Tableof Contents

 

 

 

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,DC 20549**

 

##### **FORM 10-Q**

##### ** **

| **x** | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934** |
|-------|--------------------------------------------------------------------------------------------------------|

 

**For the quarterly period ended June 30, 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.  Yes x  No o

 

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

 

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

 

At August 7, 2009,  22,881,758 shares of common stock, par value$0.001 per share, were issued and outstanding.

 

 

 

----

Tableof Contents

 

## **CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS**

##  

Someinformation contained in or incorporated by reference into this report maycontain forward looking statements, as that term is defined in the PrivateSecurities Litigation Reform Act of 1995. These statements include, among other things, comments regarding furtherexploration and evaluation of the Montanore Project, including plannedrehabilitation and extension of the Libby adit, drilling activities,feasibility determination, engineering studies, environmental and permittingrequirements, process and timing; estimates of mineralized material andmeasured, indicated and inferred resources; financing needs; plannedexpenditures in 2009 and 2010; potential completion of a bankable feasibilitystudy; and the markets for silver and copper. The use of any of the words “development”, “anticipate”, “continues”, “estimate”,“expect”, “may”, “project”, “should”, “believe”, and similar expressions areintended to identify uncertainties.  TheCompany believes the expectations reflected in those forward looking statementsare reasonable.  However, the Companycannot assure that the expectations will prove to be correct.  Actual results could differ materially fromthose anticipated in these forward looking statements as a result of thefactors set forth below and other factors set forth and incorporated byreference into this report:

 

·                  Worldwide economic and political eventsaffecting the supply of and demand for silver and copper

 

·                  Volatility in the market price for silverand copper

 

·                  Financial market conditions and theavailability and cost of financing

 

·                  Uncertainty regarding whether reserveswill be established at Montanore

 

·                  Uncertainties associated with developingnew mines

 

·                  Variations in ore grade and othercharacteristics affecting mining, crushing, milling and smelting and mineralrecoveries

 

·                  Geological, technical, permitting, miningand processing problems

 

·                  The availability, terms, conditions andtiming of required governmental permits and approvals, and potential oppositionto the majority of permits

 

·                  Uncertainty regarding future changes inapplicable law or implementation of existing law

 

·                  The availability of experienced employees

 

·                  The factors discussed under “Risk Factors”in our Form 10-K, for the period ending December 31, 2008.

 

----

Tableof Contents

 

**MINESMANAGEMENT, INC.**

**FORM 10-Q**

**QUARTERENDED June 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 | 10 |
| 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                                                                           | 13 |
| ITEM 1A.                                 | Risk  Factors                                                                               | 13 |
| ITEM 2.                                  | Unregistered  Sales of Equity Securities and Use of Proceeds                                | 13 |
| ITEM 3.                                  | Defaults  Upon Senior Securities                                                            | 13 |
| ITEM 4.                                  | Submission  of Matters to a Vote of Security Holders                                        | 14 |
| ITEM 5.                                  | Other Information                                                                           | 14 |
| ITEM 6.                                  | Exhibits                                                                                    | 14 |
|                                     |                                                                                        |   |
| SIGNATURES                               |                                                                                        | 15 |

 

----

Tableof Contents

 

**PART I— FINANCIAL INFORMATION**

 

**ITEM1.**                                           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*   |

 

i

----

Tableof Contents

 

**Mines Management, Inc. andSubsidiaries**

**(An Exploration Stage Company)**

**CONDENSED CONSOLIDATED BALANCE SHEETS(UNAUDITED)**

 
| ** **                                                                                                                                  | ** ** | **June 30,********2009** | ** ** | **December 31,********2008** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------|------------|-----------------------------------|------------|
| ***Assets***                                                                                                                                |       |                          |       |                              |       |
| *CURRENT ASSETS:*                                                                                                                           |       |                          |       |                              |       |
| Cash  and cash equivalents                                                                                                                  |       | $                             | 10,908,171 |                              | $          | 15,448,159 |   |
| Interest  receivable                                                                                                                        |       | 204,860                       |       | 123,004                           |       |
| Prepaid  expenses and deposits                                                                                                              |       | 193,488                       |       | 147,887                           |       |
| Certificates  of deposit                                                                                                                    |       | 1,420,242                     |       | 1,420,242                         |       |
| Restricted  certificate of deposit                                                                                                          |       | 5,000,000                     |       | 5,000,000                         |       |
| Total  current assets                                                                                                                       |       | 17,726,761                    |       | 22,139,292                        |       |
| * *                                                                                                                                    |       |                          |       |                              |       |
| *PROPERTY, PLANT AND EQUIPMENT:*                                                                                                            |       |                          |       |                              |       |
| Construction  in progress                                                                                                                   |       | 2,031,994                     |       | 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                           |       |
|                                                                                                                                        |       | 11,279,173                    |       | 11,187,444                        |       |
| Less  accumulated depreciation                                                                                                              |       | 2,028,722                     |       | 1,473,253                         |       |
|                                                                                                                                        |       | 9,250,451                     |       | 9,714,191                         |       |
| *OTHER ASSETS:*                                                                                                                             |       |                          |       |                              |       |
| Available-for-sale  securities                                                                                                              |       | 398,438                       |       | 201,782                           |       |
| Reclamation deposits                                                                                                                        |       | 1,236,846                     |       | 1,184,966                         |       |
|                                                                                                                                        |       | 1,635,284                     |       | 1,386,748                         |       |
|                                                                                                                                        |       | $                             | 28,612,496 |                              | $          | 33,240,231 |   |
| ***Liabilities and Stockholders’ Equity***                                                                                             |       |                          |       |                              |       |
| *CURRENT LIABILITIES:*                                                                                                                      |       |                          |       |                              |       |
| Accounts  payable                                                                                                                           |       | $                             | 379,608    |                              | $          | 585,965 |   |
| Payroll  and payroll taxes payable                                                                                                          |       | 37,194                        |       | 33,908                            |       |
| Line  of credit                                                                                                                             |       | 1,815,231                     |       | 1,815,231                         |       |
| Warrant  derivatives, current portion                                                                                                       |       | 28,980                        |       | —                            |       |
| Total  current liabilities                                                                                                                  |       | 2,261,013                     |       | 2,435,104                         |       |
| * *                                                                                                                                    |       |                          |       |                              |       |
| *LONG-TERM LIABILITIES:*                                                                                                                    |       |                          |       |                              |       |
| Warrant  derivatives                                                                                                                        |       | 395,261                       |       | —                            |       |
| Asset  retirement obligation                                                                                                                |       | 385,377                       |       | 376,233                           |       |
| Total  liabilities                                                                                                                          |       | 3,041,651                     |       | 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; 22,881,758 and  22,756,848 shares issued and outstanding, respectively |       | 22,882                        |       | 22,757                            |       |
|                                                                                                                                        |       |                          |       |                              |       |
| Additional  paid-in capital                                                                                                                 |       | 66,875,507                    |       | 66,995,956                        |       |
| Accumulated  deficit                                                                                                                        |       | (1,117,306                    | )          | (1,117,306                        | )          |
| Deficit  accumulated during the exploration stage                                                                                           |       | (38,782,162                   | )          | (33,847,781                       | )          |
| Accumulated  other comprehensive loss                                                                                                       |       | (1,428,076                    | )          | (1,624,732                        | )          |
| Total  stockholders’ equity                                                                                                            |       | 25,570,845                    |       | 30,428,894                        |       |
|                                                                                                                                        |       | $                             | 28,612,496 |                              | $          | 33,240,231 |   |

