<PAGE>

                   UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                               WASHINGTON, D.C.  20549

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

                                      FORM 10-Q

(Mark One)
   /X/      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
            FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996


                                          OR

   / /      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                           SECURITIES EXCHANGE ACT OF 1934

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

                            COMMISSION FILE NUMBER 0-12207


                                  PEGASUS GOLD INC.
                (Exact name of registrant as specified in its charter)



       PROVINCE OF BRITISH COLUMBIA                                 NONE
      (State or other jurisdiction of                        (I.R.S. Employer
       incorporation or organization)                        Identification No.)

601 W. FIRST AVE., SUITE 1500, SPOKANE, WASHINGTON               99204
    (Address of principal executive offices)                   (Zip Code)

                                    (509) 624-4653
                 (Registrant's telephone number, including area code)


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

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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:

                                      41,080,460
          Common Shares, without par value, outstanding at October 31, 1996

<PAGE>

                                  PEGASUS GOLD INC. 
                                      FORM 10-Q
                       FOR THE QUARTER ENDED SEPTEMBER 30, 1996
                                           
                                        INDEX

                            PART I. FINANCIAL INFORMATION
                                                                            Page
Item #1
         CONSOLIDATED BALANCE SHEETS
              SEPTEMBER 30, 1996, AND DECEMBER 31, 1995                        3
    
         CONSOLIDATED STATEMENTS OF OPERATIONS 
              THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1996,
              AND 1995                                                         4

         CONSOLIDATED STATEMENTS OF CASH FLOWS
              NINE MONTHS ENDED SEPTEMBER 30, 1996, AND 1995                   5

         CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
              NINE MONTHS ENDED SEPTEMBER 30, 1996, AND
              YEAR ENDED DECEMBER 31, 1995                                     6

         NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                            7

Item #2
         MANAGEMENT'S DISCUSSION AND ANALYSIS OF 
              FINANCIAL CONDITION AND RESULTS OF OPERATIONS                   11

                             PART II. OTHER INFORMATION 
                                           
Item #1  
         LEGAL PROCEEDINGS                                                    17

Item #6
         EXHIBITS AND REPORTS ON FORM 8-K                                     17
         
         SIGNATURES                                                           18


In this Report, unless otherwise indicated, all dollar amounts are expressed 
in U.S. Dollars.

<PAGE>

                                  PEGASUS GOLD INC.
                             CONSOLIDATED BALANCE SHEETS
                      September 30, 1996, and December 31, 1995
                                    (In Thousands)

                                                             1996       1995
                                                           ---------  --------
                                        ASSETS
Current assets:
     Cash and cash equivalents                                $7,848   $32,907
     Short-term investments                                      ---    20,083
     Due from sales of products                               30,557    28,545
     Inventories                                              53,375    38,590
     Other current assets                                     10,168     9,549
                                                           ---------  --------
          Total current assets                               101,948   129,674

Investments                                                   29,991    18,679
Property, plant, and equipment, net                          587,274   427,112
Other assets                                                   5,664     4,776
                                                           ---------  --------
          Total assets                                      $724,877  $580,241
                                                           ---------  --------
                                                           ---------  --------

                                     LIABILITIES
Current liabilities:
     Accounts payable and other current liabilities          $27,267   $20,281
     Accrued salaries, wages, and benefits                     8,907     9,223
     Mining taxes payable                                      5,595     5,397
     Current portion of obligations under capital lease        3,531     3,015
     Current portion of long-term debt                           ---    12,719
                                                           ---------  --------
          Total current liabilities                           45,300    50,635
     
Long-term debt                                               172,997   121,099
Capital lease obligations                                     23,968    22,792
Deferred income taxes                                         44,231    44,901
Deferred site closure and remediation                         48,546    38,180
Deferred revenue                                               8,268     9,188
Other deferred liabilities                                     7,002     4,742
                                                           ---------  --------
          Total liabilities                                  350,312   291,537
                                                           ---------  --------
                                                           ---------  --------

Commitments and contingencies (Note 5)

                                 SHAREHOLDERS' EQUITY

Class A preferred shares, Series 1, C$10 par value:
     Authorized - 20,000,000 shares; none issued
Common shares, without value:
     Authorized - 200,000,000 shares; issued
     and outstanding, 1996 - 41,073,048 shares
     and 1995 - 34,825,203 shares                            425,209   334,214
Accumulated deficit                                          (58,623)  (49,131)
Foreign currency translation adjustment                        7,979     3,621
                                                           ---------  --------
          Total shareholders' equity                         374,565   288,704
                                                           ---------  --------
          Total liabilities and shareholders' equity        $724,877  $580,241
                                                           ---------  --------
                                                           ---------  --------

The accompanying notes are an integral part of the consolidated financial 
statements.


