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**UNITEDSTATES**

**SECURITIESAND 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 September 30, 2009** |
| ** **                                                  |
| **OR**                                                      |
| ** **                                                  |
| **o**                                                       | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE  ACT OF 1934** |

 

**COMMISSIONFILE NUMBER  000-29786**

 

###### **MINES MANAGEMENT, INC.**

(Exact Name ofRegistrant as Specified in its Charter)

 

| **IDAHO**                                                           | ** ** | **91-0538859**                        |
|---------------------------------------------------------------------|------------|---------------------------------------|
| (State or Other  Jurisdiction of Incorporation or Organization)     |       | (I.R.S. Employer  Identification No.) |
|                                                                |       |                                  |
| **905  W. Riverside Avenue, Suite 311****Spokane, Washington** | ** ** | **99201**                             |
| (Address Of  Principal Executive Offices)                           |       | (Zip Code)                            |

 

**(509)838-6050**

(Registrant’sTelephone Number, Including Area Code)

 

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

 

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

 

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

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

 

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

 

At November 9, 2009,22,944,003 shares of common stock, par value $0.001 per share, were issued andoutstanding.

 

 

 

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## **CAUTIONARY NOTE REGARDING FORWARDLOOKING 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; planned expenditures for the remainder of 2009 and in 2010; potentialcompletion of a bankable feasibility study; the markets for silver and copper;and the search for potential exploration and development opportunities in themining industry.  We believe theexpectations reflected in those forward looking statements are reasonable.  However, we cannot assure that theexpectations will prove to be correct. Disclosure of important factors that could cause actual results todiffer materially from our expectations, or cautionary statements, are includedunder the heading “Risk Factors” in this report and our Annual Report on Form 10-Kfor the year ended December 31, 2008. Certain cautionary statements are also included elsewhere in thisreport, including, without limitation, in conjunction with the forward-lookingstatements.  All forward-lookingstatements speak only as of the date made. All subsequent written and oral forward-looking statements attributableto us, or persons acting on our behalf, are expressly qualified in theirentirety by the cautionary statements.  Exceptas required by law, we undertake no obligation to update any forward-lookingstatement.  Factors that could causeactual results to differ materially from our expectations include, amongothers, those factors referenced in the “Risk Factors” section of this reportand our Annual Report on Form 10-K for the year ended December 31,2008 and such things as:

 

·                  Worldwide economic and political events affecting the supply of anddemand for silver and copper;

 

·                  Volatility in the market price for silver and copper;

 

·                  Financial market conditions and the availability and cost of financing, or its availability on terms acceptable to us;

 

·                  Uncertainty regarding whether reserves will be established at ourMontanore Project;

 

·                  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 governmentalpermits and approvals, and potential opposition to the issuance of significantpermits;

 

·                  Uncertainty regarding future changes in applicable laws orimplementation of existing laws;

 

·                  The availability of experienced employees;

 

·                  The availability of acquisition and other business opportunities (orthe lack thereof) that may be presented and pursued by us, the ability tofinance such acquisitions, and success in integrating such acquisitions; and

 

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

 

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**MINESMANAGEMENT, INC.**

**FORM 10-Q**

**QUARTERENDED September 30, 2009**

 

**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 | 11 |
| ITEM 3.                                  | Quantitative  and Qualitative Disclosures About Market Risk and Hedging Activities          | 13 |
| ITEM 4.                                  | Controls and  Procedures                                                                    | 13 |
|                                     |                                                                                        |
| PART II  — OTHER INFORMATION   |                                                                                        |
| ITEM 1.                                  | Legal Proceedings                                                                           | 14 |
| ITEM 1A.                                 | Risk  Factors                                                                               | 14 |
| ITEM 2.                                  | Unregistered  Sales of Equity Securities and Use of Proceeds                                | 14 |
| ITEM 3.                                  | Defaults  Upon Senior Securities                                                            | 14 |
| ITEM 4.                                  | Submission  of Matters to a Vote of Security Holders                                        | 14 |
| ITEM 5.                                  | Other Information                                                                           | 14 |
| ITEM 6.                                  | Exhibits                                                                                    | 14 |
|                                     |                                                                                        |
| SIGNATURES                               | 15                                                                                          |

 

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**PART I— FINANCIAL INFORMATION**

** **

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

** **

**Contents**

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

 

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**Mines Management, Inc. andSubsidiaries**

**(An Exploration Stage Company)**

**CONDENSED CONSOLIDATED BALANCE SHEETS(UNAUDITED)**

** **
| ** **                                                                                                                                   | ** ** | **September 30,********2009** | ** ** | **December 31,********2008** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------|------------|-----------------------------------|------------|
| ***Assets***                                                                                                                                 |       |                               |       |                              |       |
| *CURRENT ASSETS:*                                                                                                                            |       |                               |       |                              |       |
| Cash  and cash equivalents                                                                                                                   |       | $                                  | 7,710,603  |                              | $          | 15,448,159 |   |
| Interest  receivable                                                                                                                         |       | 28,972                             |       | 123,004                           |       |
| Prepaid  expenses and deposits                                                                                                               |       | 180,768                            |       | 147,887                           |       |
| Certificates  of deposit                                                                                                                     |       | 5,000,000                          |       | 1,420,242                         |       |
| Restricted  certificate of deposit                                                                                                           |       | —                             |       | 5,000,000                         |       |
| Total  current assets                                                                                                                        |       | 12,920,343                         |       | 22,139,292                        |       |
| * *                                                                                                                                     |       |                               |       |                              |       |
| *PROPERTY, PLANT AND EQUIPMENT:*                                                                                                             |       |                               |       |                              |       |
| Construction  in progress                                                                                                                    |       | 2,033,216                          |       | 1,944,005                         |       |
| Mine  buildings and leasehold improvements                                                                                                   |       | 836,454                            |       | 836,454                           |       |
| Plant  and equipment                                                                                                                         |       | 8,075,220                          |       | 8,075,220                         |       |
| Office  equipment                                                                                                                            |       | 335,505                            |       | 331,765                           |       |
|                                                                                                                                         |       | 11,280,395                         |       | 11,187,444                        |       |
| Less  accumulated depreciation                                                                                                               |       | 2,306,006                          |       | 1,473,253                         |       |
|                                                                                                                                         |       | 8,974,389                          |       | 9,714,191                         |       |
| *OTHER ASSETS:*                                                                                                                              |       |                               |       |                              |       |
| Certificates  of deposit                                                                                                                     |       | 1,481,307                          |       | —                            |       |
| Available-for-sale  securities                                                                                                               |       | 539,402                            |       | 201,782                           |       |
| Reclamation deposits                                                                                                                         |       | 1,236,846                          |       | 1,184,966                         |       |
|                                                                                                                                         |       | 3,257,555                          |       | 1,386,748                         |       |
|                                                                                                                                         |       | $                                  | 25,152,287 |                              | $          | 33,240,231 |   |
| ***Liabilities and Stockholders’ Equity***                                                                                              |       |                               |       |                              |       |
| *CURRENT LIABILITIES:*                                                                                                                       |       |                               |       |                              |       |
| Accounts  payable                                                                                                                            |       | $                                  | 295,592    |                              | $          | 585,965 |   |
| Payroll  and payroll taxes payable                                                                                                           |       | 45,484                             |       | 33,908                            |       |
| Line  of credit                                                                                                                              |       | —                             |       | 1,815,231                         |       |
| Warrant  derivatives, current portion                                                                                                        |       | 65,205                             |       | —                            |       |
| Total  current liabilities                                                                                                                   |       | 406,281                            |       | 2,435,104                         |       |
| * *                                                                                                                                     |       |                               |       |                              |       |
| *LONG-TERM LIABILITIES:*                                                                                                                     |       |                               |       |                              |       |
| Warrant  derivatives                                                                                                                         |       | 927,343                            |       | —                            |       |
| Asset  retirement obligation                                                                                                                 |       | 390,109                            |       | 376,233                           |       |
| Total  liabilities                                                                                                                           |       | 1,723,733                          |       | 2,811,337                         |       |
| * *                                                                                                                                     |       |                               |       |                              |       |
| *COMMITMENTS AND CONTINGENCIES*                                                                                                              |       |                               |       |                              |       |
| * *                                                                                                                                     |       |                               |       |                              |       |
| *STOCKHOLDERS’ EQUITY:*                                                                                                                 |       |                               |       |                              |       |
| Preferred  stock — no par value, 10,000,000 shares authorized; -0- shares issued and  outstanding                                       |       | —                             |       | —                            |       |
| Common  stock — $0.001 par value, 100,000,000 shares authorized; 22,920,076 and  22,756,848 shares issued and outstanding, respectively |       | 22,920                             |       | 22,757                            |       |
|                                                                                                                                         |       |                               |       |                              |       |
| Additional  paid-in capital                                                                                                                  |       | 66,886,881                         |       | 66,995,956                        |       |
| Accumulated  deficit                                                                                                                         |       | (1,117,306                         | )          | (1,117,306                        | )          |
| Deficit  accumulated during the exploration stage                                                                                            |       | (41,076,829                        | )          | (33,847,781                       | )          |
| Accumulated  other comprehensive loss                                                                                                        |       | (1,287,112                         | )          | (1,624,732                        | )          |
| Total  stockholders’ equity                                                                                                             |       | 23,428,554                         |       | 30,428,894                        |       |
|                                                                                                                                         |       | $                                  | 25,152,287 |                              | $          | 33,240,231 |   |

