sheet Data(1):
        Property, plant and equipment                          $ 15,150           $22,973           $   23,527
        Total assets                                             31,569            35,905               34,344
        Total debt:
              Short-term borrowings                                 624             1,158                1,158
              Current portion of long-term debt                     383               566                1,824
              Long-term                                           3,240               440                  898
        Other non-current liabilities                             6,515             3,558                1,851
        Shareholders' equity                                     13,459            22,590               25,485
Other Data:
        U.S. dollar exchange rate
        (Canadian$/US$)(2)
              As of December 31,                                 0.7301            0.7325               0.7129
              Yearly average                                     0.7334            0.7284               0.7321
              Low for period                                     0.7215            0.7025               0.7105
              High for period                                    0.7515            0.7529               0.7632


</TABLE>

         Had the consolidated  financial statements been presented in accordance
with  accounting  principles  and  practices  generally  accepted  in the United
States, additional financial data would be disclosed as follows:


<PAGE>

<TABLE>
<CAPTION>


                                                      TABLE II


                                                            1993(3)               1992
Income Statement Data
<S>                                                        <C>                 <C>

        Revenue                                            $  7,156            $ 31,834
        Exploration costs                                       147                 326
        Operating loss                                      (5,080)             (7,850)
        Other income (expense)                              (2,036)             (1,357)
        Net loss                                            (7,115)             (8,991)
        Net loss per share                                   (1.04)              (2.80)
        Dividends per share                                    0.00                0.00
Balance Sheet Data (1):
        Property, plant and equipment                      $ 23,362           $  39,990
        Total assets                                         35,036              48,804
        Total debt:
              Short-term borrowings                           1,549                   -
              Current portion                                 3,329              20,494
              Long-term                                       2,416               1,333
        Other non-current liabilities                         1,648               2,389
        Shareholders' equity                                 19,852              17,143
Other Data:
        U.S. dollar exchange rate
        (Canadian$/US$)(2)
              As of December 31,                             0.7553              0.7867
              Yearly average                                 0.7753              0.8276
              Low for period                                 0.7435              0.7760
              High for period                                0.8050              0.8760

<FN>

(1)      Amounts are at the last day of each of the periods indicated.
(2)      Exchange rates are expressed as the United States dollar equivalent to one Canadian dollar.
(3)      The Arrangement was accounted for as financial reorganization under Canadian generally accepted
         accounting  principles  ("Canadian  GAAP")  which  resulted in a "fresh
         start." Accordingly,  results of operations subsequent to September 15,
         the effective date of the Arrangement, are reported separately in Table
         I in conformity  with Canadian GAAP.  Under U.S. GAAP, the  Arrangement
         would have been accounted for as a quasi-reorganization with results of
         operations for the pre-Arrangement period, January 1, 1993 to September
         15, 1993, combined with the post-Arrangement period.
</FN>
</TABLE>


ITEM 7: MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

Liquidity and Capital Resources

         USMX  Merger.  On  February  5, 1997,  Dakota  entered  into the Merger
Agreement with USMX.  Under the terms of the Merger  Agreement,  holders of USMX
Common  Stock will  receive one Dakota  Common Share for every 1.1 share of USMX
Common  Stock and USMX will  become a  wholly-owned  subsidiary  of  Dakota.  In
connection with the transaction,  Dakota will issue  approximately  14.7 million
Dakota Common Shares.  The Dakota Common Shares had an approximate  market value
of $23.2  million or $1.58 per share,  based upon an average  trading  price for
Dakota's  Common Shares for a reasonable  period before and after the Merger was
announced.  Dakota will account for the Merger as a  "purchase".  Based upon the
opinion of a major  independent  accounting  firm,  Dakota  anticipates that the
Merger  will not be taxable to Dakota and should not be taxable to  shareholders
of Dakota or USMX.  Completion  of the Merger  remains  subject  to  shareholder
approval,  review by regulatory  authorities,  and other  customary  conditions.
Dakota expects to complete the Merger in May, 1997.

         The principal asset of USMX is its Illinois Creek Project. The Illinois
Creek  Project is expected to produce  approximately  64,000  ounces of gold and
419,000 ounces of silver in 1997 at a cash cost of approximately  $250 per ounce
of gold.  The  Illinois  Creek  Project  has an  estimated  six year life and is
expected to be an important  source of operating cash flow to Dakota  throughout
its productive life.

         Special Warrant Financing and Issue of Debentures. To provide financing
for Dakota and USMX in connection with the Merger,  on February 5, 1997,  Dakota
entered into an agency agreement with certain Canadian  investment  dealers (the
"Agents")  to sell by way of  private  placement  25,000  Special  Warrants  (as
defined  hereafter) at a price of Cdn.$1,000  per Special  Warrant for aggregate
gross proceeds to Dakota of Cdn.$25 million (U.S. $18.5 million).  Proceeds from
the Special Warrant  offering,  after deducting the 6% commission paid to Agents
and other expected costs,  approximate $16.9 million. The offering proceeds will
principally  be used to  complete  construction  and  commence  start-up  of the
Illinois Creek Project, developmental drilling, repayment of $1.5 million of the
Rothschild Credit Agreements and for general working capital purposes.

         The Special  Warrants are comprised of 16,119 Series A Special Warrants
and 8,881 Series B Special Warrants. The Special Warrants offering was completed
on February 6, 1997 with all  proceeds,  net of a 6%  commission  paid to Agents
placed in escrow.  Each  Special  Warrant  entitles  the holder,  upon  exercise
thereof  and without  payment of any  additional  consideration,  to acquire one
Debenture in the principal amount of Cdn$1,000.
The Debentures are described in Part III hereof.

         Dakota  has  agreed to use its best  efforts  to file a  prospectus  in
British  Columbia,  Alberta,  Ontario and Quebec to qualify for distribution the
Debentures  issuable upon exercise of the Special Warrants and the Dakota Common
Shares issuable upon conversion of the Debentures.

         If the shareholders of Dakota do not approve the issuance of the Series
B Special  Warrants  prior to June 5, 1997,  then all Series B Special  Warrants
will  automatically  be  retracted  and the  holders  thereof  will  receive the
original  purchase  price paid  therefor plus a pro rata portion of the interest
earned on the purchase price while it was held in escrow.

         If the Merger is not completed prior to May 31, 1997 or such later date
as the  Agents may  determine  in their  sole  discretion,  the number of Dakota
Common Shares  issuable upon conversion of the Debentures will be such that each
Debenture will be convertible for 550 Dakota Common Shares (the "Penalty").

         On March  11,  1997,  $5.0  million  of the  Special  Warrant  offering
proceeds  was  released  to Dakota in  connection  with the terms of the  Merger
Agreement and a $5,000,000 Loan Agreement.  As part of the Merger  transactions,
Dakota and USMX agreed that Dakota will  provide a $5 million  line of credit to
USMX (the  "$5,000,000  Loan  Agreement")  the proceeds of which will be used to
sustain USMX's  operations  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  from the line of credit  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.

         The $5,000,000 Loan Agreement 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 holding approximately 600,000 acres
of land  and  interests  in  several  exploration  joint  ventures,  and a first
position on USMX's  interests in its undeveloped  Thunder  Mountain  property in
Idaho.

         Further  reductions in outstanding  USMX's accounts  payable  balances,
together with  remaining  construction  and start-up costs at the Illinois Creek
Project in 1997, are expected to be approximate an additional $7 million.  These
additional  costs will be funded by Dakota from proceeds of the Special  Warrant
offering.

         The remaining proceeds of the Special Warrant offering will be released
upon completion of the Merger, the obtaining of receipts from various securities
commissions in Canada of the final prospectus qualifying the securities issuable
by Dakota in connection  with the offering and upon approval of the issue of the
Dakota  Common Shares  ultimately  underlying  the Series B Special  Warrants by
Dakota shareholders. Should the Merger not be consummated for any reason, Dakota
will be  obligated  to exchange a pro rata  portion of the Special  Warrants for
Debentures in an amount equal to the proceeds released from escrow prior to that
time.  USMX will be obligated  to repay all  outstanding  obligations  under the
$5,000,000 Loan Agreement.  The remaining escrowed proceeds will then be used to
retract  from the holders of the  Special  Warrants a pro rata number of Special
Warrants for the original purchase price thereof together with a pro rata amount
of interest earned thereon while such proceeds were held in escrow.

         Rothschild Credit Agreements.  At March 17, 1997, USMX was obligated to
N.M. Rothschild and Sons  ("Rothschild")  under a $22 million financing facility
("Rothschild Credit Agreements").  Upon completion of the Merger, Dakota will be
obligated to repay these  obligations.  As of March 17, 1997, USMX has failed to
comply with various  provisions  of the  Rothschild  Credit  Agreements  and has
continued operations to date with the forbearance of Rothschild. However, Dakota
and Rothschild  entered into an Intercreditor  Agreement on March 12, 1997 which
among other things,  contained  Rothschild's consent to the Merger Agreement and
set forth certain  changes to the Rothschild  Credit  Agreements,  which changes
will become  effective upon  consummation  of the Merger.  In Dakota's view, the
prospective  changes to the Rothschild Credit Agreements will avoid any existing
or immediate defaults thereunder after closing of the Merger.

         The  most  significant  changes  to the  Rothschild  Credit  Agreements
include: (i) $1.5 million of the proceeds from the Special Warrant offering will
be used to repay a portion of the  Rothschild  Credit  Agreements,  (ii) certain
minimum  cash  retention  requirements  will no  longer be  required;  (iii) all
remaining and outstanding loan balances will be deemed to be project debt and no
portion  thereof will be convertible  into Dakota Common Shares;  (iv) scheduled
loan repayment  dates will be changed to better match  projected  Illinois Creek
Project cash flows;  (v) minimum  working capital cash balances will be retained
in the  Illinois  Creek  Project;  (vi)  certain  terms  related to  "commercial
completion" and various  financial  covenants will be amended;  and (vii) Dakota
will guarantee the Rothschild Credit Agreements until "commercial completion" is
realized.

         The adjusted  project loan balance of $20.5 million will bear interest,
payable  quarterly,  at 2.25% above LIBOR until  "commercial  completion" of the
project has occurred.  The  requirements for commercial  completion  include the
construction  of the Illinois Creek Mine  facilities,  which  facilities and the
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 Rothschild Credit  Agreement.  Following  commercial  completion,
this note bears  interest at 1.879%  above LIBOR.  Principal  payments are to be
made in  installments of $3 million each on November 30 and February 28, of each
year, commencing November 30, 1997.

         Dakota  expects to repay the  outstanding  amounts under the Rothschild
Credit  Agreements and all related  interest  accrued thereon from the operating
cash flows from the Illinois Creek Project.  No assurances can be given that the
Illinois  Creek  Project  will  provide  sufficient  cash  flows  to meet  these
repayment obligations.

         Sources and Uses of Cash.  Effective March 20, 1997,  Dakota and Gerald
Metals,  Inc.  ("Gerald")  agreed to amend and restate  Dakota's  line of credit
facility with Gerald. Under the amended terms,  Dakota's line of credit has been
increased from the present outstanding balance of $3.23 million to $5.0 million.
The loan will be  repayable at a rate of $1.0  million per month  commencing  in
June 1998, will bear interest at LIBOR plus 2.25% and will be  collateralized by
Dakota's  underlying  assets at its Gilt Edge and Stibnite Mines and a guarantee
by Dakota.

         Gerald  has also  agreed  to  provide  a $2.5  million  standby  credit
facility to Dakota  until July 31,  1997.  The  standby  facility is intended to
serve as a bridge  financing until completion of the Merger and the release from
escrow of the remaining proceeds from the Special Warrant offering.  Dakota will
be obligated to pay a 1/2 of one percent commitment fee on any unused portion of
the standby credit facility.  All outstanding  balances thereunder bear interest
at LIBOR plus 2.25% and are  collateralized  by an  assignment of "Note 2" under
the $5,000,000 Loan Agreement as described previously.

         In April,  1996,  Dakota commenced  construction of expanded heap leach
facilities  at its Gilt Edge Mine.  Remaining  capital costs are estimated to be
$4.0 million over two years.  The heap leach pad expansion is being  constructed
in stages. In this manner,  ores can be mined and processed,  thereby generating
an operating  cash flow,  prior to the  completion  of the entire heap leach pad
expansion.  The remaining capital costs are expected to be funded by cash flows,
cash on hand and proceeds from the borrowing arrangements with Gerald.

         As of  December  31,  1996,  the  investment  in  property,  plant  and
equipment at Gilt Edge Mine  approximated  $9.4 million of which $1.7 million is
attributed  to the sulfide  development  potential of the property  which is not
currently  subject to  amortization.  Based upon a $380 per ounce gold price, an
independent  engineering study and past operating  experiences,  Dakota believes
that mining and  processing  the Anchor Hill oxide  deposit and the  substantial
sulfide  deposit  will  generate  sufficient  operating  margins  to ensure  the
recovery of Dakota's remaining investment in Gilt Edge Mine.

         Dakota  estimates  that the  salvage  value of the Golden  Reward  Mine
assets is equal to or exceeds  all  remaining  obligations  of the  partnership.
Accordingly, future holding costs are not expected to be material to Dakota.

