OMB APPROVAL OMB Number: 3235-0070 Expires:  January 31, 2008 Estimated average burden hours per response: 192.00  UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549  FORM 10-Q  (MARK ONE)  [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED September 30, 2006.  [  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________ TO ________.  COMMISSION FILE NUMBER  000-29786  MINES MANAGEMENT, INC.(Exact Name of Registrant as Specified in its Charter)  IDAHO91-0538859(State or Other Jurisdiction of Incorporation or Organization)(I.R.S. Employer Identification No.)  905 W. Riverside Avenue, Suite 311
Spokane, Washington99201(Address Of Principal Executive Offices)(Zip Code)  (509) 838-6050(Registrants Telephone Number, Including Area Code)  Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  [X] Yes    [  ] No  Indicate by check mark whether the registrant is a large accelerated filer, and accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer __ Accelerated filer __ Non-accelerated filer X_  Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  [  ] No  [X]  At November 10, 2006, 12,899,467 shares of common stock, par value per share $0.01, were issued and outstanding.  SEC 1296 (9-05) Potential persons who are to respond to the collection of information contained in this form are not required to respond unless the  form displays a currently valid OMB control number.


MINES MANAGEMENT, INC. FORM 10-Q QUARTER ENDED September 30, 2006  INDEX  PAGE  PART I  FINANCIAL INFORMATION  (Note final to match pages) ITEM 1. FINANCIAL STATEMENTS 3 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 18 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK AND HEDGING ACTIVITIES 21 ITEM 4. CONTROLS AND PROCEDURES 21 PART II  OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS 22 ITEM 1A. RISK FACTORS 22 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 22 ITEM 3. DEFAULTS UPON SENIOR SECURITIES 22 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 22 ITEM 5. OTHER INFORMATION 22 ITEM 6. EXHIBITS 22 SIGNATURES 23


2    Part I  Financial Information  Item 1. Financial statements (unaudited)  Mines Management, Inc. and Subsidiaries Contents   Page    FINANCIAL STATEMENTS:  Consolidated balance sheets 4  Consolidated statements of income 6  Consolidated statements of stockholders equity 7  Consolidated statements of cash flows 8  Notes to consolidated financial statements 9-17              3     Mines Management, Inc. and SubsidiariesConsolidated Balance SheetsSeptember 30,December 31,20062005AssetsCURRENT ASSETS:Cash and cash equivalents$    2,120,689$    4,648,294Interest receivable20,598101,380Prepaid expenses and deposits145,30530,169Total current assets2,286,5924,779,843MINERAL PROPERTIES504,492504,492PROPERTY AND EQUIPMENT:Mine buildings77,91739,917Vehicles and equipment145,64180,568Office equipment212,024185,969435,582306,454Less accumulated depreciation141,307101,470294,275204,984INVESTMENTS:Certificates of deposit4,370,2524,158,692Available-for-sale securities43,38625,1464,413,6384,183,838$    7,498,997$    9,673,157  See accompanying notes to consolidated financial statements.    4      Consolidated Balance SheetsSeptember 30,December 31,20062005Liabilities and Stockholders EquityCURRENT LIABILITIES:Accounts payable$        46,645$       130,655Due to officer2,3982,398Severance currently payable-20,000Payroll taxes payable4,70218,048Total current liabilities53,745171,101COMMITMENTSSTOCKHOLDERS EQUITY:Common stock  100,000,000 shares, $0.01 par value, authorized;12,849,467 and 12,469,510 shares issued and outstanding128,494124,695Preferred stock  10,000,000 shares, no par value,authorized; -0- shares issued and outstanding--Additional paid-in capital21,637,44519,705,219Accumulated deficit(1,117,306)(1,117,306)Deficit accumulated during the development stage(13,235,602)(9,224,533)Accumulated other comprehensive income32,22113,981Total stockholders equity7,445,2529,502,056$    7,498,997$    9,673,157    See accompanying notes to consolidated financial statements.    5


Mines Management, Inc. and SubsidiariesConsolidated Statements of IncomeFrom InceptionAugust 12, 2002Three Months EndedNine Months EndedThroughSeptember 30,September 30,September 30,20062005200620052006REVENUE:Royalties$           3,269$           2,418$           9,776$           8,127$              38,145OPERATING EXPENSES:Depreciation17,2476,91539,83715,79777,293Administrative125,154117,843386,614512,7601,502,123Legal, accounting, and consulting176,80769,133339,433135,810753,237Miscellaneous1,7565373,6023,68419,406Exploration78,614-78,61471883,310Oil and gas operating----12,173Rent and office104,48731,140225,51790,587457,393Compensation, directors, officers and staff268,393180,405625,916450,2021,959,544Taxes and licenses(20,320)10,90742,18330,512128,144Telephone5,7914,12316,43810,34147,763Fees, filing, and licenses268,016217,168514,725262,6291,183,472Environmental67,336-177,70583,233423,468Engineering54,085242,453332,131455,1821,411,742Permitting351,729338,4781,053,588690,0142,201,090Commissions----68,440Stock options granted to officers and employees--392,530321,0302,964,401Stock options granted for services18,20019,30429,745547,483592,314Total operating expenses1,517,2951,238,4064,258,5783,609,98213,885,313LOSS FROM OPERATIONS(1,514,026)(1,235,988)(4,248,802)(3,601,855)(13,847,168)OTHER INCOME:Interest74,67656,448237,733155,751608,108Miscellaneous----3,45874,67656,448237,733155,751611,566NET LOSS$    (1,439,350)$    (1,179,540)$    (4,011,069)$    (3,446,104)$       (13,235,602)NET LOSS PER SHARE$          (0.11)$          (0.11)$          (0.31)$          (0.31)WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING12,849,46711,221,04712,759,03310,940,118  See accompanying notes to consolidated financial statements.