 

Seeaccompanying notes to condensed consolidated financial statements.

 

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**MinesManagement, Inc. and Subsidiaries**

**(AnExploration Stage Company)**

**CONDENSED CONSOLIDATED STATEMENTS OFOPERATIONS (UNAUDITED)**

 
| ** **                                                        | ** ** | ** **              | ** ** | ** **             | ** ** | ** **             | ** ** | ** ** | ** ** | **From  Inception of  Exploration Stage** | ** ** |
|-------------------------------------------------------------------|------------|-------------------------|------------|------------------------|------------|------------------------|------------|------------|------------|-------------------------------------------|------------|
| ** **                                                        | ** ** | ** **              | ** ** | ** **             | ** ** | ** **             | ** ** | ** ** | ** ** | **August 12,  2002**                 | ** ** |
| ** **                                                        | ** ** | **Three  Months Ended** |       | **Nine  Months Ended** |       | **Through**            |       |
| ** **                                                        | ** ** | **September 30,**  | ** ** | **September 30,** | ** ** | **September 30,** | ** ** |
| ** **                                                        | ** ** | **2009**                | ** ** | **2008**               | ** ** | **2009**               | ** ** | **2008**   | ** ** | **2009**                                  | ** ** |
| *REVENUE:*                                                        |       |                    |       |                   |       |                   |       |       |       |                                      |       |
| Royalties                                                         |       | $                       | 4,973      |                   | $          | 3,429                  |       | $          | 8,534      |                                      | $          | 11,756 |   | $ | 78,881 |   |
| *OPERATING EXPENSES:*                                             |       |                    |       |                   |       |                   |       |       |       |                                      |       |
| General  and administrative                                       |       | 586,226                 |       | 1,208,077              |       | 2,256,599              |       | 3,385,212  |       | 19,905,018                                |       |
| Technical services                                                |       | 680,886                 |       | 1,452,710              |       | 3,299,315              |       | 3,066,341  |       | 15,842,716                                |       |
| Depreciation  and amortization                                    |       | 277,284                 |       | 277,290                |       | 832,753                |       | 808,675    |       | 2,294,508                                 |       |
| Legal,  accounting, and consulting                                |       | 115,466                 |       | 185,609                |       | 403,976                |       | 645,424    |       | 2,776,821                                 |       |
| Fees,  filing, and licenses                                       |       | 151,880                 |       | 154,713                |       | 204,337                |       | 253,419    |       | 2,025,890                                 |       |
| Exploration                                                       |       | —                  |       | —                 |       | —                 |       | —     |       | 165,176                                   |       |
| Impairment of mineral properties                                  |       | —                  |       | —                 |       | —                 |       | —     |       | 504,492                                   |       |
| Total  operating expenses                                         |       | 1,811,742               |       | 3,278,399              |       | 6,996,980              |       | 8,159,071  |       | 43,514,621                                |       |
| *LOSS FROM OPERATIONS*                                            |       | (1,806,769              | )     | (3,274,970             | )     | (6,988,446             | )     | (8,147,315 | )     | (43,435,740                               | )          |
| *OTHER INCOME (LOSS):*                                            |       |                    |       |                   |       |                   |       |       |       |                                      |       |
| Loss  from warrant derivatives                                    |       | (568,307                | )     | —                 |       | (516,167               | )     | —     |       | (516,167                                  | )          |
| Interest  income                                                  |       | 93,355                  |       | 190,579                |       | 318,359                |       | 672,396    |       | 2,938,398                                 |       |
| Interest  expense                                                 |       | (12,946                 | )     | (1,243                 | )     | (42,794                | )     | (1,328     | )     | (63,320                                   | )          |
|                                                              |       | (487,898                | )     | 189,336                |       | (240,602               | )     | 671,068    |       | 2,358,911                                 |       |
| *NET LOSS*                                                        |       | $                       | (2,294,667 | )                 | $          | (3,085,634             | )     | $          | (7,229,048 | )                                    | $          | (7,476,247 | )  | $ | (41,076,829 | ) |
| *NET LOSS PER SHARE*(basic and diluted)                           |       | $                       | (0.10      | )                 | $          | (0.14                  | )     | $          | (0.32      | )                                    | $          | (0.33 | )  |   |   |
| *WEIGHTED AVERAGE COMMON SHARES OUTSTANDING (basic and  diluted)* |       | 22,890,246              |       | 22,750,841             |       | 22,828,721             |       | 22,637,961 |       |                                      |       |

 

Seeaccompanying notes to condensed consolidated financial statements.