         Dakota has identified  sufficient  mineralized  oxide  materials at its
Stibnite Mine to conduct  operations at annual production rates of approximately
24,000 ounces of gold during 1997 and has drill indicated  mineralized  material
which Dakota believes will allow for several additional years of operations. The
drill  indicated areas will require  further  development  drilling at a cost of
approximately  $500,000  per year  over the  next two to three  years.  Drilling
activities  will be financed from the proceeds of the Special  Warrants and from
operating cash flows.

         Dakota's  investment  in mining  assets at Stibnite Mine as of December
31, 1996 is approximately  $4.3 million of which  approximately $1.9 million has
been  attributed  to  the  sulfide  ore  potential  of the  property  and is not
currently subject to amortization.  Future depreciation will approximate $34 per
ounce providing that 65% of the  drill-indicated  reserves convert to the proven
and  probable  category.  Based  upon a $380 per ounce  gold  price and its past
operating  experience,  Dakota believes Stibnite Mine's future operating margins
should ensure the recovery of its remaining investment in mining assets.

         Once the Merger is  completed,  the  principal  focus of Dakota for the
remainder of 1997 will be: (i) to complete the successful start-up of operations
at  Illinois  Creek  Project,  including  construction  of  expanded  leach  pad
facilities at a cost of $4.5 million;  (ii) to continue  operations at Gilt Edge
and Stibnite Mines, (iii) to complete construction of additional heap leach pads
at Gilt Edge Mine as previously discussed;  (iv) to conduct development drilling
activities at Stibnite and Gilt Edge Mines at a cumulative  cost of $1.1 million
in order to convert drill indicated  mineral  resources into proven and probable
mineable  reserves;  and (v) to continue  exploration  and  evaluation  of other
mining properties.

         Over the next three years, the combined capital  expenditures of Dakota
and USMX are  expected to  approximate  $11.0  million in 1997,  $5.9 million in
1998, and $3.0 million in 1999, excluding any costs to develop additional mines.
For additional  information on operating  properties,  see Item 2  "Properties".
Management  expects  that the  cash  flows  generated  from  mining  activities,
together with the proceeds  from the offering of Special  Warrants and under the
Gerald credit  facilities,  discussed  previously,  will be adequate to fund all
required capital expenditures and operating  activities.  However, no assurances
can be given that Dakota's  operations will provide sufficient cash flow to fund
these capital expenditures.

         At December 31, 1996,  Dakota had a working  capital of $1.0 million as
compared to a working  capital deficit of $2.2 million at December 31, 1995. The
improvement  is due to  higher  cash  balances  in 1996 and a lower  outstanding
balance under a short-term borrowing  arrangement.  At December 31, 1995, Dakota
had a working  capital  deficit of $2.2 million  primarily due to an increase in
accounts  payable of $3.47  million  since  December 31,  1994.  The increase in
accounts  payable arose in connection with the  recommencement  of operations at
Stibnite Mine as discussed below and increased operating activities at Gilt Edge
Mine related to the processing of certain  previously  stockpiled  sulfide ores.
The working  capital  deficit was eliminated in February 1996 as a result of the
private  placement of equity securities and reductions in accounts payable using
proceeds from sales of gold bullion produced after December 31, 1995.

         Cash used in operations  was $6.2 million  during 1996 compared to cash
provided by  operations  of $413,219 in 1995.  The  increase in cash used during
1996 is a result of operating  losses of  approximately  $2.8 million in 1996 at
Stibnite Mine and preproduction costs of approximately $ 3.2 million incurred in
connection with the start-up of Gilt Edge Mine in the spring of 1996.

         Cash provided by operations  was $413,219  during 1995 compared to cash
used in operations  of $3.88 million in 1994.  The decrease in cash used in 1995
compared  to 1994 is  primarily  due to the  increase  in  accounts  payable and
accrued liabilities in 1995. The increase in cash used in 1994 to $3.88 million,
from $2.96  million in 1993,  is due  primarily  to the  payment of holding  and
standby  costs at the Gilt Edge and Stibnite  Mines  neither of which  conducted
significant operations in 1994 nor provided operating cash flows.

         Cash used in investing  activities  during 1996  primarily  pertains to
additions to plant,  property and equipment including the expansion of the leach
pad and development of Anchor Hill at the Gilt Edge Mine.

         Cash used in investing  activities during 1995 pertains to additions to
plant, property and equipment, including deferred development activities at Gilt
Edge Mine and Golden Reward Mine and the addition of a water  treatment plant at
Gilt Edge Mine.  During  1994,  cash used also  related to  additions  to plant,
property and equipment,  including development  activities at Gilt Edge Mine and
Golden Reward Mine.

         Cash   provided  by   financing   activities   during   1996   included
approximately $13.5 million of proceeds, net of offering costs, from the sale of
special  warrants and $340,397 of proceeds  received upon the exercise of common
share  purchase  warrants.  Dakota also borrowed $3.23 million under a Revolving
Loan  Agreement  with Gerald  Metals,  Inc. In total,  Dakota repaid almost $1.1
million of  borrowings  during 1996,  including  its pro rata share of long-term
debt obligations of Golden Reward L.P.

         Cash   provided  by   financing   activities   during   1995   included
approximately $5.5 million of proceeds,  net of offering costs, from the sale of
special  warrants and $587,873 of proceeds  received upon the exercise of common
share purchase warrants.  Dakota also borrowed $1.875 million under a short-term
credit facility with Gerald Metals, Inc., which credit facility was fully repaid
prior to the end of 1995.  Proceeds  from the  borrowing  were used for  working
capital to restart operations at Stibnite Mine. Dakota also repaid approximately
$1.8  million of its pro rata share of certain  long-term  debt  obligations  of
Golden  Reward L.P. In total Dakota  repaid  borrowings of $3.7 million in 1995.
Financing activities in 1994 generated $9.5 million of proceeds, net of offering
costs,  from the sale of special warrants and $2.17 million of proceeds received
upon the exercise of Common share purchase warrants. Dakota repaid approximately
$1.87 million of its pro rata share of certain  long-term  debt  obligations  of
Golden Reward L.P. and in total repaid borrowings of $6.13 million in 1994.

         Dakota  has  needs  for  cash  to  fund  permitting,  construction  and
environmental compliance activities at its Gilt Edge, Stibnite and Golden Reward
projects. See Item 2 "Properties"

         Other.  In order to minimize an adverse  effect of changing gold prices
upon  operations,  Dakota from  time-to-time,  enters into gold price protection
agreements.  At December 31, 1996,  Dakota had entered into various forward sale
contracts  with a gold  bullion  dealer  to  deliver  7,500  ounces of gold at a
minimum  prices of $370 per ounce and a  maximum  of $385 per ounce  during  the
period from January 31, 1997 through June 30, 1997.  In addition,  forward sales
contracts  for  16,000  ounces  at an  average  price  of $387  were in place at
year-end.  As of February 28, 1997, Dakota had forward sale contracts  remaining
to deliver  approximately  21,000 ounces of gold  throughout  1997 at an average
price of $384 per ounce.  Fluctuations in future gold prices could significantly
impact  Dakota's  future  revenues as only a portion of Dakota's  expected  gold
production in 1997 has been hedged by these forward sales contracts.

         Dakota  intends  to  adopt  the  new  Recommendations  of the  Canadian
Institute of Chartered  Accountants  relating to the presentation and disclosure
of  financial   instruments.   In  accordance  with  these  recommendations  the
Debentures  will be  segregated  into  their  debt and  equity  components.  The
financial liability component, representing the present value of future interest
payments,   will  be  included  in  long-term  debt.  The  remaining  component,
representing  the value  ascribed  to both the  holders'  option to convert  the
principal  balance  into  Dakota  Common  Shares and  Dakota's  right to pay the
principal  amount of the  instrument  in Common  Shares,  will be  classified in
shareholders' equity as the equity component of convertible  instruments.  These
components  will be  measured  at their  respective  fair values at the date the
Debentures are exchanged for the Special Warrants.

         Environmental  Matters  and  Government  Regulation.  All  of  Dakota's
exploration,  development  and  production  activities are subject to regulation
under one or more of the various state, local and federal environmental laws and
regulations.  These laws  address  emissions  to the air,  discharges  to water,
management  of  wastes,  management  of  hazardous  substances,   protection  of
endangered  species,  protection of natural resources and others.  Such laws and
regulations are generally becoming more restrictive. Dakota has made and expects
to continue to make in the future,  significant expenditures to comply with such
laws and regulations.

         Existing and possible future environmental legislation, regulations and
actions, could cause additional expense, capital expenditures,  restrictions and
delays in the  activities  of Dakota,  the extent of which cannot be  predicted.
Regulatory  requirements  and  environmental  standards  are subject to constant
evaluation and may be significantly  increased,  which  significantly  adversely
affect  Dakota's  business.  The cost of compliance with changes in governmental
regulations has the potential to reduce the profitability of operations.

         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.  If
enacted,  such  legislation  could impair the ability of Company 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 is not presently  known
and the potential impact on Dakota as a result of future Congressional action is
not presently determinable.

         The South  Dakota  Department  of  Environment  and  Natural  Resources
("DENR") has conducted a  Preliminary  Assessment on behalf of the United States
Environmental  Protection Agency ("EPA") of Gilt Edge Mine activities  including
the  approximately  406 acres permitted under Dakota's South Dakota state mining
permit. At this time, EPA has not made a determination as to whether any further
study needs to be made of the site. Accordingly, Dakota is not able to determine
what impact,  if any,  further action by the DENR or EPA in connection  with the
Preliminary  Assessment may have on the site.  Dakota does not know when the EPA
may reach a decision on the Preliminary Assessment.

         In April  1993,  the DENR issued the DENR Order  regarding  remediation
efforts  related to acid rock drainage at Gilt Edge Mine. The DENR Order remains
in effect and Dakota is in full compliance.  The DENR Order principally requires
that, unless discharge water meets certain permitted terms and conditions, there
shall be no  discharge  of acid mine  drainage.  On  January  19,  1996,  Dakota
received  final  approval of an updated and  amended  reclamation  plan from the
State of South Dakota.  Under the  conditions of the revised  reclamation  plan,
Dakota  plans to reclaim  waste  depositories  and other areas by capping  these
areas with impervious  materials  available from the overburden  associated with
the Anchor Hill oxide deposit. Such capping will prevent any continued migration
of acid mine drainage.

         Dakota has  provided the State of South Dakota with a form of financial
assurance in the amount of $7.9 million in connection  with the  reclamation and
remediation  plan in the form of cash deposits of $2.4 million and a demand note
as proof of  financial  assurance  in the  amount of $5.5  million.  Dakota  has
estimated that its actual  capping costs will  approximate  $3.2 million,  which
costs have been fully accrued at December 31, 1996.  Funding of this  obligation
will be made from  operating  cash flow derived from  processing the Anchor Hill
oxide deposit.

         Dakota is required to meet certain equity covenants of $20 million as a
condition of its permits with the State of South Dakota. As of December 31, 1996
Dakota did not meet this requirement,  however completion of the Special Warrant
offering  on February 6, 1997 as  discussed  previously  will ensure that Dakota
meets this requirement on a go-forward basis.

         At a future  date  when  Dakota  provides  notice to the State of South
Dakota  that the Gilt  Edge Mine will  close  and that post  closure  care is to
begin,  Dakota will be obligated to convert a portion of its financial assurance
into a post-closure  fund in a form  acceptable to the State to ensure long term
treatment and maintenance of the site. The amount of the post-closure  financial
assurance  is not  expected  to be less  than  $3.0  million  although  no final
determination will be made until the mine actually closes.

         The State of South  Dakota  requires  mines to  provide  the State with
financial  assurance to cover  mitigation costs in the event of an environmental
accident. In order to fulfil its obligation,  Dakota has provided the State with
a form of demand note in the amount of $359,000.

     Golden  Reward L.P.  is  required  by the State of South  Dakota to provide
financial security to cover the estimated cost of reclamation. Reclamation bonds
totaling  $1,175,759  have been  posted as a  guarantee  that the land  which is
disturbed by mining will be reclaimed. Golden Reward L.P. anticipates that total
costs of reclamation will not exceed the amount of these bonds.

         In November 1993,  Dakota filed an application for a U.S. Federal Clean
Water Act National Pollution  Discharge  Elimination System permit in respect of
Stibnite  Mine.  This  permit  is not  necessary  for  Dakota's  current  mining
operations at Stibnite Mine. However, Dakota believes that obtaining this permit
would be of benefit as it would allow  Stibnite  Mine to  discharge  clean water
from the minesite in accordance with such permit standards in the future. Dakota
cannot anticipate when a draft permit will be issued.

