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**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**WASHINGTON, DC 20549**

 

**FORM 10-Q**

 

**x****                QUARTERLYREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934**

 

**For thequarterly period ended September 30, 2010**

** **

**OR**

 

**o****                   TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934**

** **

**COMMISSION FILE NUMBER 001-32074**

 

**MINES MANAGEMENT, INC.**

(ExactName of Registrant as Specified in its Charter)

 

| **IDAHO**                                                       | ** ** | **91-0538859**                        |
|-----------------------------------------------------------------|------------|---------------------------------------|
| (State  or Other Jurisdiction of Incorporation or Organization) |       | (I.R.S.  Employer Identification No.) |

 

| **905 W. Riverside Avenue, Suite 311**

**Spokane, Washington** | ** ** | **99201**   |
|----------------------------------------------------------------------|------------|-------------|
| (Address  Of Principal Executive Offices)                            |       | (Zip  Code) |

 

**(509) 838-6050**

(Registrant’sTelephone Number, Including Area Code)

 

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

 

Indicate by check markwhether the registrant has submitted electronically and posted on its corporateWeb site, if any, every Interactive Data File required to be submitted andposted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)during the preceding 12 months (or for such shorter period that the registrantwas required to submit and post such files). Yes o** **No  o

 

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, or a smaller reporting company. See the definitions of “largeaccelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2of the Exchange Act.

 

| Large  accelerated filer o |   | Accelerated  filer o         |
|----------------------------|--------|------------------------------|
|                       |   |                         |
| Non-accelerated  filer o   |   | Smaller  reporting company x |

 

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act).  Yes o** **No  x

 

At November 15, 2010,23,239,752 common shares, par value $0.001 per share, were issued andoutstanding.

 

 

 

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**CAUTIONARYNOTE REGARDING FORWARD LOOKING STATEMENTS**

 

Informationcontained in or incorporated by reference into this Quarterly Report on Form 10-Qmay contain forward looking statements, as that term is defined in the PrivateSecurities Litigation Reform Act of 1995. The use of any of the words “development”, “anticipate”, “continues”, “estimate”,“expect”, “may”, “project”, “should”, “believe”, or similar expressions areintended to identify such statements. Forward looking statements included in this report relate to, amongother things, comments regarding further exploration and evaluation of theMontanore Project, including drilling activities, feasibility determinationsand engineering and environmental studies, including the costs associatedtherewith; the process and timing associated with the permitting process,including completion of wetland mitigation plans and the issuance of biologicalopinions, a final Environmental Impact Statement and a record of decision;estimates of mineralized material; financing needs including the financingrequired to fund the final phases of the advanced exploration program,delineation drilling program and bankable feasibility study; sources offinancing; the sufficiency of working capital to complete the rehabilitation ofthe Libby adit and commence delineation drilling; planned expenditures and cashrequirements for 2010 and 2011; efforts to reduce costs; potential completionof a preliminary economic assessment; the markets for silver and copper;results of the hydrological model and the effects thereof; and the search forpotential exploration and development opportunities in the miningindustry.  We believe the expectationsreflected in those forward looking statements are reasonable.  However, we cannot assure that theexpectations will prove to be correct. Disclosure of important factors that could cause actual results todiffer materially from our expectations, or cautionary statements, are includedunder the heading “Risk Factors” in this report and our Annual Report on Form 10-Kfor the year ended December 31, 2009. Certain cautionary statements are also included elsewhere in thisreport, including, without limitation, in conjunction with the forward-lookingstatements.  All forward-lookingstatements speak only as of the date made. All subsequent written and oral forward-looking statements attributableto us, or persons acting on our behalf, are expressly qualified in theirentirety by the cautionary statements. Except as required by law, we undertake no obligation to update anyforward-looking statement.  Factors thatcould cause actual results to differ materially from our expectations include,among others, those factors referenced in the “Risk Factors” section of thisreport and our Annual Report on Form 10-K for the year ended December 31,2009 and such things as:

 

·                  Worldwide economic andpolitical events affecting the supply of and demand for silver and copper;

 

·                  Volatility in the marketprice for silver and copper;

 

·                  Financial market conditionsand the availability and cost of financing , or its availability on termsacceptable to us;

 

·                  Uncertainty regardingwhether reserves will be established at our Montanore Project;

 

·                  Uncertainties associatedwith developing new mines;

 

·                  Variations in ore grade andother characteristics affecting mining, crushing, milling and smelting andmineral recoveries;

 

·                  Geological, technical,permitting, mining and processing problems;

 

·                  The availability, terms,conditions and timing of required governmental permits and approvals, andpotential opposition to the issuance of significant permits;

 

·                  Uncertainty regarding futurechanges in applicable laws or implementation of existing laws;

 

·                  The availability ofexperienced employees;

 

·                  The availability ofacquisition and other business opportunities (or the lack thereof) that may bepresented and pursued by us, the ability to finance such acquisitions, andsuccess in integrating such acquisitions; and

 

·                  Other factors, many of whichare beyond our control.

 

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**MINES MANAGEMENT, INC.**

**FORM 10-Q**

**QUARTER ENDED SEPTEMBER 30, 2010**

 

**INDEX**

 
| ** **                                | ** **                                                                                  | **Page** |
|-------------------------------------------|---------------------------------------------------------------------------------------------|----------|
|                                      |                                                                                        |     |
| PART I —  FINANCIAL INFORMATION |                                                                                        |
|                                      |                                                                                        |     |
| ITEM 1.                                   | Financial statements  (unaudited)                                                           | i        |
| ITEM 2.                                   | Management’s  Discussion and Analysis of Financial Condition and Results of Operations | 10       |
| ITEM 3.                                   | Quantitative  and Qualitative Disclosures About Market Risk                                 | 13       |
| ITEM 4.                                   | Controls and Procedures                                                                     | 13       |
|                                      |                                                                                        |     |
| PART II  — OTHER INFORMATION    |                                                                                        |
|                                      |                                                                                        |     |
| ITEM 1.                                   | Legal Proceedings                                                                           | 13       |
| ITEM 1A.                                  | Risk Factors                                                                                | 13       |
| ITEM 2.                                   | Unregistered Sales of  Equity Securities and Use of Proceeds                                | 14       |
| ITEM 3.                                   | Defaults Upon Senior  Securities                                                            | 14       |
| ITEM 5.                                   | Other Information                                                                           | 14       |
| ITEM 6.                                   | Exhibits                                                                                    | 14       |
|                                      |                                                                                        |     |
| SIGNATURES                                |                                                                                        | 15       |

 

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**PART I—FINANCIAL INFORMATION**

 

**ITEM 1.****                                               ****FINANCIAL STATEMENTS (UNAUDITED)**

 

**Contents**

 
| ** **                                             | **Page** |
|--------------------------------------------------------|----------|
|                                                   |     |
| *FINANCIAL STATEMENTS:*                                |     |
|                                                   |     |
| *Condensed consolidated balance sheets*                | *1*      |
|                                                   |     |
| *Condensed consolidated statements of operations*      | *2*      |
|                                                   |     |
| *Condensed consolidated statements of cash flows*      | *3*      |
|                                                   |     |
| *Notes to condensed consolidated financial statements* | *4-10*   |

 

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**Mines Management, Inc. and Subsidiaries**

