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**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, DC 20549**

 

**FORM 10-Q**

 
| **x**                                                  | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**  |
|--------------------------------------------------------|---------------------------------------------------------------------------------------------------------|
|                                                   |                                                                                                    |
| **For the quarterly period ended  June 30, 2010** |
|                                                   |                                                                                                    |
| **OR**                                                 |
|                                                   |                                                                                                    |
| **o**                                                  | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |

 

**COMMISSION FILE NUMBER 001-32074**

 

**MINESMANAGEMENT, 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 registrant wasrequired 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 August 13, 2010,23,100,109 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 planned rehabilitation and extension of the Libbyadit, drilling activities, feasibility determinations, engineering studies,environmental and permitting requirements, process and timing; estimates ofmineralized material and measured, indicated and inferred resources; financingneeds including the financing required to fund the final phases of the advancedexploration program, delineation drilling program and bankable feasibilitystudy; sources of financing; the sufficiency of working capital to complete therehabilitation of the Libby adit and commence delineation drilling; plannedexpenditures for the remainder of 2010; potential completion of a bankablefeasibility study; the markets for silver and copper; results of thehydrological model and the effects thereof; and the search for potentialexploration and development opportunities in the mining industry.  We believe the expectations reflected in thoseforward looking statements are reasonable. However, we cannot assure that the expectations will prove to becorrect.  Disclosure of important factorsthat could cause actual results to differ materially from our expectations, orcautionary statements, are included under the heading “Risk Factors” in thisreport and our Annual Report on Form 10-K for the year ended December 31,2009.  Certain cautionary statements arealso included elsewhere in this report, including, without limitation, inconjunction with the forward-looking statements.  All forward-looking statements speak only asof the date made.  All subsequent writtenand oral forward-looking statements attributable to us, or persons acting onour behalf, are expressly qualified in their entirety by the cautionarystatements.  Except as required by law,we undertake no obligation to update any forward-looking statement.  Factors that could cause actual results todiffer materially from our expectations include, among others, those factorsreferenced in the “Risk Factors” section of this report and our Annual Reporton Form 10-K for the year ended December 31, 2009 and such things as:

 

·      Worldwideeconomic and political events affecting the supply of and demand for silver andcopper;

 

·      Volatility inthe market price for silver and copper;

 

·      Financialmarket conditions and the availability and cost of financing, or itsavailability on terms acceptable to us;

 

·      Uncertaintyregarding whether reserves will be established at our Montanore Project;

 

·      Uncertaintiesassociated with developing new mines;

 

·      Variations inore grade and other characteristics affecting mining, crushing, milling andsmelting and mineral recoveries;

 

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

 

·      Theavailability, terms, conditions and timing of required governmental permits andapprovals, and potential opposition to the issuance of significant permits;

 

·      Uncertaintyregarding future changes in applicable laws or implementation of existing laws;

 

·      Theavailability of experienced employees;

 

·      Theavailability of acquisition and other business opportunities (or the lackthereof) that may be presented and pursued by us, the ability to finance suchacquisitions, and success in integrating such acquisitions; and

 

·      Other factors,many of which are beyond our control.

 

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**MINES MANAGEMENT, INC.**

**FORM 10-Q**

**QUARTER ENDED JUNE 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                                 | 12       |
| 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                                | 13       |
| ITEM 3.                                   | Defaults Upon Senior Securities                                                             | 13       |
| ITEM 5.                                   | Other Information                                                                           | 13       |
| ITEM 6.                                   | Exhibits                                                                                    | 13       |
|                                      |                                                                                        |     |
| SIGNATURES                                |                                                                                        | 14       |

 

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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)**