 

See accompanyingnotes to condensed consolidated financial statements.

 

1

----

Tableof Contents

 

**MinesManagement, Inc. and Subsidiaries**

**(AnExploration Stage Company)**

**CONDENSED CONSOLIDATED STATEMENTS OFOPERATIONS (UNAUDITED)**

 
| ** **                                                        | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** | **From Inception of  Exploration Stage  August 12, 2002  Through  June 30,** | ** ** |
|-------------------------------------------------------------------|------------|---------------------------------------|------------|-------------------------------------|------------|------------------------------------------------------------------------------------------------------------|------------|
| ** **                                                        | ** ** | **2009**                              | ** ** | **2008**                            | ** ** | **2009**                                                                                                   | ** ** | **2008** | ** ** | **2009** | ** ** |
| *REVENUE:*                                                        |       |                                  |       |                                |       |                                                                                                       |       |   |   |   |   |
| Royalties                                                         |       | $                                     | 1,468      |                                | $          | 5,247                                                                                                      |       | $ | 3,561 |   | $ | 8,327 |   | $ | 73,908 |   |
| *OPERATING EXPENSES:*                                             |       |                                  |       |                                |       |                                                                                                       |       |   |   |   |   |
| General  and administrative                                       |       | 848,282                               |       | 1,430,836                           |       | 1,670,373                                                                                                  |       | 2,177,135 |   | 19,318,792 |   |
| Technical services                                                |       | 1,053,649                             |       | 838,693                             |       | 2,618,429                                                                                                  |       | 1,613,631 |   | 15,161,830 |   |
| Depreciation                                                      |       | 277,626                               |       | 276,439                             |       | 555,469                                                                                                    |       | 531,385 |   | 2,017,224 |   |
| Legal,  accounting, and consulting                                |       | 169,040                               |       | 196,141                             |       | 288,510                                                                                                    |       | 459,815 |   | 2,661,355 |   |
| Fees,  filing, and licenses                                       |       | 6,594                                 |       | 46,645                              |       | 52,457                                                                                                     |       | 98,706 |   | 1,874,010 |   |
| Exploration                                                       |       | —                                |       | —                              |       | —                                                                                                     |       | — |   | 165,176 |   |
| Impairment of mineral properties                                  |       | —                                |       | —                              |       | —                                                                                                     |       | — |   | 504,492 |   |
| Total  operating expenses                                         |       | 2,355,191                             |       | 2,788,754                           |       | 5,185,238                                                                                                  |       | 4,880,672 |   | 41,702,879 |   |
| *LOSS FROM OPERATIONS*                                            |       | (2,353,723                            | )          | (2,783,507                          | )          | (5,181,677                                                                                                 | )          | (4,872,345 | ) | (41,628,971 | ) |
| *OTHER INCOME:*                                                   |       |                                  |       |                                |       |                                                                                                       |       |   |   |   |   |
| Gain  from warrant derivatives                                    |       | 324,357                               |       | —                              |       | 52,140                                                                                                     |       | — |   | 52,140 |   |
| Interest  income                                                  |       | 103,709                               |       | 198,212                             |       | 225,004                                                                                                    |       | 481,817 |   | 2,845,043 |   |
| Interest  expense                                                 |       | (14,944                               | )          | —                              |       | (29,848                                                                                                    | )          | (85 | ) | (50,374 | ) |
|                                                              |       | 413,122                               |       | 198,212                             |       | 247,296                                                                                                    |       | 481,732 |   | 2,846,809 |   |
| *NET LOSS*                                                        |       | $                                     | (1,940,601 | )                                   | $          | (2,585,295                                                                                                 | )          | $ | (4,934,381 | ) | $ | (4,390,613 | ) | $ | (38,782,162 | ) |
| *NET LOSS PER SHARE*(basic and diluted)                           |       | $                                     | (0.08      | )                                   | $          | (0.11                                                                                                      | )          | $ | (0.22 | ) | $ | (0.19 | ) |   |   |
| *WEIGHTED AVERAGE COMMON SHARES OUTSTANDING (basic and  diluted)* |       | 22,837,603                            |       | 22,746,220                          |       | 22,797,448                                                                                                 |       | 22,580,900 |   |   |   |

 

See accompanyingnotes to condensed consolidated financial statements.