**(An Exploration Stage Company)**

**CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)**

** **
| ** **                                                                                                                                    | ** ** | **September 30,********2010** | ** ** | **December 31,********2009** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------|------------|-----------------------------------|------------|
| ***Assets***                                                                                                                                  |       |                               |       |                              |       |
| *CURRENT ASSETS:*                                                                                                                             |       |                               |       |                              |       |
| Cash  and cash equivalents                                                                                                                    |       | $                                  | 873,866    |                              | $          | 6,090,169 |   |
| Interest  receivable                                                                                                                          |       | 44,407                             |       | 64,964                            |       |
| Prepaid  expenses and deposits                                                                                                                |       | 209,822                            |       | 168,960                           |       |
| Certificate  of deposit                                                                                                                       |       | 6,519,797                          |       | 5,000,000                         |       |
| Total  current assets                                                                                                                         |       | 7,647,892                          |       | 11,324,093                        |       |
|                                                                                                                                          |       |                               |       |                              |       |
| *PROPERTY AND EQUIPMENT:*                                                                                                                     |       |                               |       |                              |       |
| Buildings  and leasehold improvements                                                                                                         |       | 836,454                            |       | 836,454                           |       |
| Equipment                                                                                                                                     |       | 6,450,089                          |       | 6,450,089                         |       |
| Office  equipment                                                                                                                             |       | 336,237                            |       | 320,060                           |       |
|                                                                                                                                          |       | 7,622,780                          |       | 7,606,603                         |       |
| Less  accumulated depreciation                                                                                                                |       | 3,185,281                          |       | 2,417,921                         |       |
|                                                                                                                                          |       | 4,437,499                          |       | 5,188,682                         |       |
| *OTHER ASSETS:*                                                                                                                               |       |                               |       |                              |       |
| Certificates  of deposit                                                                                                                      |       | —                             |       | 1,481,307                         |       |
| Available-for-sale  securities                                                                                                                |       | 1,788,631                          |       | 1,245,897                         |       |
| Reclamation deposits                                                                                                                          |       | 1,236,846                          |       | 1,236,846                         |       |
|                                                                                                                                          |       | 3,025,477                          |       | 3,964,050                         |       |
|                                                                                                                                          |       | $                                  | 15,110,868 |                              | $          | 20,476,825 |   |
| ***Liabilities and Stockholders’ Equity***                                                                                               |       |                               |       |                              |       |
| *CURRENT LIABILITIES:*                                                                                                                        |       |                               |       |                              |       |
| Accounts  payable                                                                                                                             |       | $                                  | 415,020    |                              | $          | 546,030 |   |
| Payroll  and payroll taxes payable                                                                                                            |       | 48,628                             |       | 18,446                            |       |
| Warrant  derivatives, current portion                                                                                                         |       | —                             |       | 1,017,844                         |       |
| Total  current liabilities                                                                                                                    |       | 463,648                            |       | 1,582,320                         |       |
|                                                                                                                                          |       |                               |       |                              |       |
| *LONG-TERM LIABILITIES:*                                                                                                                      |       |                               |       |                              |       |
| Warrant  derivatives                                                                                                                          |       | 1,033,759                          |       | —                            |       |
| Asset  retirement obligation                                                                                                                  |       | 409,572                            |       | 394,899                           |       |
| Total  liabilities                                                                                                                            |       | 1,906,979                          |       | 1,977,219                         |       |
|                                                                                                                                          |       |                               |       |                              |       |
| *COMMITMENTS AND CONTINGENCIES*                                                                                                               |       |                               |       |                              |       |
| * *                                                                                                                                      |       |                               |       |                              |       |
| *STOCKHOLDERS’ EQUITY:*                                                                                                                  |       |                               |       |                              |       |
| Preferred  shares — no par value, 10,000,000 shares authorized; -0- shares issued and  outstanding                                       |       | —                             |       | —                            |       |
| Common  shares — $0.001 par value, 100,000,000 shares authorized; 23,100,109 and  22,944,683 shares issued and outstanding, respectively |       | 23,100                             |       | 22,945                            |       |
| Additional  paid-in capital                                                                                                                   |       | 68,455,818                         |       | 66,908,698                        |       |
| Accumulated  deficit                                                                                                                          |       | (1,117,306                         | )          | (1,117,306                        | )          |
| Deficit  accumulated during the exploration stage                                                                                             |       | (54,119,841                        | )          | (46,734,115                       | )          |
| Accumulated  other comprehensive loss                                                                                                         |       | (37,882                            | )          | (580,616                          | )          |
| Total  stockholders’ equity                                                                                                              |       | 13,203,889                         |       | 18,499,606                        |       |
|                                                                                                                                          |       | $                                  | 15,110,868 |                              | $          | 20,476,825 |   |

 

Seeaccompanying notes to condensed consolidated financial statements.

 

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**Mines Management, Inc. and Subsidiaries**

**(An Exploration Stage Company)**

**CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)**

** **
| ** **                                                        | ** ** | **Three Months Ended********September 30,** | ** ** | **Nine Months Ended********September 30,** | ** ** | **From Inception of  Exploration Stage  August 12, 2002  Through********September 30,** | ** ** |
|-------------------------------------------------------------------|------------|------------------------------------------------------------|------------|-----------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------------|------------|
| ** **                                                        | ** ** | **2010**                                                   | ** ** | **2009**                                                  | ** ** | **2010**                                                                                                              | ** ** | **2009** | ** ** | **2010** | ** ** |
| *REVENUE:*                                                        |       |                                                       |       |                                                      |       |                                                                                                                  |       |   |   |   |   |
| Royalties                                                         |       | $                                                          | 4,279      |                                                      | $          | 4,973                                                                                                                 |       | $ | 13,305 |   | $ | 8,534 |   | $ | 96,897 |   |
| *OPERATING EXPENSES:*                                             |       |                                                       |       |                                                      |       |                                                                                                                  |       |   |   |   |   |
| General  and administrative                                       |       | 899,587                                                    |       | 586,226                                                   |       | 3,306,253                                                                                                             |       | 2,256,599 |   | 23,903,254 |   |
| Technical services and  exploration                               |       | 662,646                                                    |       | 680,886                                                   |       | 2,750,826                                                                                                             |       | 3,299,315 |   | 23,237,120 |   |
| Depreciation                                                      |       | 255,958                                                    |       | 277,284                                                   |       | 767,360                                                                                                               |       | 832,753 |   | 3,189,227 |   |
| Legal,  accounting, and consulting                                |       | 69,347                                                     |       | 115,466                                                   |       | 476,826                                                                                                               |       | 403,976 |   | 3,636,110 |   |
| Fees,  filing, and licenses                                       |       | 157,432                                                    |       | 151,880                                                   |       | 210,372                                                                                                               |       | 204,337 |   | 2,248,413 |   |
| Impairment of mineral properties                                  |       | —                                                     |       | —                                                    |       | —                                                                                                                |       | — |   | 504,492 |   |
| Total  operating expenses                                         |       | 2,044,970                                                  |       | 1,811,742                                                 |       | 7,511,637                                                                                                             |       | 6,996,980 |   | 56,718,616 |   |
| *LOSS FROM OPERATIONS*                                            |       | (2,040,691                                                 | )          | (1,806,769                                                | )          | (7,498,332                                                                                                            | )          | (6,988,446 | ) | (56,621,719 | ) |
| *OTHER INCOME:*                                                   |       |                                                       |       |                                                      |       |                                                                                                                  |       |   |   |   |   |
| Loss  from warrant derivatives                                    |       | (775,319                                                   | )          | (568,307                                                  | )          | (15,915                                                                                                               | )          | (516,167 | ) | (557,378 | ) |
| Interest  income, net                                             |       | 41,679                                                     |       | 80,409                                                    |       | 128,521                                                                                                               |       | 275,565 |   | 3,059,256 |   |
|                                                              |       | (733,640                                                   | )          | (487,898                                                  | )          | 112,606                                                                                                               |       | (240,602 | ) | 2,501,878 |   |
| *NET LOSS*                                                        |       | $                                                          | (2,774,331 | )                                                         | $          | (2,294,667                                                                                                            | )          | $ | (7,385,726 | ) | $ | (7,229,048 | ) | $ | (54,119,841 | ) |
| *NET LOSS PER SHARE*(basic and diluted)                           |       | $                                                          | (0.12      | )                                                         | $          | (0.10                                                                                                                 | )          | $ | (0.32 | ) | $ | (0.32 | ) |   |   |
| *WEIGHTED AVERAGE COMMON SHARES OUTSTANDING (basic and  diluted)* |       | 23,100,109                                                 |       | 22,890,246                                                |       | 23,087,654                                                                                                            |       | 22,828,721 |   |   |   |

 

Seeaccompanying notes to condensed consolidated financial statements.