 
| ** **                                                                                                                                    | ** ** | **June 30,********2010** | ** ** | **December 31,********2009** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------|------------|-----------------------------------|------------|
| ***Assets***                                                                                                                                  |       |                          |       |                              |       |
| *CURRENT ASSETS:*                                                                                                                             |       |                          |       |                              |       |
| Cash  and cash equivalents                                                                                                                    |       | $                             | 2,544,008  |                              | $          | 6,090,169 |   |
| Interest  receivable                                                                                                                          |       | 44,406                        |       | 64,964                            |       |
| Prepaid  expenses and deposits                                                                                                                |       | 213,703                       |       | 168,960                           |       |
| Certificate  of deposit                                                                                                                       |       | 5,000,000                     |       | 5,000,000                         |       |
| Total  current assets                                                                                                                         |       | 7,802,117                     |       | 11,324,093                        |       |
|                                                                                                                                          |       |                          |       |                              |       |
| *PROPERTY AND EQUIPMENT:*                                                                                                                     |       |                          |       |                              |       |
| Buildings  and leasehold improvements                                                                                                         |       | 836,454                       |       | 836,454                           |       |
| Equipment                                                                                                                                     |       | 6,450,089                     |       | 6,450,089                         |       |
| Office  equipment                                                                                                                             |       | 330,157                       |       | 320,060                           |       |
|                                                                                                                                          |       | 7,616,700                     |       | 7,606,603                         |       |
| Less  accumulated depreciation                                                                                                                |       | 2,929,322                     |       | 2,417,921                         |       |
|                                                                                                                                          |       | 4,687,378                     |       | 5,188,682                         |       |
| *OTHER ASSETS:*                                                                                                                               |       |                          |       |                              |       |
| Certificates  of deposit                                                                                                                      |       | 1,481,307                     |       | 1,481,307                         |       |
| Available-for-sale  securities                                                                                                                |       | 1,059,089                     |       | 1,245,897                         |       |
| Reclamation deposits                                                                                                                          |       | 1,236,846                     |       | 1,236,846                         |       |
|                                                                                                                                          |       | 3,777,242                     |       | 3,964,050                         |       |
|                                                                                                                                          |       | $                             | 16,266,737 |                              | $          | 20,476,825 |   |
| ***Liabilities and Stockholders’ Equity***                                                                                               |       |                          |       |                              |       |
| *CURRENT LIABILITIES:*                                                                                                                        |       |                          |       |                              |       |
| Accounts  payable                                                                                                                             |       | $                             | 588,909    |                              | $          | 546,030 |   |
| Payroll  and payroll taxes payable                                                                                                            |       | 58,050                        |       | 18,446                            |       |
| Warrant  derivatives                                                                                                                          |       | 258,440                       |       | 1,017,844                         |       |
| Total  current liabilities                                                                                                                    |       | 905,399                       |       | 1,582,320                         |       |
|                                                                                                                                          |       |                          |       |                              |       |
| *LONG-TERM LIABILITIES:*                                                                                                                      |       |                          |       |                              |       |
| Asset  retirement obligation                                                                                                                  |       | 404,604                       |       | 394,899                           |       |
| Total  liabilities                                                                                                                            |       | 1,310,003                     |       | 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                                                                                                                   |       | 68,163,874                    |       | 66,908,698                        |       |
| Accumulated  deficit                                                                                                                          |       | (1,117,306                    | )          | (1,117,306                        | )          |
| Deficit  accumulated during the exploration stage                                                                                             |       | (51,345,510                   | )          | (46,734,115                       | )          |
| Accumulated  other comprehensive loss                                                                                                         |       | (767,424                      | )          | (580,616                          | )          |
| Total  stockholders’ equity                                                                                                              |       | 14,956,734                    |       | 18,499,606                        |       |
|                                                                                                                                          |       | $                             | 16,266,737 |                              | $          | 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********June 30,** | ** ** | **Six Months Ended********June 30,** | ** ** | **From Inception of  Exploration Stage  August 12, 2002  Through********June 30,** | ** ** |
|-------------------------------------------------------------------|------------|---------------------------------------------|------------|-------------------------------------------|------------|----------------------------------------------------------------------------------------------|------------|
| ** **                                                        | ** ** | **2010**                                    | ** ** | **2009**                                  | ** ** | **2010**                                                                                     | ** ** | **2009** | ** ** | **2010** | ** ** |
| *REVENUE:*                                                        |       |                                        |       |                                      |       |                                                                                         |       |   |   |   |   |
| Royalties                                                         |       | $                                           | 3,749      |                                      | $          | 1,468                                                                                        |       | $ | 9,026 |   | $ | 3,561 |   | $ | 92,618 |   |
| *OPERATING EXPENSES:*                                             |       |                                        |       |                                      |       |                                                                                         |       |   |   |   |   |
| General  and administrative                                       |       | 781,009                                     |       | 848,282                                   |       | 2,406,666                                                                                    |       | 1,670,373 |   | 23,003,667 |   |
| Technical services and  exploration                               |       | 1,056,217                                   |       | 1,053,649                                 |       | 2,088,180                                                                                    |       | 2,618,429 |   | 22,574,474 |   |
| Depreciation                                                      |       | 271,580                                     |       | 277,626                                   |       | 511,402                                                                                      |       | 555,469 |   | 2,933,269 |   |
| Legal,  accounting, and consulting                                |       | 144,223                                     |       | 169,040                                   |       | 407,479                                                                                      |       | 288,510 |   | 3,566,763 |   |
| Fees,  filing, and licenses                                       |       | 2,302                                       |       | 6,594                                     |       | 52,940                                                                                       |       | 52,457 |   | 2,090,981 |   |
| Impairment of mineral properties                                  |       | —                                      |       | —                                    |       | —                                                                                       |       | — |   | 504,492 |   |
| Total  operating expenses                                         |       | 2,255,331                                   |       | 2,355,191                                 |       | 5,466,667                                                                                    |       | 5,185,238 |   | 54,673,646 |   |
| *LOSS FROM OPERATIONS*                                            |       | (2,251,582                                  | )          | (2,353,723                                | )          | (5,457,641                                                                                   | )          | (5,181,677 | ) | (54,581,028 | ) |
| *OTHER INCOME:*                                                   |       |                                        |       |                                      |       |                                                                                         |       |   |   |   |   |
| Gain  from warrant derivatives                                    |       | 1,044,748                                   |       | 324,357                                   |       | 759,404                                                                                      |       | 52,140 |   | 217,941 |   |
| Interest  income, net                                             |       | 21,929                                      |       | 88,765                                    |       | 86,842                                                                                       |       | 195,156 |   | 3,017,577 |   |
|                                                              |       | 1,066,677                                   |       | 413,122                                   |       | 846,246                                                                                      |       | 247,296 |   | 3,235,518 |   |
| *NET LOSS*                                                        |       | $                                           | (1,184,905 | )                                         | $          | (1,940,601                                                                                   | )          | $ | (4,611,395 | ) | $ | (4,934,381 | ) | $ | (51,345,510 | ) |
| *NET LOSS PER SHARE*(basic and diluted)                           |       | $                                           | (0.05      | )                                         | $          | (0.08                                                                                        | )          | $ | (0.20 | ) | $ | (0.22 | ) |   |   |
| *WEIGHTED AVERAGE COMMON SHARES OUTSTANDING (basic and  diluted)* |       | 23,099,939                                  |       | 22,837,603                                |       | 23,081,324                                                                                   |       | 22,797,448 |   |   |   |