 

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** Mines Management, Inc. and Subsidiaries**

**(An Exploration Stage Company)**

**CONDENSED CONSOLIDATED STATEMENTS OFCASH FLOWS (UNAUDITED)**

** **
| ** **                                                                   | ** ** | **Nine  Months Ended********September 30,** | ** ** | **From  Inception of  Exploration Stage  August 12, 2002  Through  September 30,** | ** ** |
|------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|----------------------------------------------------------------------------------------------|------------|
| **Increase  (Decrease) in Cash and Cash Equivalents**                        | ** ** | **2009**                                         | ** ** | **2008**                                                                                     | ** ** | **2009** | ** ** |
| *CASH FLOWS FROM OPERATING ACTIVITIES:*                                      | ** ** | ** **                                       | ** ** | ** **                                                                                   | ** ** | ** ** | ** ** |
| Net  loss                                                                    |       | $                                                | (7,229,048 | )                                                                                            | $          | (7,476,247 | ) | $ | (41,076,829 | ) |
| Adjustments  to reconcile net loss to net cash used in operating activities: |       |                                             |       |                                                                                         |       |   |   |
| Stock-based  compensation                                                    |       | 348,119                                          |       | 1,420,179                                                                                    |       | 7,088,878 |   |
| Stock  received for services                                                 |       | —                                           |       | —                                                                                       |       | (11,165 | ) |
| Depreciation  and amortization                                               |       | 832,753                                          |       | 808,675                                                                                      |       | 2,294,508 |   |
| Accretion  of asset retirement obligation                                    |       | 13,876                                           |       | 27,482                                                                                       |       | 45,922 |   |
| Loss  from warrant derivatives                                               |       | 516,167                                          |       | —                                                                                       |       | 516,167 |   |
| Impairment  of mineral properties                                            |       | —                                           |       | —                                                                                       |       | 504,492 |   |
| Changes  in assets and liabilities:                                          |       |                                             |       |                                                                                         |       |   |   |
| Interest  receivable                                                         |       | 94,032                                           |       | 30,350                                                                                       |       | (28,972 | ) |
| Prepaid  expenses and deposits                                               |       | (32,881                                          | )          | (78,158                                                                                      | )          | (241,179 | ) |
| Accounts  payable                                                            |       | (290,373                                         | )          | (912,002                                                                                     | )          | 295,428 |   |
| Payroll  and payroll taxes payable                                           |       | 11,576                                           |       | (4,537                                                                                       | )          | 42,304 |   |
| Net  cash used in operating activities                                       |       | (5,735,779                                       | )          | (6,184,258                                                                                   | )          | (30,570,446 | ) |
| *CASH FLOWS FROM INVESTING ACTIVITIES:*                                      |       |                                             |       |                                                                                         |       |   |   |
| Purchase  of property and equipment                                          |       | (3,740                                           | )          | (890,212                                                                                     | )          | (7,591,288 | ) |
| Proceeds  from disposition of property and equipment                         |       | —                                           |       | 33,154                                                                                       |       | 35,423 |   |
| Construction  in progress                                                    |       | (89,211                                          | )          | (162,353                                                                                     | )          | (3,367,008 | ) |
| Purchase  of certificates of deposit                                         |       | (112,945                                         | )          | (4,943,021                                                                                   | )          | (7,657,242 | ) |
| Purchase  of available-for-sale securities                                   |       | —                                           |       | (1,815,348                                                                                   | )          | (1,815,348 | ) |
| Increase  in mineral properties                                              |       | —                                           |       | —                                                                                       |       | (144,312 | ) |
| Net  cash used in investing activities                                       |       | (205,896                                         | )          | (7,777,780                                                                                   | )          | (20,539,775 | ) |
| *CASH FLOWS FROM FINANCING ACTIVITIES:*                                      |       |                                             |       |                                                                                         |       |   |   |
| Proceeds  from line of credit                                                |       | —                                           |       | 1,815,231                                                                                    |       | 1,815,231 |   |
| Payment  of line of credit                                                   |       | (1,815,231                                       | )          | —                                                                                       |       | (1,815,231 | ) |
| Net  proceeds from sale of common stock                                      |       | 19,350                                           |       | 571,444                                                                                      |       | 58,773,489 |   |
| Net  cash (used in) provided by financing activities                         |       | (1,795,881                                       | )          | 2,386,675                                                                                    |       | 58,773,489 |   |
| *NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS*                       |       | (7,737,556                                       | )          | (11,575,363                                                                                  | )          | 7,663,268 |   |
| *CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD*                             |       | 15,448,159                                       |       | 29,743,372                                                                                   |       | 47,335 |   |
| *CASH AND CASH EQUIVALENTS, END OF PERIOD*                                   |       | $                                                | 7,710,603  |                                                                                         | $          | 18,168,009 |   | $ | 7,710,603 |   |
| *SUPPLEMENTAL INFORMATION:*                                                  |       |                                             |       |                                                                                         |       |   |   |
| Interest  paid                                                               |       | $                                                | 45,242     |                                                                                         | $          | 1,328 |   | $ | 65,768 |   |
| *SUPPLEMENTAL DISCLOSURE OF NONCASH OPERATING ACTIVITIES:*                   |       |                                             |       |                                                                                         |       |   |   |
| Initial  measurement of warrant derivative liability                         |       | $                                                | 476,381    |                                                                                         | $          | — |   | $ | 476,381 |   |
| *SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITIES:*                   |       |                                             |       |                                                                                         |       |   |   |
| Initial  measurement of asset retirement obligation                          |       | $                                                | —     |                                                                                         | $          | 344,187 |   | $ | 344,187 |   |

 

See accompanyingnotes to condensed consolidated financial statements.

 

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**NOTE 1— ORGANIZATION ANDSUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:**

** **

## *Organization:*

##  

Mines Management, Inc.(the Company) is an Idaho corporation incorporated in 1947.  The Company acquires, explores, and developsmineral properties in North America.

 

## *Summary of Significant AccountingPolicies:*

##  

These unaudited interimfinancial statements have been prepared by the Company in accordance withaccounting principles generally accepted in the United States of America forinterim financial 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 offinancial statements in accordance with U.S. generally accepted accountingprinciples requires the use of estimates and assumptions that affect thereported amounts of assets and liabilities, disclosure of contingent assets andliabilities known to exist as of the date the financial statements arepublished, and the reported amounts of revenues and expenses during thereporting period. Uncertainties with respect to such estimates and assumptionsare inherent in the preparation of the Company’s consolidated financialstatements; accordingly, it is possible that the actual results could differfrom these estimates and assumptions, which could have a material effect on thereported amounts of the Company’s consolidated financial position and resultsof operations. Operating results for the three and nine month periods ended September 30,2009, are not necessarily indicative of the results that may be expected forthe full year ending December 31, 2009.

 

For further information,refer to the consolidated financial statements and footnotes thereto in theCompany’s Annual Report on Form 10-K for the year ended December 31,2008.

 

The Financial AccountingStandards Board (FASB) issued the *FASB Accounting StandardsCodification*(ASC) on July 1, 2009, which is effective forreporting periods ending on or after September 15, 2009.  The ASC changed the way that U. S. generallyaccepted accounting principles (U.S. GAAP) are referenced by reorganizing thethousands of individual pronouncements that comprised U.S. GAAP into 90accounting topics utilizing a consistent structure for each topic.  The ASC does not change how the Companyaccounts for its transactions or the nature of related disclosures made.  However, when referring to guidance issued bythe FASB, the Company must now refer to topics in the ASC rather than toStatements of Financial Accounting Standards or other accountingpronouncements.  Any references to U.S.GAAP in this report have been updated to reflect the guidance in the ASC.

 

*(a)*                                  Exploration Stage Enterprise

* *

Since the Company is inthe exploration stage of operation, the Company’s financial statements areprepared in accordance with the provisions of ASC 915*Development Stage Enterprises*, as it devotes substantiallyall of its efforts to acquiring and exploring mining interests that managementbelieves should eventually provide sufficient net profits to sustain theCompany’s existence.  Until suchinterests are engaged in commercial production, the Company will continue toprepare its consolidated financial statements and related disclosures inaccordance with this standard.