 

2

----

Tableof Contents

 

**Mines Management, Inc. andSubsidiaries**

**(An Exploration Stage Company)**

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

** **
| ** **                                                                         | ** ** | **Six Months  Ended********June 30,** | ** ** | **From  Inception of  Exploration Stage  August 12, 2002  Through  June 30,** | ** ** |
|------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|-----------------------------------------------------------------------------------------|------------|
| **Increase (Decrease) in Cash and Cash Equivalents** | ** ** | **2009**                                   | ** ** | **2008**                                                                                | ** ** | **2009** | ** ** |
| *CASH FLOWS FROM OPERATING ACTIVITIES:*                                            | ** ** | ** **                                 | ** ** | ** **                                                                              | ** ** | ** ** | ** ** |
| Net  loss                                                                          |       | $                                          | (4,934,381 | )                                                                                       | $          | (4,390,613 | ) | $ | (38,782,162 | ) |
| Adjustments  to reconcile net loss to net cash used in operating activities:       |       |                                       |       |                                                                                    |       |   |   |
| Stock-based  compensation                                                          |       | 336,707                                    |       | 727,909                                                                                 |       | 7,077,466 |   |
| Stock  received for services                                                       |       | —                                     |       | —                                                                                  |       | (11,165 | ) |
| Depreciation                                                                       |       | 555,469                                    |       | 531,385                                                                                 |       | 2,017,224 |   |
| Accretion  of asset retirement obligation                                          |       | 9,144                                      |       | 22,973                                                                                  |       | 41,190 |   |
| Gain  from warrant derivatives                                                     |       | (52,140                                    | )          |                                                                                    |       | (52,140 | ) |
| Impairment  of mineral properties                                                  |       | —                                     |       | —                                                                                  |       | 504,492 |   |
| Changes  in assets and liabilities:                                                |       |                                       |       |                                                                                    |       |   |   |
| Interest  receivable                                                               |       | (81,856                                    | )          | 3,374                                                                                   |       | (204,860 | ) |
| Prepaid  expenses and deposits                                                     |       | (45,601                                    | )          | (70,657                                                                                 | )          | (253,899 | ) |
| Accounts  payable                                                                  |       | (206,357                                   | )          | (1,509,230                                                                              | )          | 379,444 |   |
| Payroll  and payroll taxes payable                                                 |       | 3,286                                      |       | 1,914                                                                                   |       | 34,014 |   |
| Net  cash used in operating activities                                             |       | (4,415,729                                 | )          | (4,682,945                                                                              | )          | (29,250,396 | ) |
| *CASH FLOWS FROM INVESTING ACTIVITIES:*                                            |       |                                       |       |                                                                                    |       |   |   |
| Purchase  of property and equipment                                                |       | (3,740                                     | )          | (859,531                                                                                | )          | (7,591,288 | ) |
| Proceeds  from disposition of property and equipment                               |       | —                                     |       | 33,154                                                                                  |       | 35,423 |   |
| Construction  in progress                                                          |       | (87,989                                    | )          | (102,091                                                                                | )          | (3,365,786 | ) |
| Purchase  of certificates of deposit                                               |       | (51,880                                    | )          | —                                                                                  |       | (7,596,177 | ) |
| Purchase  of available-for-sale securities                                         |       | —                                     |       | —                                                                                  |       | (1,815,348 | ) |
| Increase  in mineral properties                                                    |       | —                                     |       | —                                                                                  |       | (144,312 | ) |
| Net  cash used in investing activities                                             |       | (143,609                                   | )          | (928,468                                                                                | )          | (20,477,488 | ) |
| *CASH FLOWS FROM FINANCING ACTIVITIES:*                                            |       |                                       |       |                                                                                    |       |   |   |
| Proceeds  from line of credit                                                      |       | —                                     |       | —                                                                                  |       | 1,815,231 |   |
| Net  proceeds from sale of common stock                                            |       | 19,350                                     |       | 571,444                                                                                 |       | 58,773,489 |   |
| Net  cash provided by financing activities                                         |       | 19,350                                     |       | 571,444                                                                                 |       | 60,588,720 |   |
| *NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS*                             |       | (4,539,988                                 | )          | (5,039,969                                                                              | )          | 10,860,836 |   |
| *CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD*                                   |       | 15,448,159                                 |       | 29,743,372                                                                              |       | 47,335 |   |
| *CASH AND CASH EQUIVALENTS, END OF PERIOD*                                         |       | $                                          | 10,908,171 |                                                                                    | $          | 24,703,403 |   | $ | 10,908,171 |   |
| *SUPPLEMENTAL INFORMATION:*                                                        |       |                                       |       |                                                                                    |       |   |   |
| Interest  paid                                                                     |       | $                                          | 30,166     |                                                                                    | $          | 85 |   | $ | 50,692 |   |
| *SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITIES:*                         |       |                                       |       |                                                                                    |       |   |   |
| Initial  measurement of asset retirement obligation                                |       | $                                          | —     |                                                                                    | $          | 344,187 |   | $ | 344,187 |   |

 

See accompanyingnotes to condensed consolidated financial statements.

 

3

----

Tableof Contents

 

**NOTE 1  — ORGANIZATION AND SUMMARY OF SIGNIFICANTACCOUNTING POLICIES:**

 

## *Organization:*

##  

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

 

## *Summary of Significant AccountingPolicies:*

##  

Theseunaudited interim financial statements have been prepared by the Company inaccordance with accounting principles generally accepted in the United Statesof America for interim financial information, as well as the instructions to Form 10-Q.Accordingly, they do not include all of the information and footnotes requiredby generally accepted accounting principles for complete financial statements.In the opinion of the Company’s management, all adjustments (consisting of onlynormal recurring accruals) considered necessary for a fair presentation of theinterim financial statements have been included.

 

Thepreparation of financial statements in accordance with accounting principlesgenerally accepted in the United States of America requires the use ofestimates and assumptions that affect the reported amounts of assets andliabilities, disclosure of contingent assets and liabilities known to exist asof the date the financial statements are published, and the reported amounts ofrevenues and expenses during the reporting period. Uncertainties with respectto such estimates and assumptions are inherent in the preparation of theCompany’s consolidated financial statements; accordingly, it is possible thatthe actual results could differ from these estimates and assumptions, whichcould have a material effect on the reported amounts of the Company’sconsolidated financial position and results of operations. Operating resultsfor the three and six month periods ended June 30, 2009, are notnecessarily indicative of the results that may be expected for the full yearending December 31, 2009.

