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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 10-K/AAmendment No. 1

|(Mark One)                                                     |                                                                                         
|-------------------------------------------------------------- | ----------------------------------------------------------------------------------------
|ý                                                              | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934    
|For the fiscal year ended December 31, 2006                   
|OR                                                            
|o                                                              | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|For the transition period
from                              to

Commission file number 001-32047

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MINES MANAGEMENT, INC.(Exact Name of Registrant as Specified in its Charter)

|Idaho(State of Incorporation or Organization)                                                 |  | 91-0538859(I.R.S. Employer Identification No.)
|--------------------------------------------------------------------------------------------- |  | ----------------------------------------------
|                                                                                              |  |                                               
|905 W. Riverside Avenue, Suite 311
Spokane, Washington(Address of principal executive office) |  | 99201(Zip Code)                               

(509) 838-6050(Registrant's telephone number, including area code)

Securities
registered pursuant to Section 12(b) of the Act:

Title of each class

Name of each exchange on which registeredCommon Stock, $0.001 par value

American Stock Exchange


Securities
registered pursuant to Section 12(g) of the Act:None

Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act.    Yes o No ý

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act.    Yes o No ý

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K.    o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.

Large
Accelerated Filer o                Accelerated Filer ý                Non-accelerated
Filer o

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

The aggregate market value of the voting and non-voting common equity held by non-affiliates as of June 30, 2006, was approximately
$95,086,056, based on the closing price of the Common Stock on the American Stock Exchange of $7.40 per share. The number of shares of our common stock outstanding as of March 20, 2007 was
12.899,467.



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TABLE OF CONTENTS



|         |          | 
|-------- | -------- | 
|PART I  
|         | ITEM 1.  | 
|         | ITEM 1A. | 
|         | ITEM 1B. | 
|         | ITEM 2.  | 
|         | ITEM 3.  | 
|         | ITEM 4.  | 
|PART II 
|         | ITEM 5.  | 
|         | ITEM 6.  | 
|         | ITEM 7.  | 
|         | ITEM 7A. | 
|         | ITEM 8.  | 
|         | ITEM 9.  | 
|         | ITEM 9A. | 
|         | ITEM 9B. | 
|PART III
|         | ITEM 10. | 
|         | ITEM 11. | 
|         | ITEM 12. | 
|         | ITEM 13. | 
|         | ITEM 14. | 
|PART IV 
|         | ITEM 15. | 

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EXPLANATORY NOTE

This amendment on Form 10-K/A is being filed in order to amend Mines Management, Inc.'s Annual Report on Form 10-K
for the fiscal year ended December 31, 2006, as originally filed with the Securities and Exchange Commission (the "Commission") on March 12, 2007, to (i) correct the par value of
our common stock; (ii) provide updated information in Items 1 and 2 and revisions to our risk factors in Item 1A with respect to our Montanore Project; (iii) revise
Item 7 to reflect immaterial changes to the expenses allocated to the Montanore Project, (iv) include the information required by Items 10, 11, 12, 13 and 14 of Part III of
the Annual Report on Form 10-K in lieu of incorporation by reference to MMI's proxy statement for the 2007 annual meeting of shareholders and (iv) to make certain other
immaterial revisions and corrections.

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FORWARD LOOKING STATEMENTS

Some information contained in or incorporated by reference into this report may contain forward looking statements as defined in the Private Securities Litigation
Reform Act of 1995. These statements include comments regarding further exploration and evaluation of the Montanore Project, including planned rehabilitation and extension of the Libby adit, drilling
activities, feasibility determination, engineering studies, environmental and permitting requirements, process and timing, and estimates of mineralized material and measured, indicated and inferred
resources; financing needs; the markets for silver and copper and planned expenditures in 2007 and 2008; and potential completion of a bankable feasibility study. The use of any of the words
"development," "anticipate," "continues," "estimate," "expect," "may," "project," "should," "believe," and similar expressions are intended to identify uncertainties. We believe the expectations
reflected in those forward looking statements are reasonable. However, we cannot assure that the expectations will prove to be correct. Actual results could differ materially from those anticipated in
these forward looking statements as a result of the factors set forth below and other factors set forth and incorporated by reference into this report:



2

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GLOSSARY OF TERMS

We report our reserves to two separate standards to meet the requirements for reporting in both the United States ("U.S.") and Canada. U.S. reporting requirements
for disclosure of mineral properties are governed by Securities and Exchange Commission Industry Guide 7. Canadian reporting requirements for disclosure of mineral properties are governed by National
Instrument 43-101 ("NI 43-101"). The definitions given in NI 43-101 are adopted from those given by the Canadian Institute of Mining Metallurgy and Petroleum.