 

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** MinesManagement, Inc. and Subsidiaries**

**(An Exploration Stage Company)**

**CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)**

** **
| ** **                                                                   | ** ** | **Nine Months Ended********September 30,** | ** ** | **From Inception of  Exploration Stage  August 12, 2002  Through  September 30,** | ** ** |
|------------------------------------------------------------------------------|------------|-----------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------|------------|
| ** **                                                                   | ** ** | **2010**                                                  | ** ** | **2009**                                                                                                        | ** ** | **2010** | ** ** |
| *CASH FLOWS FROM OPERATING ACTIVITIES:*                                      |       |                                                      |       |                                                                                                            |       |   |   |
| Net  loss                                                                    |       | $                                                         | (7,385,726 | )                                                                                                               | $          | (7,229,048 | ) | $ | (54,119,841 | ) |
| Adjustments  to reconcile net loss to net cash used in operating activities: |       |                                                      |       |                                                                                                            |       |   |   |
| Stock-based  compensation                                                    |       | 1,482,775                                                 |       | 348,119                                                                                                         |       | 8,593,495 |   |
| Stock  received for services                                                 |       | —                                                    |       | —                                                                                                          |       | (11,165 | ) |
| Depreciation                                                                 |       | 767,360                                                   |       | 832,753                                                                                                         |       | 3,189,227 |   |
| Initial  recognition of asset retirement obligation                          |       | —                                                    |       | —                                                                                                          |       | 344,187 |   |
| Accretion  of asset retirement obligation                                    |       | 14,673                                                    |       | 13,876                                                                                                          |       | 65,385 |   |
| Loss  from warrant derivatives                                               |       | 15,915                                                    |       | 516,167                                                                                                         |       | 557,378 |   |
| Impairment  of mineral properties                                            |       | —                                                    |       | —                                                                                                          |       | 504,492 |   |
| Changes  in assets and liabilities:                                          |       |                                                      |       |                                                                                                            |       |   |   |
| Interest  receivable                                                         |       | 20,557                                                    |       | 94,032                                                                                                          |       | (44,407 | ) |
| Prepaid  expenses and deposits                                               |       | (40,862                                                   | )          | (32,881                                                                                                         | )          | (270,233 | ) |
| Accounts  payable                                                            |       | (131,010                                                  | )          | (290,373                                                                                                        | )          | 414,856 |   |
| Payroll  and payroll taxes payable                                           |       | 30,182                                                    |       | 11,576                                                                                                          |       | 45,448 |   |
| Net  cash used in operating activities                                       |       | (5,226,136                                                | )          | (5,735,779                                                                                                      | )          | (40,731,178 | ) |
| *CASH FLOWS FROM INVESTING ACTIVITIES:*                                      |       |                                                      |       |                                                                                                            |       |   |   |
| Purchase  of property and equipment                                          |       | (16,177                                                   | )          | (92,951                                                                                                         | )          | (7,660,312 | ) |
| Proceeds  from disposition of property and equipment                         |       | —                                                    |       | —                                                                                                          |       | 35,423 |   |
| Purchase  of certificates of deposit                                         |       | (38,490                                                   | )          | (112,945                                                                                                        | )          | (7,695,731 | ) |
| Purchase  of available-for-sale securities                                   |       | —                                                    |       | —                                                                                                          |       | (1,815,348 | ) |
| Increase  in mineral properties                                              |       | —                                                    |       | —                                                                                                          |       | (144,312 | ) |
| Net  cash used in investing activities                                       |       | (54,667                                                   | )          | (205,896                                                                                                        | )          | (17,280,280 | ) |
| *CASH FLOWS FROM FINANCING ACTIVITIES:*                                      |       |                                                      |       |                                                                                                            |       |   |   |
| Payment  of line of credit                                                   |       | —                                                    |       | (1,815,231                                                                                                      | )          | — |   |
| Net  proceeds from sale of common shares                                     |       | 64,500                                                    |       | 19,350                                                                                                          |       | 58,837,989 |   |
| Net  cash provided by (used in) financing activities                         |       | 64,500                                                    |       | (1,795,881                                                                                                      | )          | 58,837,989 |   |
| *NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS*                       |       | (5,216,303                                                | )          | (7,737,556                                                                                                      | )          | 826,531 |   |
| *CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD*                             |       | 6,090,169                                                 |       | 15,448,159                                                                                                      |       | 47,335 |   |
| *CASH AND CASH EQUIVALENTS, END OF PERIOD*                                   |       | $                                                         | 873,866    |                                                                                                            | $          | 7,710,603 |   | $ | 873,866 |   |
| *SUPPLEMENTAL INFORMATION:*                                                  |       |                                                      |       |                                                                                                            |       |   |   |
| Interest  paid                                                               |       | $                                                         | —     |                                                                                                            | $          | 45,242 |   | $ | 65,768 |   |

 

Seeaccompanying notes to condensed consolidated financial statements.

 

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**NOTE 1  — ORGANIZATIONAND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:**

 

*Organization:*

 

MinesManagement, Inc. (the Company) is an Idaho corporation incorporated in1947.  The Company acquires, explores,and develops mineral properties in North America.

 

*Summary ofSignificant Accounting Policies:*

 

These unaudited interim financialstatements have been prepared by the Company in accordance with accountingprinciples generally accepted in the United States of America for interimfinancial information, as well as the instructions to Form 10-Q.  Accordingly, they do not include all of theinformation and footnotes required by generally accepted accounting principlesfor complete financial statements. In the opinion of the Company’s management,all adjustments (consisting solely of normal recurring adjustments) considerednecessary for a fair presentation of the interim financial statements have beenincluded.

 

The preparation of financialstatements in accordance with U.S. generally accepted accounting principlesrequires the use of estimates and assumptions that affect the reported amountsof assets and liabilities, disclosure of contingent assets and liabilitiesknown to exist as of the date the financial statements are published, and thereported amounts of revenues and expenses during the reporting period.Uncertainties with respect to such estimates and assumptions are inherent inthe preparation of the Company’s consolidated financial statements;accordingly, it is possible that the actual results could differ from theseestimates and assumptions, which could have a material effect on the reportedamounts of the Company’s consolidated financial position and results ofoperations. Operating results for the three and nine month periods ended September 30,2010, are not necessarily indicative of the results that may be expected forthe full year ending December 31, 2010.

 

For further information, refer tothe consolidated financial statements and footnotes thereto in the Company’sAnnual Report on Form 10-K for the year ended December 31, 2009.

 

(a)                                 *ExplorationStage Enterprise*

 

Since the Company is in the exploration stage ofoperation, the Company’s financial statements are prepared in accordance withthe provisions of Accounting Standards Codification (ASC) 915,*Development Stage Enterprises*, as itdevotes substantially all of its efforts to acquiring and exploring mininginterests that management believes should eventually provide sufficient netprofits to sustain the Company’s existence. Until such interests are engaged in commercial production, the Companywill continue to prepare its consolidated financial statements and relateddisclosures in accordance with this standard.