 

Forfurther information refer to the consolidated financial statements andfootnotes thereto in the Company’s Annual Report on Form 10-K for the yearended December 31, 2008.

 

*(a)*                                  Exploration Stage Enterprise

* *

Sincethe Company is in the exploration stage of operation, the Company’s financialstatements are prepared in accordance with the provisions of Statement ofFinancial Accounting Standards (SFAS) No. 7 *Accounting for Development Stage Enterprises*, as it devotessubstantially all of its efforts to acquiring and exploring mining intereststhat management believes should eventually provide sufficient net profits tosustain the Company’s existence.  Untilsuch interests are engaged in commercial production, the Company will continueto prepare its consolidated financial statements and related disclosures inaccordance with this standard.

 

*(b)*                                 Mining properties, exploration anddevelopment costs

* *

Allexploration expenditures are expensed as incurred.  Significant property acquisition payments foractive exploration properties are capitalized, including payments to acquiremineral rights.  Once a feasibility studyhas been completed, approved by management, and a decision is made to put theore body into production, expenditures to develop new mines, to define furthermineralization in existing ore bodies, and to expand the capacity of operatingmines, are capitalized and amortized on the units of production basis overproven and probable reserves.  The Companycharges to operations the allocable portion of capitalized costs attributableto properties sold.  Capitalized costsare allocated to properties sold based on the proportion of claims sold to theclaims remaining within the project area.

 

*(c)*                                  Stock compensation

* *

TheCompany measures and records the costs of employee services received inexchange for an award of equity instruments based on the grant-date fair valueof the award, recognized over the period during which an employee is requiredto provide services in exchange for such award. Compensation cost is recognized for awards granted and for awardsmodified, repurchased or cancelled.  At June 30,2009, the Company had three stock option plans which are described more fullyin note 10.

 

4

----

Tableof Contents

 

*(d)*                                 Net loss per share

* *

Basicloss per share is computed on the basis of the weighted average number ofshares outstanding during the periods.  Diluted loss per share is calculated on the basis of the weightedaverage number of shares outstanding during the period plus the effect ofpotential dilutive 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 June 30,2009 and 2008.

 

*(e)*                                  Reclassifications

* *

Certainamounts in the prior-period financial statements have been reclassified forcomparative purposes to conform to current period presentation with no effecton total assets or net loss as previously reported.

 

*(f)*                                    New accounting standards

* *

Effective January 1,2009 the Company adopted the provisions of Emerging Issues Task Force Issue No. 07-5,“Determining Whether an Instrument (or Embedded Feature) is Indexed to anEntity’s Own Stock” (“EITF 07-5”).  EITF07-5 applies to any freestanding financial instruments or embedded featuresthat have the characteristics of a derivative, as defined by SFAS No. 133,“Accounting for Derivative Instruments and Hedging Activities,” and to anyfreestanding financial instruments that are potentially settled in an entity’sown common stock.  As a result ofadopting EITF 07-5, 1,882,484 of the Company’s issued and outstanding commonstock purchase warrants previously treated as equity pursuant to the derivativetreatment exemption were no longer afforded equity treatment. As such,effective January 1, 2009 the Company reclassified the fair value of thesecommon stock purchase warrants, which have exercise price reset features, fromequity to liability status as if these warrants were treated as a derivativeliability since their date of issue.  On January 1,2009, the Company reclassified from additional paid-in capital, as a cumulativeeffect adjustment, $476,381 to beginning retained earnings to recognize thefair value of such warrants on such date. The fair value of these common stock purchase warrants decreased to$424,241 as of June 30, 2009.  Assuch, a $52,140 gain from the change in fair value of these warrants for thesix months ended June 30, 2009 was included in the Statement of Operations.  The warrants had a fair value of $748,598 asof March 31, 2009, resulting in a gain of $324,357 from the change in fairvalue for the three months ended June 30, 2009.

 

These common stockpurchase warrants were initially issued in connection with our issuance ofcommon shares in 2004 and 2005 and were not issued with the intent ofeffectively hedging any future cash flow, fair value of any asset, liability orany net investment in a foreign operation. The warrants do not qualify for hedge accounting, and as such, allfuture changes in the fair value of these warrants will be recognized currentlyin earnings until such time as the warrants are exercised or expire.  These common stock purchase warrants do nottrade in an active securities market, and as such, we estimate the fair valueof these warrants using the Black-Scholes option pricing model using thefollowing assumptions:

 
| ** **                                 | ** ** | **June 30,  2009**        | ** ** | **January 1,  2009** | ** ** |
|--------------------------------------------|------------|--------------------------------|------------|---------------------------|------------|
| Weighted  average risk-free interest rate  |       | 0.52                           | %          |                      | 0.82       | % |   |
| Weighted  average volatility               |       | 97.58                          | %          |                      | 87.77      | % |   |
| Expected  dividend yield                   |       | —     |       |                      | —     |   |   |
| Weighted  average expected life (in years) |       | 1.2                       |       |                      | 1.7   |   |   |

 

Expected volatility isbased primarily on historical volatility. Historical volatility was computed using weekly pricing observations forrecent periods that correspond to the last twenty-four months.  We believe this method produces an estimatethat is representative of our expectations of future volatility over theexpected term of these warrants.  Wecurrently have no reason to believe future volatility over the expectedremaining life of these warrants is likely to differ materially from historicalvolatility.  The expected life is basedon the remaining term of the warrants. The risk-free interest rate is based on one-year U.S. Treasurysecurities.

 

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

 

Constructionhas begun on the underground electrical, pumping, and ventilation systems atthe Libby adit at the Montanore Project. The anticipated cost of these projects is expected to total $2,517,000,with approximately $1,500,000 included in

 

5

----

Tableof Contents

 

constructionin progress as of June 30, 2009. Also included in construction in progress as of June 30, 2009 is$188,000 in costs associated with the construction of a nitrate treatment andremoval system at the Montanore Project site. The estimated total cost of this project is $1,798,000.