                                       3
<PAGE>

                                  PEGASUS GOLD INC.
                        CONSOLIDATED STATEMENTS OF OPERATIONS
       For the Three Months and Nine Months Ended September 30, 1996, and 1995
                       (In Thousands Except Per Share Amounts)

<TABLE>
<CAPTION>
                                                               Three Months Ended       Nine Months Ended
                                                                  September 30,           September 30,
                                                               ------------------       -----------------
                                                                 1996      1995           1996      1995
                                                                -------   -------       --------  --------
<S>                                                             <C>       <C>           <C>       <C>

Sales                                                           $66,441   $69,493       $172,189  $187,167

Cost of sales                                                    48,197    47,830        124,011   129,239
Depreciation and amortization                                    14,531    11,800         33,793    30,010
                                                                -------   -------       --------  --------
                                                                 62,728    59,630        157,804   159,249
                                                                -------   -------       --------  --------
                                                                -------   -------       --------  --------

Gross profit                                                      3,713     9,863         14,385    27,918
                                                                -------   -------       --------  --------

Operating expenses:
     General and administrative                                   3,254     2,791          9,919     9,338
     Royalties                                                    1,360     1,481          3,616     4,317
     Exploration and evaluation                                   1,492     3,530          5,100    14,790
     Closure, remediation and related costs                       6,742       923          7,742     1,918
     Care and maintenance                                           385       ---            843       ---
     Attempted business combination costs                           506       ---            506       ---
                                                                -------   -------       --------  --------
                                                                 13,739     8,725         27,726    30,363
                                                                -------   -------       --------  --------
                                                                -------   -------       --------  --------

Income (loss) from operations                                   (10,026)    1,138        (13,341)   (2,445)
                                                                -------   -------       --------  --------

Other income (expense):
     Interest and other income                                      781     1,446          3,123     4,732
     Interest expense, net of amounts capitalized                  (672)   (1,757)        (2,506)   (5,073)
     Equity in net income (loss) of affiliates                    3,091      (793)         3,589    (1,089)
     Gain (loss) on disposition of assets                            14         6           (156)       20
                                                                -------   -------       --------  --------
                                                                  3,214    (1,098)         4,050    (1,410)
                                                                -------   -------       --------  --------

Minority interest in loss of subsidiary                             ---        66            ---       948
                                                                -------   -------       --------  --------

Income(loss) before income taxes                                 (6,812)      106         (9,291)   (2,907)
Income tax provision                                                980       ---            201       ---
                                                                -------   -------       --------  --------

Net income (loss)                                               $(7,792)     $106        $(9,492)  $(2,907)
                                                                -------   -------       --------  --------
                                                                -------   -------       --------  --------

Net income (loss) per share                                      $(0.19)    $0.00         $(0.23)   $(0.08)
                                                                -------   -------       --------  --------
                                                                -------   -------       --------  --------

Weighted average common shares outstanding                       41,135    34,836         40,679    34,753
                                                                -------   -------       --------  --------
                                                                -------   -------       --------  --------
</TABLE>


The accompanying notes are an integral part of the consolidated financial 
statements.

                                       4
<PAGE>

                                  PEGASUS GOLD INC.
                        CONSOLIDATED STATEMENTS OF CASH FLOWS
                For the Nine Months Ended September 30, 1996, and 1995
                                    (In Thousands)

                                                                 1996    1995
                                                              -------   -------
Operating activities:
Net loss                                                      $(9,492)  $(2,907)
     Adjustments to reconcile net loss to
     net cash provided by operating activities:
       Depreciation and amortization                           34,209    30,462
       Provision for closure, remediation and related costs     7,742       ---
       Other, net                                              (4,545)   (2,728)
     Change in working capital accounts                       (12,925)    9,919
                                                              -------   -------
Net cash provided by operating activities                      14,989    34,746
                                                              -------   -------

Investing activities:
     Additions to property, plant, and equipment, net        (180,741)  (27,988)
     Sale of property, plant, and equipment                     3,881       ---
     Sale of short-term investments                            20,083       ---
     Purchase of investments                                   (8,585)  (33,288)
     Acquisition of additional investment in subsidiary           ---  (105,309)
                                                              -------   -------
Net cash used in investing activities                        (165,362) (166,585)
                                                              -------   -------

Financing activities:
     Proceeds from issuance of long-term debt                  57,957   118,893
     Proceeds from issuance of common shares                   90,994     1,376
     Payments of long-term debt                               (19,189)  (38,286)
     Debt issuance costs                                       (1,811)   (3,643)
     Payments of obligations under capital lease               (1,732)      ---
                                                              -------   -------
Net cash provided by financing activities                     126,219    78,340
                                                              -------   -------

Effect of exchange rate changes on cash and cash equivalents     (905)     (452)
                                                              -------   -------

Net decrease in cash and cash equivalents                     (25,059)  (53,951)
Cash and cash equivalents, beginning of period                 32,907    89,316
                                                              -------   -------

Cash and cash equivalents, end of period                       $7,848   $35,365
                                                              -------   -------
                                                              -------   -------

The accompanying notes are an integral part of the consolidated financial 
statements.