 

Seeaccompanying notes to condensed consolidated financial statements.

 

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**Mines Management, Inc. and Subsidiaries**

**(An Exploration Stage Company)**

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

** **
| ** **                                                                   | ** ** | **Six Months Ended********June 30,** | ** ** | **From Inception  of  Exploration Stage  August 12, 2002  Through  June 30,** | ** ** |
|------------------------------------------------------------------------------|------------|-------------------------------------------|------------|-----------------------------------------------------------------------------------------|------------|
| ** **                                                                   | ** ** | **2010**                                  | ** ** | **2009**                                                                                | ** ** | **2010** | ** ** |
| ***Increase (Decrease) in Cash and Cash  Equivalents***                      |       |                                      |       |                                                                                    |       |   |   |
| *CASH FLOWS FROM OPERATING ACTIVITIES:*                                      |       |                                      |       |                                                                                    |       |   |   |
| Net  loss                                                                    |       | $                                         | (4,611,395 | )                                                                                       | $          | (4,934,381 | ) | $ | (51,345,510 | ) |
| Adjustments  to reconcile net loss to net cash used in operating activities: |       |                                      |       |                                                                                    |       |   |   |
| Stock-based  compensation                                                    |       | 1,190,831                                 |       | 336,707                                                                                 |       | 8,301,551 |   |
| Stock  received for services                                                 |       | —                                    |       | —                                                                                  |       | (11,165 | ) |
| Depreciation                                                                 |       | 511,402                                   |       | 555,469                                                                                 |       | 2,933,269 |   |
| Initial  recognition of asset retirement obligation                          |       | —                                    |       | —                                                                                  |       | 344,187 |   |
| Accretion  of asset retirement obligation                                    |       | 9,705                                     |       | 9,144                                                                                   |       | 60,417 |   |
| Gain  from warrant derivatives                                               |       | (759,404                                  | )          | (52,140                                                                                 | )          | (217,941 | ) |
| Impairment  of mineral properties                                            |       | —                                    |       | —                                                                                  |       | 504,492 |   |
| Changes  in assets and liabilities:                                          |       |                                      |       |                                                                                    |       |   |   |
| Interest  receivable                                                         |       | 20,558                                    |       | (81,856                                                                                 | )          | (44,406 | ) |
| Prepaid  expenses and deposits                                               |       | (44,743                                   | )          | (45,601                                                                                 | )          | (274,114 | ) |
| Accounts  payable                                                            |       | 42,879                                    |       | (206,357                                                                                | )          | 588,745 |   |
| Payroll  and payroll taxes payable                                           |       | 39,604                                    |       | 3,286                                                                                   |       | 54,870 |   |
| Net  cash used in operating activities                                       |       | (3,600,563                                | )          | (4,415,729                                                                              | )          | (39,105,605 | ) |
| *CASH FLOWS FROM INVESTING ACTIVITIES:*                                      |       |                                      |       |                                                                                    |       |   |   |
| Purchase  of property and equipment                                          |       | (10,098                                   | )          | (91,729                                                                                 | )          | (7,654,233 | ) |
| Proceeds  from disposition of property and equipment                         |       | —                                    |       | —                                                                                  |       | 35,423 |   |
| Purchase  of certificates of deposit                                         |       | —                                    |       | (51,880                                                                                 | )          | (7,657,241 | ) |
| Purchase  of available-for-sale securities                                   |       | —                                    |       | —                                                                                  |       | (1,815,348 | ) |
| Increase  in mineral properties                                              |       | —                                    |       | —                                                                                  |       | (144,312 | ) |
| Net  cash used in investing activities                                       |       | (10,098                                   | )          | (143,609                                                                                | )          | (17,235,711 | ) |
| *CASH FLOWS FROM FINANCING ACTIVITIES:*                                      |       |                                      |       |                                                                                    |       |   |   |
| Net  proceeds from sale of common shares                                     |       | 64,500                                    |       | 19,350                                                                                  |       | 58,837,989 |   |
| *NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS*                       |       | (3,546,161                                | )          | (4,539,988                                                                              | )          | 2,496,673 |   |
| *CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD*                             |       | 6,090,169                                 |       | 15,448,159                                                                              |       | 47,335 |   |
| *CASH AND CASH EQUIVALENTS, END OF PERIOD*                                   |       | $                                         | 2,544,008  |                                                                                    | $          | 10,908,171 |   | $ | 2,544,008 |   |
| *SUPPLEMENTAL INFORMATION:*                                                  |       |                                      |       |                                                                                    |       |   |   |
| Interest  paid                                                               |       | $                                         | —     |                                                                                    | $          | 30,166 |   | $ | 65,768 |   |