 

*(b)*                                 Mining properties, exploration anddevelopment costs

* *

All explorationexpenditures are expensed as incurred. Significant property acquisition payments for active exploration propertiesare capitalized, including payments to acquire mineral rights.  Once a feasibility study has been completed,approved by management, and a decision is made to put the ore body intoproduction, expenditures to develop new mines, to define further mineralizationin existing ore bodies, and to expand the capacity of operating mines, arecapitalized and amortized on the units of production basis over proven andprobable reserves.  The Company chargesto operations the allocable portion of capitalized costs attributable toproperties sold.  Capitalized costs areallocated to properties sold based on the proportion of claims sold to theclaims remaining within the project area.

 

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*(c)*                                  Stock compensation

* *

The Company measures andrecords the costs of employee services received in exchange for an award ofequity instruments based on the grant-date fair value of the award, recognizedover the period during which an employee is required to provide services inexchange for such award.  Compensationcost is recognized for awards granted and for awards modified, repurchased orcancelled.  At September 30, 2009,the Company had three stock option plans which are described more fully in note10.

 

*(d)*                                 Net loss per share

* *

Basic earnings or lossper share is computed on the basis of the weighted average number of sharesoutstanding during the periods.   Dilutedearnings or loss per share is calculated on the basis of the weighted averagenumber of shares outstanding during the period plus the effect of potentialdilutive shares during the period. Potential dilutive shares include outstanding stock options andwarrants.  For periods in which a netloss is reported, potential dilutive shares are excluded because they areantidilutive.  Therefore, basic loss pershare is the same as diluted loss per share for the periods ended September 30,2009 and 2008.

 

*(e)*                                  Reclassifications

* *

Certain amounts in theprior-period financial statements have been reclassified for comparativepurposes to conform to current period presentation with no effect on totalassets or net loss as previously reported.

 

(f)                                    *Subsequent events*

 

The Company evaluatedevents and transactions for potential recognition or disclosure in thecondensed consolidated financial statements through November 9, 2009, thedate the financial statements were issued.

 

*(g)*                                 New accounting standards

* *

Effective January 1, 2009, the Company adoptedthe provisions of ASC 815, *Derivatives and Hedging,*whichapplies to any freestanding financial instruments or embedded features thathave the characteristics of a derivative and to any freestanding financialinstruments that are potentially settled in an entity’s own common stock.  As a result of adopting these new provisions,1,882,484 of the Company’s issued and outstanding common stock purchasewarrants previously treated as equity pursuant to the derivative treatmentexemption were no longer afforded equity treatment.  As such, effective January 1, 2009 theCompany reclassified the fair value of these common stock purchase warrants,which have exercise price reset features, from equity to liability status as ifthese warrants were treated as a derivative liability since their date ofissue.  On January 1, 2009, theCompany reclassified from additional paid-in capital, as a cumulative effectadjustment, $476,381 to beginning retained earnings to recognize the fair valueof such warrants on such date.  The fairvalue of these common stock purchase warrants increased to $992,548 as of September 30,2009.  As such, a $516,167 loss from thechange in fair value of these warrants for the nine months ended September 30,2009 was included in the Statement of Operations.  The warrants had a fair value of $424,241 asof June 30, 2009, resulting in a loss of $568,307 from the change in fairvalue for the three months ended September 30, 2009.

 

These common stock purchase warrants were initiallyissued in connection with our issuance of common shares in 2004 and 2005 andwere not issued with the intent of effectively hedging any future cash flow,fair value of any asset, liability or any net investment in a foreignoperation.  The warrants do not qualify forhedge accounting, and as such, all future changes in the fair value of thesewarrants will be recognized currently in earnings until such time as thewarrants are exercised or expire.  Thesecommon stock purchase warrants do not trade in an active securities market, andas such, we estimate the fair value of these warrants using the Black-Scholesoption pricing model using the following assumptions:

 
| ** **                                 | ** ** | **September 30,  2009** | ** ** |
|--------------------------------------------|------------|------------------------------|------------|
| Weighted average  risk-free interest rate  |       | 0.35                         | %          |
| Weighted average  volatility               |       | 96.26                        | %          |
| Expected  dividend yield                   |       | —                       |       |
| Weighted average  expected life (in years) |       | 0.9                          |       |

 

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Expected volatility is based primarily on historicalvolatility.  Historical volatility wascomputed using weekly pricing observations for recent periods that correspondto the last twenty-four months.  Webelieve this method produces an estimate that is representative of our expectationsof future volatility over the expected term of these warrants.  We currently have no reason to believe futurevolatility over the expected remaining life of these warrants is likely todiffer materially from historical volatility. The expected life is based on the remaining term of the warrants.  The risk-free interest rate is based onone-year U.S. Treasury securities.

 

In May 2009, the FASB issued ASC 855, *Subsequent Events*. ASC 855 establishes general standards of accounting for and disclosure ofevents that occur after the balance sheet date but before financial statementsare issued or are available to be issued. ASC 855 is effective for interim or annual periods ending after June 15,2009.  The Company adopted ASC 855 in thesecond quarter of fiscal 2009.  See note1(f) above.

 

**NOTE 2  — PROPERTY, PLANT AND EQUIPMENT:**

** **

Construction has begun onthe underground electrical, pumping, and ventilation systems at the Libby aditat the Montanore Project.  Theanticipated cost of these projects is expected to total $2,517,000, withapproximately $1,500,000 included in construction in progress as of September 30,2009.  Also included in construction inprogress as of September 30, 2009 is $189,000 in costs associated with theconstruction of a nitrate treatment and removal system at the Montanore Projectsite.  The estimated total cost of thisproject is $1,798,000.

 

Included in the Company’sconstruction in progress account is an asset of approximately $344,000 relatedto an asset retirement obligation associated with the Company’s undergroundevaluation program at the Montanore Project, as further described in note 6.

 

**NOTE 3  — CERTIFICATES OF DEPOSIT:**

** **

The Company owns twocertificates of deposit for a total of $1,481,307.  These investments mature in August 2011and bear interest at the rate of 2.57%. The Company also owns a $5,000,000 certificate of deposit which maturesin June 2010 and bears interest at the rate of 1.49%.  As of December 31, 2008, thiscertificate was collateral for the line of credit described in note 5.  The line of credit was not renewed uponmaturity on September 17, 2009 and therefore, this certificate of depositis no longer restricted as of September 30, 2009.

 

The Company also has acertificate of deposit pledged as security for a Letter of Credit to theMontana Department of Environmental Quality as a reclamation guarantee for theMontanore expansion evaluation program. This certificate matures on January 3, 2010, currently bearsinterest at the rate of 2.57% and automatically renews annually.  This certificate of deposit ($1,175,935 and$1,124,055 at September 30, 2009 and December 31, 2008, respectively)is included with reclamation deposits on the Condensed Consolidated BalanceSheets.