                                       5

<PAGE>

                                  PEGASUS GOLD INC.
              CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                   For the Nine Months Ended September 30, 1996, and
                           the Year Ended December 31, 1995
                                    (In Thousands)

<TABLE>
<CAPTION>
                                                Common Shares       Retained     Foreign
                                             -------------------    Earnings     Currency
                                                    Number of     (Accumulated  Translation
                                               Shares     Amount     Deficit)    Adjustment
                                             ----------  --------  -----------  -----------
<S>                                          <C>         <C>       <C>          <C>
Balance, December 31, 1994                   34,629,523  $332,110   $(46,178)      $6,410

Net loss                                                              (2,953)

Common shares issued for:
     Stock option plan                          157,925     1,686
     Employee savings plan and other             37,755       418

Foreign currency translation adjustment                                            (2,789)
                                             ----------   --------  --------       ------

Balance, December 31, 1995                   34,825,203   334,214    (49,131)       3,621

Net loss                                                              (9,492)

Common shares issued for:
     Cash                                     6,000,000    88,238
     Stock option plan                          234,217     2,589
     Employee savings plan and other             13,628       168

Foreign currency translation adjustment                                             4,358
                                             ----------   --------  --------       ------

Balance, September 30, 1996                  41,073,048   $425,209  $(58,623)      $7,979
                                             ----------   --------  --------       ------
                                             ----------   --------  --------       ------
</TABLE>

The accompanying notes are an integral part of the consolidated financial 
statements.

                                       6

<PAGE>

                                  PEGASUS GOLD INC.
                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   The Company, which is organized in British Columbia, presents all financial
     statements in United States dollars and under generally accepted accounting
     principles as practiced in the United States.

2.   These unaudited consolidated financial statements should be read in
     conjunction with the financial statements and notes thereto included in the
     Company's Annual Report on Form 10-K.  In the opinion of management, the
     financial information set forth in the accompanying unaudited interim
     consolidated financial statements reflects all adjustments necessary for a
     fair statement of the periods reported, and all such adjustments were of a
     normal and recurring nature.
     
3.   INVENTORIES

Inventories consist of the following:
                                                          Sept. 30,    Dec. 31,
                                                            1996         1995
                                                          ---------    --------
       (IN THOUSANDS)
     Processed metals                                         $288        $107
     Stockpiled ore                                          4,988       3,435
     Deferred mining costs                                  39,041      27,781
     Materials and supplies                                  9,058       7,267
                                                           -------     -------
                                                           $53,375     $38,590
                                                           -------     -------
                                                           -------     -------

4.   SHAREHOLDER'S EQUITY

In January 1996, the Company completed a public offering in the U.S. and Canada
for 6,000,000 Common Shares at a price of C$21.00 per share (US$15.38).  The net
proceeds to the Company, after deducting expenses, were $88.2 million.  The
proceeds were used to fund portions of the Mt. Todd Phase II, Pullalli and
Zortman Extension capital projects, and for other general corporate purposes.

5.   COMMITMENTS AND CONTINGENCIES

HEDGED PRODUCTION

At September 30, 1996, the Company's hedging program consists of the following:

                                                           Average
                                                            Price       Delivery
                                                           Per Unit      Period
                                                           --------    ---------
     GOLD
          Forward sales                 710,000 ounces       $452      1996-2001
          Call options sold             525,000 ounces       $479      1996-2001
          Put options purchased         460,000 ounces       $410      1996-2001
     SILVER
          Forward sales               2,562,000 ounces      $5.14      1996-2001
     LEAD
          Forward sales               3,142,000 pounds      $0.29        1996
     ZINC      
          Forward sales               6,035,000 pounds      $0.49        1996

                                       7

<PAGE>

                               PEGASUS GOLD INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 5.       COMMITMENTS AND CONTINGENCIES, CONTINUED:

COMMON SHARES ISSUABLE

At September 30, 1996, a total of 11,294,044 Common Shares of authorized 
common stock were reserved for the following:

     Convertible notes                           7,709,067 
     Stock options                               3,490,816
     Employee savings plan                          94,161
                                                ----------
                                                11,294,044
                                                ----------
                                                ----------

ZORTMAN EXTENSION

A plan of operation for the Zortman Extension was submitted to the regulatory 
agencies in May 1992.  The Final Environmental Impact Statement (FEIS) was 
issued in March 1996, of the Record of Decision on the FEIS was approved on 
October 25, 1996.  Mining operations ceased during the first quarter and will 
not commence again until a twelve month construction period of the Zortman 
Extension Project is substantially complete; construction is not planned 
until 1997.  Gold production will continue from leaching ore previously mined 
and loaded on the heap leach pads, but at a significantly reduced rate.  