 

(b)                                 *Miningproperties, exploration and development costs*

 

All exploration expenditures are expensed asincurred.  Significant propertyacquisition payments for active exploration properties are capitalized,including payments to acquire mineral rights. Once a feasibility study has been completed, approved by management, anda decision is made to put the ore body into production, expenditures to developnew mines, to define further mineralization in existing ore bodies, and toexpand the capacity of operating mines, are capitalized and amortized on theunits of production basis over proven and probable reserves.  The Company charges to operations theallocable portion of capitalized costs attributable to properties sold.  Capitalized costs are allocated to propertiessold based on the proportion of claims sold to the claims remaining within theproject area.

 

(c)                                  *Fairvalue measurements*

 

The Company discloses the inputs used to develop thefair value measurements for the Company’s financial assets and liabilities thatare measured at fair value on a recurring basis as well as the level within thefair value hierarchy in which the fair value measurements in their entiretyfall.  The three levels of the fair valuehierarchy are as follows:

 

Level 1:  Unadjustedquoted market prices in active markets for identical assets or liabilities thatare accessible at the measurement date.

 

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Level 2: Quoted prices in inactive markets for identical assets or liabilities,quoted prices for similar assets or liabilities in active markets, or otherobservable inputs either directly related to the asset or liability or derivedprincipally from corroborated observable market data.

 

Level 3: Unobservable inputs due to the fact that there is little or no marketactivity.

 

(d)                                 *Stockcompensation*

 

The Company measures and records the costs ofemployee services received in exchange for an award of equity instruments basedon the grant-date fair value of the award, recognized over the period duringwhich an employee is required to provide services in exchange for suchaward.  Compensation cost is recognizedfor awards granted and for awards modified or repurchased.

 

(e)                                  *Netloss per share*

 

Basic earnings or loss per share is computed on thebasis of the weighted average number of shares outstanding during theperiods.   Diluted earnings or loss pershare is calculated on the basis of the weighted average number of sharesoutstanding during the period plus the effect of potential dilutive sharesduring the period.  Potential dilutiveshares include outstanding stock options and warrants.  For periods in which a net loss is reported,potential dilutive shares are excluded because they are antidilutive.  Therefore, basic loss per share is the sameas diluted loss per share for the periods ended September 30, 2010 and2009.

 

(f)                                   *Reclassifications*

 

Certain amounts in the prior-period financialstatements have been reclassified for comparative purposes to conform tocurrent period presentation with no effect on total assets or net loss aspreviously reported.

 

(g)                                  *Subsequentevents*

 

The Company evaluated events and transactionssubsequent to the balance sheet date of September 30, 2010 for potentialrecognition or disclosure in the condensed consolidated financialstatements.  Other than the warrantsexercised as disclosed in Note 8, there were no subsequent events that requirerecognition or disclosure in these financial statements.

 

(h)                                 *Newaccounting standards*

 

In January 2010, the Financial AccountingStandards Board (FASB) issued Accounting Standards Update No. 2010-06 (ASU2010-06), an update to ASC 820, “Fair Value Measurements and Disclosures”.  This update provides new disclosures on fairvalue measurements as follows:  (i) theamounts and reasons for significant transfers in and out of Levels 1 and 2 fairvalue measurements, and (ii) the activity in Level 3 fair valuemeasurements, including information about purchases, sales, issuances, andsettlements on a gross basis rather than as one net number.

 

Thisupdate also provides amendments that clarify existing disclosures required inASC 820 as follows: (1) Fair value measurement disclosures for each classof assets and liabilities; a class is often a subset of assets or liabilitieswithin a line item in the statement of financial position; and  (2) Disclosures about valuationtechniques and inputs used to measure fair value for both recurring andnonrecurring fair value measurements are required for fair value measurementsthat fall in either Level 2 or Level 3.

 

Thenew disclosures and clarifications of existing disclosures are effective forinterim and annual reporting periods beginning after December 15, 2009,except for the disclosures about the activity in Level 3 fair valuemeasurements which are effective for fiscal years beginning after December 15,2010, and for interim periods within those fiscal years.  Adoption of this guidance did not have amaterial impact on the Company’s consolidated financial statements.

 

**NOTE 2  — CERTIFICATESOF DEPOSIT:**

 

TheCompany owns two certificates of deposit for a total of $1,519,797.  These investments mature in August 2011and bear interest at the rate of 2.57%. The Company also owns a $5,000,000 certificate of deposit which maturesin June 2011 and bears interest at the rate of 1.44%.

 

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TheCompany also has a certificate of deposit pledged as security for a Letter ofCredit to the Montana Department of Environmental Quality as a reclamationguarantee for the Montanore expansion evaluation program.  This certificate matures on January 3,2011, bears interest at the rate of 1.64% and automatically renewsannually.  This certificate of deposit($1,175,935 at September 30, 2010 and 2009, respectively) is included withreclamation deposits on the Condensed Consolidated Balance Sheets.

 

**NOTE 3  —AVAILABLE-FOR-SALE SECURITIES:**

 

Available-for-salesecurities are comprised of common stocks which have been valued using quotedmarket prices in active markets.  Thefollowing table summarizes the Company’s available-for-sale securities:

 
| ** **         | ** ** | **September 30,******** 2010** | ** ** | **December 31,  2009** | ** ** |
|--------------------|------------|------------------------------------------|------------|-----------------------------|------------|
| Cost               |       | $                                        | 1,826,513  |                        | $          | 1,826,513 |   |
| Unrealized  Gains  |       | 24,640                                   |       | 14,080                      |       |
| Unrealized  Losses |       | (62,522                                  | )          | (594,696                    | )          |
| Fair  Market Value |       | $                                        | 1,788,631  |                        | $          | 1,245,897 |   |

 

TheCompany has one investment in a marketable equity security with a fair marketvalue of $1,752,826 and unrealized losses of $62,522 as of September 30,2010.  The Company has evaluated thisinvestment and does not consider the decline in value to beother-than-temporary.  The fair marketvalue of this investment has fluctuated in response to the effect of thefinancial crisis on the commodities market and is expected to recover.  The Company has the ability and intent tohold this investment for a reasonable period of time sufficient for a forecastedrecovery of fair value.

 

**NOTE 4— FAIR VALUE MEASUREMENTS:**

 

Thefollowing table summarizes the Company’s financial assets and liabilities thatwere accounted for at fair value on a recurring basis as of September 30,2010, and the fair value calculation input hierarchy level determined to applyto each asset and liability category. Quoted market prices were used to determine the fair value ofavailable-for-sale securities.  See note5 for further discussion on the fair value measurement technique used to valuethe warrant derivatives.  The Company hasno financial assets or liabilities that are measured at fair value on anonrecurring basis.

 
| ** **                     | ** ** | **Balance at  September 30,  2010** | ** ** | **Balance at  December 31,  2009** | ** ** | **Input  Hierarchy********Level** | ** ** |
|--------------------------------|------------|-----------------------------------------------|------------|----------------------------------------------|------------|-----------------------------------|------------|
| Assets:                        |       |                                          |       |                                         |       |                              |       |
| Available-for-sale  securities |       | $                                             | 1,788,631  |                                         | $          | 1,245,897                         |       | Level  1 |   |
| Liabilities:                   |       |                                          |       |                                         |       |                              |       |
| Warrant  derivatives           |       | $                                             | 1,033,759  |                                         | $          | 1,017,844                         |       | Level  3 |   |
| Asset  retirement obligation   |       | $                                             | 409,572    |                                         | $          | 394,899                           |       | Level  3 |   |

 