6


Mines Management, Inc. and SubsidiariesConsolidated Statements of Stockholders EquityNine Months Ended September 30, 2006DeficitAccumulatedAccumulatedAdditionalDuring theOtherCommon StockIssuable Common StockPaid-inAccumulatedDevelopmentComprehensiveSharesAmountSharesAmountCapitalDeficitStageIncomeTotalBALANCES, AUGUST 12, 2002 (INCEPTION)5,316,956$53,17090,000$22,500$1,448,145$(1,117,306)-$846$407,355Common stock issued for cash5,169,31251,69314,346,44814,398,141Common stock issued to directors375,0003,750146,250150,000Common stock issued for services5,000501,9502,000Issuable common stock issued90,000900(90,000)(22,500)21,600-Exercise of stock options908,0889,08070,42079,500Exercise of stock warrants578,3675,784688,234694,018Issuance of stock options2,962,5102,962,510Issuance of stock for Heidelberg shares26,787268(268)-Revaluation of stock options-19,93019,930Comprehensive loss:Adjustment to net unrealized gainon marketable securities13,13513,135Net loss(9,224,533)(9,224,533)Comprehensive loss(9,211,398)BALANCES, DECEMBER 31, 200512,469,510$124,695--$19,705,219$(1,117,306)$(9,224,533)$13,981$9,502,056Exercise of stock options273,3742,733--876,516---879,249Exercise of stock warrants105,7501,058633,443634,501Issuance of stock options to employees---392,530---392,530Issuance of stock options for services---29,745---29,745Issuance of stock for Heidelberg shares8338--(8)----Comprehensive loss:Adjustment to net unrealized gainon marketable securities------18,24018,240Net loss-----(4,011,069)(4,011,069)Comprehensive loss(3,992,829)BALANCES, SEPTEMBER 30, 200612,849,467$128,494--$21,637,445$(1,117,306)$(13,235,602)$32,221$7,445,252  See accompanying notes to consolidated financial statements.


7


Mines Management, Inc. and SubsidiariesConsolidated Statements of Cash FlowsFrom InceptionAugust 12, 2002Three Months EndedNine Months EndedThroughSeptember 30,September 30,September 30,20062005200620052006Increase (Decrease) in Cash and Cash EquivalentsCASH FLOWS FROM OPERATING ACTIVITIES:Net loss$    (1,439,350)$    (1,179,540)$    (4,011,069)$      (3,446,104)$  (13,235,602)Adjustments to reconcile net loss to net cashused in operating activities:Issuance of stock options to employees-19,304392,530868,5133,538,515Issuance of stock options for services18,200-29,745-7,035Depreciation17,2476,91439,83715,79777,293Changes in assets and liabilities:Interest receivable111,86561,64480,782(7,998)(20,598)Prepaid expenses(84,305)28,476(115,136)(5,264)(144,805)Accounts payable(4,189)(103,922)(84,010)6,74949,043Severance payable-(10,000)(20,000)(45,000)-State income taxes payable----(164)Payroll taxes payable(15,775)2,968(13,346)3,4111,522Net cash used in operating activities(1,396,307)(1,174,156)(3,700,667)(2,609,896)(9,727,761)CASH FLOWS FROM INVESTING ACTIVITIES:Purchase of fixed assets(120,026)(50,710)(129,128)(81,294)(369,730)Purchase of certificates of deposit(156,258)(109,061)(211,560)(122,932)(4,370,252)Increase in mineral properties----(144,312)Net cash used in investing activities(276,284)(159,771)(340,688)(204,226)(4,884,294)CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from sales of common stock-179,9981,513,750733,51616,685,409NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS(1,672,591)(1,153,929)(2,527,605)(2,080,606)2,073,354CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD3,793,2801,498,3184,648,2942,424,99547,335CASH AND CASH EQUIVALENTS, END OF PERIOD$     2,120,689$        344,389$     2,120,689$          344,389$       2,120,689  See accompanying notes to consolidated financial statements.