 

**NOTE 4  — AVAILABLE-FOR-SALE SECURITIES:**

** **

The following tablesummarizes the Company’s available-for-sale securities:

 
| ** **         | ** ** | **September 30,********2009** | ** ** | **December 31,  2008** | ** ** |
|--------------------|------------|------------------------------------|------------|-----------------------------|------------|
| Cost               |       | $                                  | 1,826,513  |                        | $          | 1,826,513 |   |
| Unrealized Gains   |       | 22,113                             |       | 8,263                       |       |
| Unrealized  Losses |       | (1,309,224                         | )          | (1,632,994                  | )          |
|               |       |                               |       |                        |       |
| Fair Market  Value |       | $                                  | 539,402    |                        | $          | 201,782 |   |

 

Effective January 1,2008, the Company adopted accounting provisions for financial assets andliabilities measured at fair value on a recurring basis.  These provisions established a framework formeasuring fair value in the form of a fair value hierarchy which prioritizesinputs into valuation techniques used to measure fair value into three broadlevels.  This hierarchy gives the highestpriority to quoted prices in active markets (Level 1) and the lowest priorityto unobservable inputs (Level 3).  TheCompany’s available-for-sale securities are classified within Level 1 of thefair value hierarchy.  These securitiesare comprised of common stocks which have been valued using quoted prices inactive markets.

 

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**NOTE 5  — LINE OF CREDIT:**

** **

In connection with theacquisition of certain investments during 2008, the Company entered into a lineof credit agreement with a credit limit of $5,000,000 bearing interest at arate equal to the Washington Trust Bank Index Rate (3.25% at December 31,2008) and secured by a $5,000,000 certificate of deposit.  The line of credit had an outstanding balanceof   $-0- and $1,815,231 as of September 30,2009 and December 31, 2008, respectively. The line of credit matured on September 17, 2009.  At that time the balance was repaid in fulland the line of credit was not renewed.

 

**NOTE 6  —ASSET RETIREMENT OBLIGATION:**

** **

The Company has an assetretirement obligation (ARO) associated with its underground evaluation programat the Montanore Project.  The AROresulted from the reclamation and remediation requirements of the Montana Departmentof Environmental Quality as outlined in the Company’s permit to carry out theevaluation program.

 

Estimated reclamationcosts were discounted using a credit adjusted risk-free interest rate of 4.78%from the time the Company expects to pay the retirement obligation to the timeit incurred the obligation, which is estimated at 25 years.  In May 2008, the Company revisedestimated reclamation costs based on additional work completed at the MontanoreProject. The following table summarizes activity in the Company’s ARO.

 
| ** **                  | ** ** | **Nine Months  Ended********September 30,  2009** | ** ** | ******Year Ended********December 31,  2008** | ** ** |
|-----------------------------|------------|--------------------------------------------------------|------------|---------------------------------------------------|------------|
| Balance  January 1,    |       | $                                                      | 376,233    |                                              | $          | — |   |
| Revision of  estimate       |       | —                                                 |       | 306,013                                           |       |
| Accretion  expense          |       | 4,519                                                  |       | 18,787                                            |       |
| Balance  March 31,     |       | 380,752                                                |       | 324,800                                           |       |
| Revision of  estimate       |       | —                                                 |       | 38,174                                            |       |
| Accretion expense           |       | 4,625                                                  |       | 4,186                                             |       |
| Balance  June 30,      |       | 385,377                                                |       | 367,160                                           |       |
| Accretion  expense          |       | 4,732                                                  |       | 4,509                                             |       |
| Balance  September 30, |       | $                                                      | 390,109    |                                              | 371,669    |   |
| Accretion  expense          |       |                                                   |       | 4,564                                             |       |
| Balance  December 31,  |       |                                                   |       | $                                                 | 376,233    |   |

** **

**NOTE 7  — COMPREHENSIVE LOSS:**

** **

For the nine months endedSeptember 30, 2009 and 2008, comprehensive loss was $6,891,428 and$7,357,131 respectively.  For the threemonths ended September 30, 2009 and 2008, comprehensive loss was$2,153,703 and $2,937,929, respectively. The difference between net loss and comprehensive loss was due tounrealized gains (losses) on the Company’s marketable securities.

 

**NOTE 8  — CONCENTRATION OF CREDIT RISK:**

** **

The Company maintains itscash and cash equivalents in one financial institution.  FDIC deposit insurance has been temporarilyincreased to $250,000 through December 31, 2013.  On January 1, 2014, the limit willreturn to $100,000.  The Company’s totaluninsured bank deposit balance totaled approximately $15,193,370 as of September 30,2009.  To date, the Company has not experienceda material loss or lack of access to its invested cash or cash equivalents;however, no assurance can be provided that access to the Company’s investedcash and cash equivalents will not be impacted by adverse conditions in thefinancial markets.

 

**NOTE 9  — STOCKHOLDERS’ EQUITY:**

** **

## *Common Stock:*

##  

In 2004, the Company sold1,285,000 common shares for $6,425,000 ($5.00 per share).  The Company paid a cash finder’s fee of 7% ofthe gross purchase price received in the offering.  In connection with the stock sales, theCompany issued 

 

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warrants to purchase upto 511,000 shares of common stock at $7.25 per share through February 18,2009, including 3% warrant compensation, or warrants to purchase 192,750 commonshares, issued to the finder.  In January of2009, the Company extended the expiration date of the outstanding warrants to February 10,2010.  These 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 in accordance with the terms ofthe 2004 warrant agreement. Cumulative warrants exercised relating to thisissue were 148,750 at September 30, 2009 and December 31, 2008.

 

In 2005, the Company sold1,016,667 common shares for $6,100,002 ($6.00 per share).  The Company paid a cash finder’s fee of 7% ofthe gross purchase price received in the offering.  In connection with the stock sales, theCompany granted warrants to purchase up to 737,084 shares of common stock at$8.25 per share through October 20, 2010, which included 3.75% warrantcompensation, or warrants to purchase 228,750 common shares, issued to thefinder.  These warrants were repriced at$5.00 per share in April 2007, and to $4.00 per share in November 2007,and the number of shares purchasable on exercise of options increased, inaccordance with the anti-dilution provisions of the 2005 warrantagreement.  To date, no warrants relatingto this issue have been exercised.

 

In 2005, the Company sold40,000 common shares for $240,000 ($6.00 per share).

 

On April 20, 2007,the Company completed a public offering of 6,000,000 units at a price of $5.00per unit, resulting in gross proceeds of $30,000,000 ($28,200,000 netproceeds).  Each unit is comprised of oneshare of common stock and one-half of one common stock purchase warrant, witheach full warrant being exercisable for five years to purchase one share ofcommon stock at a price of $5.75 per share. The warrants are listed on the Toronto Stock Exchange and are tradablein US dollars under the symbol MGT.WT.U. During the year ended December 31, 2008, the Company paidapproximately $241,000 in legal fees directly related to the 2007 common stockoffering.

 

The underwriters weregranted an over-allotment option, exercisable for a period of 30 days followingthe closing, to acquire up to an additional 900,000 units.   On May 7, 2007, the underwritersexercised the over-allotment option for 836,600 units.  The total offering was therefore 6,836,600units for gross proceeds to the Company of $34,183,000, or $32,124,697 in netproceeds to the Company, after deducting underwriting commissions but beforededucting offering expenses.  To date, nowarrants relating to this issue have been exercised.

 

On November 2, 2007,the Company sold 2,500,000 common shares at a price of $4.00 per share,resulting in gross proceeds of $10,000,000. In connection with the stock sale, the Company entered into a Right ofFirst Refusal agreement (the “ROFR”) which grants a twenty-year right of firstproposal and a right to match third-party proposals, to purchase all or anyportion of silver mined, produced or recovered by the Company in the State ofMontana.  The ROFR does not apply totrade sales and spot sales in the ordinary course of business or forward sales,in each case, for which no upfront payment is received by the Company.