Thefollowing table presents the fair value reconciliation of Level 3 liabilitiesmeasured at fair value during the nine months ended September 30, 2010:

 
| ** **                       | ** ** | **Warrant  Derivatives** | ** ** | **Asset  Retirement  Obligation** | ** ** |
|----------------------------------|------------|--------------------------|------------|-----------------------------------|------------|
| Balance  January 1, 2010    |       | $                        | 1,017,844  |                              | $          | 394,899 |   |
| Accretion  expense               |       | —                   |       | 4,849                             |       |
| Loss  on derivatives             |       | 285,344                  |       | —                            |       |
| Balance  March 31, 2010     |       | $                        | 1,303,188  |                              | $          | 399,748 |   |
| Accretion  expense               |       | —                   |       | 4,856                             |       |
| Gain  on derivatives             |       | (1,044,748               | )          | —                            |       |
| Balance  June 30, 2010      |       | 258,440                  |       | 404,604                           |       |
| Accretion  expense               |       | —                   |       | 4,968                             |       |
| Loss  on derivatives             |       | 775,319                  |       | —                            |       |
| Balance  September 30, 2010 |       | $                        | 1,033,759  |                              | $          | 409,572 |   |

 

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**NOTE 5  — WARRANTDERIVATIVES:**

 

Someof the Company’s issued and outstanding common share purchase warrants whichhave exercise price reset features qualify for treatment as a derivativeliability.  These common share purchasewarrants were initially issued in connection with the Company’s issuance ofcommon shares in 2004 and 2005 and were not issued with the intent ofeffectively hedging any future cash flow, fair value of any asset, liability orany net investment in a foreign operation. The warrants do not qualify for hedge accounting, and as such, allfuture changes in the fair value of these warrants will be recognized currentlyin earnings until such time as the warrants are exercised or expire.  A portion of these common share purchasewarrants (those issued in 2004) expired on June 10, 2010.  The Company reported losses from the changein fair value of the warrants of $15,915 and $516,167 in the CondensedConsolidated Statements of Operations for the nine months ended September 30,2010 and 2009, respectively.  Losses of$775,319 and $568,307 were recorded for the three months ended September 30,2010 and 2009, respectively.

 

Thesecommon share purchase warrants do not trade in an active securities market, andas such, we estimate the fair value of these warrants using the Black-Scholesoption pricing model using the following assumptions:

 
| ** **                                 | ** ** | **September 30,  2010** | ** ** | **September 30,  2009** | ** ** |
|--------------------------------------------|------------|------------------------------|------------|------------------------------|------------|
| Weighted  average risk-free interest rate  |       | 0.27                         | %          | 0.35                         | %          |
| Weighted  average volatility               |       | 90.28                        | %          | 96.26                        | %          |
| Expected  dividend yield                   |       | —                       |       | —                       |       |
| Weighted  average expected life (in years) |       | 1.05                         |       | 0.90                         |       |

 

Expectedvolatility is based primarily on historical volatility.  Historical volatility was computed usingweekly pricing observations for recent periods. The Company believes this method produces an estimate that isrepresentative of its expectations of future volatility over the expected termof these warrants.  The Company currentlyhas no reason to believe future volatility over the expected remaining life ofthese warrants is likely to differ materially from historical volatility.  The expected life is based on the remainingterm of the warrants.  The risk-freeinterest rate is based on one-year U.S. Treasury securities.

 

**NOTE 6  — COMPREHENSIVELOSS:**

 

Forthe nine months ended September 30, 2010 and 2009, comprehensive loss was$6,842,992 and $6,891,428, respectively. For the three months ended September 30, 2010 and 2009,comprehensive loss was $2,044,789 and $2,153,703, respectively.  The difference between net loss andcomprehensive loss was due to unrealized gains (losses) on the Company’smarketable securities.

 

**NOTE 7  — CONCENTRATION OF CREDIT RISK:**

 

The Company maintains its cash and cash equivalents in one financialinstitution.  Balances are insured by theFederal Deposit Insurance Corporation up to $250,000.  The Company’s total uninsured bank depositbalance totaled approximately $8,381,495 as of September 30, 2010.  To date, the Company has not experienced amaterial loss or lack of access to its invested cash or cash equivalents;however, no assurance can be provided that access to the Company’s investedcash and cash equivalents will not be impacted by adverse conditions in thefinancial markets.

 

**NOTE 8  — STOCKHOLDERS’ EQUITY:**

 

*CommonShares:*

 

Asdescribed in the Company’s Annual Report on Form 10-K for the year ended December 31,2009, the Company sold 1,285,000 common shares in 2004.  In connection with the stock sales, theCompany issued warrants to purchase common shares, of which 362,250 warrantsremained outstanding as of December 31, 2009.  In February 2010, the Company extendedthe expiration date of the outstanding warrants to June 10, 2010 andreduced the exercise price to $2.56 per share. The warrants expired on June 10, 2010 with no additional warrantsexercised during 2010.

 

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OnOctober 21, 2005, the Company issued and sold 1,016,677 units, with each unitconsisting of one common share and one-half of one common share purchasewarrant, each whole warrant being exercisable to purchase one common share.  Theunits had a purchase price of $6.00 per unit. We refer to this offering of units as the 2005 Transaction.  The warrants had an exercise price of $8.25per share and a five-year term.  Inconnection with the 2005 Transaction, 508,334 warrants were issued to thepurchasers of the units and 228,750 warrants were issued to a finder asconsideration for services provided to the Company, for a total of 737,084warrants.  We refer to these warrants asthe 2005 Warrants.

 

In accordance with the terms of the 2005 Warrants,if the Company offers, sells or grants any right to reprice its securities, orotherwise disposes of or issues any of its common shares or securitiesentitling any person to acquire common shares, at an effective price per shareless than the exercise price of the 2005 Warrants, then (i) the exercise priceof the 2005 Warrants will be reduced to equal such lower price; and (ii) thenumber of common shares issuable uponexercise of the 2005 Warrants will be increased such that the aggregate exercise price of the 2005 Warrants payableto the Company, after taking into account the decrease in the exercise price ofthe 2005 Warrants, will be equal to the aggregate exercise price prior to suchadjustment.  Three dilutive issuanceshave occurred during the term of the 2005 Warrants, each of which reduced theexercise price of the 2005 Warrants and increased the number of common sharesissuable upon exercise thereof.  InOctober 2010, the Company extended the expiration date of the 2005Warrants to October 20, 2011.  As ofSeptember 30, 2010, no 2005 Warrants had been exercised.  During November of 2010, 71,000 of thesewarrants were exercised.

 

In May 2007, the Companycompleted a public offering of 6,836,600units, with each unit consisting of one common share and one-half of onecommon share purchase warrant, each whole warrant being exercisable to purchaseone common share.  The units had a purchase price of $5.00 perunit.  The warrants issued in the publicoffering expire on April 20, 2012 and have an exercise price of $5.75.

 

The following tablesummarizes exercise prices and expiration dates of the Company’s outstandingcommon share purchase warrants as of September 30, 2010.

 
| **Number of  Warrants** | ** ** | **Exercise Price** | ** ** | **Expiration Date** | ** **        |
|------------------------------|------------|-------------------------|------------|--------------------------|-------------------|
| 2,375,368                    | (1)        | $                       | 2.56       |                     | October  20, 2011 |   |
| 3,418,300                    |       | $                       | 5.75       |                     | April  20, 2012   |   |
| 5,793,668                    |       |                    |       |                     |              |

 

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(1)          Pursuant to the terms of the 2005 Warrants and therules of the NYSE Amex Equities exchange, the Company is prohibited fromissuing in connection with the 2005 Transaction a number of common shares andcommon shares issuable on exercise of the 2005 Warrants that exceeds 19.999% ofthe number of issued and outstanding common shares immediately prior to the 2005Transaction without obtaining stockholder approval.  The number of issued and outstanding sharesprior to the issuance of the 2005 Warrants was 11,360,058, permitting issuanceof up to an aggregate of 2,271,900 common shares in connection with the 2005 Transaction.  1,016,677 common shares were issued as partof the units sold in the 2005 Transaction. Accordingly, no more than 1,255,223 common shares may be issued onexercise of the 2005 Warrants unless the Company obtains shareholder approvalfor the issuance of such additional shares. Because the number of common shares currently issuable upon exercise ofthe 2005 Warrants exceeds the 1,255,223 issuable maximum under the 19.999%limitation, each holder of a 2005 Warrant shall only be permitted to exerciseits pro rata share of such issuable maximum as calculated under the terms ofthe 2005 Warrants.