8


Mines Management, Inc. and Subsidiaries Notes to Consolidated Financial Statements   NOTE 1  ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:  Organization:  Mines Management, Inc. (the Company) is a publicly held Idaho corporation incorporated in 1947.  The Company acquires, explores, and develops mineral properties principally in North America.  The Company performed exploration activities in South America in 2002.  Summary of Significant Accounting Policies:  a. The accompanying consolidated financial statements include the accounts of Mines Management, Inc., and its wholly-owned subsidiaries, Newhi, Inc., Montanore Mineral Corporation, and Montmin Corporation.  Intercompany balances and transactions have been eliminated.  Newhi, Inc., was formed by the Company for the purpose of merger with Heidelberg Silver Mining Company, Inc.  In the merger, completed on April 15, 1988, Heidelberg Silver Mining Company, Inc., was merged into Newhi, Inc.  To effect the merger, the Company issued 367,844 shares of its previously unissued common stock.  Also in connection with this merger, the Company issued 11,117 shares of common stock and paid $4,446 as a finders fee.  Montanore Mineral Corporation and Montmin Corporation were acquired in conjunction with a stock transfer agreement with Noranda Finance Corporation as described more fully in note 9. b. All exploration expenditures are expensed as incurred.  Significant property acquisition payments for active exploration properties are capitalized.  If no mineable ore body is discovered, previously capitalized costs are expensed in the period the property is abandoned.  Expenditures to develop new mines, to define further mineralization in existing ore bodies, and to expand the capacity of operating mines, are capitalized and amortized on a units of production basis over proven and probable reserves. Should a property be abandoned, its capitalized costs are charged to operations.  The Company charges to operations the allocable portion of capitalized costs attributable to properties sold.  Capitalized costs are allocated to properties sold based on the proportion of claims sold to the claims remaining within the project area. c. The Company evaluates its long-lived assets for impairment when events or changes in circumstances indicate that the related carrying amount may not be recoverable.  If the sum of estimated future net cash flows on an undiscounted basis is less than the carrying amount of the related asset grouping, an asset impairment is considered to exist.  The related impairment loss is measured by comparing estimated future net cash flows on a discounted basis to the carrying amount of the asset.  Changes in significant assumptions underlying future cash flow estimates may have a material effect on the Companys financial position and results of operations.  To date no such impairments have been identified. d. Property and equipment are stated at cost.  Buildings and leasehold improvements are depreciated on the straight-line basis over an estimated useful life of 39 years.  Machinery and furniture are generally being depreciated using accelerated methods over estimated useful lives ranging from 5 to 10 years. e. Basic and diluted loss per share are computed using the weighted average number of shares outstanding duringthe periods (12,849,467 and 11,221,047 in the quarters ended September 30, 2006, and 2005, respectively).  Stock options and warrants outstanding are antidilutive and are not considered in the computation.   9       Mines Management, Inc. and Subsidiaries Notes to Consolidated Financial Statements  NOTE 1  ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued):  Summary of Significant Accounting Policies (continued):  f. Cash and cash equivalents include cash on hand, cash in banks, investments in certificates of deposit with original maturities of 90 days or less, and money market funds. g. The Companys financial instruments as defined by Statement of Financial Accounting Standards (SFAS) No. 107,Disclosures about Fair Value of Financial Instruments, include cash and loans payable.  All instruments are accounted for on a historical cost basis, which, due to the short maturity of these financial instruments, approximates fair value at September 30, 2006. h. Deferred income tax is provided for differences between the bases of assets and liabilities for financial and income tax reporting.  A deferred tax asset, subject to a valuation allowance, is recognized for estimated future tax benefits of tax-basis operating losses being carried forward.  i. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results may differ from those estimates.  j. The Company has adopted SFAS No. 143,Accounting for Asset Retirement Obligations, which establishes a uniform methodology for accounting for estimated reclamation and abandonment costs.  According to SFAS No. 143, the fair value of a liability for an asset retirement obligation (ARO) will be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made.  The ARO is capitalized as part of the carrying value of the assets to which it is associated, and depreciated over the useful life of the asset.  In March 2005, the Financial Accounting Standards Board (FASB) issued Interpretation No. 47 (FIN No. 47), Accounting for Conditional Asset Retirement Obligations, which clarifies that the term conditional asset retirement obligation, as used in SFAS No. 143 refers to a legal obligation to perform an asset retirement activity where the timing or method of settlement are conditional on a future event. Where the obligation to perform the asset retirement activity is unconditional, even though uncertainty exists about the timing or method of settlement, the entity is required to recognize a liability for the fair value of the conditional retirement obligation if reasonably estimable.  FIN No. 47 also clarifies when an entity would have sufficient information to reasonably estimate fair value.  At September 30, 2006, no asset retirement liabilities have been recorded by the Company.  k. Certain amounts in the prior-period consolidated financial statements have been reclassified for comparative purposes to conform to current period presentation with no effect on previously reported net loss.   10       Mines Management, Inc. and Subsidiaries Notes to Consolidated Financial Statements  NOTE 1  ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued):  Summary of Significant Accounting Policies (continued):   l. In December 2004, the FASB issued SFAS No. 123R, Share-Based Payment, which revised SFAS No. 123, Accounting for Stock-Based Compensation, and superseded APB Opinion 25, Accounting for Stock Issued to Employees, and its related implementation guidance.  SFAS No. 123R requires measurement and recording to the financial statements of the costs of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award, recognized over the period during which an employee is required to provide services in exchange for such award.  Effective January 1, 2004, the Company adopted SFAS No. 123, as amended by SFAS No. 148, Accounting for Stock-Based CompensationTransition and Disclosure.  As provided for under SFAS No. 148, the Company used the modified prospective method of transition.  Under that method of transition the costs recognized in the financial statements for the quarters ended September 30, 2006 and 2005, are the same as if they had been based on their fair values at the grant date.  The Company recognized stock-based compensation of approximately $18,200 and $19,304 for the quarters ended September 30,2006 and September 30,2005, respectively.  For purposes of calculating the fair value of options, volatility for the two years presented is based on the historical volatility of the Companys common shares over its public trading life.  The Company currently does not foresee the payment of dividends in the near term.  The fair value for these options was estimated at the date of grant using the Black-Scholes option-pricing model with the following assumptions:  Quarter Ended Quarter Ended September 30, September 30, (2006) (2005)  Weighted average risk-free interest rate 4.71% 3.87% Weighted average volatility 58.91% 70.40% Expected dividend yield - - Weighted average expected life (in years) 2.00 2.00  At September 30, 2006, the Company had four stock option plans, which are described more fully in note 5.    11       Mines Management, Inc. and Subsidiaries Notes to Consolidated Financial Statements  NOTE 2  STOCKHOLDERS EQUITY:  Common Stock:  In 2003, the Company sold 1,152,007 common shares for $1,267,207 ($1.10 per share).  In connection with the stock sales, the Company granted warrants to purchase up to 1,152,007 common shares at $1.20 per share through two years from the date of issue.  Cumulative warrants exercised relating to this issue at both September 30, 2006, and December 31, 2005, were 1,152,007.  In 2004, the Company sold 1,285,000 common shares for $6,425,000 ($5.00 per share).  In connection with the stock sales, the Company granted warrants to purchase up to 511,000 common shares at $7.25 per share through five years from the initial exercise date.  The Company paid a cash finders fee of 7% of the gross offering funds received in the offering.  The finder also received 3% warrant compensation or warrants to purchase 192,750 common shares at $7.25 per share through February 18, 2009.  These warrants were repriced at $6.00 per share in October 2005, in accordance with the terms of the 2004 warrant agreement.  Cumulative warrants exercised relating to this issue at September 30, 2006, and December 31, 2005, were 145,750 and 40,000, respectively.  In 2005, the Company sold 1,016,667 common shares for $6,100,002 ($6.00 per share).  In connection with the stock sales, the Company granted warrants to purchase up to 737,084 common shares at $8.25 per share through five years from the initial exercise date.  To date, no warrants have been exercised.  The Company paid a cash finders fee of 7% of the gross offering funds received in the offering.  The finder also received a 3.75% warrant compensation or warrants to purchase 228,750 common shares at $8.25 per share through October 20, 2010.  In 2005, the Company also sold an additional 40,000 common shares for $240,000 ($6.00 per share).  Preferred Stock:  The Company has authorized 10,000,000 shares of no-par-value preferred stock.  Through September 30, 2006, the Company had not issued any shares of preferred stock.   