LEGAL PROCEEDINGS

In 1993, the Department of Health and Environmental Sciences of the State of 
Montana (DHES) filed a complaint in Montana First Judicial District Court 
against Pegasus Gold Corporation and Zortman Mining, Inc., alleging discharge 
of pollutants in violation of the Montana Water Quality Act.  On June 6, 
1995, a lawsuit filed by the U.S. Environmental Protection Agency (EPA) in 
United States District Court for the District of Montana alleged similar 
violations under the Federal Clean Water Act.  On June 6, 1995, an 
organization calling itself Island Mountain Protectors and the Assiniboine 
and Gros Ventre Tribes filed citizens' suits in the same court alleging 
similar violations as well as violations of discharge reporting requirements 
and claiming injury to certain water rights. During the third quarter, a 
Consent Decree was entered by the Court in Montana settling all outstanding 
litigation.  Under the terms of this Consent Decree, and without ascribing 
liability, the Company paid a civil penalty of $2,000,000 divided equally 
between the Federal Government and the State of Montana and created a 
$1,000,000 trust fund for the Fort Belknap tribes to finance projects 
identified by the Fort Belknap Community Council. 

The Company has also agreed to finance three supplemental environmental 
projects over the next three years at an estimated cost of $1,500,000.  In 
addition, during 1996 and 1997, the Company will upgrade existing facilities 
and construct new facilities which capture and treat mine-impacted waters, 
construct a second water treatment plant and undertake additional ground and 
surface water quality monitoring and analysis.

                                     8

<PAGE>

                               PEGASUS GOLD INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

5.   COMMITMENTS AND CONTINGENCIES, CONTINUED:

In addition to the above, various lawsuits, claims, and proceedings have been 
or may be instituted or asserted against the Company.  While the ultimate 
liability cannot be determined at this time, management believes the 
disposition of the matters described above and other matters that are pending 
or asserted will not have a material adverse effect on the financial position 
of the Company or its results of operations.

Based on the Company's best estimate of its liability for these and other 
matters, $3,499,000 and $5,425,000  were included in deferred site closure 
and remediation for such liabilities at September 30, 1996, and December 31, 
1995, respectively.

RECLAMATION AND ENVIRONMENTAL REMEDIATION

All of the Company's operations are subject to reclamation and closure 
requirements.  During the third quarter, the Company increased its estimate 
of the future costs to reclaim and close the Beal Mountain Mine from $7,800,000 
to $16,210,000 and recorded a $6,500,000 provision for final reclamation.  
Increased cost estimates at Beal result from changes in mine plans and the 
periodic update of final reclamation estimates.  With this provision, and 
additional reclamation amortization at Beal during the third quarter, all 
expected reclamation expenditures at Beal are now accrued. 

In the second quarter, the Company increased its estimate of 
the future cost to close and reclaim the Zortman Mine from $21,787,000 to 
$41,826,000 , of which $9,357,000 had been accrued at September 30, 1996.  
The remaining amount will be charged to operations over the life of the mine, 
on a units of production basis.

Technical and legal requirements associated with reclamation and closure are 
evolving as liabilities are evaluated.  It is reasonably possible that the 
ultimate financial liability for these matters could exceed the amount accrued 
at September 30, 1996.


PURCHASE COMMITMENTS

At September 30, 1996, the Company had capital expenditure purchase 
commitments relating to the construction at Mt. Todd and Pullalli, of 
approximately $20,544,000 and $6,748,000 respectively. 

6.   LONG-TERM DEBT

During the first quarter of 1996, Pegasus Gold Australia Pty Ltd. (PGA) 
elected to prepay the entire A$25,300,000 (US$19,189,000) outstanding under 
its bank term loan and overdraft facility.  No gain or loss resulted from the 
prepayment.

On April 19, 1996, the Company entered into a multi-currency reducing 
revolving credit facility with a syndicate of banks which provides for 
borrowings of up to $150,000,000.  Borrowing under the facility may occur in 
the U.S., Canada and Australia, and in U.S., Canadian or Australian dollars 
with certain restrictions.  Amounts borrowed under the facility bear interest 
at various rates (depending on the location of the borrowing) plus a spread 
tied to the Company's performance.  The annual interest rate spread over 
these rates ranges from 0.65 percent to 1.75 percent.  In addition, the 
Company is obligated to pay letter of credit fees which range from 0.65 
percent per annum to 1.75 percent per annum on the aggregate amount of 
outstanding letters of

                                 9
<PAGE>


                               PEGASUS GOLD INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6.   LONG-TERM DEBT, CONTINUED:

credit, and commitment fees which range from 0.20 percent per annum to 0.50 
percent per annum on the unused amount of the revolving credit facility.  The 
amount available under the facility reduces annually, commencing in 1999, as 
follows:

     (IN THOUSANDS)
     1999                                  $ 20,000
     2000                                    35,000
     2001                                    45,000
     2002                                    50,000
                                           --------
                                           $150,000
                                           --------
                                           --------

Indebtedness under the facility is collateralized by a pledge of the shares 
of the Company's significant subsidiaries.  The agreement includes 
restrictive covenants with respect to leverage ratios, interest coverage, 
tangible net worth, ore reserve adequacy and gold hedging.  Funds available 
under the facility will be used to finance capital expenditures, for letters 
of credit and for general corporate purposes.  At September 30, 1996, 
$57,997,000 was outstanding under the facility.