         On July 10, 1995, Dakota entered into a voluntary  Administrative Order
on Consent with the EPA  regarding  the tailings area (the "Meadow Creek Plan").
Approximately 50% of the work under the Meadow Creek Plan was completed in 1995.
Through  December 31, 1996,  $224,733 has been incurred in  connection  with the
Meadow Creek Plan. Management estimates that it will cost approximately $667,000
in 1997 in order to complete  the Meadow  Creek Plan.  Such costs will be funded
from operating cash flows  although there is no assurance that  sufficient  cash
flow from operations will be generated to complete the Meadow Creek Plan. Dakota
has apprised  previous  owners and operators of the property of the Meadow Creek
Plan and  believes  that a portion of such costs may be  recoverable  from these
parties.  However,  there is no  assurance  that  Dakota will be  successful  in
obtaining a recovery of any of the costs of the Meadow Creek Plan.

         On September 11, 1996, Dakota received a Notice of Potential  Liability
and Conduct of Removal  Action from the United States  Environmental  Protection
Agency ("EPA") pertaining to certain remediation  activities at an historic mine
sight,  located on certain lands once leased by Dakota.  Dakota never  conducted
operations  at  this  sight  and no  longer  owns  any  interest  in the  leases
pertaining to this property.  The EPA estimates a total cost of $940,000 for its
action.  However, Dakota cannot presently determine the extent of its liability,
or whether any liability actually exists.

         Reclamation  bonds  totaling  $701,322  have  been  posted by Dakota in
accordance  with State of Idaho and USFS  requirements to ensure that land which
is disturbed by mining will be reclaimed.  Dakota estimates that the total costs
of  reclamation  of other land which is  disturbed by mining will not exceed the
amount of these reclamation bonds.

         Reference  is  made  to  the  respective   sections   "Permitting   and
Environmental  Matters" in the  description of the Gilt Edge,  Golden Reward and
Stibnite Mines under "Properties" for further discussion of the financial impact
of environmental compliance.

Results of Operations

         Dakota recorded a consolidated net loss of $23.1 million,  or $0.73 per
share,  in 1996. Of this loss,  $16.4 million  reflects  non-recurring  expenses
including the following:  (i) a $9.6 million  writedown in asset carrying values
and accrual of certain  future  estimated  costs  related to the  suspension  of
operations at Golden Reward Mine,  (ii) an increase in depletion of $2.9 million
at Stibnite  Mine due to a change in  accounting  estimates and the expensing of
deferred stripping costs of $700,000 which had been deferred in prior years, and
(iii) $3.2 million of preproduction  and start-up expenses at the Gilt Edge Mine
prior to recommencing operations at the Anchor Hill deposit in May 1996.

         Revenue  Shown  below is  Dakota's  share of metal sales (in ounces) in
each of the last three years:
<TABLE>
<CAPTION>


                                      Metal Sales
                                      Year Ended December 31(1)

                                               1996                      1995                       1994
                                               ----                      ----                       ----

                                            Gold       Silver         Gold        Silver         Gold        Silver
------------------------------------- ----------- ------------ ------------ ------------- ------------ -------------
<S>                                       <C>          <C>          <C>           <C>         <C>            <C>
Cactus Mine (25%)                            564          197        1,468           997        2,595         7,624
------------------------------------- ----------- ------------ ------------ ------------- ------------ -------------


Gilt Edge Mine(2)                         23,537       32,619        8,839        16,156        2,534         7,245
------------------------------------- ----------- ------------ ------------ ------------- ------------ -------------

Golden Reward Mine (40%)                  10,070        9,078       19,078         5,451       19,618         5,323
------------------------------------- ----------- ------------ ------------ ------------- ------------ -------------

Stibnite Mine                             28,752        7,309       17,622         4,739          -             -
------------------------------------- ----------- ------------ ------------ ------------- ------------ -------------
                                          62,923       49,203       47,007        27,343       24,747        20,192
                                          ======       ======       ======        ======       ======        ======

<FN>

(1)      Precious metals production for each of the joint venture operations includes Dakota's pro rata share.
(2)      Includes gold sales from Gilt Edge Mine of 2,308 ounces and 2,534 ounces while in holding and standby
         stage during 1995 and 1994,  respectively.  The related  revenues  were
         recorded as a reduction of holding and standby costs.
</FN>
</TABLE>

         Operating  results  for the last  three  years  are  summarized  in the
following table:
<TABLE>
<CAPTION>


                                                        1996                     1995                      1994
                                                        ----                     ----                      ----

<S>                                                 <C>                      <C>                       <C>
Operating revenue                                   $ 24,556,406             $ 18,094,834              $ 9,589,821

Loss on gold loan repayment(1)                           -                          -                     (205,558)

Reclassified to holding and standby                       -                      (886,226)                (942,640)


         Net operating revenue                      $ 24,556,406             $ 17,208,608(2)          $ 8,441,593(2)
                                                    ============       ==    ============             ===========

<FN>

(1)      Loss on gold loan  relates  to the payoff of a gold loan as a result of
         the  revaluation  of the gold  loan to $348 per ounce  pursuant  to the
         arrangement completed September 15, 1993.
(2)      Excludes sales of gold from Gilt Edge Mine while in holding and standby stage.
</FN>
</TABLE>

The benefits of Dakota's  short-term gold hedging program  principally provide a
minimum  selling  price for  ounces of gold  which only  slightly  exceeded  the
average spot prices.

<TABLE>
<CAPTION>


                        Mine, Mill and Administration(1)


                                                                 1996                    1995                 1994
                                                                 ----                    ----                 ----

<S>                                                          <C>                     <C>                <C>
Gilt Edge Mine                                               $  10,339,845            $ 6,442,615       $  3,563,013

Golden Reward Mine                                               3,003,781              4,363,047          4,681,572

Stibnite Mine                                                   12,666,675              6,450,714            856,884

Cactus Mine                                                        285,832                477,409            751,499
                                                               -----------             ----------           ---------

         Subtotal                                               26,296,133             17,733,785          9,852,968

Reclassified to holding and standby                                  -                 (3,882,148)        (4,419,897)


Total mine, mill and administration                          $  26,296,133           $ 13,851,637       $  5,433,071
                                                             =============           ============       ============

Average cash cost per ounce of gold sold                          $418                   $310(2)            $245(2)

<FN>

(1)      Cash costs include mining, milling, project administration, on-property
         exploration, and all holding and standby costs.
(2)      Excludes ounces of gold sold by Gilt Edge Mine while in the holding and standby stage.
</FN>
</TABLE>

         1996 Compared to 1995.  Metal sales at both Gilt Edge Mine and Stibnite
Mine were  higher in 1996 than 1995 due  primarily  to an  increase  in ore tons
processed. During 1996, Gilt Edge Mine processed approximately 1.583 million ore
tons at an  average  grade of 0.023  ounces  of gold per ton and  Stibnite  Mine
processed  927,000 ore tons at an average grade of 0.031 ounces of gold per ton.
In comparison,  during 1995, Gilt Edge Mine processed  approximately 572,000 ore
tons at an  average  grade of 0.043  ounces  of gold per ton and  Stibnite  Mine
processed  544,000 ore tons at an average  grade of 0.05 ounces of gold per ton.
The higher tonnages resulted in increased total metal production.

         The above increases in production were partially  offset by lower metal
sales from Dakota's 40% interest in the Golden  Reward Mine.  Golden Reward Mine
ceased mining activities at the end of the second quarter of 1996.

         Mine, mill and administrative  expense increased  substantially in 1996
when  compared to 1995.  The increase in costs  relates  primarily to the higher
volumes  of ore  tons  mined  at Gilt  Edge  and  Stibnite  Mines  as  discussed
previously.  Although  ore  tonnages  were  higher,  lower  ore  grades  in 1996
adversely  effected  cash costs per ounces of gold sold.  In addition,  costs at
Gilt Edge Mine in 1996  include  approximately  $3.2  million of  pre-production
expenses related to the Anchor Hill oxide deposit for the period from January to
April, the date at which operations for this deposit  commenced.  Such expenses,
which are not recurring in nature, increased the average cash costs per ounce of
gold sold by $51 in 1996.  The Golden  Reward Mine  incurred  $1.3  million less
costs in 1996 than in 1995,  due to the cessation of mining  activities in June.
Costs at Cactus  Mine were lower in 1996 than in 1995 and relate to wind-up  and
reclamation activities.

         The increase in  depreciation,  depletion and amortization in 1996 when
compared  to 1995 is due to higher  production  rates in 1996 and to a change in
accounting  estimate  which  led to a higher  per ounce  depletion  rate for the
Stibnite Mine in 1996. This change in estimate resulted in additional  depletion
of $2.9 million during 1996.

         Based  upon  uncertainties   arising  from  the  proximity  of  certain
unpermitted reserves to a ski hill, the operator of Golden Reward Mine reflected
in the financial  statements of the  partnership in 1995 and 1996, an impairment
of its  investment  in mineral  properties  relating to the Golden  Reward Mine.
Dakota  recorded  this  impairment  of  approximately  $7.9  million in its 1996
financial  statements  after  Golden  Reward L.P.  failed to reach an  agreement
regarding the  acquisition  of certain  surface rights owned by the ski hill. Of
this amount,  approximately  $790,500  pertains to the write down of  inventory.
During the second quarter of 1996,  Dakota recorded an accrual of  approximately
$1.7 million for its share of  reclamation  and other costs due to the cessation
of mining operations.

         Royalties  vary from  mine-to-mine  and within the specific  area being
mined in accordance with various agreements with landowners.  Effective in 1995,
the State of South Dakota adjusted its method for calculating  severance  taxes,
the result of which was to  significantly  lower the  effective  rate.  Overall,
royalties and severance  taxes  generally  relate  directly to revenues  earned.
Therefore higher revenues in 1996 resulted in higher royalty and severance taxes
than in 1995.

         Reclamation  costs in 1996  consist  of  accruals  at Gilt  Edge  Mine,
Stibnite  Mine and Golden  Reward Mine of $1.2  million,  $380,000 and $640,000,
respectively. The costs at Gilt Edge Mine pertain to the mining of ore and waste
tons at Anchor  Hill,  the costs at  Stibnite  pertain to revised  estimates  of
reclamation  costs  due to  additional  mining  activities  in the  West End and
Stibnite  pits,  and the costs at Golden  Reward  pertain  to the  cessation  of
operations in the second quarter of 1996. According to estimates provided by our
partner in Golden  Reward  Mine,  all  future  reclamation  costs  should now be
accrued as of December 31, 1996.

         General  corporate  costs  increased  $500,000 in 1996 when compared to
1995 due to additions in staff, legal expenses,  travel  activities,  and in the
use  of  outside   professional   services  incurred  in  connection  with  mine
acquisitions.  These  increases  are  due,  in part,  to  overall  increases  in
corporate activity.

         Investment  income is higher in 1996 due principally to interest earned
on higher cash balances available for investment purposes.

         Interest  expense  is  slightly  lower  in 1996  than  in  1995  due to
decreased  vendor interest on outstanding  payable balances during 1996. This is
slightly  offset by interest on the balance of the Revolving Loan Agreement with
Gerald Metals, Inc. beginning in the second quarter of 1996.

     Dakota  does not  anticipate  that its U.S.  operations  will be subject to
alternative minimum tax during 1997.

         1995 Compared to 1994 and 1994 Compared to 1993.  Gold  production  and
related operating revenues in 1995 increased from 1994 levels principally due to
the  recommencement  of  operations  at  Stibnite  Mine in August 1995 after the
successful  completion of various permit matters and leaching certain stockpiled
ores at Gilt Edge Mine. In 1994 gold production and revenues decreased from 1993
levels due to the decrease in ounces sold from Gilt Edge Mine as a result of the
cessation of mining  activities  in January 1993.  This was partially  offset by
higher average gold prices realized and by increased  ounces of gold produced at
Golden Reward Mine due to higher mined tonnages.

         In 1995, Dakota mined and processed at Stibnite Mine a total of 544,340
tons of ore with an average  grade of 0.05  ounces of gold per ton with  overall
average recoveries  expected to approximate 86%.  Approximately  4,000 ounces of
gold remained on leach pads at December 31, 1995 and were  recovered  during the
Spring  1996  start-up.  In 1994,  Stibnite  Mine was on  standby  awaiting  the
issuance of certain operating  permits.  Production at Gilt Edge Mine was higher
in 1995 and is  attributable  to  processing  of  approximately  572,000 tons of
certain  stockpiled  sulfide ores with an average  grade of 0.043 ounces of gold
per ton and an expected recovery of 45%.  Leaching of these materials  continued
into  1996.  Gilt Edge  production  in 1994 was  principally  from  reprocessing
certain previously leached materials.

         Mine, mill and  administrative  costs increased  significantly  in 1995
when compared to 1994.  Such costs  increased by  approximately  $2.9 million at
Gilt Edge  Mine  principally  as a result  of  crushing  and pad  loading  costs
associated with the processing of stockpiled  sulfide ores as noted above. Costs
at Gilt  Edge  Mine in 1994  and  through  August  1995  relate  principally  to
neutralization,  environmental compliance and administration.  Costs at Stibnite
Mine  increased  $5.6  million as a result of the  recommencement  of  operating
activities.  Accordingly,  costs  are not  comparable  to 1994.  Costs at Golden
Reward were relatively unchanged.