NOTE 3  MINING PROPERTIES:  Mining properties are comprised of acquisition, exploration, and development costs related to the Advance and Iroquois properties in the Northport region of northeastern Washington State and the Montanore property in northwestern Montana, as shown below:  September 30, December 31, 2006 2005  Montanore $ 278,519 $ 278,519 Advance 2,139 2,139 Iroquois 223,834 223,834  $ 504,492 $ 504,492      12       Mines Management, Inc. and Subsidiaries Notes to Consolidated Financial Statements  NOTE 3  MINING PROPERTIES (continued):  The Montanore property (formerly the Noxon property) located in northwestern Montana includes 18 mining claims covering 355 acres plus one 5-acre patented mill site.  In August 2002, the Company acquired a controlling interest in the Montanore silver copper deposit in Sanders County, Montana.  The Company received a quitclaim deed from Noranda Mineral Corp. (Noranda) when Noranda elected to withdraw from the project.  The mineral rights acquired by the Company are subject to a $0.20 per ton royalty, and a 5% net profits royalty which would commence after the operator has recovered all of its exploration and development costs.  In December 2002, the Company received a quitclaim deed to all intellectual property connected with studies that Noranda carried out on the project.  The Advance property consists of 720 acres of patented mineral rights.  Although the Company does not own the overlying surface rights to its patented mineral rights, it does have right of access to explore and mine.  The Iroquois property consists of 64 acres of patented mineral and surface rights and 15 unpatented mining claims containing 300 acres.   NOTE 4  INVESTMENTS:  The Company owns four $110,416 certificates of deposit and six $111,549 certificates of deposit for a total of $1,110,959.  These investments mature in 2008 and earn rates from 3.3% to 3.64%.  The Company owns ten $217,568 certificates of deposit and ten $108,361 certificates of deposit for a total of $3,259,293.  These investments mature in 2009 and earn rates of 4.21% and 4%, respectively.  The Company owns 45,000 free-trading shares of Bitterroot Resources, Ltd. (BTT), a public Canadian corporation traded on the Toronto Venture Exchange.  The shares are held as available for sale.  This investment is being recorded at fair market value with a corresponding adjustment to stockholders equity.  The 45,000 free-trading shares at September 30, 2006, and December 31, 2005, had an approximate market value of $16,142 and $15,057 U.S. funds, respectively.  The Company also owns 196,000 free-trading shares of Centram Exploration Ltd., a public Canadian corporation traded on the Toronto Venture Exchange.  The shares are held as available for sale.  The shares were received in 2002 in exchange for administrative services provided by the Company.  The 196,000 free-trading shares at September 30, 2006, and December 31, 2005, had an approximate market value of $27,244 and $10,089 U.S. funds, respectively.   NOTE 5  STOCK OPTIONS:  During the year ended December 31, 1998, the stockholders of the Company approved two stock-based compensation plans: a fixed employee stock-based compensation plan and a performance-based plan.  Under the fixed plan, the Company may grant options to purchase up to 460,000 shares of common stock.  The exercise price shall not be less than the fair market value on the date of grant of the shares.  Stock options shall be exercisable within ten years from the date of the grant of the option.  Options under the fixed plan vest immediately.  At September 30, 2006, no 1998 nonqualified plan options were outstanding.    13       Mines Management, Inc. and Subsidiaries Notes to Consolidated Financial Statements  NOTE 5  STOCK OPTIONS (continued):  Under the performance based plan, the Company may grant options to purchase up to 460,000 shares of common stock.  The exercise price shall not be less than the fair market value on the date of grant of the shares.  Stock options shall be exercisable within ten years from the date of the grant of the option.  Options under the incentive plan vest immediately.  At September 30, 2006, no incentive-based plan options were outstanding.  During the year ended December 31, 2003, the stockholders of the Company approved two new stock-based compensation plans  the 2003 Stock Option Plan (which includes both qualified and nonqualified options) and the 2003 Consultant Stock Compensation Plan.  Under the 2003 Stock Option Plan, the Company may grant options to purchase up to 1,200,000 shares of common stock.  Under the 2003 Consultant Stock Compensation Plan the Company may grant options to purchase up to 400,000 shares of common stock.  During 2004, the Company increased the maximum number of common shares available under the 2003 Stock Option Plan and the 2003 Consultant Stock Compensation Plan to 3,000,000 and 700,000 shares, respectively.  Under both 2003 plans the exercise price shall be no less than 100% of the fair market value per share on the date of grant.  Stock options shall be exercisable within ten years from the date of the grant of the option.  Vesting of the options granted under both plans is at the prerogative of the Board of Directors.  Options granted under the plans in 2003 vest immediately except for options issued to Glenn Dobbs, President and Chairman of the Board of Directors. Options issued to Mr. Dobbs were 50% vested at year end December 31, 2003, and become fully vested upon completion of certain financing arrangements.  The options granted to Mr. Dobbs were fully vested at year end December 31, 2004.  At September 30, 2006, the following options granted under the 2003 plans were outstanding:  Remaining Weighted Contractual Exercise Number of Average Life Number Prices Options Exercise Price (in years) Exercisable  $ 1.60 500,000 $ 1.60 1.43 500,000 1.85 100,000 1.85 1.91 100,000 3.95 20,000 3.95 2.73 20,000 4.65 475,000 4.65 2.59 475,000 3.75 220,000 3.75 3.26 120,000 3.93 155,000 3.93 3.34 155,000 4.01 214,000 4.01 3.66 214,000 4.92 15,000 4.92 3.97 0 5.70 5,000 5.70 3.72 5,000 6.20 175,000 6.20 4.70 175,000 6.21 30,000 6.21 4.91 10,000 6.34 100,000 6.34 4.21 50,000 6.42 200,000 6.42 4.83 0  Subtotal 2,209,000 $4.01 1,824,000     14       Mines Management, Inc. and Subsidiaries Notes to Consolidated Financial Statements  NOTE 5  STOCK OPTIONS (continued):  During January 2005, the Company issued 214,000 stock options to an individual as compensation for the performance of marketing services. The options have an exercise price of $4.01 and vested 25% at the time of issuance, 25% 60 days thereafter and the remaining balance on May 28, 2005.  The options expire five years from issuance.  During February 2005, the Company issued 205,000 stock options to directors and employees.  The options have an exercise price of $3.93 and vest immediately.  The options expire five years from issuance.  During June 2005, the Company issued 25,000 stock options to an individual as compensation for the performance of consulting services.  The options have an exercise price of $5.70 and vested immediately.  The options expire five years from issuance.  During June 2005, the Company issued 25,000 stock options to an individual as compensation for the performance of consulting services.  The options have an exercise price of $5.99 per share, representing the share price at the close of trading on June 6, 2005, and vest 40% at the time of issuance (June 6, 2005), and 20% each on June 6 of 2006, 2007, and 2008.  The Company has a policy of re-pricing all incentive stock options as market conditions allow.  As a result, the above stock option grants on June 6, 2005, were cancelled and replaced by the same number of stock options at an exercise price of $4.92 per share representing the stock price as of the close of trading on September 7, 2005.  During December 2005, the Company issued 100,000 stock options to an officer.  The options have an exercise price of $6.34 per share, representing the share price at the close of trading on December 13, 2005, and vest 50% at the time of issuance (December 13, 2005) and 50% on December 13, 2006.  During June 2006, the Company issued 170,000 stock options to officers, directors, and employees and 5,000 stock options to an individual as compensation for the performance of consulting services.  The options have an exercise price of $6.20 and vest immediately.  The options expire five years from issuance.  During July and September 2006, the Company issued 200,000 stock options to directors and 30,000 to the new Project Engineer for the Montanore Project.  The options have an exercise price of $6.42 and $6.21, respectively.  The options issued to the directors vest over a two year period, 20,000 on July 9, 2007 and 20,000 on July 9,  2008 for each director.  The options issued to the new employee, 10,000 vest immediately, while the remaining 20,000 vest over a two year period, 10,000 on September 20, 2007 and 10,000 on September 20, 2008.  Fair value of the options is calculated using the Black-Scholes option-pricing model and is recognized as the options vest.  For purposes of calculating the fair value of options, volatility for the two years presented is based on the historical volatility of the Companys common shares over its public trading life.  The Company currently does not foresee the payment of dividends in the near term.  The fair value for these options was estimated at the date of grant using the Black-Scholes option-pricing model with the following assumptions:  Quarter Ended Quarter Ended September 30, September 30, (2006) (2005) Weighted average risk-free interest rate 4.71% 3.87% Weighted average volatility 58.91% 70.41% Expected dividend yield - - Expected lives (in years) 2.00 2.00 Weighted average fair value (in dollars) $1.82 $1.99   15       Mines Management, Inc. and Subsidiaries Notes to Consolidated Financial Statements  NOTE 5  STOCK OPTIONS (continued):  The following summarizes option activity for the quarter ended September 30, 2006: Weighted-Average Shares Exercise Price Under Option Per Share  Outstanding at June 30, 2006 1,979,000 $3.73 Granted 230,000 6.39 Exercised Forfeited Expired - -  Balance at September 30, 2006 2,209,000 $4.01   Options outstanding at September 30, 2006, have a remaining contractual life of approximately four years.   NOTE 6  CONCENTRATION OF CREDIT RISK:  The Company maintains its cash and cash equivalents in one financial institution.  Balances are insured by the Federal Deposit Insurance Corporation up to $100,000.   NOTE 7  DEFERRED INCOME TAX:  At September 30, 2006, and December 31, 2005, the Company had deferred tax assets which were fully reserved by valuation allowances.  Following are the components of such assets and allowances:  Sept. 30,  December 31, 2006 2005  Deferred tax assets arising from: Net operating loss carry forwards $ 1,550,000 $ 959,000 Stock option compensation 530,000 460,000 Accrued severance compensation - 2,000 2,080,000 1,421,000 Less valuation allowance 2,080,000 1,421,000  Net deferred tax assets $ - $ -       16