 

Seeaccompanying notes to condensed consolidated financial statements.

 

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**NOTE 1 — ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTINGPOLICIES:**

 

*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 accruals) 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 of operations.Operating results for the three and six month periods ended June 30, 2010, arenot necessarily indicative of the results that may be expected for the fullyear 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: Unadjusted quoted market prices in active markets for identical assetsor liabilities that are 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, repurchased or cancelled.  At June 30, 2010, the Company had three stockoption plans which are described more fully in note 9.

 

(e)                                  *Netloss per share*

 

Basic earnings or loss per share is computed on thebasis of the weighted average number of shares outstanding during the periods.  Diluted earnings or loss per share iscalculated on the basis of the weighted average number of shares outstandingduring the period plus the effect of potential dilutive shares during theperiod.  Potential dilutive sharesinclude outstanding stock options and warrants. For periods in which a net loss is reported, potential dilutive sharesare excluded because they are antidilutive. Therefore, basic loss per share is the same as diluted loss per sharefor the periods ended June 30, 2010 and 2009.

 

(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 June 30, 2010 for potential recognitionor disclosure in the condensed consolidated financial statements.  Effective July 14, 2010, the Company issued600,000 common share options with an exercise price of $1.74 per share underthe 2007 Stock Option Plan to employees, officers and directors.  The options do not vest until January 14,2011.  There were no other subsequentevents that require recognition or disclosure in these financial statements.

 

(h)                                 *Newaccounting standards*

 

InJanuary 2010, the Financial Accounting Standards Board (FASB) issued AccountingStandards Update No. 2010-06 (ASU 2010-06), an update to ASC 820, “Fair ValueMeasurements and Disclosures”.  Thisupdate provides new disclosures on fair value 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 value measurements,including information about purchases, sales, issuances, and settlements on agross 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 class ofassets and liabilities; a class is often a subset of assets or liabilitieswithin a line item in the statement of financial position; and (2) Disclosuresabout valuation techniques and inputs used to measure fair value for bothrecurring and nonrecurring fair value measurements are required for fair valuemeasurements that 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, exceptfor the disclosures about the activity in Level 3 fair value measurements whichare effective for fiscal years beginning after December 15, 2010, and forinterim periods within those fiscal years. Adoption of this guidance did not have a material impact on the Company’sconsolidated financial statements.

 

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**NOTE 2 — CERTIFICATES OF DEPOSIT:**

 

TheCompany owns two certificates of deposit for a total of $1,481,307.  These investments mature in August 2011 andbear interest at the rate of 2.57%.  TheCompany also owns a $5,000,000 certificate of deposit which matures in June2011 and bears interest at the rate of 1.44%.

 

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 renews annually.  This certificate of deposit ($1,175,935 atJune 30, 2010 and 2009, respectively) is included with reclamationdeposits 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:

 
| ** **         | ** ** | **June 30,  2010** | ** ** | **December 31,  2009** | ** ** |
|--------------------|------------|--------------------|------------|------------------------|------------|
| Cost               |       | $                  | 1,826,513  |                   | $          | 1,826,513 |   |
| Unrealized  Gains  |       | 5,904              |       | 14,080                 |       |
| Unrealized  Losses |       | (773,328           | )          | (594,696               | )          |
| Fair  Market Value |       | $                  | 1,059,089  |                   | $          | 1,245,897 |   |

 

TheCompany has one investment in a marketable equity security with a fair marketvalue of $1,042,020 and unrealized losses of $773,328 as of June 30, 2010.  The Company has evaluated this investment anddoes not consider the decline in value to be other-than-temporary.  The fair market value of this investment hasfluctuated in response to the effect of the financial crisis on the commoditiesmarket and is expected to recover.  TheCompany has the ability and intent to hold this investment for a reasonableperiod of time sufficient for a forecasted recovery 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 June 30, 2010, andthe fair value calculation input hierarchy level determined to apply to eachasset and liability category.  Quotedmarket prices were used to determine the fair value of available-for-salesecurities.  See note 5 for furtherdiscussion on the fair value measurement technique used to value the warrantderivatives.  The Company has nofinancial assets or liabilities that are measured at fair value on anonrecurring basis.