 

The followingtable summarizes exercise prices and expiration dates of outstanding commonstock purchase warrants as of September 30, 2009.

 
| **Number  of  Warrants** | ** ** | **Exercise  Price** | ** ** | **Expiration  Date** | ** **              |
|--------------------------|------------|---------------------|------------|----------------------|-------------------------|
| 362,250                  |       | $                   | 4.00       |                 | February 10,  2010 |   |
| 1,520,234                |       | $                   | 4.00       |                 | October 20,  2010  |   |
| 3,418,300                |       | $                   | 5.75       |                 | April 20,  2012    |   |
| 5,300,784                |       |                |       |                 |                    |

 

## *Preferred Stock:*

##  

The Company hasauthorized 10,000,000 shares of no par value preferred stock.  Through September 30, 2009, the Companyhad not issued any preferred stock.

 

*ShareholderRights Plan:*

 

On June 18, 2009,the Company entered into a Rights Agreement with Computershare Trust Company,N.A. (the “Rights Agreement”).  Inaccordance with the terms of  the RightsAgreement, on June 18, 2009, the Board of Directors authorized anddeclared a dividend of one preferred share purchase right (a “Right”) for eachoutstanding share of the Company’s common stock and has further authorized anddirected the issuance of one Right with respect to each common share that 

 

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shall become outstandingbetween June 18, 2009 and the earliest of the distribution date, theredemption date (as each of such terms is defined in the Rights Agreement) andthe final expiration date of June 18, 2019.  Each Right will allow its holder to purchasefrom the Company one one-thousandth of a share of Series A JuniorParticipating Preferred Stock (a “Preferred Share”) for $12.00 once the Rightsbecome exercisable.  Each one-thousandthof a Preferred Share will give the stockholder approximately the same dividend,voting and liquidation rights as would one share of common stock.  Prior to exercise, a Right does not give itsholder any dividend, voting, or liquidation rights.  The Board of Directors has designated 40,000shares of Series A Junior Participating Preferred Stock with no par value.

 

In general terms, theRights impose a significant penalty upon any person or group that acquiresbeneficial ownership of 20% or more of the Company’s outstanding common stockwithout the prior approval of the Board of Directors. The Rights becomeexercisable only if a person or group acquires 20% or more of the Company’soutstanding shares of common stock or commences a tender offer the consummationof which would result in ownership by a person or group of 20% or more of theoutstanding shares of common stock.  Allholders of Rights except that person or group may, for $12.00, purchase sharesof the Company’s common stock with a market value of $24.00, based on the marketprice of the Company’s common stock prior to such acquisition.  Prior to the acquisition by a person or groupof beneficial ownership of 20% or more of the Company’s outstanding shares ofcommon stock, the Rights are redeemable for $0.001 per Right at the option ofthe Board of Directors of the Company.

 

**NOTE 10 — STOCK OPTIONS:**

** **

During the year ended December 31,2003, the stockholders of the Company approved two stock-based compensationplans — the 2003 Stock Option Plan (which includes both qualified andnonqualified options) and the 2003 Consultant Stock Compensation Plan.  Under the 2003 Stock Option Plan, the Companymay grant options to purchase up to 1,200,000 shares of common stock.  Under the 2003 Consultant Stock CompensationPlan, the Company could grant options to purchase up to 400,000 shares ofcommon stock.  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 stock uponexercise.

 

Under both 2003 StockOption Plans, the option exercise price may not be less than 100% of the fairmarket value per share on the date of grant. Stock options are exercisable within ten years from the date of thegrant of the option.  The schedule forvesting of the options granted under both plans is at the discretion of theBoard of Directors.

 

In November 2007,the Board of Directors adopted, subject to shareholder approval, the 2007Equity Incentive Plan (the “2007 Plan”), which provides for the issuance ofboth qualified and nonqualified stock options and restricted shares todirectors, employees and consultants of the Company.  Up to 3,000,000 shares of the Company’sauthorized but unissued common stock are available for issuance under the 2007Plan.

 

The 2007 Plan, by itsterms, permits the repricing of stock options, and the Company has a policy ofre-pricing stock options when the market price of the stock is $1.00 below theexercise price of the outstanding option. The newly issued option has the same vesting schedule and expirationdate as the option that is cancelled. During 2008, the Company cancelled and reissued 3,452,000 stock optionsheld by 20 employees, including officers and directors.  As a result of the repricing of stockoptions, the Company recognized additional compensation expense of $87,943 and$523,654 for the nine months ended September 30, 2009 and 2008, respectively.  The Company has not re-priced stock optionsduring 2009.  A summary of the optionactivity under the Plans as of September 30, 2009, and changes during theperiod then ended, is presented below:

 

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| ** **                              | ** ** | **Number of  Options** | ** ** | **Weighted-  Average  Exercise  Price** | ** ** | **Weighted-  Average  Remaining  Contractual  Term** | ** ** | **Aggregate  Intrinsic Value** | ** ** |
|-----------------------------------------|------------|------------------------|------------|-----------------------------------------|------------|------------------------------------------------------|------------|--------------------------------|------------|
| Outstanding at  January 1, 2009    |       | 2,271,000              |       | $                                       | 1.37       |                                                 |       |                           |       |   |
| Forfeited or  expired                   |       | (13,000                | )          | $                                       | 2.77       |                                                 |       |                           |       |   |
| Outstanding at  March 31, 2009     |       | 2,258,000              |       | $                                       | 1.36       |                                                 |       |                           |       |   |
| Forfeited or  expired                   |       | (3,000                 | )          | $                                       | 1.29       |                                                 |       |                           |       |   |
| Exercised                               |       | (495,000               | )          | $                                       | 1.29       |                                                 |       |                           |       |   |
| Outstanding at  June 30, 2009      |       | 1,760,000              |       | $                                       | 1.38       |                                                 |       |                           |       |   |
| Issued                                  |       | 20,000                 |       | $                                       | 1.81       |                                                 |       |                           |       |   |
| Exercised                               |       | (70,000                | )          | $                                       | 1.29       |                                                 |       |                           |       |   |
| Outstanding at  September 30, 2009 |       | 1,710,000              |       | $                                       | 1.39       |                                                 | 3.10       |                           | $          | 2,163,600 |   |
| Exercisable at  September 30, 2009 |       | 1,595,000              |       | $                                       | 1.31       |                                                 | 3.04       |                           | $          | 2,074,000 |   |

 

The fair value for eachoption award is estimated at the date of grant using the Black-Scholesoption-pricing model using the assumptions noted in the following table.   Volatility for the periods presented isbased on the historical volatility of the Company’s common stock over theexpected life of the option.  Therisk-free rate for periods within the expected term of the option is based onthe U.S. Treasury yield curve in effect at the time of the grant.  The Company does not foresee the payment ofdividends in the near term.

 
| ** **                                 | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended**  | ** ** |
|--------------------------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                                 | ** ** | **September 30,** | ** ** | **September 30,** | ** ** |
| ** **                                 | ** ** | **2009**               | ** ** | **2008(1)**            | ** ** | **2009** | ** ** | **2008** | ** ** |
| Weighted average  risk-free interest rate  |       | 1.44                   | %          | —                 |       | 1.44 | % | 2.59 | % |
| Weighted average  volatility               |       | 96.18                  | %          | —                 |       | 96.18 | % | 52.09 | % |
| Expected  dividend yield                   |       | —                 |       | —                 |       | — |   | — |   |
| Weighted average  expected life (in years) |       | 3.6                    |       | —                 |       | 3.6 |   | 2.0 |   |
| Weighted average  grant-date fair value    |       | $                      | 1.17       |                   | —     |   | $ | 1.17 |   | $ | 1.42 |   |
|                                            |            |                        |            |                        |            |  |  |  |  |  |  |  |

 

----

(1)No options weregranted during the three months ending September 30, 2008.