         The  decrease  in average  cash  costs per ounce sold in 1994  resulted
primarily from increased cost efficiencies  obtained at Golden Reward Mine which
are substantially due to the termination of a life-of-mine  contract with Harley
Hall in October  1993.  Due to the  cessation of mining  activities at Gilt Edge
Mine wherein  certain fixed costs were spread over fewer ounces  produced,  cost
per ounce values for 1994 are not  meaningful and have been excluded from Dakota
average.

         Costs at  Cactus  Mine were  lower in 1995  than in 1994 and  relate to
wind-up and reclamation  activities.  Such costs will continue to decline in the
future as final reclamation activities continue.

         The increase in  depreciation,  depletion and amortization in 1995 when
compared to 1994 is due to an increase in the  depletion  rate at Golden  Reward
Mine  resulting from a reduction in estimated  recoverable  reserves at December
31, 1995. Increases in depletion of approximately $398,000 at Gilt Edge Mine and
$726,000 at Stibnite Mine are  attributable to units of production  amortization
as each mine recommenced gold production in the third quarter of 1995.

         Depreciation and depletion also increased in 1994 when compared to 1993
primarily due to the purchase of equipment at Gilt Edge Mine and the utilization
of straight-line depreciation of equipment while production was suspended during
1994. However, Dakota principally amortizes its mining assets using the units of
production method.

         Holding and standby  costs pertain to Gilt Edge Mine - $1.5 million and
Stibnite  Mine -  $866,605  and  represent  additional  accrued  1994  operating
expenses  incurred  by each  mine  respectively  while  awaiting  new  operating
permits.  The increase in holding costs at Gilt Edge Mine are a result of slower
than expected  neutralization of spent ores on heap leach pads and the resultant
delays in processing certain stockpiled ores.

         Royalties  vary from  mine-to-mine  and within the specific  area being
mined in accordance with various agreements with landowners.  Effective in 1995,
the State of South Dakota adjusted its methods for calculating  severance taxes,
the result of which was to  significantly  lower the  effective  rate.  Overall,
royalties and severance  taxes  generally  relate  directly to revenues  earned.
Therefore higher revenues in 1995 resulted in higher royalty and severance taxes
than in 1994. In 1994 royalties increased due to higher operating revenues,  but
remained consistent in proportion to such revenue.

         Reclamation  costs in 1995  include  approximately  $1.7 million and in
1994  include   approximately  $1.3  million  accrued  in  connection  with  the
finalization  of a planned  acceleration  of concurrent  reclamation  activities
related to existing waste facilities at Gilt Edge Mine. Other  reclamation costs
pertain principally to Golden Reward Mine and are relatively unchanged.

         General  corporate costs decreased in 1995 when compared to 1994 due to
reductions  in  staff,  legal  expenses,  travel  activities,  and in the use of
outside  professional  services.  These  reductions are due, in part, to overall
decreases in corporate  activity  during 1995. Such corporate costs decreased in
1994 as  compared  to 1993  primarily  due to an  accrual  of bonuses to certain
officers  in 1993,  offset  in  part,  by  increased  shareholder  and  investor
relations activities.

         Investment  income  is  lower  in 1995 due  principally  to lower  cash
balances available for investment purposes.  Investment income increased in 1994
as compared to 1993 due to interest earned on higher average cash balances.  The
increase  in cash  balances  arose  from  proceeds  realized  as a result of the
Arrangement  described  under Part I "Business - General"  below,  completed  in
September 1993 and the private placement of special warrants in February 1994.

         Interest expense is lower in 1995 due to lower outstanding indebtedness
as a result of the repayment of indebtedness to Wharf  throughout 1995 and 1994.
This is  partially  offset  by an  increase  in  vendor  interest  due to larger
outstanding  payable  balances.  Interest expense  decreased in 1994 compared to
1993  primarily as a result of the $1.75  million  payoff to  Citibank,  N.A. in
September 1993,  offset in part by the interest accrued to Wharf due to advances
made for cash calls at the Golden Reward Mine.


<PAGE>



ITEM 8: CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


                                                                           Page
         Auditors' Report                                                   35

         Consolidated Financial Statements
                  Consolidated Balance Sheets                               36
                  Consolidated Statements of Operations                     37
                  Consolidated Statements of Shareholders' Equity           38
                  Consolidated Statements of Cash Flows                     39
                  Notes to Consolidated Financial Statements                40
         Unaudited Supplementary Financial Information
                  Quarterly Financial Data                                  53



<PAGE>



                                Auditors' Report


To the Shareholders of Dakota Mining Corporation

We have audited the consolidated  balance sheets of Dakota Mining Corporation as
of  December  31,  1996 and  1995 and the  related  consolidated  statements  of
operations,  shareholders'  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 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 an audit to obtain
reasonable  assurance  whether  the  financial  statements  are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management, as well as evaluating the overall financial statement presentation.

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




KPMG
CHARTERED ACCOUNTANTS



Toronto, Canada
February 4, 1997,
  except as to Note 2,
  which is as of February 6, 1997
  and Note 6(c), which is as
  of February 28, 1997


<PAGE>
<TABLE>
<CAPTION>


                                             DAKOTA MINING CORPORATION
                                            CONSOLIDATED BALANCE SHEETS
                                       (expressed in United States dollars)

                                                                    December 31,                  December 31,
                                                                       1996                           1995
                                                  ASSETS          --------------                  ------------
<S>                                                                <C>                            <C>
Current assets
Cash                                                                  $5,092,150                    $2,260,025
Inventories                                                            2,643,701                     3,821,176
Deferred stripping costs                                                 886,086                       667,956
Other current assets                                                     739,064                       340,965
                                                                     -----------                    ----------
                                                                       9,361,001                     7,090,122

Property, plant and equipment, net                                    15,150,399                    22,972,514
Other assets
Reclamation bonds                                                      5,111,844                     3,577,475
Advance minimum royalties                                              1,871,965                     2,007,260
Other                                                                     74,141                       258,050
                                                                   -------------                  ------------
                                                                     $31,569,350                   $35,905,421
                                                                      ==========                    ==========

                                   LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Account payable                                                       $4,915,525                    $5,152,517
Accrued liabilities                                                    2,003,625                     1,864,790
Reclamation costs                                                        428,983                       576,500
Short-term borrowings                                                    623,623                     1,157,991
Current portion of long-term debt                                        383,265                       565,546
                                                                     -----------                   -----------
                                                                       8,355,021                     9,317,344
Long-term liabilities
Long-term debt                                                         3,240,053                       439,520
Other long-term liabilities                                              952,000                             -
Reclamation costs                                                      5,562,881                     3,558,304
                                                                     -----------                   -----------
     Total liabilities                                                18,109,955                    13,315,168
                                                                      ----------                    ----------

Shareholders' equity
Warrants                                                                  63,134                        87,500
Preference shares, without par value; 20,000,000
  shares authorized, none issued or outstanding
Common shares, without par value; unlimited shares
  authorized; 35,479,742 issued and outstanding in
  1996; 26,534,742 in 1995                                            52,809,980                    38,906,595
Accumulated deficit                                                  (39,133,909)                  (16,064,270)
Cumulative translation adjustment                                       (279,810)                     (339,572)
                                                                    -------------                 -------------
     Total shareholders' equity                                       13,459,395                    22,590,253
                                                                      ----------                    ----------
                                                                     $31,569,350                   $35,905,421
                                                                      ==========                    ==========
</TABLE>


Approved on behalf of the Board

/s/Alan R. Bell_______________             /s/ Stanley Dempsey_______________
Alan R. Bell                                 Stanley Dempsey
Director                                        Director
          (See accompanying notes to consolidated financial statements)


<PAGE>
<TABLE>
<CAPTION>


                            DAKOTA MINING CORPORATION
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                      (expressed in United States dollars)





                                                   Year ended                 Year ended                Year ended
                                                  December 31,               December 31,              December 31,
                                                      1996                       1995                      1994
                                                      ----                       ----                      ----

<S>                                                <C>                       <C>                         <C>
Operating revenues                                 $24,556,406               $17,208,608                 $8,441,593
Operating costs
Mine, mill and administration                       26,296,133                13,851,637                  5,433,071
Depreciation, depletion, and
   amortization                                      6,496,371                 4,729,391                  2,162,255
Royalties and severance taxes                        1,163,510                   743,713                    340,824
Exploration                                            498,908                    87,134                    203,437
Reclamation                                          2,255,429                 2,196,383                  1,978,609
Holding and standby costs                            1,330,026                 3,025,127                  2,324,437
General corporate costs                              1,789,939                 1,293,058                  1,662,077
Property impairment                                  7,922,116                         -                          -
                                                   -----------                ----------                 ----------
                                                    47,752,432                25,926,443                 14,104,710
                                                    ----------                ----------                 ----------
Operating loss                                     (23,196,026)               (8,717,835)                (5,663,117)
                                                   ------------              ------------               ------------
Other income (expense):
   Investment income                                   475,508                   301,193                    326,374
   Interest expense                                   (441,844)                 (496,239)                  (698,389)
   Other                                                92,723                   (76,837)                   296,206
                                                --------------              -------------               -----------
                                                       126,387                  (271,883)                   (75,809)
                                                 -------------               ------------              -------------
Net loss                                          $(23,069,639)              $(8,989,718)               $(5,738,926)
                                                   ============               ===========                ===========

Net loss per common share                              $(0.73)                   $(0.35)                    $(0.33)
                                                        ======                    ======                     ======

Weighted average number of
   shares outstanding                               31,405,369                25,396,310                 17,406,350
                                                    ==========                ==========                 ==========



</TABLE>


          (See accompanying notes to consolidated financial statements)


<PAGE>

<TABLE>
<CAPTION>


                                             DAKOTA MINING CORPORATION
                                  CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                                       (expressed in United States Dollars)

                                                                                                                 Cumulative
                                                Common Shares                                Accumulated         Translation
                                             Shares           Amount            Warrants         Deficit           Account
                                      ---------------  ----------------  ---------------      ------------       -----------
<S>                                   <C>                  <C>           <C>                  <C>                 <C>
Balance, December 31, 1993                 13,973,068       $17,317,430        3,911,844       $(1,335,626)        $(42,148)
Issue special warrants subsequently
   exchanged for common shares, net
   of offering costs of $734,042            6,000,000         9,498,969                -                 -                -
Exercise of warrants for cash               1,387,040         2,931,226         (760,097)                -                -
Net loss and translation loss                       -                 -                -        (5,738,926)        (297,424)
                                     ----------------       -----------  ---------------        -----------        ---------

Balance, December 31, 1994                 21,360,108        29,747,625        3,151,747        (7,074,552)        (339,572)
Issue special warrants subsequently
   exchanged for common shares, net
   of offering costs of $493,150            4,838,710         5,506,850                -                 -                -
Exercise of warrants for cash                 335,924           772,631         (184,758)                -                -
Expiration of common share
   purchase warrants                                -         2,879,489       (2,879,489)                -                -
Net loss                                            -                 -                -        (8,989,718)                -

Balance, December 31, 1995                 26,534,742        38,906,595           87,500       (16,064,270)        (339,572)
Issue special warrants subsequently
   exchanged for common shares, net
    of offering costs of $974,478           8,700,000        13,475,488           63,134                 -                -
Exercise of options for cash                  245,000           340,397                -                 -                -
Expiration of Pegasus warrants                      -            87,500          (87,500)                -                -
Net loss and transaction loss                       -                 -                 -      (23,069,639)          59,762

Balance, December 31, 1996                 35,479,742       $52,809,980   $       63,134      $(39,133,909)       $ 279,810
                                           ==========        ==========    =============       ============       =========

</TABLE>

          (See accompanying notes to consolidated financial statements)


<PAGE>
<TABLE>
<CAPTION>


                                             DAKOTA MINING CORPORATION
                                       CONSOLIDATED STATEMENTS OF CASH FLOWS
                                       (expressed in United States dollars)




                                                              Year ended           Year ended           Year ended
                                                             December 31,         December 31,         December 31,
                                                                 1996                 1995                 1994
                                                                 ----                 ----                 ----
Cash provided by (used in):
Operating activities
<S>                                                          <C>                  <C>                   <C>
Net loss                                                     $(23,069,639)        $(8,989,718)          $(5,738,926)
Add (deduct) non-cash items
   Depreciation, depletion and amortization                     6,496,371           4,656,910             2,448,382
   Property impairment                                          7,131,639                   -                     -
   Reclamation, holding and standby costs accrued (net)         2,809,060           1,969,390              (165,800)
                                                               ----------          ----------           ------------
                                                               (6,632,569)         (2,363,418)           (3,456,344)

Net change in non-cash working
   capital items related to operations                            459,148           2,776,637              (423,149)
                                                              -----------           ---------           ------------
                                                               (6,173,421)            413,219            (3,879,493)
                                                              ------------         ----------            -----------
Investing activities
Additions to property, plant and equipment                     (5,847,542)         (4,357,622)           (2,585,907)
Proceeds from asset dispositions                                    4,757                   -               118,380
Additions to reclamation bonds and other assets                (1,240,592)         (1,271,151)             (259,298)
                                                              ------------         -----------             ---------
                                                               (7,083,377)          5,628,773             2,726,825
                                                              ------------          ---------             ---------
Financing activities
Proceeds form exercise of
   common share purchase warrants                                 340,397             587,873             2,171,129
Proceeds from the sale of special warrants                     14,513,100           6,000,000            10,233,011
Special warrant offering costs paid                              (974,478)           (493,150)             (734,042)
New borrowings                                                  3,242,824           1,992,474               368,155
Repayment of indebtedness                                      (1,092,682)         (3,709,059)           (6,127,636)
                                                               -----------         -----------           -----------
                                                               16,029,161           4,378,138             5,910,617
Effect of exchange rate changes                                    59,762                   -              (290,033)
                                                            -------------   -----------------           ------------
Net change in cash                                              2,832,125            (837,416)             (985,734)
Cash, beginning of period                                       2,260,025           3,097,441             4,083,175
                                                                ---------           ---------             ---------
Cash, end of period                                            $5,092,150          $2,260,025            $3,897,441
                                                                =========           =========             =========


</TABLE>



          (See accompanying notes to consolidated financial statements)




<PAGE>


                            DAKOTA MINING CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.       Accounting Policies

         Dakota Mining  Corporation  and its  subsidiaries  (the  "Company") are
         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.