 
| ** **                     | ** ** | **Balance at  June 30,  2010** | ** ** | **Balance at  December 31,  2009** | ** ** | **Input  Hierarchy********Level** | ** ** |
|--------------------------------|------------|--------------------------------|------------|------------------------------------|------------|-----------------------------------|------------|
| Assets:                        |       |                           |       |                               |       |                              |       |
| Available-for-sale  securities |       | $                              | 1,059,089  |                               | $          | 1,245,897                         |       | Level  1 |   |
| Liabilities:                   |       |                           |       |                               |       |                              |       |
| Warrant  derivatives           |       | $                              | 258,440    |                               | $          | 1,017,844                         |       | Level  3 |   |
| Asset  retirement obligation   |       | $                              | 404,604    |                               | $          | 394,899                           |       | Level  3 |   |

 

Thefollowing table presents the fair value reconciliation of Level 3 liabilitiesmeasured at fair value during the six months ended June 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 |   |

 

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**NOTE 5 — WARRANT DERIVATIVES:**

 

EffectiveJanuary 1, 2009, the Company adopted the provisions of ASC 815, *Derivatives and Hedging,*which applies to any freestandingfinancial instruments or embedded features that have the characteristics of aderivative and to any freestanding financial instruments that are potentiallysettled in an entity’s own common shares. As a result of adopting these new provisions, some of the Company’sissued and outstanding common share purchase warrants previously treated asequity pursuant to the derivative treatment exemption were no longer affordedequity treatment.  As such, effectiveJanuary 1, 2009 the Company reclassified the fair value of these common sharepurchase warrants, which have exercise price reset features, from equity toliability status as if these warrants were treated as a derivative liabilitysince their date of issue.  On January 1,2009, the Company reclassified from additional paid-in capital, as a cumulativeeffect adjustment, $476,381 to beginning retained earnings to recognize thefair value of the warrants on that date. The Company reported gains from the change in fair value of thesewarrants of $759,404 and $52,140 in the Condensed Consolidated Statements ofOperations for the six months ended June 30, 2010 and 2009, respectively.  Gains of $1,044,748 and $324,357 wererecorded for the three months ended June 30, 2010 and 2009, respectively.

 

Thesecommon share purchase warrants were initially issued in connection with theCompany’s issuance of common shares in 2004 and 2005 and were not issued withthe intent of effectively hedging any future cash flow, fair value of anyasset, liability or any net investment in a foreign operation.  The warrants do not qualify for hedgeaccounting, and as such, all future changes in the fair value of these warrantswill be recognized currently in earnings until such time as the warrants areexercised or expire.  These common sharepurchase warrants do not trade in an active securities market, and as such, weestimate the fair value of these warrants using the Black-Scholes optionpricing model using the following assumptions:

 
| ** **                                 | ** ** | **June 30, 2010** | ** ** | **June 30, 2009** | ** ** |
|--------------------------------------------|------------|-------------------|------------|-------------------|------------|
| Weighted  average risk-free interest rate  |       | 0.18              | %          | 0.52              | %          |
| Weighted  average volatility               |       | 99.94             | %          | 97.58             | %          |
| Expected  dividend yield                   |       | —            |       | —            |       |
| Weighted  average expected life (in years) |       | 0.3               |       | 1.2               |       |

 

Expectedvolatility is based primarily on historical volatility.  Historical volatility was computed usingweekly pricing observations for recent periods that correspond to the lasttwenty-four months.  The Company believesthis method produces an estimate that is representative of its expectations offuture volatility over the expected term of these warrants.  The Company currently has no reason tobelieve future volatility over the expected remaining life of these warrants islikely to differ materially from historical volatility.  The expected life is based on the remainingterm of the warrants.  The risk-freeinterest rate is based on three month and one-year U.S. Treasury securities.

 

**NOTE 6 — COMPREHENSIVE LOSS:**

 

Forthe six months ended June 30, 2010 and 2009, comprehensive loss was $4,798,203and $4,737,725, respectively.  For thethree months ended June 30, 2010 and 2009, comprehensive loss was $1,690,851and $1,819,717, respectively.  Thedifference between net loss and comprehensive loss was due to unrealized gains(losses) on the Company’s marketable securities.

 

**NOTE 7 — CONCENTRATION OF CREDITRISK:**

 

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 $10,045,000 as of June 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.

 

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**NOTE 8 — STOCKHOLDERS’ EQUITY:**

 

*CommonShares:*

 

In2004, the Company sold 1,285,000 common shares for $6,425,000 ($5.00 pershare).  The Company paid a cash finder’sfee of 7% of the gross purchase price received in the offering.  In connection with the stock sales, theCompany issued warrants to purchase up to 511,000 common shares at $7.25 pershare through February 18, 2009, including 3% warrant compensation, or warrantsto purchase 192,750 common shares, issued to the finder.  These warrants, which the Company refers toas the 2004 Warrants, were repriced to $6.00 per share in October 2005, to$5.00 per share in April 2007, and to $4.00 per share in November 2007 inaccordance with the terms of the 2004 warrant agreement.  In January 2009, the Company extended theexpiration date of the outstanding warrants to February 10, 2010.  In February 2010, the Company extended theexpiration date of the 2004 Warrants to June 10, 2010 and reduced the exerciseprice to $2.56 per share.  Cumulativewarrants exercised relating to this issue were 148,750 at June 30, 2010 andDecember 31, 2009.  These warrantsexpired on June 10, 2010.