 

During the three monthsended September 30, 2009 and 2008, there were 70,000 and 100,000 stockoptions exercised with a weighted average exercise price of $1.29 and $1.85,respectively.  The total intrinsic valueof options exercised during the three months ended September 30, 2009 and2008 was $48,138 and $2,338, respectively. During the nine months ended September 30, 2009 and 2008, therewere 565,000 and 620,000 stock options exercised with a weighted averageexercise price of $1.29 and $1.68, respectively.  The total intrinsic value of optionsexercised during the nine months ended September 30, 2009 and 2008 was$128,607 and $1,313,568, respectively.

 

A summary of the statusof the Company’s nonvested options as of September 30, 2009, and changesduring the period then ended, is presented below:

 
| ** **                            | ** ** | **Number of  Options** | ** ** | **Weighted-  Average  Grant-Date  Fair Value** | ** ** |
|---------------------------------------|------------|------------------------|------------|------------------------------------------------|------------|
| Nonvested at  January 1, 2009    |       | 510,000                |       | $                                              | 1.33       |   |
| Granted                               |       | —                 |       | —                                         |       |
| Vested                                |       | —                 |       | —                                         |       |
| Nonvested at  March 31,2009      |       | 510,000                |       | $                                              | 1.33       |   |
| Vested                                |       | (395,000               | )          | $                                              | 1.42       |   |
| Nonvested at  June 30, 2009      |       | 115,000                |       | $                                              | 1.02       |   |
| Granted                               |       | 10,000                 |       | $                                              | 1.17       |   |
| Vested                                |       | (10,000                | )          | $                                              | 1.13       |   |
| Nonvested at  September 30, 2009 |       | 115,000                |       | $                                              | 1.02       |   |

 

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As of September 30,2009, there was $4,459 of unrecognized compensation cost related to nonvestedshare-based compensation arrangements granted under the Plans.  That cost is expected to be recognized over aweighted-average period of less than one year.

 

Total compensation costsrecognized for stock-based employee compensation awards was $11,412 and$672,307 for the three months ended September 30, 2009 and 2008,respectively.  Total costs recognized forstock-based compensation awards for services performed by outside parties was$-0- and $19,963 for the three months ended September 30, 2009 and 2008,respectively.  Total compensation costsrecognized for stock-based employee compensation awards was $348,119 and$1,349,525 for the nine months ended September 30, 2009 and 2008,respectively.  Total costs recognized forstock-based compensation awards for services performed by outside parties was$-0- and $70,654 for the nine months ended September 30, 2009 and 2008,respectively. These costs were included in general and administrative expensesand technical services on the Condensed Consolidated Statements ofOperations.  Cash received from optionsexercised under all share-based payment arrangements during the nine months endedSeptember 30, 2009 and 2008 was $19,350 and $800,000, respectively.

 

**ITEM 2.**                 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIALCONDITION AND RESULTS OF OPERATIONS

** **

The following discussionand analysis should be read in conjunction with “Management’s Discussion andAnalysis of Financial Condition and Results of Operations” contained in ourAnnual Report on Form 10-K for the year ended December 31, 2008, aswell 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.

 

We are an explorationstage company with a large silver-copper project, the Montanore Project,located in northwestern Montana.  TheMontanore Silver-Copper Project continues to be the Company’s sole focus.  In addition to its advanced exploration anddelineation drilling program, the Company is continuing its repermittingefforts with federal and state agencies and its engineering optimization reviewof the Project.

 

## **Overview**

##  

In the third quarter of2009, the Company:

 

·                  Worked on responding to the public comments to theEnvironmental Impact Statement (“EIS”) and incorporating them into a revisedEIS document expected to be completed during the fourth quarter of 2009.

 

·                  Reviewed data and information on potential mining,exploration and development opportunities in Latin America and the westernUnited States.

 

·                  Discussed financing opportunities and timing, andapproved the filing of a shelf registration in the fourth quarter of 2009.

 

·                  Maintained a strong cash and investment position at September 30,2009, with $14.2 million of unrestricted cash and certificates of deposit.

 

·                  Repaid a $1.8 million line of credit in September 2009.

 

The net cash expendituresfor the nine months ended September 30, 2009 were $0.2 million for thepurchase of equipment and completion of the water treatment plant and othersite infrastructure and $5.7 million for operating activities.  The Company believes that it has sufficientworking capital to complete the rehabilitation of the Libby adit andcommencement of delineation drilling. The Company estimates that it will require approximately $10.0 millionof additional funds to complete the delineation drilling program and a bankablefeasibility study.

 

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## **AdvancedExploration and Delineation Drilling Program**

##  

Libby operations in the third quarter of 2009 included continuedoperations on the Montanore site water treatment system maintaining the levelat the second sump and pumping station. To date, infrastructure placed in the decline includes a refuge chamber,mine power center and temporary pump station along with the previouslyinstalled sumps and pumping system at the 700 ft. location. The decline is nowin a standby mode pending notification from the relevant governmental agenciesregarding approval of the draft EIS and issuance of a Record of Decision.

 

Engineering for the nitrate removal addition to the water treatmentsystem is complete with construction on hold pending receipt of the EIS andRecord of Decision.  Construction of the nitrate system is scheduled tostart and be completed prior to beginning to drive the final section of theadit to reach the ore body and install the delineation drilling stations. The current schedule is to begin construction****of the concrete chambers in early May of 2010 based on timingof receipt of the Record of Decision following completion of the final EIS.

 

Engineering refinement and geology work continues using existinginformation.  Geology confirmation mapping is beginning with the advanceof the rehabilitation down the decline. The agencies have reviewed our three-dimensional hydrologic model andare working collaboratively to determine how it can be implemented in the finalEIS.  The new model addresses waterquantity, water quality, and other public and agency comments for theproject.  We have also started toinitiate hydrological investigation in the Libby adit, as required by minorrevisions to our Hard Rock Operating Permit 150, which will provide importanttechnical data for the hydrologic model.

 

**Permitting and Environmental**

 

In thesecond quarter of 2009, the U.S Forest Services (USFS) and the MontanaDepartment of Environmental Quality (DEQ) issued the draft environmental impactstatement for public review.   The agencies extended the publicreview period for 30 days to June 29, 2009.  The public meetingfor comments was held as scheduled on April 16, 2009.  The Companyfinished its review of the draft EIS and is working with the agencies on itscomments to the draft EIS.

 

In thethird quarter of 2009, the Company continues to work on technical andregulatory issues with the agencies with regard to the EIS, project mitigation,public comments and other project issues.  The Company continues tocollect baseline data in anticipation of starting up the evaluation work in2010.  This includes data regarding fisheries, water quality, grizzlybear, and other important environmental receptors.  Also, a site meetingoccurred in June 2009 with the Montana DEQ, USFS, Environmental ProtectionAgency, and Army Corps of Engineers to review the project as part of the LeastDamaging Practicable Alternative process. Specifically, in selecting the least environmentally damagingpracticable alternative, the relevant government agencies are evaluating theproposed locations for the construction of a tailings impoundment based onwhich location best affords protection of the aquatic ecosystem while enablingthe Company to meet its project purpose.