                                   10

<PAGE>

                   MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

OVERVIEW

The Company recorded a net loss of $7.8 million ($0.19 per share) in the 
third quarter, including a provision of $6.5 million ($0.16 per share) for 
final reclamation costs.  Excluding the effect of this provision, the Company 
would have recorded a net loss of $1.3 million ($0.03 per share) for the 
third quarter of 1996, compared to net income of $0.1 million ($0.00 per 
share) during the same period in 1995.  For the nine months ended September 
30, 1996, the Company recorded a net loss of $9.5 million ($0.23 per share), 
compared to a net loss of $2.9 million ($0.08 per share) for the same period 
in 1995.

For the third quarter, the net loss, before the provision for final 
reclamation costs, increased compared to the same period of 1995 primarily 
because of a 23 percent increase in depreciation and amortization, an 8 
percent decline in gold production, costs incurred in connection with a 
proposed merger, and a 12 percent increase in the cash cost per ounce of 
production.  These factors were offset partially by a 5 percent increase in 
realized gold prices, a $2.0 million reduction in exploration and evaluation 
expenses, the Company's proportionate share of earnings from affiliates, and 
the capitalization of interest on construction projects. 

For the year to date, the net loss, before the provision for final 
reclamation costs, is essentially unchanged from the prior year as 6 percent 
higher realized gold prices, a $9.7 million reduction in exploration and 
evaluation expenses and the Company's share of earnings from affiliates have 
been offset by a 13 percent decrease in gold production, lower by-product 
revenues, and an 11 percent increase in cash costs.  Gold production of 
137,628 ounces and 351,248 ounces for the third quarter and year to date, 
respectively, compare to gold production of 149,957 ounces and 404,346 ounces 
for the same periods in 1995.

GOLD PRODUCTION

The following chart details gold production, cash production costs, and 
non-cash operating costs per ounce by location.

                                     Three Months Ended  Nine Months Ended
                                         September 30,      September 30,
                                     ------------------    ---------------
                                       1996       1995      1996      1995
                                      ------      ------    -----     -----

ZORTMAN MINE:
Ounces of gold produced                8,952     28,767    29,223    81,078
Average cost per ounce produced:
Cash production cost                    $384       $271      $323      $276
     Depreciation and amortization       125        129       119       101
     Royalties                            --          3        --         6
                                      ------      ------    -----     -----
Total Production Cost                   $509       $403      $442      $383
                                      ------      ------    -----     -----
                                      ------      ------    -----     -----

MONTANA TUNNELS MINE:
Ounces of gold produced               18,827      23,483   56,709    66,905
Average cost per ounce produced:
     Cash production cost               $277        $188     $238      $180
     Depreciation and amortization       177         138      164       140
     Royalties                            12           9       10        10
                                      ------      ------    -----     -----
Total Production Cost                   $466        $335     $412      $330
                                      ------      ------    -----     -----
                                      ------      ------    -----     -----

                                         11


<PAGE>
                                     Three Months Ended  Nine Months Ended
                                         September 30,      September 30,
                                     ------------------    ---------------
                                       1996       1995      1996      1995
                                      ------      ------    -----     -----
FLORIDA CANYON MINE:
Ounces of gold produced               53,669      25,079  118,663    79,637
Average cost per ounce produced:
     Cash production cost               $266        $276     $261      $267
     Depreciation and amortization        59          30       65        29
     Royalties                            10          12       10        12
                                      ------      ------    -----     -----
Total Production Cost                   $335        $318     $336      $308
                                      ------      ------    -----     -----
                                      ------      ------    -----     -----

BEAL MOUNTAIN MINE:
Ounces of gold produced               15,351      19,831   31,925    40,895
Average cost per ounce produced:
     Cash production cost               $410        $286     $354      $285
     Depreciation and amortization       267          67      183        90
     Royalties                             4           7        3        10
                                      ------      ------    -----     -----
Total Production Cost                   $681        $360     $540      $385
                                      ------      ------    -----     -----
                                      ------      ------    -----     -----

BLACK PINE MINE:
Ounces of gold produced               21,590      31,765   64,244    84,312
Average cost per ounce produced:
     Cash production cost               $251        $253     $263      $246
     Depreciation and amortization        38          51       35        39
     Royalties                            23          23       24        22
                                      ------      ------    -----     -----
Total Production Cost                   $312        $327     $322      $307
                                      ------      ------    -----     -----
                                      ------      ------    -----     -----

MT. TODD:
Ounces of gold produced               19,239      21,032   50,484    51,519
Attributable to Pegasus 2             19,239      18,302   50,484    35,983
Average cost per ounce produced:
     Cash production cost               $313        $326     $386      $330
     Depreciation and amortization       103          55      101        62
     Royalties                             4          --        1        --
                                      ------      ------    -----     -----
Total Production Cost                   $420        $381     $488      $392
                                      ------      ------    -----     -----
                                      ------      ------    -----     -----