 

In2005, the Company sold 1,016,667 common shares for $6,100,002 ($6.00 pershare).  The Company paid a cash finder’sfee of 7% of the gross purchase price received in the offering.  In connection with the stock sales, theCompany granted warrants to purchase up to 737,084 common shares at $8.25 pershare through October 20, 2010, which included 3.75% warrant compensation, orwarrants to purchase 228,750 common shares, issued to the finder.  These warrants, which we refer to as the 2005Warrants, were repriced at $5.00 per share in April 2007, to $4.00 per share inNovember 2007, and to $2.56 per share in February 2010, in accordance with theanti-dilution provisions of the 2005 warrant agreement.  To date, no warrants relating to this issuehave been exercised.

 

In2005, the Company sold 40,000 common shares for $240,000 ($6.00 per share).

 

OnApril 20, 2007, the Company completed a public offering of 6,000,000 units at aprice of $5.00 per unit, resulting in gross proceeds of $30,000,000($28,200,000 net proceeds).  Each unit iscomprised of one common share and one-half of one common share purchasewarrant, with each full warrant being exercisable until April 20, 2012 topurchase one common share at a price of $5.75 per share.  The warrants are listed on the Toronto StockExchange and are tradable in US dollars under the symbol MGT.WT.U.

 

Theunderwriters were granted an over-allotment option, exercisable for a period of30 days following the closing, to acquire up to an additional 900,000 units.  On May 7, 2007, the underwriters exercised theover-allotment option for 836,600 units. The total offering was therefore 6,836,600 units for gross proceeds tothe Company of $34,183,000, or $32,124,697 in net proceeds to the Company,after deducting underwriting commissions but before deducting offeringexpenses.  To date, no warrants relatingto this issue have been exercised.

 

OnNovember 2, 2007, the Company sold 2,500,000 common shares at a price of $4.00per share to a single purchaser, resulting in gross proceeds of$10,000,000.  In connection with thestock sale, the Company entered into a Right of First Refusal agreement (the “ROFR”)which grants a twenty-year right of first proposal and a right to matchthird-party proposals, to purchase all or any portion of silver mined, producedor recovered by the Company in the State of Montana.  The ROFR does not apply to trade sales andspot sales in the ordinary course of business or forward sales, in each case,for which no upfront payment is received by the Company.

 

On February 9, 2010, theCompany extended the expiration date and reduced the price of the 2004 Warrantsdescribed above.  Upon adjustment to theexercise price of the 2004 Warrants, the 2005 Warrants were automaticallyadjusted in accordance with their terms to reduce the exercise price andincrease the number of common shares purchasable upon exercise of suchwarrants.  The following table summarizesexercise prices and expiration dates of the Company’s outstanding common sharepurchase warrants as of June 30, 2010.

 
| **Number of  Warrants** | ** ** | **Exercise Price** | ** ** | **Expiration Date** | ** **        |
|-------------------------|------------|--------------------|------------|---------------------|-------------------|
| 2,375,368               |       | $                  | 2.56       |                | October  20, 2010 |   |
| 3,418,300               |       | $                  | 5.75       |                | April  20, 2012   |   |
| 5,793,668               |       |               |       |                |              |

 

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*PreferredShares:*

 

TheCompany has authorized 10,000,000 preferred shares, no par value.  Through June 30, 2010, the Company had notissued any preferred shares.

 

**NOTE 9 — STOCK OPTIONS:**

 

Duringthe year ended December 31, 2003, the stockholders of the Company approvedtwo stock-based compensation plans — the 2003 Stock Option Plan (which includesboth qualified and nonqualified options) and the 2003 Consultant StockCompensation Plan.  Under the 2003 StockOption Plan, the Company may grant options to purchase up to 1,200,000 commonshares.  Under the 2003 Consultant StockCompensation Plan, the Company could grant options to purchase up to 400,000common shares.  During 2004, the Companyincreased the maximum number of common shares available under the 2003 StockOption Plan and the 2003 Consultant Stock Compensation Plan to 3,000,000 and700,000 shares, respectively.  The sharesare issued from the Company’s authorized and unissued common shares uponexercise.

 

Underboth 2003 Stock Option Plans, the option exercise price may not be less than100% of the fair market value per share on the date of grant.  Stock options are exercisable within tenyears from the date of the grant of the option. The schedule for vesting of the options granted under both plans is atthe discretion of the Board of Directors.

 

InNovember 2007, the Board of Directors adopted, subject to shareholder approvalobtained in May 2008, the 2007 Equity Incentive Plan (the “2007 Plan”), whichprovides for the issuance of both qualified and nonqualified stock options andrestricted shares to directors, employees and consultants of the Company.  Up to 3,000,000 shares of the Company’sauthorized but unissued common shares are available for issuance under the 2007Plan.