 

*PreferredShares:*

 

TheCompany has authorized 10,000,000 preferred shares, no par value.  Through September 30, 2010, the Company hadnot issued any preferred shares.

 

**NOTE 9 — STOCK OPTIONS:**

 

The Company has three equityincentive plans: the 2003 Stock Option Plan, the 2003 Consultant StockCompensation Plan and the 2007 Equity Incentive Plan.  We refer to the 2007 Equity Incentive Plan asthe 2007 Plan and to all the equity incentive plans as the Plans.  There has been no change to the Company’sPlans during 2010, other than the items summarized below.  For a description of the Company’s Plans,refer to the consolidated financial statements and footnotes thereto in theCompany’s Annual Report on Form 10-K for the year ended December 31, 2009.

 

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Repricingof stock options is permitted under the terms of the 2007 Plan as approved byshareholders.  Effective January 1, 2010,the Company terminated its policy of repricing stock options when the marketprice of the stock was $1.00 below the exercise price of the outstandingoption.  The Company may still considerrepricing stock options in the event of significant and sustained adversemarket conditions or other extraordinary events.   Repriced stock options have the same vestingschedule and expiration date as the original options.  There were no stock options repriced during2009 or 2010.  During 2008, the Companyrepriced stock options held by 20 employees, including officers and directors.  As a result of the repricing of stockoptions, the Company recognized additional compensation expense of $-0- and$87,943 for the nine months ended September 30, 2010 and 2009, respectively.

 

Asummary of the option activity under the Plans as of September 30, 2010,and changes during the period then ended, is presented below:

 
| ** **                         | ** ** | **Number of  Options** | ** ** | **Weighted-  Average  Exercise  Price** | ** ** | **Weighted-  Average  Remaining  Contractual  Term** | ** ** | **Aggregate  Intrinsic Value** | ** ** |
|------------------------------------|------------|-----------------------------|------------|-----------------------------------------|------------|------------------------------------------------------|------------|-------------------------------------|------------|
| Outstanding  at January 1, 2010    |       | 1,666,000                   |       | $                                       | 1.39       |                                                 |       |                                |       |   |
| Issued                             |       | 693,000                     |       | $                                       | 2.61       |                                                 |       |                                |       |   |
| Exercised                          |       | (220,000                    | )          | $                                       | 1.23       |                                                 |       |                                |       |   |
| Outstanding  at March 31, 2010     |       | 2,139,000                   |       | $                                       | 1.80       |                                                 |       |                                |       |   |
| Exercised                          |       | (3,000                      | )          | $                                       | 2.07       |                                                 |       |                                |       |   |
| Outstanding  at June 30, 2010      |       | 2,136,000                   |       | $                                       | 1.80       |                                                 |       |                                |       |   |
| Issued                             |       | 600,000                     |       | $                                       | 1.74       |                                                 |       |                                |       |   |
| Forfeited  or expired              |       | (5,000                      | )          | $                                       | 5.70       |                                                 |       |                                |       |   |
| Outstanding  at September 30, 2010 |       | 2,731,000                   |       | $                                       | 1.78       |                                                 | 3.48       |                                | $          | 2,644,800 |   |
| Exercisable  at September 30, 2010 |       | 2,051,000                   |       | $                                       | 1.75       |                                                 | 3.00       |                                | $          | 1,324,800 |   |

 

Thefair value for each option award is estimated at the date of grant using theBlack-Scholes option-pricing model using the assumptions noted in the followingtable.   Volatility for the periodspresented is based on the historical volatility of the Company’s common sharesover the expected life of the option. The risk-free rate for periods within the expected term of the option isbased on the U.S. Treasury yield curve in effect at the time of the grant.  The Company does not foresee the payment ofdividends in the near term.

 
| ** **                                 | ** ** | **Three Months Ended********September 30,** | ** ** | **Nine Months Ended********September 30,** | ** ** |
|--------------------------------------------|------------|------------------------------------------------------------|------------|-----------------------------------------------------------|------------|
| ** **                                 | ** ** | **2010**                                                   | ** ** | **2009**                                                  | ** ** | **2010** | ** ** | **2009** | ** ** |
| Weighted  average risk-free interest rate  |       | 1.02                                                       | %          | 1.44                                                      | %          | 1.22 | % | 1.44 | % |
| Weighted  average volatility               |       | 99.55                                                      | %          | 96.18                                                     | %          | 98.96 | % | 96.18 | % |
| Expected  dividend yield                   |       | —                                                     |       | —                                                    |       | — |   | — |   |
| Weighted  average expected life (in years) |       | 3.5                                                        |       | 3.6                                                       |       | 3.5 |   | 3.6 |   |
| Weighted  average grant-date fair value    |       | $                                                          | 1.14       |                                                      | $          | 1.17 |   | $ | 1.45 |   | $ | 1.17 |   |
|                                            |            |                                                            |            |                                                           |            |  |  |  |  |  |  |  |  |

 

Duringthe three months ended September 30, 2010 and 2009, there were 0 and 70,000stock options exercised with a weighted average exercise price of $0 and $1.29,respectively.  The total intrinsic valueof options exercised during the three months ended September 30, 2010 and 2009was $0 and $48,138, respectively.  Duringthe nine months ended September 30, 2010 and 2009, there were 223,000 and565,000 stock options exercised with a weighted average exercise price of $1.24and $1.29, respectively.  The totalintrinsic value of options exercised during the nine months ended September 30,2010 and 2009 was $285,540 and $128,607, respectively.

 

Asummary of the status of the Company’s nonvested options as of September 30,2010, and changes during the period then ended, is presented below:

 

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| ** **                       | ** ** | **Number of  Options** | ** ** | **Weighted-  Average  Grant-Date  Fair Value** | ** ** |
|----------------------------------|------------|-----------------------------|------------|-----------------------------------------------------|------------|
| Nonvested  at January 1, 2010    |       | 90,000                      |       | $                                                   | 1.01       |   |
| Granted                     |       | —                      |       | —                                              |       |
| Vested                           |       | —                      |       | —                                              |       |
| Nonvested  at March 31, 2010     |       | 90,000                      |       | $                                                   | 1.01       |   |
| Granted                     |       | —                      |       | —                                              |       |
| Vested                           |       | —                      |       | —                                              |       |
| Nonvested  at June 30, 2010      |       | 90,000                      |       | $                                                   | 1.01       |   |
| Granted                     |       | 600,000                     |       | $                                                   | 1.14       |   |
| Vested                           |       | (10,000                     | )          | $                                                   | 1.17       |   |
| Nonvested  at September 30, 2010 |       | 680,000                     |       | $                                                   | 1.12       |   |

 

Asof September 30, 2010, there was $166,043 of unrecognized compensation costrelated to nonvested share-based compensation arrangements granted under thePlans.  That cost is expected to berecognized over a weighted-average period of less than one year.