Mines Management, Inc. and Subsidiaries Notes to Consolidated Financial Statements  NOTE 7  DEFERRED INCOME TAX (continued):  For the periods presented, the effective income tax rate differed from the expected rate because of the effects of annual changes in the deferred tax asset valuation allowance.  Changes in the deferred tax asset valuation allowance for the third quarter ended September 30, 2006, and the year ended December 31, 2005, relate only to corresponding changes in deferred tax assets for those periods.  At September 30, 2006, the Company had federal tax-basis net operating loss carry forwards totaling approximately $10,300,000, which will expire in various amounts from 2006 through 2025.   NOTE 8  COMMITMENTS:  On August 11, 2005, Mines Management was named as a co-defendant in a lawsuit filed by Montana Reserves Company (MRC) in the Superior Court of the State of Washington in Spokane County, Washington.  Named as co-defendants are Noranda Minerals, Normin Corp., Mines Management, and Newhi, Inc.  The action seeks damages in connection with the conveyance of the Montanore property from Noranda to Newhi, and challenges the computation of a net proceeds royalty payable to MRC pursuant to a Royalty Agreement between Noranda and MRC in respect to the Montanore property.  Management does not believe that the outcome of this lawsuit will have a material adverse effect.   NOTE 9  BUSINESS COMBINATION:  On May 31, 2006 Noranda Finance Corporation and Newhi, Inc. executed a stock transfer agreement by which all issued and outstanding shares of capital stock for both Noranda Minerals Corporation and Normin Corporation have been transferred to Newhi, Inc.  Noranda Minerals Corporation and Normin Corporation are Delaware corporations registered to do business in Montana.  At the same time, Newhi submitted a $30,000 cash bond to the Montana Department of Environmental Quality (DEQ) to replace Norandas previous bond.  Subsequently, the official names of the companies where changed to Montanore Minerals Corporation and Montmin Corporation, respectively.  The existing Montana State Hard Rock Permit #00150 and MPDES permit MT-00320279 stayed in place with Montanore Minerals Corporation, formerly known as Noranda Minerals Corporation, which is now owned by Newhi, Inc., a wholly-owned subsidiary of the Company.