CONSOLIDATED TOTALS:
Ounces of gold produced              137,628     149,957  351,248   404,346
Attributable to Pegasus 2            137,628     147,227  351,248   388,810
Average cost per ounce produced:
     Cash production cost               $296        $265     $289      $260
     Depreciation and amortization       105          79       97        74
     Royalties                            10          10       10        11
                                      ------      ------    -----     -----
Total Production Cost                   $411        $354     $396      $345
                                      ------      ------    -----     -----
                                      ------      ------    -----     -----

Average price per ounce sold            $429        $409     $427      $403
                                        ------      ------    -----     -----
                                        ------      ------    -----     -----

1    Cash production costs include all operating costs at the mines, including
     overhead and applicable mining taxes and credit for by-product revenues.

2    The Company's ownership percentage in Pegasus Gold Australia was 58 
     percent through July 1995, 100 percent since August 1995.

                                   12

<PAGE>

REVENUES

GOLD: Revenue from the sale of gold decreased 4 percent to $59.0 million for 
the third quarter, compared to $61.4 million for the third quarter of 1995.  
Lower revenues are attributable to an 8 percent decline in production offset 
partially by a 5 percent increase in the realized price per ounce.  Lower 
overall production is attributable primarily to the planned interruption of 
mining at Zortman and lower ore grades at Montana Tunnels, Beal Mountain and 
Black Pine, offset partially by increased production at Florida Canyon 
relating to an increase in ore volume.

Year-to-date revenue from the sale of gold was $149.9 million, or 8 percent 
lower than in the first nine months of 1995.  The decrease is primarily 
attributable to a 13 percent decline in gold produced for the period, offset 
partially by a 6 percent increase in the realized price for the period.  
Lower production for the nine-month period is attributable to the factors 
discussed above.

The average realized gold prices for the quarter and nine months ended 
September 30, 1996, were $429 and $427 per ounce, respectively, compared to 
$409 and $403 for the same periods in 1995.  Increased realized prices 
reflect higher spot gold prices during the first half of 1996, the impact of 
higher priced contracts entered into early in 1996, and higher realized U.S. 
Dollar prices on Australian Dollar denominated sales resulting from the 
Company's currency protection program.

OTHER METALS: Sales of other metals decreased 9 percent to $7.4 million for 
the third quarter, compared to $8.1 million during the third quarter of 1995. 
Lower revenue reflects lower production of zinc and silver resulting from 
lower mill feed grades at Montana Tunnels and lower silver prices, offset 
partially by higher lead production and prices for the period.  Realized 
prices were $5.37 per ounce, $0.47 per pound, and $0.31 per pound for silver, 
zinc, and lead, respectively; compared to $4.94, $0.44, and $0.27, 
respectively, in the third quarter of 1995.  

Year-to-date revenue from the sale of other metals decreased 8 percent to 
$22.2 million compared to the first nine months of 1995.  Lower revenue is 
attributable primarily to lower production of zinc, lead and silver at 
Montana Tunnels.  Realized prices were $5.32 per ounce, $0.49 per pound, and 
$0.28 per pound for silver, zinc, and lead, respectively, compared to $5.04, 
$0.45, and $0.27, respectively, in the first nine months of 1995.  

OPERATING COSTS

Consolidated cost of sales for the third quarter increased slightly from 
$47.8 million in 1995 to $48.2 million in 1996.  Year to date, cost of sales 
decreased 4 percent to $124.0 million compared to $129.2 million in 1995.  
The average cash cost of production was $296 and $289 per ounce for the third 
quarter and year to date, respectively, compared to $265 and $260 per ounce 
for the same periods in 1995.  Higher cash costs are primarily attributable 
to lower gold production. 

Cash costs per ounce at Zortman reflect lower production from residual 
leaching of ore placed on the heap leach pad in prior years.  Costs incurred 
at Zortman as a result of delays, in permits required for construction and 
operation of the Extension Project have been classified as care and 
maintenance in the Statement of Operations.  All outstanding water quality 
litigation was resolved without ascribing liability in the third quarter, and 
permits necessary to begin construction on the Extension Project were 
received in October.  

Lower ore grades at Montana Tunnels and Beal Mountain have resulted in lower 
production and increased cash costs.  At Black Pine, lower cash costs for the 
quarter are attributable to a lower stripping ratio which has offset the 
effect of lower production for the period.  At Florida Canyon, increased ore 
tonnage and grade have resulted in record production and lower cash costs.  
Process system upgrades completed during the quarter and increased solution 
application rates contributed to significantly higher gold production in the 
third quarter. 

                                      13
<PAGE>

At Mt. Todd, cash costs for the quarter were 4 percent lower than in the same 
period in 1995.  The decline is attributable to improved recovery from the 
higher grade, better leaching Golf pit ore placed on the pad during the 
second quarter combined with residual recovery from transition ore placed on 
the pad during much of the first half of the year.  In August, ore additions 
to the heap leach pad ceased as tie-in of the Phase II facilities began.  
Residual leaching of the heap leach pad will continue. 