         The  consolidated  financial  statements of the Company are reported in
         United States dollars in accordance with generally accepted  accounting
         principles  in Canada.  As described in Note 11, these  principles  may
         differ in  certain  respects  from those  that the  Company  would have
         followed had its  consolidated  financial  statements  been prepared in
         accordance with generally accepted accounting  principles and practices
         in the United States. The significant accounting policies used in these
         consolidated financial statements are summarized as follows:

         Basis of Consolidation

         The  consolidated  financial  statements  include  the  accounts of the
         Company,  its subsidiaries and a proportionate share of the accounts of
         partnerships and unincorporated joint ventures in which the Company has
         an   interest.   At  December  31,  1996,   the   Company's   principal
         subsidiaries, partnerships and joint ventures and its percentage equity
         interest in each are as follows:

MinVen Gold (U.S.A.) Corporation                                 100.0%
Brohm Mining Corp. ("Gilt Edge Mine" or "Brohm")                 100.0%
Stibnite Mine Joint Venture ("Stibnite Mine")                    100.0%
The Golden Reward Mining Co., L.P. ("Golden Reward Mine")         40.0%
The Cactus Gold Mines Company Joint Venture ("Cactus Mine")       25.0%

         Use of Estimates

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

         Foreign Currency Translation

         The Company  presents its  financial  statement  information  in United
         States  dollars as its principal  assets and  operations are located in
         the United States.

         The  Company  uses  the  current   rate  method  of  foreign   currency
         translation  whereby the assets and liabilities of its  self-sustaining
         Canadian  operations  are  translated  into their United  States dollar
         equivalent at rates of exchange  prevailing at each balance sheet date.
         Revenues and expenses of Canadian  operations are translated at average
         exchange  rates  prevailing  during the periods in which such items are
         recognized  in earnings.  Transaction  amounts  denominated  in foreign
         currencies are translated  into their United States dollar  equivalents
         at exchange rates prevailing at the transaction dates.


<PAGE>


1.       Accounting Policies (continued)

         Foreign Currency Translation (continued)

         Gains and losses arising from  translation of the financial  statements
         of  Canadian  operations  are  included  in the  unrealized  cumulative
         translation  adjustment  account  in  shareholders'  equity.  Gains and
         losses  added  to this  account  are  recognized  in the  statement  of
         operations when the related net foreign investment is reduced.

         Cash Equivalents

         The Company considers all temporary cash investments  having maturities
         of three months or less at the date of purchase to be cash equivalents.

         Inventories

         Bullion and ore  inventory  are valued at the lower of the average unit
         production  cost or net  realizable  value.  Materials and supplies are
         valued at the lower of average cost or replacement cost.

         Property, Plant and Equipment

         Property,  plant and equipment are carried at cost.  Exploration costs,
         pre-production  costs,  depreciation  on equipment  and other  carrying
         charges related to the development of mineral properties with indicated
         economically  recoverable  reserves  are  deferred  until  the start of
         commercial production. Major expenditures related to the development of
         identified  mineral  reserves on producing  properties are capitalized.
         The costs of waste stripping in excess of the expected pit life average
         stripping  ratio are  deferred and charged to  production  on a unit of
         production  basis when the ratio of waste to ore mined is less than the
         pit life  average.  Mine  exploration  costs and  development  costs to
         maintain  production  of operating  mines are charged to  operations as
         incurred.

         The Company  periodically  reviews the carrying value of its properties
         by comparing the net book value with the estimated  undiscounted future
         cash  flow  from  the  property.  If the net  book  value  exceeds  the
         undiscounted  future  cash flow,  the  Company  records an  impairment.
         Changes in the significant estimates and assumptions  underlying future
         cash flow  estimates  may have a  material  effect  on future  carrying
         values and operating results.

         Depreciation, Depletion and Amortization

         Depreciation  of plant and  equipment is provided on the  straight-line
         method  with  useful  lives  ranging  from  three to ten years over the
         lesser of the estimated  useful life of the asset or the estimated life
         of the ore reserves on the  units-of-production  method.  Depletion and
         amortization of deferred exploration and development costs are provided
         on the units-of-production method based upon estimated ore reserves.


<PAGE>


         Capitalization of Financing Costs

         Financing costs,  including  interest,  are capitalized on expenditures
         related to significant  development or expansion  activities on mineral
         properties. When production commences on these mineral properties, such
         costs  are  charged  against  operations  as  incurred.  There  was  no
         capitalized interest in 1996, 1995 or 1994.

         Reclamation Costs

         The Company records a liability for the estimated cost to reclaim mined
         land by accruing charges to reclamation costs. 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. If  operations  are suspended for a significant
         period,  an  immediate  accrual of  estimated  reclamation  costs to be
         incurred during the suspension period is recorded.

         Revenue Recognition

         Revenues are  recognized  when  deliveries of gold and silver are made.
         Gains or losses on forward  metal  sales  contracts,  options and other
         similar  arrangements  which hedge revenues from future  production are
         not recognized  until the hedged  production is delivered or the option
         contract is exercised or expires.

         Hedging

         The  Company,  from  time-to-time  enters  into fixed  forward and spot
         deferred  sales  contracts  for the sale of its gold as a hedge against
         changes in prices.  Gains or losses related to these  transactions  are
         netted against revenue when the hedged  production is sold. The Company
         may also  purchase  put options  for the sale of its gold.  The related
         gains or losses are also netted against revenue when the gold is sold.

         Income Taxes

         Income taxes are provided based on accounting income or loss.  Deferred
         taxes  arise   principally  from  claiming   depreciation,   depletion,
         amortization,  exploration  and  development  costs for tax purposes at
         amounts  differing  from those  charged to  operations  for  accounting
         purposes. As the timing differences reverse,  taxes previously deferred
         are charged to income based on the effective rate.

         Loss Per Share

         Net loss per  share has been  calculated  using  the  weighted  average
         number of common shares outstanding during each period. The exercise of
         outstanding  options  and  warrants to  purchase  common  shares of the
         Company would be anti-dilutive.

         Reclassifications

         Certain prior year amounts have been  reclassified  to conform with the
         1996 financial statement presentation.


<PAGE>


2.       Merger and Convertible Debenture Offering Subsequent to Year-End:

         On February 5, 1997,  a definitive  Merger  Agreement  with USMX,  Inc.
         (USMX)  was   signed.   Under  the  terms  of  the  Merger   Agreement,
         shareholders of USMX will receive one Dakota common share for every 1.1
         common  shares  of USMX  held and  USMX  will  become  a  wholly  owned
         subsidiary of Dakota.  In connection with the transaction,  the Company
         will  issue  approximately  14.7  million  common  shares  in  order to
         complete the acquisition.  The Company will account for the merger as a
         purchase.  Completion of the merger remains  subject to shareholder and
         creditor  approval,   review  by  regulatory  authorities,   and  other
         customary  conditions.  Management  expects to  complete  the merger by
         early May, 1997.

         In order to provide  financing  for the proposed  merger with USMX,  on
         February 5, 1997,  the Company  entered into an agency  agreement  with
         certain Canadian  investment  dealers  (collectively,  the "Agents") to
         sell by way of private  placement 25,000 Special Warrants at a price of
         Cdn$1,000  per Special  Warrant  for  aggregate  gross  proceeds to the
         Company of Cdn$25 million.  The Special Warrants offering was completed
         on February 6, 1997 with all proceeds,  net of a 6% commission  paid to
         the Agents, placed into an escrow account.

         Each Special  Warrant  entitles the holder,  upon exercise  thereof and
         without  payment of any additional  consideration,  to acquire one 7.5%
         unsecured subordinated  convertible debenture (the "Debentures") of the
         Company in the principal  amount of Cdn$1,000.  Each  Debenture will be
         convertible  into common shares of the Company at a conversion price of
         Cdn$2.00 per common  share up to and  including  the last  business day
         immediately  preceding  February 5, 2004.  The  debentures  will not be
         redeemable  prior to January 29, 2001 but thereafter will be redeemable
         by the Company if the weighted  average  trading price of the Company's
         common  shares is 125% of the  conversion  price  for a defined  period
         prior to such redemption.  On maturity or redemption,  the Company will
         have the option to repay the principal amount of the Debentures in cash
         or common shares of the Company at a price equal to 95% of the weighted
         average  trading  price for a defined  period prior to such maturity or
         redemption.

         The Company has agreed to use its best efforts to file a prospectus  in
         British   Columbia,   Alberta,   Ontario  and  Quebec  to  qualify  for
         distribution  the  Debentures  issuable  upon  exercise  of the Special
         Warrants  and  the  common  shares  issuable  upon  conversion  of  the
         Debentures.

         If the Merger is not completed prior to May 31, 1997 or such later date
         as the  Agents  may  determine  in its sole  discretion,  the number of
         Dakota Common Shares issuable upon conversion of the Debentures will be
         such that each  Debenture  will be  convertible  for 550 Dakota  Common
         Shares (the "Penalty").

         Proceeds  from the Special  Warrant  offering,  after  deducting the 6%
         commission paid to Agents and other expected costs, approximate US$16.9
         million.  The offering  proceeds will  principally  be used to complete
         construction and commence  start-up of the Illinois Creek Mine owned by
         USMX,  Inc.,  developmental  drilling and for general  working  capital
         purposes.  Under the terms of the merger  agreement,  the  Company  has
         agreed to provide  USMX with a $5 million loan from the proceeds of the
         Special Warrant  offering.  The loan is bridge financing needed by USMX
         to reduce its outstanding  accounts payable and to commence start-up of
         its Illinois  Creek Mine.  The loan will be  collateralized  by various
         USMX assets.


3.       Inventories and Deferred Stripping Costs

         At  December  31 in  each  of the  years  indicated,  inventories  were
comprised of the following:

                                           1996                     1995
                                           ----                     ----

         Bullion                       $  854,444                $1,290,231
         Ore                            1,524,072                 2,244,420
         Materials and supplies           265,185                   286,525
                                       -----------               -----------
                                       $2,643,701                $3,821,176
                                        =========                 =========

         In 1993, the mining  activity at Stibnite Mine  consisted  primarily of
         the  removal  of  waste  overburden.  Accordingly,  the  costs of waste
         removal of  approximately  $1.8 million were deferred.  Of this amount,
         $1.12  million was  charged to  operations  in 1995 with the  remainder
         charged to operations in 1996 as related gold resources were mined.  In
         1996,  the mining  activity at Gilt Edge Mine  included  the removal of
         waste overburden.  Accordingly,  the costs of waste removal of $886,086
         were deferred.

4.       Property, Plant and Equipment

     At  December  31,  in each of the  years  indicated,  property,  plant  and
     equipment consisted of the following:
<TABLE>
<CAPTION>


                                                                          1996                       1995
         <S>                                                         <C>                           <C>
         At cost
                  Mining properties                                  $20,451,876                   $14,470,978
                  Plant and equipment                                 12,352,287                    12,312,247
                  Deferred costs                                       3,446,432                     3,700,540
                                                                     -----------                   -----------
                                                                      36,250,595                    30,483,765
         Accumulated depreciation,
          depletion and amortization
                  Mining properties                                   15,254,392                     3,435,856
                  Plant and equipment                                  4,809,662                     3,532,968
                  Deferred costs                                       1,036,142                       542,427
                                                                    ------------                   -----------
                                                                      21,100,196                     7,511,251
                                                                      ----------                    ----------
                                                                     $15,150,399                   $22,972,514
                                                                      ==========                    ==========
</TABLE>

5.       Short-term Borrowings

         In April, 1996, the terms of a short-term borrowing arrangement with D.
         H.  Blattner & Sons  ("Blattner")  were  redetermined.  The Company has
         signed  a  Secured  Loan  Note  which  provides  for  monthly  payments
         including  accrued  interest  of  $75,000  commencing  May 1,  1996 and
         continuing until September 1, 1997. The loan bears interest at 8.5% per
         annum,  is  collateralized  by  the  assets  of  Stibnite  Mine  and is
         guaranteed by the Company.  This facility was  subordinated by Blattner
         to  Gerald  Metals  under  the  Revolving  Loan  Agreement   previously
         described.  On May 21, 1996 Gerald  Metals  purchased  the Secured Loan
         Note from  Blattner in a transaction  not  involving  the Company.  The
         remaining  unpaid balance as of December 31, 1996 is $624,000.  This is
         not part of the Revolving Loan Agreement discussed in Note 6(c).