 

Totalcompensation costs recognized for stock-based employee compensation awards were$291,944 and $11,412 for the three months ended September 30, 2010 and 2009,respectively.  Total compensation costsrecognized for stock-based employee compensation awards were $1,482,775 and$348,119 for the nine months ended September 30, 2010 and 2009,respectively.  These costs were includedin general and administrative expenses and technical services and explorationon the Condensed Consolidated Statements of Operations.  Cash received from options exercised underall share-based payment arrangements during the nine months ended September 30,2010 and 2009 was $64,500 and $19,350, respectively.

 
| **ITEM 2.** | **MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL  CONDITION AND RESULTS OF OPERATIONS** |
|-------------|-------------------------------------------------------------------------------------------------|

 

Thefollowing discussion and analysis should be read in conjunction with “Management’sDiscussion and Analysis of Financial Condition and Results of Operations”contained in our Annual Report on Form 10-K for the year ended December 31,2009, as well as with the financial statements and related notes and the otherinformation appearing elsewhere in this report. As used in this report, unless the context otherwise indicates, referencesto “we,” “our,” the “Company” and “us” refer to Mines Management, Inc. and itssubsidiaries collectively.

 

MinesManagement, Inc. is an exploration stage company with a large silver-copperproject, the Montanore Project, located in northwestern Montana.  The Montanore Silver-Copper Project continuesto be the Company’s primary focus.  Inorder to advance the Montanore Project, we must obtain the requisite projectapprovals and permits from the U.S. Forest Service (USFS), the State ofMontana, and the Army Corps of Engineers. A draft environmental impactstatement (DEIS) was issued by the USFS and the Montana Department ofEnvironmental Quality (DEQ) in the first quarter of 2009. The comment periodhas expired, and the agencies are responding to issues presented in the courseof preparation of the final environmental impact statement (EIS).

 

Inthe third quarter of 2010:

 

·                  The USFS and the DEQcontinued formulating responses to public comments received on the DEIS for theMontanore Project.

 

·                    Mine Quarry EngineeringServices (MQES), the Company’s contractor, continued its development of anupdated preliminary economic assessment (PEA) of the Montanore Project, whichwe expect to be completed in the fourth quarter of 2010.

 

·                    The Company’s explorationand corporate development team continued to explore additional resourceopportunities in North America and Latin America.

 

·                  The Company continuedmeetings with federal and state agencies, Montana legislators, and localLincoln County Commissioners, Libby City officials and residents.

 

·                  The Company closed out thequarter at September 30, 2010 with $7.4 million of unrestricted cash andcertificates of deposit.

 

·                  The Company continued itsprogram to reduce expenditures and conserve cash pending the completion ofpermitting.

 

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**CurrentActivities**

 

Untilthe environmental review process is complete, the Company is prohibited fromconducting drilling and other exploration activities at the Libby adit.  Current operations at the Libby adit includeongoing treatment of inflow water through the water treatment plant.  Water is treated at a rate of approximately350 gallons per minute on day shift. This allows the inflow rate of approximately 72 gallons per minute to betreated and maintains the water level in the Libby adit at the 7200 footlevel.  Monitoring programs verifycompliance with Montana DEQ standards by sending random samples to independentlaboratories for analysis.  Additionalwater monitoring programs verify non-degradation of the Libby Creek drainage bysampling programs in the stream and in monitoring wells near the site.  Aquatic life monitoring programs continue tobe carried out in the surrounding drainages through the Company’s biologicalcontractor on a quarterly basis.

 

InApril 2010, the Company contracted with Mine Quarry Engineering Services (MQES)to prepare a PEA of the Montanore Project which will be based, in part, onprevious studies of the project and the existing NI 43-101 compliant reportprepared in October 2005 by Mine Development Associates, supplemented withcurrent onsite engineering and geological expertise.  A PEA is an economic analysis of thepotential viability of a mineral resource undertaken prior to having sufficientexploration data to support a prefeasibility study, which is a formal studyprepared after significant exploration data has been received that evaluateswhether the mineral resource can be mined economically.  The PEA is being prepared to update the overallscope of the Montanore Project to reflect current mineral pricing and current preliminary mine planning, update thereport on metallurgical test work and process design, estimate capital andoperating costs and determine the economics to develop the project as anunderground mine and mill facility.

 

**Permitting and Environmental**

 

Inorder to advance the Montanore Project past the exploration stage, we mustobtain the requisite approvals, permits and opinions from the USFS, the MontanaDEQ, the Army Corps of Engineers and the U.S. Fish and Wildlife Service. In2004, the USFS and the Montana DEQ began a joint review of the MontanoreProject.  As part of this process, theUSFS and Montana DEQ completed the DEIS in March 2009, evaluated theenvironmental impacts of the project, circulated the DEIS to the EnvironmentalProtection Agency (EPA) and to the public for comment, and is analyzing andresponding to those comments in preparation of a final EIS.  Following completion of the wetlands analysisdescribed below, the agencies are likely to circulate a supplemental DEIS forpublic comment addressing transmission lines, tailings impoundments, waterquality, wetlands and other issues.  Thefinal EIS, which will be issued after the supplemental DEIS, will include,among other things, any project changes from the DEIS including preferredproject alternatives to mitigate environmental impacts of the plant, portals,transmission lines and tailings or to make a determination that no suchalternative exists, as well as an assessment of water quality.  If, during the preparation of a final EIS,significant new issues have been raised or significant changes are required,the lead agency may choose to issue an additional supplemental DEIS with anadditional comment period prior to issuing the final EIS. This allows thepublic and other agencies to review and comment on the new material andanalyses before the document is finalized. Once a final EIS is prepared, it iscirculated for public comment for 30 days. Following the issuance of a final EIS and resolution of any additionalcomments, and the issuance of the biological opinions noted below, the USFSwould issue a record of decision setting forth its decision on our proposedplan of operations and the necessary amendments to our hard rock mining permitthat would enable us to complete exploration activities at Montanore andcommence mining activities.

 

Inthe third quarter of 2010, the USFS and the Montana DEQ continued toincorporate new technical information, assess mitigation of environmentalimpacts, and evaluate reasonable alternatives in order to address comments onthe DEIS from the public and the EPA. Specifically, based on comments concerning the transmission linealternatives presented in the DEIS and following an extensive analysis, theUSFS and Montana DEQ selected their preferred alternative for the transmissionline location.  This decision will nowenable various aspects of the environmental review process to advance.

 

Aspart of our permitting process, the USFS must undertake certain biological assessments(BA) and submit draft reports of these assessments to the U.S. Fish andWildlife Service (FWS) for consideration in connection with the FWS’sbiological opinions addressing the impact of the project on threatened andendangered species, including grizzly bear and bull trout.  The issuance of the biological opinions bythe FWS is required prior to the completion of a record of decision.  The USFS is working on a draft of thefisheries BA and now that the transmission line alternative has been selected,a draft grizzly bear BA can be finalized, which is expected to occur in thefourth quarter of 2010.  The issuance ofthe biological opinions may take as much as 12 months following submission ofcompleted BAs.

 

Aspart of the development of a final EIS and the determination of the agencies’preferred alternatives, the U.S. Army Corps of Engineers must complete ananalysis of potential project discharges of dredged or fill material intowaters of the United States, including wetlands. Such discharges are regulatedby Section 404 of the Clean Water Act which requires a 

 

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permitbefore dredged or fill material may be discharged.  The Company and the agencies havecollaboratively developed wetlands mitigation options.  Numerous site tours and conceptual plans havebeen prepared and are in the process of being finalized.  The Company estimates that the agencies couldfinalize their analysis of the wetland mitigation plans in late 2010 or early2011.

 

Basedon the estimated timing of the supplemental DEIS and issuance of biologicalopinions, the Company believes that the agencies could issue a record ofdecision in late 2011, but in light of the fact that a large part of theprocess is contingent upon variables outside our control, there can be nocertainty regarding such timing.

 

**Financialand Operating Results**

 

MinesManagement, Inc. is an exploration stage company with a large silver-copperproject, the Montanore Project, located in northwestern Montana.  The Company continues to expense all of itsexpenditures with the exception of equipment, buildings, and mining properties,including mineral rights, which are capitalized.   The Company has no revenues from miningoperations.  Financial results ofoperations include primarily interest income, general and administrativeexpenses, permitting, projectadvancement and engineering expenses (which are included in the technicalservices and exploration line item in the statement of operations),depreciation expense and legal, accounting and consulting expenses.