 

Includedin the Company’s construction in progress account is an asset of approximately$344,000 related to an asset retirement obligation associated with the Company’sunderground evaluation program at the Montanore Project, as further describedin note 6.

 

**NOTE 3  — CERTIFICATES OF DEPOSIT:**

 

TheCompany owns six $236,707 certificates of deposit for a total of$1,420,242.  These investments mature in August 2009and bear interest at the rate of 4.21%. The Company purchased a $5,000,000 certificate of deposit during 2008which is collateral for the line of credit described in note 5.  This certificate matures in September 2009and bears interest at the rate of 3.54%.

 

TheCompany also has a certificate of deposit pledged as security for a Letter ofCredit to the Montana Department of Environmental Quality as a reclamationguarantee for the Montanore expansion evaluation program.  This certificate matures on January 3,2010, currently bears interest at the rate of 2.57% and automatically renewsannually.  This certificate of deposit($1,175,935 and $1,124,055 at June 30, 2009 and December 31, 2008,respectively) is included with reclamation deposits on the CondensedConsolidated Balance Sheets.

 

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

 

Thefollowing table summarizes the Company’s available-for-sale securities:

 
| ** **         | ** ** | **June 30,********2009** | ** ** | **December 31,  2008** | ** ** |
|--------------------|------------|-------------------------------|------------|-----------------------------|------------|
| Cost               |       | $                             | 1,826,513  |                        | $          |  1,826,513 |   |
| Unrealized  Gains  |       | 15,123                        |       | 8,263                       |       |
| Unrealized  Losses |       | (1,443,198                    | )          | (1,632,994                  | )          |
| Fair  Market Value |       | $                             | 398,438    |                        | $          |  201,782 |   |

 

EffectiveJanuary 1, 2008, the Company adopted the provisions of Statement ofFinancial Accounting Standards No. 157, *FairValue Measurements* (SFAS 157) for the financial assets andliabilities measured at fair value on a recurring basis.  SFAS 157 establishes 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.

 

**NOTE 5  — LINE OF CREDIT:**

 

Inconnection with the acquisition of certain investments during 2008, the Companyentered into a line of credit agreement with a credit limit of $5,000,000bearing interest at a rate equal to the Washington Trust Bank Index Rate whichwas 3.25% at June 30, 2009.  Theline of credit had an outstanding balance of $1,815,231 as of June 30,2009 and December 31, 2008.  Theline of credit matures on September 17, 2009 and is secured by a$5,000,000 certificate of deposit.

 

**NOTE 6  —ASSET RETIREMENT OBLIGATION:**

 

TheCompany has an asset retirement obligation (ARO) associated with itsunderground evaluation program at the Montanore Project.  The ARO resulted from the reclamation andremediation requirements of the Montana Department of Environmental Quality asoutlined in the Company’s permit to carry out the evaluation program.

 

Estimatedreclamation costs were discounted using a credit adjusted risk-free interestrate of 4.78% from the time the Company expects to pay the retirementobligation to the time it incurred the obligation, which is estimated at 25years.  In May 2008, the Companyrevised estimated reclamation costs based on additional work completed at theMontanore Project. The following table summarizes activity in the Company’sARO.

 

6

----

Tableof Contents

 
| ** **                  | ** ** | **Six Months  Ended********June 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          |       |                                            |       | 4,509                                         |       |
| Balance  September 30, |       |                                            |       | 371,669                                       |       |
| Accretion  expense          |       |                                            |       | 4,564                                         |       |
| Balance  December 31,  |       |                                            |       | 376,233                                       |       |

 

**NOTE 7  — COMPREHENSIVE LOSS:**

 

Forthe six months ended June 30, 2009 and 2008, comprehensive loss was$4,737,725 and $4,419,202 respectively. For the three months ended March 31, 2009 and 2008, comprehensiveloss was $2,674,770 and $1,857,407, respectively.  The difference between net loss andcomprehensive loss was due to unrealized gains (losses) on the Company’smarketable securities.

 

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

 

The Companymaintains its cash 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 $18,254,000 as of June 30,2009.  To date, the Company has notexperienced a material loss or lack of access to its invested cash or cashequivalents; however no assurance can be provided that access to the Company’sinvested cash and cash equivalents will not be impacted by adverse conditionsin the financial markets.

 

**NOTE9  — STOCKHOLDERS’ EQUITY:**

 

## *Common Stock:*

##  

In2004, the Company sold 1,285,000 common shares for $6,425,000 ($5.00 pershare).  The Company paid a cash finder’sfee of 7% of the gross purchase price received in the offering.  In connection with the stock sales, theCompany issued warrants to purchase up to 511,000 shares of common stock at$7.25 per share through February 18, 2009, including 3% warrantcompensation, or warrants to purchase 192,750 common shares, issued to the finder.  In January of 2009, the Company extendedthe expiration date of the outstanding warrants to February 10, 2010.  These warrants were repriced to $6.00 pershare in October 2005, to $5.00 per share in April 2007, and to $4.00per share in November 2007 in accordance with the terms of the 2004warrant agreement. Cumulative warrants exercised relating to this issue were148,750 at June 30, 2009 and December 31, 2008.

 

In2005, the Company sold 1,016,667 common shares for $6,100,002 ($6.00 pershare).  The Company paid a cash finder’sfee of 7% of the gross purchase price received in the offering.  In connection with the stock sales, theCompany granted warrants to purchase up to 737,084 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.

 

In2005, the Company sold 40,000 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$5.00 per 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 

 

7

----

Tableof Contents

 

dollarsunder the symbol MGT.WT.U.  During theyear ended December 31, 2008, the Company paid approximately $241,000 inlegal fees directly related to the 2007 common stock offering.

 

Theunderwriters were granted an over-allotment option, exercisable for a period of30 days following the closing, to acquire up to an additional 900,000units.   On May 7, 2007, theunderwriters exercised 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 following table summarizes exercise prices and expirationdates of outstanding common stock purchase warrants as of June 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:*

 

TheCompany has authorized 10,000,000 shares of no par value preferred stock.  Through June 30, 2009, the Company hadnot issued any preferred stock.