         Management   believes   the  fair   value  of   short-term   borrowings
approximates the carrying value.

6.       Long-term Debt

         Long-term debt at December 31 is comprised of the following:

                                              1996                   1995
                                              ----                   ----
         Note payable to Harley Hall      $   358,400           $   716,800
         Equipment notes payable               34,918               288,266
         Line of Credit Facility            3,230,000                   -
                                            ---------             ---------
                                            3,623,318             1,005,066
         Less current portion                 383,265               565,546
                                            ---------            ----------
                                          $ 3,240,053           $   439,520
                                           ==========            ===========

         (a)      Note Payable to Harley Hall

                  At December  31,  1996,  the  remaining  balance due to Harley
                  Hall,  doing  business  as  Hall  Construction,   ("Hall")  is
                  repayable  by the  Golden  Reward  Mine  in 12  equal  monthly
                  principal  payments  (amounting  to  $896,000  annually,   the
                  Company's 40% share is $358,400)  plus accrued  interest.  The
                  amount owed to Hall bears interest at the following rates: (i)
                  from  December 30, 1995 to December 29, 1996, at United States
                  prime plus 1.5%; and (ii)  thereafter,  at United States prime
                  plus 1%.  The amount  owed to Hall is secured by a  mechanics'
                  lien on the Golden Reward Mine. The Company's 40% share of the
                  note is reflected in the table above.

         (b)      Equipment Notes Payable

                  The equipment notes payable are for equipment purchased from a
                  supplier who agreed to a repayment  term over three years on a
                  graduated payment basis. Interest ranging from 6% to 16.5% per
                  annum  is  payable  monthly.  The  notes  are  secured  by the
                  equipment which is located at the Gilt Edge Mine.

                  Management   believes  the  fair  value  of   long-term   debt
approximates the carrying value.


         (c)      Line of Credit Facility

                  On  February  28,  1997,  the  Company  entered  into a letter
                  agreement  with  Gerald  Metals  Inc. to amend and restate the
                  terms of a Revolving  Loan  Agreement  dated  April 19,  1996.
                  Under the amended terms,  the revolving loan will be converted
                  to a term loan of up to $5.0 million, will be repayable at the
                  rate of $1.0 million per month  commencing in June 1998,  will
                  bear  interest at LIBOR plus 2.25% and will be  collateralized
                  by Dakota's  underlying  assets at its Gilt Edge and  Stibnite
                  mines.  Accordingly,  the amounts  outstanding at December 31,
                  1996 under the Revolving Loan  Agreement have been  classified
                  as long-term .

                  Gerald has also  agreed to  provide  the  Company  with a $2.5
                  million  stand-by credit facility to serve as bridge financing
                  until  completion  of the  merger  with  USMX and  release  of
                  remaining  proceeds  from the  offering  of special  warrants.
                  Refer  to  Note 2 for a  description  of  these  matters.  The
                  stand-by  facility will be  collateralized by a portion of the
                  $5 million  advance to be made to USMX,  will bear interest at
                  LIBOR plus 2.25% and the Company  will be  obligated  to pay a
                  commitment  fee of 1/2 of one  percent on the unused  portion.
                  The stand-by  facility will be repayable on or before July 31,
                  1997.

         (d)      Interest Paid

          Interest paid on long-term debt and short-term borrowings was $441,844
          in 1996, $560,639 in 1995, and $1,213,119 in 1994.

7.       Share Capital

         (a)      Stock Options to Directors and Employees

         The Company has established a stock option plan for directors, officers
         and employees  covering  3,000,000 common shares. At December 31, 1996,
         options  and  warrants  to  purchase   1,708,525   common  shares  were
         outstanding with terms of up to five years from the date of grant at an
         exercise price equal to the market price  prevailing at the time of the
         grants, as detailed in the following table:

<TABLE>
<CAPTION>


                                                       Number of         Cdn $                             Exercise
                                                        Common        Option Price                          Price
                                                         Shares        Per Share        Warrants(1)        Per Share
         ------                                       ---------       -----------        ---------        ----------
         <S>                                         <C>             <C>                 <C>                <C>
         Outstanding, December 31, 1993                597,925        $3.50-$16.79         16,463           $1.50
         Granted in 1994                                40,000               $2.90              -
         Surrendered or expired, 1994                  (24,423)        $3.50-$4.23         (2,211)          $1.50
                                                     ----------                         ----------
         Outstanding, December 31, 1994                613,502        $2.90-$16.79         14,252            1.75(1)
         Granted in 1995                               793,132         $1.60-$2.00                          $1.75
         Surrendered or expired, 1995                  111,680        $2.00-$16.79        (14,252)           -
                                                       -------                            --------
         Outstanding, December 31, 1995              1,294,954       $1.60 - $4.23              -            -
         Granted in 1996                               784,375         $2.45-$3.16              -            -
         Surrendered or expired, 1996                 (370,804)        $1.60-$4.23              -            -
                                                      ---------
         Outstanding, December 31, 1996              1,708,525         $1.80-$3.50              -            -
                                                     =========                           ==========
<FN>

         (1)      Effective  September 16, 1994,  the exercise  price  increased to $1.75  pursuant to the terms of
                  the warrants.
</FN>
</TABLE>

         (b)      Other Stock Purchase Rights

         Information  concerning  other  stock  purchase  rights  granted by the
Company are as follows:
<TABLE>
<CAPTION>

                                                           Common            Exercise
                                                           Shares             Price             Expiration

         <S>                                            <C>                  <C>                 <C>
         Citibank, N.A.                                   166,625            Cdn$4.68               7/31/97
         Gerald Metals, Inc.                              100,000               $1.57               9/21/99
         Gerald Metals, Inc.                              100,000            Cdn$1.80               3/20/02
         Common Share Purchase Warrants                 4,550,000            Cdn$2.65              12/14/97

</TABLE>

8.       Income Taxes

         (a)      As a result  of  accumulated  losses  for  which  the  Company
                  receives  no  current  tax  benefit,  there is no  income  tax
                  benefit or expense for 1996, 1995 or 1994.

         (b)      The Company does not have an effective tax rate as a result of
                  losses  without any  resulting  tax  benefit.  Therefore,  the
                  United  States  statutory  income  tax  rate  of 34% is  fully
                  eliminated by such losses.

         (c)      At December 31, 1996, the Company's  United States  operations
                  had net  operating  loss  carry-forwards  for tax  purposes of
                  approximately   $56   million.   A   majority   of  the   loss
                  carry-forwards  are  restricted  under United  States tax laws
                  regarding  the  availability  and  future  utilization  of net
                  operating   loss   carry-forwards   resulting  from  ownership
                  changes.  These losses expire in various  amounts  through the
                  year  2010.  The  differences  between  losses  for  financial
                  reporting  and tax  purposes  arise  primarily  as a result of
                  timing differences.

9.       Commitments and Contingencies

         (a)      The  Company is  committed  to total  minimum  payments  under
                  various lease and royalty  agreements  to 2012,  including its
                  pro rata share from its joint ventures.  These commitments for
                  each of the next five years are as follows:

                  Years                          $ Amounts
                  -----                          ---------
                  1997                           $503,659
                  1998                           $794,850
                  1999                           $433,563
                  2000                           $336,649
                  2001                           $318,750
                  Thereafter, annually           $318,750

         (b)      The Company has an employee  savings  plan  wherein it matches
                  employee   contributions  to  the  plan,  up  to  3%  of  each
                  employee's  compensation.  During  1996,  1995 and  1994,  the
                  Company,    contributed   $50,334,   $64,576,   and   $60,151,
                  respectively  to the plan,  including  its pro rata share from
                  joint ventures.

         (c)      Environmental Matters

                  In April 1993,  the South Dakota  Department of  Environmental
                  and  National  Resources  ("DENR")  issued an order  ("Order")
                  regarding remediation efforts related to acid rock drainage at
                  the Gilt Edge Mine.  The Order  remains  in effect.  The Order
                  principally   required  that,  unless  discharge  water  meets
                  certain  permitted  terms and  conditions,  there  shall be no
                  discharge  of  acid  mine  drainage  and  that  the  Company's
                  wholly-owned   subsidiary,   Brohm,   submit  a  comprehensive
                  mitigation plan to address specific short term as well as long
                  term plans for the site. On January 19, 1996,  Brohm  received
                  final  approval of an updated and amended  plan from the State
                  of South Dakota.  Brohm estimates that further reclamation and
                  mitigation costs in connection with the Order will approximate
                  $3.2 million  which amount has been fully  accrued.  Brohm has
                  provided  the State of South  Dakota with a form of  financial
                  assurance  in the amount of $7.9  million  to ensure  that the
                  reclamation  and  remediation  activities  set  forth  in  the
                  comprehensive  plan will be  performed.  At December 31, 1996,
                  Brohm  had  provided  the  State of  South  Dakota  with  cash
                  deposits of $2.4  million and has  provided the State of South
                  Dakota with a demand note as proof of  financial  assurance in
                  the amount of $5.5 million.  All interest earned from the cash
                  deposits  is  added to the  principal  of such  deposits.  The
                  demand note is callable  only under certain  conditions  which
                  principally  relate  to events  whereby  Brohm  would  fail to
                  fulfill its  obligations  under the  comprehensive  plan.  The
                  demand note is subject to periodic  adjustments as reclamation
                  activities  are  carried  out  and/or  changes to the plan are
                  made.  The Company  anticipates  that at its  planned  rate of
                  expenditure  required reclamation will be completed by the end
                  of 1997 that the demand note will be cancelled.

                  Further,  at a future date when Brohm  provides  notice to the
                  State of South  Dakota  that the mine will close and that post
                  closure care is to begin, Brohm will be obligated to establish
                  a post closure fund or other financial assurance acceptable to
                  the State to ensure long-term treatment and maintenance of the
                  site.  The amount of the post closure  financial  assurance is
                  not  expected to be less than $3.0  million  although no final
                  determination will be made until the mine actually closes.

                  The Company is required to meet  certain  equity  covenants of
                  $20  million as a condition  of its permits  with the State of
                  South Dakota. As of December 31, 1996 the Company did not meet
                  this requirement,  however the Convertible  Debenture Offering
                  as discussed in Note 2 will ensure that the Company meets this
                  requirement on a go-forward basis.

         (d)      Hedging Activities - Gerald Metals, Inc.

                  The  Company   from   time-to-time   enters  into  gold  price
                  protection agreements. As of December 31, 1996 the Company had
                  entered into various  option  contracts  with Gerald Metals to
                  deliver 7,500 ounces of gold at a minimum price of $370.00 per
                  ounce and a maximum  of  $385.00  per ounce  during the period
                  from  January 31, 1997  through  June 30,  1997.  In addition,
                  forward sales  contracts for 16,000 ounces at an average price
                  of $387.00 were in place at year-end.

                  The fair value of the Company's  hedging  instruments based on
                  the notional  gain using market prices as of December 31, 1996
                  was  approximately  $309,000 for the forward sales options and
                  option contracts.

         (e)      Reclamation Costs

                  The  ultimate  amount  of the  reclamation  obligations  to be
                  incurred is  uncertain,  however the Company  estimates  these
                  costs  to be $6.9  million  at Gilt  Edge  Mine,  $721,000  at
                  Stibnite  Mine and  $900,000  for the  Company's  40% share at
                  Golden Reward.  Of the total $8.4 million in estimated  costs,
                  $6.0 million has been accrued for as of December 31, 1996. The
                  remaining  costs will be accrued as mining  continues  at Gilt
                  Edge Mine and Stibnite  Mine.  However,  no assurances  can be
                  given that the above estimates  accurately  reflect the actual
                  costs of all reclamation activities that may be required.

10.  Generally  Accepted  Accounting  Principles (GAAP) in Canada and the United
     States

         The Company follows Canadian accounting  principles which are different
         in some respects from  accounting  principles  applicable in the United
         States.  There are no  significant  differences  in 1996,  1995 or 1994
         between Canadian accounting  principles and U.S. GAAP pertaining to the
         Company.

         (a)      There are no material differences in the application of United
                  States  accounting  principles on accumulated  deficit,  share
                  capital and cumulative translation adjustment.