Depreciation and amortization charges of $105 and $97 per ounce for the third 
quarter and year to date, respectively, were 33 and 31 percent higher than 
during the same periods in 1995.  Increased charges on a per ounce basis are 
attributable to lower production, increased property, plant, and equipment 
balances, and higher amortization for reclamation and closure costs.  Third 
quarter amortization includes $2.7 million related to the increase in the 
final reclamation estimate at Beal.  Royalty expense of $10 per ounce for the 
quarter and year to date was unchanged from the third quarter of 1995 and was 
$1 per ounce lower than during the nine-month period in 1995.

General and administrative expenses for the quarter and year to date of $3.3 
million and $9.9 million, respectively, compare to costs of $2.8 million and 
$9.3 million for the same periods in 1995.  Increased costs reflect higher 
people costs and increased governmental affairs expenditures.

Exploration and evaluation expenses of $1.5 million for the third quarter and 
$5.1 million for the year to date are $2.0 million and $9.7 million lower 
than during comparable periods in 1995.  Reduced exploration and evaluation 
expenses result from the capitalization of costs on the Diamond Hill and 
Pullalli Projects during 1996 based on development decisions in 1995.  In 
addition, 1995 results included a $2.4 million charge to write down the 
Company's investment in the Leninogorsk Tailings Project.

During the third quarter, the Company announced it would not complete its 
proposed merger with Dayton Mining.  Costs of $0.5 million were incurred in 
connection with the proposed transaction.

OTHER INCOME (EXPENSE) AND TAXES

Interest and other income for the third quarter was $0.8 million compared to 
$1.4 million for the third quarter of 1995.  Lower interest income reflects 
lower average cash and short-term investment balances during the third 
quarter of 1996.  Cash and short-term investments during much of 1995 
included the proceeds of the Company's Convertible Subordinated Notes which 
were used to acquire the minority interest in Pegasus Gold Australia late in 
the third quarter of 1995.  Year to date, interest and other income of $3.1 
million was $1.6 million lower than during the first nine months of 1995 as a 
result of lower average cash and short-term investment balances.

Interest expense, net of amounts capitalized, decreased $1.1 million to $0.7 
million during the third quarter of 1996, respectively, as a result of the 
capitalization of $2.3 million of interest costs to construction projects 
during the period.  Year to date, interest expense decreased by $2.6 million 
to $2.5 million because increased total interest cost associated with $115 
million of Convertible Subordinated Notes issued in April 1995 and borrowings 
under the Company's revolving credit facility have been offset by the 
capitalization of $5.7 million of interest to construction projects in 1996.  
Interest of $795,000 was capitalized during the first nine months of 1995. 

Equity in net income of affiliates comprises the Company's proportionate 
share of earnings from the Emerging Markets Gold Fund offset by the Company's 
share of losses from USMX.  The income tax provision reflects a valuation 
allowance of $1.1 million recorded against deferred tax assets in the U.S. 
during the third quarter, offset by the recognition of certain refund claims 
allowed upon resolution of certain periods reviewed by the IRS.

                                    14

<PAGE>

ENVIRONMENTAL PROTECTION AND PERMITTING

During the quarter, all outstanding water quality litigation at Zortman was 
settled without ascribing liability through entry of a Consent Decree by the 
Court in Montana.  On October 25, 1996, the Bureau of Land Management (BLM) 
and the Montana Department of Environmental Quality issued the Record of 
Decision (ROD) for the Zortman Extension Project. (See Note 5). 

In July, Florida Canyon received permit amendments necessary to construct 
additional on-site facilities, to increase solution pumping capacity and to 
commence exploration drilling on targets outside the existing mine permit 
area and at depth within existing open pits. 

In the third quarter, the Company increased its estimate of the future costs 
to close and reclaim the Beal Mountain Mine from $7.8 million to $16.2 
million. The increase in estimated costs results primarily from changes to 
the mine plans and the periodic updates to final reclamation estimates.  In 
the second quarter, the Company increased its estimate of the future cost to 
close and reclaim the Zortman Mine from $21.8 million, to $41.8 million.  The 
increase in the cost estimate is attributable primarily to changes in 
reclamation and closure requirements associated with the Final Environmental 
Impact Statement issued in March 1996, the inclusion of costs related to 
additional disturbance which will occur during mining and processing from the 
Zortman Extension Project and additional requirements for improvement of 
water quality defined during the third quarter.  Although these estimates are 
considered adequate to fund reclamation and closure work, future changes in 
environmental laws and regulations, or site conditions, could significantly 
change estimated costs. 

FINANCING, CAPITAL INVESTMENT, AND LIQUIDITY

OVERVIEW

At September 30, 1996, the Company had working capital of $56.6 million, 
including cash and short-term investments totaling $7.8 million, compared to 
working capital of $79.0 million, including cash and short-term investments 
of $53.0 million, at the end of 1995.