 

*ShareholderRights Plan:*

 

On June 18,2009, the Company entered into a Rights Agreement with Computershare TrustCompany, N.A. (the “Rights Agreement”). In accordance with the terms of the Rights Agreement, on June 18, 2009, the Board of Directorsauthorized and declared a dividend of one preferred share purchase right (a “Right”)for each outstanding  share of theCompany’s common stock and has further authorized and directed the issuance ofone Right with respect to each common share that 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.

 

Ingeneral terms, the Rights impose a significant penalty upon any person or groupthat acquires beneficial ownership of 20% or more of the Company’s outstandingcommon stock without the prior approval of the Board of Directors, The Rightsbecome exercisable only if a person or group acquires 20% or more of theCompany’s outstanding shares of common stock or commences a tender offer theconsummation of which would result in ownership by a person or group of 20% ormore of the outstanding shares of common stock. All holders of Rights except that person or group may, for $12.00,purchase shares of the Company’s common stock with a market value of $24.00,based on the market price of the Company’s common stock prior to suchacquisition.  Prior to the acquisition bya person or group of beneficial ownership of 20% or more of the Company’soutstanding shares of common stock, the Rights are redeemable for $0.001 perRight at the option of the Board of Directors of the Company.

 

8

----

Tableof Contents

 

**NOTE 10 — STOCK OPTIONS:**

 

Duringthe year ended December 31, 2003, the stockholders of the Company approvedtwo stock-based compensation plans — the 2003 Stock Option Plan (which includesboth qualified and nonqualified options) and the 2003 Consultant StockCompensation Plan.  Under the 2003 StockOption Plan, the Company may grant options to purchase up to 1,200,000 sharesof common stock.  Under the 2003Consultant Stock Compensation Plan, the Company could grant options to purchaseup to 400,000 shares of common stock. During 2004, the Company increased the maximum number of common sharesavailable under the 2003 Stock Option Plan and the 2003 Consultant StockCompensation Plan to 3,000,000 and 700,000 shares, respectively.  The shares are issued from the Company’sauthorized and unissued common stock upon exercise.

 

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

 

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.

 

The2007 Plan by its terms permits the repricing of stock options, and the Companyhas a policy of re-pricing stock options when the market price of the stock is$1.00 below the exercise price of the outstanding option.  The newly issued option has the same vestingschedule and expiration date as the option that is cancelled.  During 2008, the Company cancelled andreissued 3,452,000 stock options held by 20 employees, including officers anddirectors.  As a result of the repricingof stock options, the Company recognized additional compensation expense of$85,407 and $5,580 for the six months ended June 30, 2009 and 2008, respectively.   There were no stock options re-priced during2009.  A summary of the option activityunder the Plans as of June 30, 2009, and changes during the period thenended, is presented below:

 
| ** **                           | ** ** | **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              |       |                                    |       |                                                 |       |                           |       |   |   |
| Forfeited  or expired                |       | (3,000                 | )          |                                    | $1.29      |                                                 |       |                           |       |   |   |
| Exercised                            |       | (495,000               | )          |                                    | $1.29      |                                                 |       |                           |       |   |   |
| Outstanding  at June 30, 2009   |       | 1,760,000              |       |                                    | $1.38      |                                                 |       | 3.33                           |       |   | $588,450 |   |
| Exercisable  at June 30, 2009   |       | 1,645,000              |       |                                    | $1.30      |                                                 |       | 3.28                           |       |   | $536,300 |   |

 

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

 
| ** **                                 | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|--------------------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                 | ** ** | **2009(1)**                                     | ** ** | **2008**                                      | ** ** | **2009(1)** | ** ** | **2008** | ** ** |
| Weighted  average risk-free interest rate  |       | —                                          |       | 2.56                                          | %          | — |   | 2.59 | % |
| Weighted  average volatility               |       | —                                          |       | 51.96                                         | %          | — |   | 52.09 | % |
| Expected  dividend yield                   |       | —                                          |       | —                                        |       | — |   | — |   |
| Weighted  average expected life (in years) |       | —                                          |       | 2.00                                          |       | — |   | 2.00 |   |
| Weighted  average grant-date fair value    |       | —                                          |       | $                                             | 1.12       |   |   |   | $ | 1.42 |   |
|                                            |            |                                                 |            |                                               |            |  |  |  |  |  |  |

 

9

----

Tableof Contents

 

----

(1) Nooptions were granted during the six months ending June 30, 2009.

 

Duringthe three months ended June 30, 2009 and 2008, there were 495,000 and -0-stock options exercised with a weighted average exercise price of $1.29 and$-0-, respectively.  The total intrinsicvalue of options exercised during the three months ended June 30, 2009 and2008 was $80,468 and $-0-, respectively. During the six months ended June 30, 2009 and 2008, there were495,000 and 520,000 stock options exercised with a weighted average exerciseprice of $1.29 and $1.65, respectively. The total intrinsic value of options exercised during the six monthsended June 30, 2009 and 2008 was $80,468 and $1,311,230, respectively.

 

Asummary of the status of the Company’s nonvested options as of June 30,2009, and changes during 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              |   |   |

 

As of June 30,2009, there was $13,335 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.

 

Totalcompensation costs recognized for stock-based employee compensation awards was$135,715 and $621,683 for the three months ended June 30, 2009 and 2008,respectively.  Total costs recognized forstock-based compensation awards for services performed by outside parties was$-0- and $21,100 for the three months ended June 30, 2009 and 2008,respectively.  Total compensation costsrecognized for stock-based employee compensation awards was $336,707 and$677,218 for the six months ended June 30, 2009 and 2008,respectively.  Total costs recognized forstock-based compensation awards for services performed by outside parties was$-0- and $50,691 for the six months ended June 30, 2009 and 2008, respectively.These costs were included in general and administrative expenses and technicalservices on the Condensed Consolidated Statements of Operations.  Cash received from options exercised underall share-based payment arrangements during the six months ended June 30,2009 and 2008 was $19,350 and $800,000, respectively.