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Item 2:  Managements Discussion and Analysis of Financial Condition and Results of Operations  Mines Management, Inc. (MMI or the Company) completed Phase 1 work authorized by a minor revision to the Hard Rock Mining Permit for the Libby Creek adit (Libby Adit), approved July 14, 2006 by the Montana DEQ, which involved opening the Libby Adit and initiating water treatability analyses. The first 600 feet of the Libby Adit was inspected and found to be in good shape and water samples were collected and sent for analysis.  Preliminary water treatability studies were completed.  Progress is being made with both the Montana DEQ and the U.S. Forest Service on the second minor revision to the Permit submitted in the second quarter of 2006, which, if approved, will authorize us to begin dewatering and rehabilitation of the Libby Adit and evaluation drilling.  Based on discussions and information submitted to those agencies, we anticipate receiving approval in the fourth quarter of 2006. Additional Montanore Project staffing will be delayed until approval of the Phase II minor revision.The Montanore Project continues to be our primary focus: permitting, engineering optimization, reserve enhancement and project funding being emphasized through the end of the year.  Overview  In the third quarter of 2006, the Company  · Completed the initial Montanore Project mining and milling cost studies, identifying critical areas of focus for project improvement and development. · Maintained strong cash and investment position with $6.5 million on hand at September 30, 2006. · Inspected the first 600 feet of the Libby Adit. · Collected water samples from the Libby Adit and completed preliminary bench scale testing for water treatment systems. · Continued work with state and federal agencies to provide technical information for the environmental impact statement process. · Began evaluation of financing alternatives to fund the adit rehabilitation and delineation drilling program for the Montanore Project.  In May 2006, the Company completed the acquisition of two companies now named Montanore Minerals Corporation and Montmin Corporation.  With these acquisitions came two key permits, including the Hard Rock Mining Permit referenced above, which allowed the Company to reopen the Libby Adit and, when minor permit revisions are approved, will allow the Company to continue its evaluation of the Montanore deposit.  The net cash expenditures for operating activities for the quarter ending September 30, 2006 was $1.4 million.  We believe that we have sufficient working capital for the next 18 months of operations at current levels.  We will require additional capital to complete the proposed evaluation drilling program.   Permitting and Environmental  During the third quarter of 2006, MMI continued to work with state and federal agencies on the EIS, transmission line, MPDES permit, air quality permit, and other permits necessary for exploration of the Montanore Project.  Significant progress was made on resolving outstanding technical and environmental issues and updated technical information and permit applications were submitted based on this progress.   MMI finalized and submitted all technical responses to agency comments received last quarter, covering a wide range of technical aspects of the project.  Work continues on the Bear Creek road survey and design to support transfer of the road to Lincoln County.   18