         (b)      Under U.S. GAAP, the Company would  calculate  deferred income
                  taxes using an asset and  liability  method.  Deferred  income
                  taxes  reflect  the net tax  effect of  temporary  differences
                  between  the  carrying  amount of assets and  liabilities  for
                  financial  reporting  purposes and the amounts used for income
                  tax purposes.  The components of the Company's  deferred taxes
                  in the balance  sheet under U.S.  GAAP as of December 31 would
                  therefore be as follows ($000's):
<TABLE>
<CAPTION>

                                                                              1996                      1995
                                                                       ----------------       --------------------
                                                                   Canada          U.S.      Canada            U.S.
     <S>                                                       <C>              <C>        <C>             <C>
      Taxable temporary differences
        Noncurrent
           Mining costs capitalized for financial
           reporting purposes                                  $          -     $   (300)  $        -       $(2,500)
           Accounting differences attributed to joint ventures            -       (2,200)           -        (2,700)
           Other                                                          -       (2,900)           -        (3,000)
                                                                -----------       -------    --------        -------
                                                                          -       (5,400)           -        (8,200)
                                                                -----------       -------    --------        -------

      Deductible temporary differences
        Current
           Tax basis of inventories in excess of book basis               -          200            -          (100)
                                                                  ---------     --------     --------       --------
        Noncurrent
           Tax basis of fixed assets in excess of book basis              -       12,900            -        12,600
           Reclamation costs not deductible for tax purposes              -        1,900            -         1,300
           Other                                                          -          200            -           200
                                                                                --------     --------       -------
                                                                          -       15,000            -        14,100
                                                                  ---------       ------     --------        ------
                                                                          -        9,800            -         5,800
      Net operating loss carryovers                                   1,800       23,200        1,500        19,200
                                                                     ------       ------     --------        ------
      Net total deferred tax assets                                   1,800       33,000        1,500        25,000
      Valuation allowance                                            (1,800)     (33,000)      (1,500)      (25,000)
                                                                     -------     --------      -------      --------
                                                                 $        -     $      -     $      -      $      -
                                                                   =========     ========     ========    ==========

</TABLE>


(c)  At December  31, 1996 the Company has one  stock-based  compensation  plan,
     which is described below. The Company applies the intrinsic value method in
     accounting  for its  plan.  Accordingly,  no  compensation  cost  has  been
     recognized for its fixed stock option plan. Had  compensation  cost for the
     Company's  stock-based  compensation plan been determined based on the fair
     value at the grant dates for awards under those plans  consistent  with the
     method of Financial  Accounting  Standards Board Statement 123 - Accounting
     for  Stock-Based  Compensation,  the  Company's net loss and loss per share
     would have been increased to the pro forma amounts indicated below:

                                             1996                      1995
                                             ----                      ----
 Net loss        As reported             $(23,069,639)              $(8,989,718)
                 Proforma                 (23,626,933)               (9,390,332)

Primary loss per
common share     As reported                $(0.73)                  $(0.35)
                 Proforma                   $(0.75)                  $(0.37)

                  The fair value of each option  grant is  estimated on the date
                  of grant using the Black-  Scholes  option-pricing  model with
                  the following weighted average  assumptions used for grants in
                  1996,  and 1995,  respectively:  dividend yield of 0% for both
                  years; expected volatility of 33%, and 58%, risk-free interest
                  rates  between  5.28% and 6.61% and  expected  lives of two to
                  three years.

                  A summary of the status of the Company's  stock option plan as
                  of December 31, 1996 and 1995, and changes during the years on
                  those dates is presented below:
<TABLE>
<CAPTION>

                                                             1996                             1995
                                                             ----                             ----

                                                                   Weighted                          Weighted
                                                                    Average                           Average
                                                                   Exercise                          Exercise
                                                   Shares            Price           Shares            Price
                                                -----------        ---------       ----------       ---------
         <S>                                    <C>                <C>             <C>               <C>
         Fixed options
         Outstanding at beginning
           of year                               1,294,954           $2.54            613,502         $3.57
         Granted                                   784,375           $2.76            793,132         $1.93
         Exercised                                 245,000           $1.90                  -          -
         Outstanding and exercisable,
           at end of year                        1,708,525           $2.71          1,294,594         $2.54
         Weighted average fair
           value of options granted
           during the year                                           $2.76                            $1.93

</TABLE>

          The range of  exercise  prices is from  $1.80 to $3.50 with a weighted
          remaining contractual life of two years.

         (d)      The  following  table  sets  forth the  components  of the net
                  change in non-cash working capital items related to operations
                  as reflected in the consolidated statement of cash flows under
                  U.S.
                  GAAP.
<TABLE>
<CAPTION>

                                                                         1996                1995           1994
                                                                         ----                ----           ----
                  <S>                                                   <C>             <C>             <C>
                  Add (deduct) non-cash working capital items:
                     Inventories                                        $1,177,475      $(2,529,304)    $     2,562
                     Deferred stripping costs                             (218,130)       1,159,260        (163,897)
                     Other current assets                                 (402,040)         (56,729)       (115,312)
                     Accounts payable                                     (236,992)       3,473,531         390,591
                     Accrued liabilities                                   138,835          729,879         767,357)
                                                                         ---------       ----------       ----------
                                                                        $  459,148       $2,776,637      $ (423,149)
                                                                         =========        =========        =========

</TABLE>

11.      Ownership Interest in Golden Reward Mine

         The  Company  owns a 40%  interest  in  Golden  Reward  Mine,  with the
         remaining  60%  interest  being  owned  by two  subsidiaries  of  Wharf
         Resources  Ltd.  ("Wharf").  The Company's  proportionate  share of the
         partnership's  condensed  statements  of net assets as of December  31,
         1996 and 1995 and condensed statements of operations and cash flows for
         each of the years in the three year period ended  December 31, 1996 are
         as follows:
<TABLE>
<CAPTION>

                                                                  1996                   1995                1994
                                                                  ----                   ----                ----
         Condensed Statements of Net Assets
<S>                                                           <C>                    <C>                 <C>
            Current assets                                      $  569,273             $1,313,421
            Property, plant and equipment, net                   1,264,336             10,047,931
            Other assets                                           575,849                464,193
                                                                ----------           ------------
               Total assets                                      2,409,458             11,825,445
                                                                 ---------             ----------
            Accounts payable and other
               current liabilities                                 486,829                428,777
            Current portion of long-term debt                      358,400                364,400
            Long-term debt                                               -                358,400
            Other long-term liabilities                          1,843,911                370,701
                                                                ----------           ------------
               Total liabilities                                 2,689,140              1,522,278
                                                                ----------            -----------
                                                               $  (279,682)           $10,303,167
                                                                ===========            ==========
         Condensed Statements of Operations:
            Revenues                                             3,957,670              7,309,158           7,418,342
                                                              ------------            -----------         -----------
            Mine cash production costs                           3,003,781              4,363,047           4,796,759
            Royalties                                               96,269                193,720             167,117
            Holding and standby costs                            1,330,026                      -                   -
            Exploration                                             66,535                      -                   -
            Reclamation                                            639,496                208,298             117,472
            Depreciation and depletion                           1,645,603              3,277,390           2,155,086
            Property impairment                                  7,922,116                      -                   -
                                                                 ---------        ---------------     ---------------
               Total operating costs                            14,703,826              8,042,455           7,236,434
                                                                ----------              ---------           ---------
            Operating income (loss)                            (10,746,156)              (733,297)            181,908
            Other income (expense)                                  86,001               (225,334)           (450,137)
                                                              ------------            ------------          ----------
                                                              $(10,660,155)           $  (958,631)         $  268,229)
                                                               ============            ===========          ==========

         Condensed Statements of Cash Flows
         Cash provided by operating activities                 $   280,050            $ 2,668,071        $  1,551,483
         Cash used in investing activities                         (94,663)            (1,058,452)           (483,799)
         Cash used in financing activities                        (364,400)            (1,707,985)         (1,346,654)
                                                                -----------            -----------         -----------
         Net decrease in cash                                     (179,013)               (98,366)           (278,970)
         Cash, beginning of period                                 459,430                557,796             836,766
                                                                 ---------              ---------           ---------
         Cash, end of period                                    $  280,417             $  459,430          $  557,796
                                                                 =========              =========           =========


</TABLE>

         Based  upon  uncertainties   arising  from  the  proximity  of  certain
         unpermitted  reserves to a ski hill, the operator of Golden Reward L.P.
         reflected in the financial  statements of the partnership an impairment
         of its investment in mineral  properties  relating to the Golden Reward
         Mine.  The Company  recorded  this  impairment  of  approximately  $7.9
         million in its 1996  Financial  Statements  after  Golden  Reward  L.P.
         failed to reach an  agreement  regarding  the  acquisition  of  certain
         surface rights owned by the ski hill. Of this amount, $790,477 pertains
         to the write-down of inventory.  During the second quarter of 1996, the
         Company recorded an accrual of $1.7 million,  representing its share of
         reclamation  and other  costs  accrued due to the  cessation  of mining
         operations.

         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.

         For the years ended December 31, 1996,  1995 and 1994,  Wharf Resources
         Management  Inc.,  the operator of Golden  Reward Mine and 60% owner of
         Golden Reward L.P., was reimbursed  $425,000,  $530,000,  and $420,000,
         respectively,  by Golden Reward Mine for  technical and  administrative
         services.


<PAGE>
<TABLE>
<CAPTION>


                                             Quarterly Financial Data
                                                    (unaudited)

                                            March 31           June 30     September 30      December 31          Full Year
                                            --------           -------     ------------      -----------          ---------
1996

<S>                                        <C>               <C>              <C>               <C>             <C>
Revenues                                   $3,196,715        $3,604,052       $9,064,863        $8,690,776      $24,556,406
Operating loss                               (917,139)       (3,379,194)      (9,485,310)       (9,414,383)     (23,196,026)
Other expense                                 (28,294)          171,981           39,514           (56,814)         126,387
Net loss                                     (945,433)       (3,207,213)      (9,446,227)       (9,470,766)     (23,069,639)
Net loss per share                             $(0.04)           $(0.11)          $(0.27)           $(0.27)           $(0.73)

1995

Revenues                                   $1,967,445        $1,480,343       $3,188,095       $10,572,725      $17,208,608
Operating loss                             (1,170,173)       (1,723,899)      (1,100,957)       (4,722,806)      (8,717,835)
Other expense                                 (54,035)           (1,997)         (46,065)         (169,786)        (271,883)
Net loss                                   (1,224,208)       (1,725,896)      (1,147,022)      (4,892,5920       (8,989,718)
Net loss per share                             $(0.06)           $(0.07)          $(0.04)           $(0.18)           $(0.35)

</TABLE>




<PAGE>



ITEM 9:  CHANGES  IN  AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
         FINANCIAL DISCLOSURE

         None.

PART III

         Reference  is made to the  information  set forth  under  the  captions
         "Dakota  Management,"  "Dakota Security Ownership of Certain Beneficial
         Owners," "Dakota Certain  Relationships and Related  Transactions," and
         "Capitalization   and   Description   of  Dakota   Securities"  in  the
         Registrant's definitive Proxy Statement (Registration No. 333-23453) to
         be filed pursuant to Regulation 14A on or before April 30, 1997,  which
         information is hereby incorporated by reference.

PART IVI

ITEM 14:  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

         (a)      Financial Statements

         The Auditors'  Report and Consolidated  Financial  Statements of Dakota
         Mining Corporation are included in Part II, Item 8 of this Form 10-K.

         (b)      Reports on Form 8-K.

                  None

         (c)      Exhibits.

         Exhibits  referenced  herein  and which are not  specifically  included
         herein are included  herein by reference to the document filed with the
         SEC  which  is  set  forth  in  the  parenthetical   contained  in  the
         description of such exhibit.

2.1  Arrangement  Agreement  between  the  Registrant,   VenturesTrident,  L.P.,
     VenturesTrident  II, L.P.,  Holders of the Senior  Exchangeable  Promissory
     Notes and Montreal  Trust  Company of Canada dated June 9, 1993 and Interim
     Order  (see  Schedules  2 and 3 to the  Registrant's  Notice of Annual  and
     Special Meeting of Shareholders  and Management Proxy Circular dated August
     17, 1993).

2.2  Final Order from the Supreme Court of British  Columbia dated September 14,
     1993 (see Exhibit 4-e to the Registrant's  Current Report on Form 8-K dated
     September 15, 1993).

2.3  Arrangement  Agreement  dated  July 31,  1992 by and among the  Registrant,
     United Coin Mines Limited, Moruya Gold Mines of North America, Inc., Moruya
     Gold Mines of South Dakota, Inc. and Dakota Gold Mining Inc. (see Exhibit 1
     to the Registrant's Current Report on Form 8-K dated October 8, 1992).

2.4  Agreement and Plan of Merger dated  February 5, 1997 among the  Registrant,
     Dakota Merger  Corporation  and USMX,  Inc. (see Appendix A to Registrant's
     Registration Statement on Form S-4. File No. 333-23453).

3.1  Pro-Forma  Articles of Continuance of the  Registrant.  (see Exhibit 3.1 to
     the Registrant's Registration Statement on Form S-1, File No. 33-73958).

3.2  Bylaws of the Registrant,  as amended. (see Exhibit 3.2 to the Registrant's
     Registration Statement on Form S-1, File No. 33-73958).

4.1  Specimen  certificate  for Common Stock, no par value (see Exhibit 1 to the
     Registrant's Registration Statement on Form 8-A, as amended, filed with the
     Commission on September 16, 1993).

4.2  Purchase  Warrant  Indenture  dated February 4, 1997 between the Registrant
     and Montreal  Trust Company of Canada (see Exhibit 4.4 to the  Registrant's
     Annual Report on Form 10-K for the year ended December 31, 1995).