 

**ITEM2.**                  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIALCONDITION AND RESULTS OF OPERATIONS

 

Thefollowing discussion and analysis should be read in conjunction with “Management’sDiscussion and Analysis of Financial Condition and Results of Operations”contained in our Annual Report on Form 10-K for the year ended December 31,2008, as well as with the financial statements and related notes and the otherinformation appearing elsewhere in this report. As used in this report, unless the context otherwise indicates,references to “we,” “our,” the “Company” and “us” refer to Mines Management, Inc.and its subsidiaries collectively.

 

We arean exploration stage company with a large silver-copper project, the MontanoreProject, located in northwestern Montana. The Montanore Silver-Copper Project continues to be the Company’s solefocus.  In addition to its advanced

 

10

----

Tableof Contents

 

explorationand delineation drilling program, the Company is continuing its repermittingefforts with federal and state agencies and its engineering optimization reviewof the Project.

 

## **Overview**

 

In thesecond quarter of 2009, the Company:

 

·                  Completed the EIS public comment period June 29,2009, with agencies currently compiling the data.

 

·                  Approved and adopted the ShareholdersRights Plan at the June 18, 2009 Annual Meeting of shareholders.

 

·                  Demobilized Small Mine Development, theadit rehabilitation contractor, on April 30, 2009 after installation andtesting of the sumps for the water treatment system at the Montanore adit site.

 

·                  Maintained a strong cash and investmentposition at June 30, 2009, with $15.5million of unrestricted cash,availability under its line of credit, and unrestricted certificates ofdeposit.

 

Thenet cash expenditures for the six months ended June 30, 2009 were $0.1million for the purchase of equipment and completion of the water treatmentplant and other site infrastructure and $4.4 million for operatingactivities.  The Company believes that ithas sufficient working capital to complete the rehabilitation of the Libby aditand commencement of delineation drilling.

 

## **AdvancedExploration and Delineation Drilling Program**

 

Libby operations in thesecond quarter of 2009 included continued operations on the Montanore sitewater treatment system and dewatering of the decline. After completion of the7200 foot level sump and decanting system, Small Mine Development, the aditrehabilitation contractor, was demobilized April 30, 2009 as anexpenditure conservation measure pending completion of the permittingprocess.  To date,  infrastructure placed in the decline includesa refuge chamber, mine power center and temporary pump station along with thepreviously installed sumps and pumping system at the 700 ft. location. Thedecline is now in a standby mode pending notification from the relevantgovernmental agencies regarding approval of the draft Environmental Impact Statement(“EIS”) and issuance of a Record of Decision.

 

Engineering for thenitrate removal addition to the water treatment system is complete withconstruction on hold pending receipt of the EIS and Record of Decision. Construction of the nitrate system is scheduled to start and be completed priorto beginning to drive the final section of the adit to reach the ore body andinstall drill stations.  The current schedule is to begin construction****of the concrete chambers in the early fallof 2009 or late April/early May of 2010 based on timing of receipt of theRecord of Decision following completion of the final EIS.

 

Engineering and geologywork continues using existing information.  Geology confirmation mappingis beginning with the advance of the rehabilitation down the decline. Currently, hydrological studies are being carried out for the creation of ahydrological model for the rock formations being crossed by the decline.

 

**Permittingand Environmental**

 

In the second quarter of 2009, the U.S Forest Services(USFS) and the Montana Department of Environmental Quality (DEQ) issued thedraft environmental impact statement for public review.   Theagencies extended the public review period for 30 days to June 29,2009.  The public meeting for comments was held as scheduled on April 16,2009.  The Company finished its review of the draft EIS and is workingwith the agencies on its comments to the draft EIS.  We anticipate thatthe EIS contractor will compile all comments generated from the public by theend of July.

 

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, U.S. Forest Service, EnvironmentalProtection Agency, and Army Corps of Engineers to review the project as part oftheir selection of the Least Damaging Practical Alternative (LDPA) process.

 

The agencies have reviewed the Company’sthree-dimensional hydrologic model and are working collaboratively to determinehow it can be implemented in the EIS.  This new model addresses waterquantity, water quality, and other public 

 

11

----

Tableof Contents

 

and agency comments for the project.  The Companyhas also started to initiate hydrological investigation in the Libby Adit, asrequired by Minor Revisions to Permit 150, which will provide importanttechnical data for the hydrologic model.

 

## **Financialand Operating Results**

##  

MinesManagement, Inc. is an exploration stage company with a largesilver-copper project, the Montanore Project, located in northwesternMontana.  The Company continues toexpense all of its expenditures with the exception of equipment andinfrastructure, which are capitalized.  The Company has no revenues from mining operations.  Financial results of operations includeprimarily interest income, general and administrative expenses, permitting,project advancement and engineering expenses.

 

**Quarter Ended June 30, 2009**

 

TheCompany reported a net loss for the quarter ended June 30, 2009 of $1.9million, or $0.08 per share, compared to a net loss of $2.5 million, or $0.11per share, for the quarter ended June 30, 2008.  The $0.6 million decrease in net loss in thesecond quarter of 2009 is attributable to decreases in operating expenses of $0**.**4****million overthe second quarter of 2008, principally in general and administrative expenses,and an increase in other income of $0.2 million.  The decrease in operating expenses resultedfrom a decline in promotion and investor relations spending of $0.1 million,and $0.5 million in stock compensation. Technical services increased in 2009 over 2008 for work on the adit andthe underground water treatment system of $0.2 million before SMD wasdemobilized the end of April.  Theincrease in other income resulted from the adoption on January 1, 2009 of thereporting requirements of EITF 07-5 which resulted in a $0.3 million gain onwarrant derivatives.  Net interest incomedecreased by $0.1 million in 2009.