As noted above, in the second quarter of 2006, MMI submitted a second minor revision to the Hard Rock Mining Permit for the Libby Creek adit that addresses technical issues related to re-initiating the evaluation drilling program.  Following approval of the Phase I minor revision to that permit, received early in the third quarter of 2006, MMI initiated the acquisition and installation of surface facilities that will be required for the drilling program.  The agencies have completed several rounds of discussions on technical issues with respect to the drilling plan, including consultation between USFS and the U.S. Fish and Wildlife Service for a special use permit for road access to the site.  Approval for this stage of the project is expected to be received in the fourth quarter of 2006.  The Companys EIS contractor continues to work on final sections of the EIS with specific attention to the project alternative analyses, environmental impacts, cumulative assessment and other aspects of the environmental review.  The Montana DEQ continues to work on both the Montana Pollution Discharge Elimination System (MPDES) permit application review and the power transmission line permitting effort.  MMI continues to meet with the Montana DEQ and the USFS to discuss technical issues and to perform other tasks as necessary to advance the permitting activities.  Geology  MMI is advancing  the orebody geologic structure interpretation and mine model development focusing on the various mineralized beds associated with the rock formations.  Previously input geologic structure information assisted in developing the three dimensional aspects of the bedding which is used to re-interpolate the B1 and B zones.  In addition, expansion of the mineralized zone, beyond the B1 and B zones, was initiated and was integral to the proposed evaluation drilling program submitted with the second miner revision to the Hard Rock Mining Permit.  Work is ongoing to refine the drilling program based on the advancements of the geologic computer model.  Engineering  The primary focus of our third quarter efforts were on the engineering and geology work necessary to support the planned evaluation drilling program.  Mine facilities, power requirements, ventilation, pumping systems, and other activities were all updated for the new drilling evaluation program. Initial discussions and bid solicitations were made to vendors and contractors for mine supplies and service contracts for the evaluation drilling program.  Engineering efforts for the third quarter were primarily focused on planning and preparation for the evaluation drilling program, updated information for the cost update review and optimization effort; along with additional technical support for the permitting.  Financial and Operating Results  Mines Management is an exploration stage company with a major silver/copper project, the Montanore Project, located in northwest Montana.  The Company continues to expense all of its expenditures and has no revenues from mining operations.  Financial results of operations include primarily interest income, general and administrative expenses, permitting and engineering expenses, and other miscellaneous.  Quarter Ended September 30, 2006  The Company reported a net loss for the quarter ended September 30, 2006 of $1.4 million or $0.11 per share compared to $1.2 million loss or $0.11 per share for the quarter ended September 30, 2005. The $0.2 million increased expenditures for the third quarter 2006 compared to third quarter 2005 were mainly attributable to increased activity for the Montanore Project permitting, technical studies, and preparation for the adit  19