 

**QuarterEnded September 30, 2010**

 

TheCompany reported a net loss for the quarter ended September 30, 2010 of $2.7million, or $0.12 per share, compared to a net loss of $2.3 million, or $0.10per share, for the quarter ended September 30, 2009.  The primary factors driving the $0.4 millionincrease in net loss in the third quarter of 2010 relative to the third quarterof 2009 were:

 

(i)             an increase of $0.3 million in general andadministrative expenses due in large part to the issuance of stock compensationin the 2010 period as described in Note 9 of the financial statements, whichwas offset by $0.1 million of decreases in other operating expendituresreflecting completion of certain activities associated with seeking permittingapprovals; and

 

(ii)          an increased loss in the fair market value of warrant derivatives of $0.2 million.

 

**Nine Months Ended September 30, 2010**

 

TheCompany reported a net loss for the nine months ended September 30, 2010 of$7.4 million, or $0.32 per share, compared to a loss of $7.2 million or $0.32per share for the nine months ended September 30, 2009.  The $0.2 million****increasein net loss is attributable to the following:

 

(i)             increased general and administrative costs of $1.0million in 2010 primarily due to grants of stock options  in January and July of 2010;

 

(ii)          increased legal, accounting and consulting costs of$0.1 million in 2010 due to fees associated with permitting issues;

 

(iii)       decreased technical services costs of $0.5 millionin 2010 due to the suspension of the Libby adit rehabilitation work in April2009; and

 

(iv)      increased other income of $0.4 million primarily dueto a smaller loss in the fair market value of warrant derivatives.

 

**Liquidity**

 

AtSeptember 30, 2010, the Company had cash and cash equivalents and unrestrictedcertificates of deposit of $7.4 million, and an additional $1.8 million ofavailable-for-sale securities.  Duringthe nine months ended September 30, 2010, the Company’s net cash used foroperating activities was $5.2 million. We anticipate expenditures of approximately $1.7 million in the finalthree months of 2010, which we expect to consist of $0.9 million for generaland administrative expenses and $0.8 million for the preparation of thepreliminary economic assessment and responding to EIS comments.

 

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TheCompany continues to reduce activity levels to conserve cash, including capitalexpenditures, until the timing for the receipt of the record of decisionbecomes more clear.   This process isexpected to continue through 2011.  TheCompany will continue to evaluate financing alternatives during the fourthquarter of 2010 and through 2011. If additional financing is not obtainedduring this period, the Company will be required to accelerate its cash managementstrategies and further reduce its expenditures.

 

**Off-Balance Sheet Arrangements**

 

At September 30, 2010, wehad no existing off-balance sheet arrangements (as defined under SEC rules)that have or are reasonably likely to have a material current or future effecton our financial condition, revenues or expenses, results of operations,liquidity, capital expenditures or capital resources.

 
| **ITEM 3.** | **QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK AND  HEDGING ACTIVITIES** |
|-------------|----------------------------------------------------------------------------------------|

 

Allof our cash balances are held in U.S. dollars and our long term investmentcertificates of deposit are denominated in U.S. dollars in local and nationalbanking institutions.  We manage thetiming of cash required for review of the permitting and engineering of theMontanore Project and for general corporate purposes utilizing our money marketaccount and we invest funds not immediately required in certificates of depositwith varying maturities and fixed early retirement costs of three monthsinterest.

 

Themarket prices of base and precious metals such as silver and copper fluctuatewidely and are affected by numerous factors beyond the control of any miningcompany.  These factors includeexpectations with regard to the rate of inflation, the exchange rates of theU.S. dollar and other currencies, interest rates, global or regional political,economic or banking crises, and a number of other factors.  If the market price of silver or coppershould decrease, the value of the Company’s Montanore Project could decline andthe Company might not be able to recover its investment in that project.  Any determination to develop or construct amine would be made long before the first revenues from production would bereceived.  Price fluctuations between thetime that such decisions are made and the commencement of production couldaffect the economics of the mine.

 
| **ITEM 4.** | **CONTROLS AND PROCEDURES** |
|-------------|-----------------------------|

 

Ourmanagement, with the participation of Glenn M. Dobbs, the Company’s Presidentand CEO, and James H. Moore, the Company’s Chief Financial Officer andTreasurer, has evaluated the Company’s disclosure controls and procedures as ofSeptember 30, 2010.  Based upon thisevaluation, the Chief Executive Officer and Chief Financial Officer concludedthat the Company’s disclosure controls and procedures are designed and wereeffective as of September 30, 2010 to give reasonable assurances that theinformation required to be disclosed in the reports that the Company’s files orsubmits under the Securities Exchange Act of 1934, as amended, is recorded,processed, summarized and reported within the time periods specified in therules and forms of the Securities and Exchange Commission, and that suchinformation is also accumulated and communicated to the Company’s management,including its Chief Executive Officer and Chief Financial Officer, asappropriate, to allow timely decisions regarding required disclosure.

 

Therewere no changes in the Company’s internal controls over financial reportingthat occurred during the quarterly period ended September 30, 2010 thatmaterially affected, or are reasonably likely to materially affect, the Company’sinternal control over financial reporting.

 

**PART II—OTHER INFORMATION**

 
| **ITEM 1.** | **LEGAL PROCEEDINGS** |
|-------------|-----------------------|

 

None.

 
| **ITEM 1A.** | **RISK FACTORS** |
|--------------|------------------|

 

In addition to the other information set forth inthis report, you should carefully consider the factors discussed in ‘‘RiskFactors’’ in our Annual Report on Form 10-K for the year ended December 31,2009, which could materially affect our business, financial condition and/orfuture results.  The risks described inour Annual Report on Form 10-K are not the only risks facing us.  Additional risks and uncertainties notcurrently known to us or that we currently deem to be immaterial also maymaterially adversely affect our business, financial condition and/or operatingresults.

 

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**ITEM 2.****                                                    ****UNREGISTERED SALES OF EQUITYSECURITIES AND USE OF PROCEEDS**

 

None.

 

**ITEM 3.****                                                    ****DEFAULTS UPON SENIOR SECURITIES**

 

None.

 

**ITEM 5.****                                                    ****OTHER INFORMATION**

 

None.

 

**ITEM 6.****                                                    ****EXHIBITS**

 
| **Exhibit No.** | ** ** | **Title of Exhibit**                                                                                 |
|----------------------|------------|----------------------------------------------------------------------------------------------------------------|
|                 |       |                                                                                                           |
| 31.1                 |       | Certification  of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act                    |
| 31.2                 |       | Certification  of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act                    |
| 32.1                 |       | Certification  of Chief Executive Officer pursuant to 18 U.S.C., 1350 (Section 906 of the  Sarbanes-Oxley Act) |
| 32.2                 |       | Certification  of Chief Financial Officer pursuant to 18 U.S.C., 1350 (Section 906 of the  Sarbanes-Oxley Act) |

 

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**SIGNATURES**

 

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on behalf of the undersigned thereuntoduly authorized.

 
|                     | MINES MANAGEMENT, INC. |
|--------------------------|------------------------|
|                     |                   |   |
|                     |                   |   |
| Date: November 15, 2010  | By:                    | /s/ Glenn M. Dobbs |
|                     |                   | Glenn M. Dobbs |
|                     |                   | President and Chief  Executive Officer |
|                     |                   |   |
|                     |                   |   |
|                     | By:                    | /s/  James H. Moore |
| Date:  November 15, 2010 |                   | James  H. Moore |
|                     |                   | Chief  Financial Officer |

 

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