 

**Six Months Ended June 30,2009**

 

The Companyreported a net loss for the six months ended June 30, 2009 of $4.9million, or $0.22 per share, versus a loss of $4.4 million or $0.19 per sharefor the six months ended June 30, 2008. The $0.5 million****increase innet loss in 2009 is largely attributable to increased technical services costsin 2009 for work on the Libby adit water treatment system includingrehabilitation, sump and decant construction, and pumping station installationof $0.6 and additional permitting and environmental costs of $0.4 million.  This was offset by reduced general andadministrative costs including decreases of $0.2 million in investor relationexpenditures and $0.4 million for stock compensation, and an increase of $0.1million for consulting services.  Legal,accounting, and consulting fees decreased by $0.2 million in 2009, and netinterest income decreased by $0.2 million.

 

## **Liquidity**

##  

Duringthe six months ended June 30, 2009, the net cash used for operatingactivities was $4.4 million, which consisted largely of permitting andtechnical expenses associated with increased activities at the MontanoreProject site.  The net cash used ininvesting activities during the quarter was $0.1 million, principally forconstruction in progress.

 

Wecontinue to reduce activity levels, including capital expenditures, until thetiming of the Record of Decision becomes more clear.  We anticipate expenditures of approximately$4.5 million in the final two quarters of 2009, which will consist of $1.5million per quarter for general and administrative expenses and $1.5 millionfor ongoing expenses in preparation for the delineation drilling program,additional mine scoping studies, and responding to EIS comments.  Given our current available funds ofapproximately $15.5 million on June 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-Balance Sheet Arrangements**

 

At June 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.

 

12

----

Tableof Contents

 

**ITEM3.**                                                     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKAND HEDGING ACTIVITIES

** **

All ofour cash balances are held in U.S. dollars and our long term investmentcertificates of deposit are denominated in U.S. dollars in local and nationalbanking institutions.  We manage thetiming of cash required for review of the permitting and engineering of theMontanore Project and for general corporate purposes utilizing our money marketaccount and we invest funds not immediately required in certificates of depositwith varying maturities and fixed early retirement costs of three monthsinterest.  Our policy is to invest onlyin government and corporate securities rated “investment grade” or better.

 

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

 

**ITEM4.**                                                     CONTROLS AND PROCEDURES

** **

GlennM. Dobbs, the Company’s President and CEO, and James H. Moore, the Company’sChief Financial Officer and Treasurer, have evaluated the Company’s disclosurecontrols and procedures as of June 30, 2009.  Based upon this evaluation, the ChiefExecutive Officer and Chief Financial Officer concluded that the Company’sdisclosure controls and procedures are designed and were effective as of June 30,2009 to give reasonable assurances that the information required to bedisclosed in the reports that the Company’s files or submits under theSecurities Exchange Act of 1934, as amended, is recorded, processed, summarizedand reported within the time periods specified in the rules and forms ofthe Securities and Exchange Commission, and that such information is also accumulatedand communicated to the Company’s management, including its Chief ExecutiveOfficer and Chief Financial Officer, as appropriate to allow timely decisionsregarding required disclosure.

 

Therewere no changes in the Company’s internal controls over financial reportingthat occurred during the quarterly period ended June 30, 2009 thatmaterially affected, or are reasonably likely to materially affect, the Company’sinternal control over financial reporting.

 

**PART II— OTHER INFORMATION**

** **

**ITEM1.**                                                     LEGAL PROCEEDINGS

** **

None.

 

**ITEM 1A.**                                            RISKFACTORS

** **

Inaddition to the other information set forth in this report, you shouldcarefully consider the factors discussed in ‘‘Risk Factors’’ in our AnnualReport on Form 10-K for the year ended December 31, 2008, which couldmaterially affect our business, financial condition and/or future results.  The risks described in our Annual Report on Form 10-Kare not the only risks facing us. Additional risks and uncertainties not currently known to us or that wecurrently deem to be immaterial also may materially adversely affect ourbusiness, financial condition and/or operating results.

 

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

** **

None.

 

**ITEM3.**                                                     DEFAULTS UPON SENIOR SECURITIES

** **

None.

 

13

----

Tableof Contents

 

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

** **

At theCompany’s annual meeting of stockholders, which was held on June 18, 2009,the stockholders of the Company approved the election of Mr. Russell C.Babcock to serve on the Company’s board of directors until the annual meetingof shareholders to be held in 2012. Voting results were as follows:

 
| ** **             | ** ** | **For**    | ** ** | **Against** | ** ** | **Withheld** | ** ** |
|------------------------|------------|------------|------------|-------------|------------|--------------|------------|
|                   |       |       |       |        |       |         |       |
| **Russell C. Babcock** |       | 13,451,239 |       | 0           |       | 431,030      |       |

 

Otherdirectors whose term of office continued after the meeting were Glenn M.Dobbs, Roy G. Franklin, Jerry G. Pogue, and Robert L. Russell.

 

TheCompany’s stockholders also approved the adoption of the Company’s ShareholdersRights Plan.  Voting results were asfollows:

 
| ** **           | ** ** | **For**   | ** ** | **Against** | ** ** | **Withheld** | ** ** | **Non-Votes** | ** ** |
|----------------------|------------|-----------|------------|-------------|------------|--------------|------------|---------------|------------|
|                 |       |      |       |        |       |         |       |          |       |
| **Adoption of Plan** |       | 4,778,355 |       | 1,859,713   |       | 34,865       |       | 7,209,336     |       |

 

**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) |

 

14

----

Tableof Contents

 

# **SIGNATURES**

# ** **

Pursuant to the requirements of the Securities Exchange Act of 1934,the registrant has duly caused this report to be signed on behalf of theundersigned thereunto duly authorized.

 
|                                  | MINES MANAGEMENT, INC. |
|---------------------------------------|------------------------|
|                                  |                   |   |
|                                  |                   |   |
| Date:  August 7,  2009 | By:          | /s/ Glenn M. Dobbs |
|                                  |                   | Glenn M. Dobbs |
|                                  |                   | President and Chief  Executive Officer |
|                                  |                   |   |
|                                  |                   |   |
| Date:  August 7,  2009 | By:                    | /s/ James H. Moore |
|                                  |                   | James H. Moore |
|                                  |                   | Chief Financial Officer |

 

15

----