rehabilitation and evaluation drilling program, which included administrative and legal expenses relating to the transfer of the Hard Rock Mining Permit #00150 following the acquisition of the Noranda companies in May 2006.  Nine Months Ended September 30, 2006  The net loss for the first three quarters of 2006 was $4.0 million or $0.31 per share verses a net loss of $3.4 million or $0.31 for the same period in 2005. The year to date increase through September 30, 2006, versus September 30, 2005, was $0.6 million, again attributable to increased activity at the Montanore Project, partially offset by warrant and option income during the first quarter of 2006.   Liquidity  For the quarter ending September 30, 2006 the net cash used for operating activities was $1.4 million, which largely consisted of permitting, engineering and site preparation expenses for the Libby Creek adit rehabilitation and delineation drilling program.  The net decrease in cash on hand at the end of the second quarter 2006 was $1.7 million for the third quarter of 2006.  Year to date cash used in operating activities was $3.7 million and $0.3 million for investing activities was offset by proceeds from sale of stock from the exercise of warrants and stock options of $1.5 million resulting in a net decrease in cash of $2.5 million year to date through the third quarter 2006.   The Company anticipates spending approximately $1.5 to $2.0 million from cash and investments on hand for the final quarter in 2006 to finalize permitting, engineering, the preliminary draft EIS, and the reopening of the Libby Creek adit for the Montanore Project.  Forward Looking Statements  Some information contained in or incorporated by reference into this report may contain forward looking statements.  These statements include comments regarding Montanore Project development, re-permitting, financing needs, and the markets for silver and copper.  The use of any of the words development, anticipate, continues, estimate, expect, may, project, should, believe, and similar expressions are intended to identify uncertainties.  We believe the expectations reflected in those forward looking statements are reasonable.  However, we cannot assure that the expectations will prove to be correct.  Actual results could differ materially from those anticipated in these forward looking statements as a result of the factors set forth below and other factors set forth and incorporated by reference into this report:  · Worldwide economic and political events affecting the supply of and demand for silver and copper · Volatility in the market price for silver and copper · Financial market conditions and the availability of financing on acceptable terms · Uncertainties associated with developing new mines · Variations in ore grade and other characteristics affecting mining, crushing, milling and smelting and mineral recoveries · Geological, technical, permitting, mining and processing problems · The availability, terms, conditions and timing of required governmental permits and approvals · Uncertainty regarding future changes in applicable law or implementation of existing law · The availability of experienced employees · The factors discussed under Risk Factors in our Form 10-K for the period ending December 31, 2005.   20


Item 3.  Quantitative and Qualitative Disclosures About Market Risk and Hedging Activities  All of our cash balances are held in U.S. dollars and our long term investment CDs are denominated in U.S. dollars in local and national banking institutions.  We manage the timing of cash required for review of the Montanore deposit, re-permitting, and engineering of the Montanore Project and for general corporate purposes utilizing our money market account and invest funds not immediately required in investments, currently in certificates of deposit with varying maturities and fixed early retirement costs of three months interest.  Our policy is to invest only in government and corporate grade securities rated investment grade or better.  The market prices of base and precious metals such as silver and copper fluctuate widely and are affected by numerous factors beyond the control of any mining company.  These factors included expectations with regard to the rate of inflation, the exchange rates of the 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 copper should decrease dramatically, the value of the Companys Montanore Project could decline and the Company might not be able to recover its investment in that project.  The determination to develop or construct a mine would be made long before the first revenues from production would be received. Price fluctuations between the time that such decisions are made and the commencement of production could affect the economics of the mine.  Item 4. Controls and Procedures  Glenn M. Dobbs, MMIs President and CEO, and James H. Moore, MMIs Chief Financial Officer and Treasurer, have evaluated MMIs disclosure controls and procedures as of September 30, 2006.  Based upon this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that MMIs disclosure controls and procedures are designed, and were effective as of September 30, 2006 to give reasonable assurances that the information required to be disclosed in the reports that MMI files or submits under the Exchange Act of 1934, as amended, is recorded, processed, summarized and reported, within the time periods specified in the Commissions rules and forms, and that such information is also accumulated and communicated to MMIs management, including its Chief Executive Officer and Chief Financial Officer. There were no changes in MMIs internal controls or, to the knowledge of the management of MMI, any other changes that materially affect, or are reasonably likely to materially affect, MMIs internal control over financial reporting. MMI engaged an outside firm in the third quarter of 2006 to augment its own internal accounting resources and to provide expertise in applying GAAP to new or complex accounting issues as an integral part of its ongoing system of internal controls over financial reporting.


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PART II: OTHER INFORMATION  Item 1. Legal Proceedings  On August 11, 2005, Mines Management was named as a co-defendant in a lawsuit filed by Montana Reserves Company (MRC) in the Superior Court in Spokane County Washington., Named as co-defendants are Noranda Minerals, Normin Corp., Mines Management and Newhi, Inc.  The action seeks damages in connection with the conveyance of the Montanore property from Noranda to Newhi, and challenges the computation of a net proceeds royalty payable to MRC pursuant to a Royalty Agreement between Noranda and MRC in respect to the Montanore property.  Management does not believe that the outcome of this lawsuit will have a material adverse effect on Mines Managements business or results of operations.  Item 1a. Risk Factors  There are no material changes from the risk factors previously disclosed in the Companys Annual Report on Form 10-K for the year ending December 31, 2005.  Item 2. Unregistered Sales of Equity Securities and Use of Proceeds  None  Item 3. Defaults Upon Senior Securities  None  Item 4. Submission of Matters to a Vote of Security Holders  None  Item 5. Other Information  None  Item 6. Exhibits  (a) Exhibits:  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)    22





SIGNATURES  Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on behalf of the undersigned thereunto duly authorized.   Date :November 10, 2006/s/ Glenn M. Dobbs
By:
Glenn M. Dobbs
President and Chief Executive OfficerDate:  November 10, 2006/s/ James H. Moore
By:
James H. Moore
Chief Financial Officer                               23