OPERATING ACTIVITIES

Cash flow provided by operating activities through the third quarter was 
$15.0 million, compared to $34.7 million during the same period in 1995.  
Decreased cash flow is attributable to an increase in ounces inventoried on 
the heap leach pads at the Florida Canyon, Beal Mountain, and Mt. Todd mines, 
combined with slower recovery from those pads.  The current build-up in 
inventory is expected to increase or extend production into future periods.  
Cash flow from operations before working capital changes for the first nine 
months of 1996 increased $3.1 million to $27.9 million compared to the same 
period in 1995. 

INVESTING ACTIVITIES

During the first nine months of 1996, the Company invested $180.7 million on 
capital additions, $8.6 million on investments, and received $20.1 million 
from the sale of short-term investments and $3.9 million from the sale of 
exploration leases in Australia.

In June, the Company entered into an agreement with USMX to purchase its net 
profits royalty in the Montana Tunnels Mine for $4.5 million.  The Company 
has advanced USMX $4.5 million in the form of a four-year term-loan secured 
by the royalty interest, which will be credited against the purchase price of 
the royalty at closing.  Closing of the transaction is subject to final 
documentation and approval of the USMX shareholders.

                                  15
<PAGE>

During the second quarter of 1996, the Company completed the sale of its 
Tanami exploration leases and data base to a third party for $3.9 million 
(A$4.9 million).  Under the terms of the agreement, the Company will receive 
two contingent payments of $0.8 million (A$1.0 million), each upon definition 
of additional reserves.

In August, the Company acquired 19.9 percent of Intermin Resource Corporation 
Limited (Intermin), an Australian gold exploration company, for approximately 
$4.1 million (A$5.1 million).  The Company has an option to acquire up to 51 
percent for an additional $27.4 million (A$34.7 million) within two years. 

FINANCING ACTIVITIES

During 1996, the Company raised $88.2 million, net of expenses, from the 
issuance of 6,000,000 Common Shares in Canada and the U.S., borrowed $58.0 
million under its revolving credit facility, and made payments on outstanding 
long-term debt amounting to $19.2 million. 

In April, the Company entered into a six-year $150 million multi-currency 
revolving credit facility with a syndicate of banks.  Borrowings under the 
facility may occur in the U.S., Canada and Australia, and in U.S., Canadian, 
or Australian dollars with certain restrictions.  Funds available under the 
facility may be used for general corporate purposes as well as financing of 
construction costs at Mt. Todd, Zortman or Pullalli.  At September 30, 1996, 
aggregate borrowings of $58.0 million were outstanding under the facility in 
Australia and the U.S.

CONCLUSION

The Company believes that the $7.8 million of cash and short-term investments 
on hand together with cash flow from operations, and remaining funds 
available under the revolving credit facility described above, will be 
adequate to meets its cash requirements during the period.  However, capital 
expenditures could increase beyond amounts currently contemplated, or the 
Company's operations could generate lower than expected cash flow.  To 
supplement available capital during its substantial expansion program, the 
Company is reviewing possible sources of additional capital and the rate of 
its capital expenditure program. 

SAFE HARBOR

The statements in this report which are not historical facts are forward 
looking statements that involve a number of risks and uncertainties.  In 
addition to the factors discussed above, other factors that could cause 
actual results to differ materially include the price of gold and other 
commodities and currencies, production, permitting or regulatory delays, 
reserve estimation, metallurgical recoveries, exploration success and reserve 
growth, litigation, capital costs, and other risks detailed in the Company's 
SEC filings.

                                    16
<PAGE>

                          PART II.  OTHER INFORMATION

                              PEGASUS GOLD INC.

Items 2, 3, 4, and 5 of Part II are omitted from this report as inapplicable.
 
Item 1.   Legal Proceedings

          See Part 1 - Item 1 - "Notes to Consolidated Financial Statements." 
          Note 5, Paragraph 4 entitled "Legal Proceedings", which information 
          is incorporated herein by reference.

Item 6.   Exhibits and Reports on From 8-K

     (a)  Exhibit filed with this Form 10-Q:
     
          11.0 Computation of Earnings Per Share

     (b)  Reports on Form 8-K:

          Two reports on Form 8-K were filed during the quarter ended 
          September 30, 1996.  The reports, dated September 16, 1996 and 
          September 27, 1996, were submitted in accordance with Item 5 
          "Other Events" and reported, respectively, the joint announcements 
          by the Company and Dayton Mining of (I) an agreement to merge an 
          (ii) the decision not to proceed with the merger. 

                                       17

<PAGE>

                            PEGASUS GOLD INC.

                               SIGNATURES


Pursuant to the requirements 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.

                                  PEGASUS GOLD INC.
                                     (Registrant)

Date: November 14, 1996           By: /s/  Phillips S. Baker, Jr.
                                      ---------------------------------
                                      Phillips S. Baker, Jr.
                                      Vice President, Finance,
                                      Chief Financial Officer, and
                                      Principal Accounting Officer


                                      18