 

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 $1.00 below the exercise price of the outstandingoption.  The Company may still considerrepricing stock options in the event of significant and sustained adversemarket conditions or other extraordinary events.   Repriced stock options have the same vestingschedule and expiration date as the original options.  There were no stock options repriced during2009 or 2010.  During 2008, the Companyrepriced stock options held by 20 employees, including officers anddirectors.  As a result of the repricingof stock options, the Company recognized additional compensation expense of$-0- and $85,407 for the six months ended June 30, 2010 and 2009, respectively.

 

Asummary of the option activity under the Plans as of June 30, 2010, andchanges 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       |                                                 | 3.21       |                           | $          | 789,000 |   |
| Exercisable  at June 30, 2010   |       | 2,046,000              |       | $                                       | 1.76       |                                                 | 3.23       |                           | $          | 789,000 |   |

 

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.

 

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| ** **                                 | ** ** | **Three Months Ended********June 30,** | ** ** | **Six Months Ended********June 30,** | ** ** |
|--------------------------------------------|------------|----------------------------------------|------------|--------------------------------------|------------|
| ** **                                 | ** ** | **2010(1)**                            | ** ** | **2009(1)**                          | ** ** | **2010** | ** ** | **2009(2)** | ** ** |
| Weighted  average risk-free interest rate  |       | —                                 |       | —                               |       | 1.39 | % | — |   |
| Weighted  average volatility               |       | —                                 |       | —                               |       | 98.44 | % | — |   |
| Expected  dividend yield                   |       | —                                 |       | —                               |       | — |   | — |   |
| Weighted  average expected life (in years) |       | —                                 |       | —                               |       | 3.56 |   | — |   |
| Weighted  average grant-date fair value    |       | —                                 |       | —                               |       | $ | 1.71 |   | — |   |
|                                            |            |                                        |            |                                      |            |  |  |  |  |  |

 

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(1)No options were grantedduring the three months ended June 30, 2010 and 2009.

(2)No options were grantedduring the six months ended June 30, 2009.

 

Duringthe three months ended June 30, 2010 and 2009, there were 3,000 and 495,000stock options exercised with a weighted average exercise price of $2.07 and$1.29, respectively.  The total intrinsicvalue of options exercised during the three months ended June 30, 2010 and 2009was $1,184 and $80,468, respectively. During the six months ended June 30, 2010 and 2009, there were 223,000and 495,000 stock options exercised with a weighted average exercise price of$1.24 and $1.29, respectively.  The totalintrinsic value of options exercised during the six months ended June 30, 2010and 2009 was $285,540 and $80,468, respectively.

 

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

 
| ** **                    | ** ** | **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       |   |

 

Asof June 30, 2010, there was $1,987 of unrecognized compensation cost related tononvested share-based compensation arrangements granted under the Plans.  That cost is expected to be recognized over aweighted-average period of less than one year.

 

Totalcompensation costs recognized for stock-based employee compensation awards was$2,917 and $135,715 for the three months ended June 30, 2010 and 2009,respectively.  Total compensation costsrecognized for stock-based employee compensation awards was $1,190,831 and$336,707 for the six months ended June 30, 2010 and 2009, respectively.  These costs were included in general andadministrative expenses and technical services on the Condensed ConsolidatedStatements of Operations.  Cash receivedfrom options exercised under all share-based payment arrangements during thesix months ended June 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,references to “we,” “our,” the “Company” and “us” refer to Mines Management,Inc. and its subsidiaries 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.  Inaddition to its advanced exploration and delineation drilling program, theCompany is continuing its repermitting efforts with federal and state agenciesand its engineering optimization review of the Project.

 

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Inthe second quarter of 2010:

 

·                  The U.S. Forest Service(USFS) and the Montana Department of Environmental Quality (DEQ) continuedformulating responses to public comments received on the Draft EnvironmentalImpact Statement (DEIS) for the Montanore Project.

 

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

 

·                  The Company continued meetingswith federal and state agencies, Montana legislators, local Lincoln CountyCommissioners, Libby City officials and residents.

 

·                  The Company closed out thequarter at June 30, 2010 with $9.0 million of unrestricted cash andcertificates of deposit.

 

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

 

Thenet cash operating expenditures for the six months ended June 30, 2010 was $3.6million.  The Company believes that ithas sufficient working capital to complete the rehabilitation of the Libby aditand initiate delineation drilling at Montanore.

 

**AdvancedExploration and Delineation Drilling Program**

 

Secondquarter operations included continued operations on the Montanore mine sitewater treatment system and maintaining the water level of the decline. Water from the decline is being treated on day shift at a rate of 350 gallonsper minute which equates to approximately 72 gallons per minute of waterinfiltration from the formations.  Ongoing water monitoring continues withrespect to the water treatment in order to generate data which is used inmonthly reports furnished to the Montana DEQ for monitoring purposes and forthe hydrological data base that is currently under development through ourhydrology contractor.