 

If allissues are resolved satisfactorily, a record of decision could be issued by theU.S. Forest Service sometime in the first half of 2010.

 

## **Financialand Operating Results**

##  

Mines Management, Inc.is an exploration stage company with a large silver-copper project, theMontanore Project, located in northwestern Montana.    The Company continues to expense all of itsexpenditures with the exception of expenditures for equipment andinfrastructure, which are capitalized.  The Company has no revenues from mining operations.  Financial results of operations includeprimarily interest income and general and administrative, permitting, projectadvancement and engineering expenses.

 

**QuarterEnded September 30, 2009**

 

The Company reported anet loss for the quarter ended September 30, 2009 of $2.3 million, or$0.10 per share, compared to a net loss of $3.1 million, or $0.14 per share,for the quarter ended September 30, 2008. The $0.8 million decrease in net loss in the third quarter of 2009 isattributable to decreases in operating expenses of $1.5****millionover the third quarter of 2008, principally in general and administrativeexpenses of $0.6 million, technical services of $0.8 million, and legal,accounting, and consulting of $0.1 million, offset by a decrease in otherincome (loss) of $0.7 million.  Thedecrease in other income (loss) resulted from a $0.6 million loss due to thechange in fair market value of warrant derivatives and a decrease in netinterest income of $0.1 million during the quarter ended September 30,2009.  The Company has reduced its 

 

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operating expenses in thesecond and third quarters of 2009 to conserve resources pending thedetermination of environmental permits.

 

**NineMonths Ended September 30, 2009**

 

The Company reported anet loss for the nine months ended September 30, 2009 of $7.2 million, or$0.32 per share, versus a loss of $7.5 million or $0.33 per share for the ninemonths ended September 30, 2008. The****decrease in net loss in 2009 islargely attributable to a decrease in general and administrative expenses of$1.1 million which is comprised of a decline in promotion and investorrelations expenses of $0.2 million and a decrease in stock compensation of $0.9million.  Technical services costsincreased by $0.2 million in 2009 for work on the Libby adit water treatmentsystem including rehabilitation, sump and decant construction, and pumpingstation installation.   Legal,accounting, and consulting expenses decreased by $0.2 million. Other income(loss) for the nine months ending September 30, 2009 decreased by $0.9million from 2008 because of a $0.5 million loss from the change in fair marketvalue of warrant derivatives and a reduction of net interest income of $0.4million.

 

## **Liquidity**

##  

During the nine monthsended September 30, 2009, the net cash used for operating activities was$5.7 million, which consisted largely of permitting and technical expensesassociated with increased activities at the Montanore Project site.  The net cash used in investing activitiesduring the period was $0.2 million, principally for construction in progress.

 

We continue to reduceactivity levels, including capital expenditures, until the timing of the Recordof Decision becomes more clear.  Weanticipate expenditures of approximately $2.0 million in the final quarter of2009, which will consist of $1.0 million for general and administrativeexpenses and $1.0 million for ongoing expenses in preparation for the delineationdrilling program, additional mine scoping studies, and responding to EIScomments.  Given our current availablefunds of $14.2 million on September 30, 2009, we will requireapproximately $10.0 million of external financing in 2010 to fund the finalphases of the advanced exploration program and delineation drilling program andcompletion of a bankable feasibility study. The Company continues to investigate financing opportunities and thepotential for equity or debt financing during the current year.

 

**Off-BalanceSheet Arrangements**

 

At September 30,2009, we had no existing off-balance sheet arrangements (as defined under SECrules) that have or are reasonably likely to have a material current or futureeffect on our financial condition, revenues or expenses, results of operations,liquidity, capital expenditures or capital resources.

 

**ITEM 3.**                 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKAND HEDGING ACTIVITIES

** **

All of our cash balancesare held in U.S. dollars and our long term investment certificates of depositare denominated in U.S. dollars in local and national bankinginstitutions.  We manage the timing ofcash required for review of the permitting and engineering of the MontanoreProject and for general corporate purposes utilizing our money market accountand we invest funds not immediately required in certificates of deposit withvarying maturities and fixed early retirement costs of three monthsinterest.  Our policy is to invest onlyin government securities rated “investment grade” or better.

 

The market prices of baseand precious metals such as silver and copper fluctuate widely and are affectedby numerous factors beyond the control of any mining company.  These factors include expectations withregard to the rate of inflation, the exchange rates of the U.S. dollar andother currencies, interest rates, global or regional political, economic orbanking crises, and a number of other factors. If the market price of silver or copper should decrease, the value ofthe Company’s Montanore Project could decline and the Company might not be ableto recover its investment in that project. Any determination to develop or construct a mine would be made longbefore the first revenues from production would be 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

 

Our management, with theparticipation of Glenn M. Dobbs, the Company’s President and CEO, and James H.Moore, the Company’s Chief Financial Officer and Treasurer, has evaluated theCompany’s disclosure controls and procedures as of September 30,2009.  Based upon this evaluation, theChief Executive Officer and Chief Financial Officer concluded that the Company’sdisclosure controls and procedures are designed and were effective as of September 30,2009 to give 

 

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reasonable assurancesthat the information required to be disclosed in the reports that the Company’sfiles or submits under the Securities Exchange Act of 1934, as amended, isrecorded, processed, summarized and reported within the time periods specifiedin the rules and forms of the Securities and Exchange Commission, and thatsuch information is also accumulated and communicated to the Company’smanagement, including its Chief Executive Officer and Chief Financial Officer,as appropriate, to allow timely decisions regarding required disclosure.

 

There were no changes inthe Company’s internal controls over financial reporting that occurred duringthe quarterly period ended September 30, 2009 that materially affected, orare reasonably likely to materially affect, the Company’s internal control overfinancial reporting.

 

**PART II— OTHER INFORMATION**

** **

**ITEM1.**                                                     LEGAL PROCEEDINGS

** **

None.

 

**ITEM 1A.**                                            RISKFACTORS

** **

In addition to the otherinformation set forth in this report, you should carefully consider the factorsdiscussed in ‘‘Risk Factors’’ in our Annual Report on Form 10-K for theyear ended December 31, 2008, which could materially affect our business,financial condition and/or future results. The risks described in our Annual Report on Form 10-K are not theonly risks facing us.  Additional risksand uncertainties not currently known to us or that we currently deem to beimmaterial also may materially adversely affect our business, financialcondition and/or operating results.

 

**ITEM2.**                                                     UNREGISTERED SALES OF EQUITY SECURITIES AND USE OFPROCEEDS

** **

None.

 

**ITEM3.**                                                     DEFAULTS UPON SENIOR SECURITIES

** **

None.

 

**ITEM4.**                                                     SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

** **

None.

 

**ITEM5.**                                                     OTHER INFORMATION

** **

None.

 

**ITEM6.**                                                     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**

# ** **

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on behalf of the undersigned thereunto dulyauthorized.

 
|                        | MINES MANAGEMENT, INC. |
|-----------------------------|------------------------|
|                        |                   |
|                        |                   |
| Date:November 9, 2009  | By:          | /s/ Glenn M. Dobbs |
|                        |                   | Glenn M. Dobbs |
|                        |                   | President and Chief Executive Officer |
|                        |                   |   |
|                        |                   |   |
| Date: November 9, 2009 | By:                    | /s/ James H. Moore |
|                        |                   | James H. Moore |
|                        |                   | Chief Financial Officer |

 

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