4.3  Trust  Indenture  dated  February 4, 1997 between  Registrant  and Montreal
     Trust  Company of Canada  (see  Exhibit  4.3 to  Registrant's  Registration
     Statement on Form S-4, File No. 333-23453).

4.4  Special Warrant Indenture dated February 4, 1997 between the Registrant and
     Montreal  Trust  Company  of  Canada  (see  Exhibit  4.4  to   Registrant's
     Registration Statement Form S-4, File No. 333-23453).

10.1 Cactus Joint Venture  Agreement dated November 1, 1993, among Middle Buttes
     Partners Ltd., CoCa Mines Inc. and Compass  Mining,  Inc. (see Exhibit 10.9
     to the Registrant's  Annual Report on Form 10-K for the year ended December
     31, 1989).

10.2 Limited  Partnership  Agreement of the Golden Reward Mining Company Limited
     Partnership  between  Wharf Gold Mines Inc.,  Dakota  Gold Mining Inc.  and
     Wharf Reward  Mines Inc.  dated  October 8, 1992 (see Exhibit  10.20 to the
     Registrant's  Annual  Report on Form 10-K for the year ended  December  31,
     1992).

10.3 Amending  Agreement dated February 12, 1993 to the Asset Purchase Agreement
     and Limited  Partnership  Agreement  of the Golden  Reward  Mining  Company
     Limited  Partnership between Wharf Gold Mines Inc., Dakota Gold Mining Inc.
     and Wharf Reward Mines Inc. (see Exhibit 10.23 to the  Registrant's  Annual
     Report on From 10-K for the year ended December 31, 1992).

10.4 Employment  Contract  dated May 19, 1991 between the Registrant and Alan R.
     Bell (see Exhibit 10.24 to the Registrant's  Annual Report on Form 10-K for
     the year ended December 31, 1992).

10.5 Employment  Contract  dated June 17, 1991 between the Registrant and Robert
     R. Gilmore (see Exhibit  10.25 to the  Registrant's  Annual  Report on Form
     10-K for the year ended December 31, 1992).

10.6 Amended and Restated  Employees' and Directors'  Share Incentive Plans (see
     Exhibit  28.1 to the  Registrant's  Registration  Statement  on Form S-8 as
     filed with the Commission on September 16, 1993).

10.7 Option for  Services  Agreement  dated  July 21,  1992 by and  between  the
     Registrant  and  CitiBank  N.A.  (see  Exhibit  10.20  to the  Registrant's
     Registration Statement on Form S-1, File No. 33-73958).

10.8 Agreement  for  the  Sale  of  Equipment  and  Personal  Property  and  the
     Resolution  of Contract  Matters  dated  September  30, 1993,  by and among
     Golden Reward Mining Company,  L.P., Wharf Resources Management Inc., Wharf
     Gold Mines,  Inc.,  Dakota Gold Mining,  Inc., Wharf Reward Mines, Inc. and
     Harley Hall, individually and d/b/a Hall Construction Company. (see Exhibit
     10.24 to the  Registrant's  Registration  Statement  on Form S-1,  File No.
     33-73958).  10.9 Net Smelter Return Royalty  Agreement  dated March 8, 1995
     between the  Registrant,  Brohm  Mining  Corp.  and  Repadre  International
     Corporation  (see Exhibit 10.17 to the  Registrant's  Annual Report on Form
     10-K for the year ended December 31, 1994).

10.10Demand Note as Proof of  Financial  Assurance  dated March 16, 1995 between
     the  Registrant,  MinVen Gold (U.S.A.)  Corporation  and the State of South
     Dakota.  (See Exhibit 10.20 to the Registrant's  Annual Report on Form 10-K
     for the year ended December 31, 1994.

10.11Stock  Option  Agreement   between   Registrant  and  Gerald  Metals  dated
     September 21, 1995 (see Exhibit 10.15 to the Registrant's  Annual Report on
     Form 10-K for the year ended December 31, 1996).

10.12Agency  Agreement  dated February 4, 1997 among the  Registrant,  Canaccord
     Capital  Corporation,  Scotia McLeod,  Inc. and Newcrest  Capital Inc. (see
     Exhibit 10.13 to Registrant's  Registration Statement on Form S-4, File No.
     333-23453).

10.13*  Amended  and  Restated  Loan  Agreement  dated  March 20,  1997  between
     Registrant  and  Gerald  Metals,  Inc.  regarding  a $7.5  million  working
     capital, refinancing and hedging facility.

10.14Support  Agreement dated February 4, 1997 among the Registrant,  USMX, Inc.
     and Pegasus Gold Inc. (see Exhibit  10(b) to Current  Report on Form 8-K of
     USMX, Inc. dated February 4, 1997)

10.15Option  Agreement  dated February 4, 1997 from USMX, Inc. to the Registrant
     (see  Exhibit  10(a) to  Current  Report  on Form 8-K of USMX,  Inc.  dated
     February 4, 1997).

10.16Loan Agreement  dated March 11, 1997 among the  Registrant,  USMX, Inc. and
     USMX of  Alaska,  Inc.  (see  Exhibit  10.17 to  Registrant's  Registration
     Statement on Form S-4, File No. 333-23453).

10.17Mortgage  dated  March 11,  1997 from USMX,  Inc.  to the  Registrant  (see
     Exhibit 10.18 to Registrant's  Registration Statement on Form S-4, File No.
     333-23453).

10.18Intercreditor  Agreement  dated March 11, 1997 between the Registrant and N
     M Rothschild & Sons Limited (see Exhibit 10.19 to Registrant's Registration
     Statement on Form S-4, File No. 333-23453).

11.1* Statement re: Computation of Per Share Earnings.

21.1* Subsidiaries of the Registrant.

23.1*Consent of KPMG,  Chartered  Accountants,  with  respect  to the  Financial
     Statements of the Registrant.

23.2* Consent of Glenn R. Clark & Associates Limited

23.3* Consent of DMBW, Inc.

*Filed herewith.


<PAGE>



GLOSSARY OF CERTAIN MINING TERMS

         The  following  is a  glossary  of some of the terms used in the mining
         industry and referenced herein:

         "Adsorption"  A process in which  soluble  complexes of gold and silver
         physically   adhere  without  chemical  reaction  to  activated  carbon
         particles.

         "Contained  Gold" The total measurable gold or gold equivalent in grams
         or  ounces  estimated  to be  contained  within a  mineral  deposit.  A
         calculation or estimate of contained gold makes no allowance for mining
         dilution or recovery losses.

         "Cut off grade" The grade of  mineralization,  established by reference
         to  economic  factors,  above  which  material  is  included in mineral
         deposit  reserve/resource  calculations and below which the material is
         considered  waste. May be either an external cut-off grade which refers
         to the grade of  mineralization  used to control the external or design
         limits of an open pit based upon the expected  economic  parameters  of
         the operation, or an internal cut-off grade which refers to the minimum
         grade required for blocks of mineralization present within the confines
         of an open pit to be included in mineral deposit estimates.

         "Desorption" A process in which gold and silver  physically  adhered to
         carbon particles in the adsorption process are stripped from the carbon
         particles using a weak acid solution.

         "Gold  Deposit" A mineral  deposit  mineralized  with gold but  without
         reference to its potential economics.

         "Gold  Equivalent"  A method of  presenting  combined  gold and  silver
         concentrations  or weights for comparison  purposes.  Commonly involves
         expressing  silver  as its  proportionate  value  in gold  based on the
         relative  values of the two  metals.  When gold  equivalent  is used to
         express metal sold, the calculation is based on actual prices received.
         When grades are expressed in gold equivalent,  the relative  recoveries
         of the two metals are also taken into account.

         "Grade"  The  amount of  valuable  mineral  in each ton of  mineralized
         material,  expressed as troy ounces (or grams) per ton or tonne of gold
         or as a percentage of copper and other base metals.

         "Heap  Leaching"  A  method  of gold  and  silver  extraction  in which
         mineralized material is heaped on an impermeable pad and sodium cyanide
         solution is applied to the material.  The gold and silver are dissolved
         out of the material as the solution  percolates  down through the heap,
         the pregnant solution is collected from below the heap and the gold and
         silver  are  precipitated  from the  pregnant  solution  in  vessels or
         columns containing activated carbon or zinc powder.

         "Leach Pad" A large,  impermeable  foundation or pad used as a base for
         ore during heap  leaching.  The pad  prevents the leach  solution  from
         escaping out of the circuit.

         "Lode Mining  Claim" A mining claim located on a vein or lode of quartz
         or other rock in place,  bearing gold,  silver,  cinnabar,  tin,  lead,
         copper, or other valuable deposits.

         "Mineral Deposit,  Deposit, or Mineralized Material" A mineralized body
         which has been physically delineated by sufficient drilling, trenching,
         and/or  underground  work,  and found to contain a  sufficient  average
         grade  of  metal  or  metals  to  warrant  further  exploration  and/or
         development  expenditures.  Such a deposit  does not qualify  under SEC
         standards  as a  commercially  mineable ore body or as  containing  ore
         reserves,  until final legal, technical, and economic factors have been
         resolved.

         "Net Smelter  Return  Royalty" A royalty  payment made by a producer of
         metals, usually to a previous property owner or Governmental authority,
         based on the value of gross metal  production  from the property,  less
         deduction  of  certain  limited  costs  including  smelting,  refining,
         transportation and insurance costs.

         "Net Profits  Interest  Royalty" A royalty payment made by the producer
         of metals, usually to a property owner or Governmental authority, based
         on the  value  of  gross  metal  production  from  the  property,  less
         deduction of certain costs including smelting, refining, transportation
         and  insurance  costs  (often  referred to as  realization  costs) plus
         direct  operating costs associated with the mining and treatment of ore
         and the mining of associated waste.

         "Open Pit  Mining"  The  process of mining ore body from the surface in
         progressively  deeper steps.  Sufficient waste rock adjacent to the ore
         body is removed to maintain mining access and to maintain the stability
         of the resulting pit.

         "Ore" A natural aggregate of one or more minerals which, at a specified
         time and place,  may be mined and sold at a profit,  or from which some
         part may be profitably separated.

         "Ounce (Oz)"  Troy ounce.

         "Oxidized Ore (Also Referred to as "Oxide Ore")" Mineralized rock which
         can be profitably mined and in which some of the original minerals have
         been  oxidized by natural  processes.  Oxidation  tends to make the ore
         more porous and permits a more complete permeation of cyanide solutions
         so that minute  particles  of gold in the  interior of the rock will be
         more readily dissolved.

         "Oz/ton (Opt)"  Troy ounces per short ton.

         "Patented Mining Claim" A mining claim on the public land of the United
         States,  under the  mining  laws,  for which a patent  has been  issued
         conveying the title of the United States to the patentees.

         "Porphyritic"  A rock  texture in which one mineral has a larger  grain
         size than the accompanying minerals.

         "Probable  Reserves"  Reserves  for which  quantity  and  grade  and/or
         quality 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.

         "Proven/probable  Reserves" A term used if the  difference in degree of
         assurance between the proven and probable categories cannot be reliably
         defined.

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

         "Reserve" That part of a mineral deposit which can be economically  and
         legally extracted or produced at the time of the reserve determination.
         Reserves  are  customarily  stated in terms of "ore" when  dealing with
         metalliferous minerals.

         "Reverse  Circulation  Holes" Exploration drill holes in which the fine
         and coarse rock chips created  during  drilling are rapidly  flushed to
         the surface so that a representative sample can be obtained.

         "Stock" A body of intrusive rock that covers less than 40 square miles,
         has steep dips and is generally discordant with surrounding rock.

          "Strike Length" The longest horizontal dimensions of a body or zone of
          mineralization.

          "Stripping  Ratio"  The  ratio  of  waste  material  to  ore  that  is
          experienced in mining an ore body.

         "Unpatented Mining Claim" A mining claim located on the public lands of
         the  United  States,  for  which a  patent  has  not  been  issued.  An
         unpatented mining claim is a possessory  interest only,  subject to the
         paramount  title of the United  States.  The validity of an  unpatented
         mining claim depends upon the existence of a valuable  mineral  deposit
         within the boundaries of the claim and compliance with mining codes.



<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, effective
March 22, 1996.

DAKOTA MINING CORPORATION
Registrant

By:       c/s Alan R. Bell                      By:        c/s Robert R. Gilmore
         Alan R. Bell, President and         Robert R. Gilmore - Vice President,
         Chief Executive Officer             Finance and Chief Financial Officer


         Pursuant to the  requirements  of the  Securities  Exchange Act of 1934
this report has been signed below by the following  persons in counterpart which
taken  together  shall  constitute  execution on behalf of the Registrant on the
dates indicated.


Date:    March 26, 1996                      By:   c/s    Alan    R.  Bell
------------------------                        --------------------------------
                                                   Alan R. Bell, Director



Date:                                        By:

                                                  Landon T. Clay, Director

Date:    March 26 1996                       By:   c/s    Stanley  Dempsey
-----------------------                        ----------------------------
                                                   Stanley Dempsey, Director

Date:    March 26, 1996                      By:    c/s Edward G. Thompson
-----------------------                       -----------------------------
                                                Edward G. Thompson, Director

Date:                                        By:

                                                 Tor Jensen, Director