 

InApril 2010, the Company awarded a contract to Mine Quarry Engineering Services(MQES) to develop an updated economic assessment of the project using theexisting NI 43-101 resource report prepared by Mine Development Associates andto develop a Preliminary Economic Assessment (PEA) of the Montanore Project.

 

Engineeringand geology work continues using existing information.  Geology work hasconcentrated on the basic resource model in support of the NI 43-101 for thereview being done by MQES.  Engineering work is concentrated on thegathering and preparation of supporting documents and summarizing informationfor the MQES PEA study.

 

**Permitting and Environmental**

 

Inthe second quarter of 2010, the USFS and the Montana DEQ continued to respondto comments generated by the public and agencies on the DEIS, addressingwetlands, water quality, and waste characterization.  The agencies havecompleted the development of alternatives for selection of the transmissionline corridor but have yet to harmonize the selected alternative between theUSFS and Montana DEQ.

 

TheCompany finalized several technical support documents on hydrology, wastecharacterization and a water/balance chemical loading model that are currentlyunder review by the agencies.  The final revisions were based on previouscomments generated by either the public or the agencies.  Efforts continueon other technical documents and applications that are necessary for theenvironmental review process or agency approval.  This includes airquality modifications, domestic waste water management, and other similarproject environmental and permitting requirements.

 

TheCompany is working with the USFS and Montana DEQ on development ofenvironmental mitigation (i.e. wetlands, sediment loading and fisheries) forthe project.   The Company is also working with the U.S. Army Corpsof Engineers (ACOE) to develop mitigation of wetlands use under the ACOE’s 404permitting process.

 

TheCompany continues to work with the agencies to refine overall projectdescription to minimize environmental impacts analyzed in the DEIS.  Thiswill help in the reduction of costs associated with mitigation and monitoringactivities that may be required for the project.

 

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**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 and buildings, which arecapitalized.   The Company has norevenues from mining operations. Financial results of operations include primarily interest income,general and administrative expenses, permitting, project advancement andengineering expenses.

 

**QuarterEnded June 30, 2010**

 

TheCompany reported a net loss for the quarter ended June 30, 2010 of $1.2million, or $0.05 per share, compared to a net loss of $1.9 million, or $0.08per share, for the quarter ended June 30, 2009. The $0.7 million decrease in net loss in the second quarter of 2010 isattributable to (i) decreases in operating expenses of $0.1****millionfrom the second quarter of 2009, principally in stock compensation included ingeneral and administrative expenses, and (ii) a gain on warrant derivatives of$0.7 million offset by a decrease in interest income of $0.1 million.

 

**Six Months Ended June 30, 2010**

 

TheCompany reported a net loss for the six months ended June 30, 2010 of $4.6million, or $0.20 per share, compared to a loss of $4.9 million or $0.22 pershare for the six months ended June 30, 2009. The $0.3 million****decrease innet loss from 2009 is attributable to the following items: (i) increasedgeneral and administrative costs of $0.7 million in 2010 primarily due to anincrease in stock compensation due to options issued in January of 2010; (ii)increased legal, accounting and consulting costs of $0.1 million in 2010 due tofees associated with permitting issues; (iii) decreased technical servicescosts of $0.5 million in 2010 due to suspending site rehabilitation work inApril 2009; and (iv) increased other income of $0.6 million in 2010 primarilydue to a net gain in the fair market value of warrant derivatives.

 

**Liquidity**

 

Duringthe six months ended June 30, 2010, the net cash used for operating activitieswas $3.6 million, which consisted largely of permitting and technical expensesassociated with activities at the Montanore Project site.

 

Wecontinue to reduce activity levels, including capital expenditures, until thetiming for the receipt of the Record of Decision becomes more clear.  We anticipate expenditures of approximately$3.6 million in the final six months of 2010, which we expect to consist of$2.1 million for general and administrative expenses and $1.5 million forongoing expenses in preparation for the delineation drilling program,additional mine scoping studies, and responding to EIS comments.  Depending on the amount and rate of progresswith our permitting efforts and market conditions, the Company might seekadditional financing before the end of 2010.

 

**Off-Balance Sheet Arrangements**

 

At June 30, 2010, we had noexisting off-balance sheet arrangements (as defined under SEC rules) that haveor are reasonably likely to have a material current or future effect on ourfinancial 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.  Our policy is to invest onlyin government securities rated “investment grade” or better.

 

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 be

 

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received.  Price fluctuations between the time that suchdecisions are made and the commencement of production could affect theeconomics 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 ofJune 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 June 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 June 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.

 

**ITEM 2.****                                                    ****UNREGISTERED SALES OF EQUITY SECURITIES 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:   August 13, 2010 | By:                    | /s/ Glenn M. Dobbs |
|                              |                   | Glenn M. Dobbs |
|                              |                   | President and Chief  Executive Officer |
|                              |                   |
|                              |                   |
| Date:  August 13, 2010       | By:                    | /s/ James H. Moore |
|                              |                   | James H. Moore |
|                              |                   | Chief Financial Officer |

 

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