The
definitions for each reporting standard are presented below with supplementary explanation and descriptions of the parallels and differences.

|Mineralized material(1) |  | The term "mineralized material" refers to material that is not included in the reserve as it does not meet all of the criteria for adequate demonstration for economic or legal extraction.
|----------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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|Non-reserves          |  | The term "non-reserves" refers to mineralized material that is not included in the reserve as it does not meet all of the criteria for adequate demonstration for economic or legal extraction.                                                                                                                                                                                                                                                                  
|--------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exploration stage     |  | An "exploration stage" prospect is one which is not in either the development or production stage.                                                                                                                                                                                                                                                                                                                                                               
|Development stage     |  | A "development stage" project is one which is undergoing preparation of an established commercially mineable deposit for its extraction but which is not yet in production. This stage occurs after completion of a feasibility study.                                                                                                                                                                                                                           
|Production stage      |  | A "production stage" project is one actively engaged in the process of extraction and beneficiation of mineral reserves to produce a marketable metal or mineral product.                                                                                                                                                                                                                                                                                        
|NI 43-101 Definitions |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|Mineral resource      |  | The term "mineral resource" refers to a concentration or occurrence of natural, solid, inorganic or fossilized organic material in or on the Earth's crust in such form and quantity and of such a grade or quality that it has reasonable prospects for
economic extraction. The location, quantity, grade, geological characteristics and continuity of a mineral resource are known, estimated or interpreted from specific geological evidence and knowledge.
|                      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

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|Measured mineral resource  |  | The term "measured mineral resource" refers to that part of a mineral resource for which quantity, grade or quality, densities, shape and physical characteristics are so well established that they can be estimated with confidence sufficient to allow
the appropriate application of technical and economic parameters, to support production planning and evaluation of the economic viability of the deposit. The estimate is based on detailed and reliable exploration, sampling and testing information
gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes that are spaced closely enough to confirm both geological and grade continuity.
|-------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Indicated mineral resource |  | The term "indicated mineral resource" refers to that part of a mineral resource for which quantity, grade or quality, densities, shape and physical characteristics can be estimated with a level of confidence sufficient to allow the appropriate
application of technical and economic parameters, to support mine planning and evaluation of the economic viability of the deposit. The estimate is based on detailed and reliable exploration and testing information gathered through appropriate
techniques from locations such as outcrops, trenches, pits, workings and drill holes that are spaced closely enough for geological and grade continuity to be reasonably assumed.                         
|Inferred mineral resource  |  | The term "inferred mineral resource" refers to that part of a mineral resource for which quantity and grade or quality can be estimated on the basis of geological evidence and limited sampling and reasonably assumed, but not verified, geological and
grade continuity. The estimate is based on limited information and sampling gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes.                                                                                                                                                                                                                                                          
|Qualified person(2)        |  | The term "qualified person" refers to an individual who is an engineer or geoscientist with at least five years of experience in mineral exploration, mine development, production activities and project assessment, or any combination thereof,
including experience relevant to the subject matter of the project or report and is a member in good standing of a self-regulating organization.                                                                                                                                                                                                                                                                                                                

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|Additional Definitions |  |                                                                                                                                                                                                                    
|---------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Adit                   |  | A horizontal tunnel or drive, open to the surface at one end, which is used as an entrance to a mine.                                                                                                              
|Axis                   |  | Intersection of the axial plane of a fold with a particular bed; axial line.                                                                                                                                       
|Bornite                |  | An isometric mineral, 1[Cu5 FeS4]; metallic; brownish bronze tarnishing to iridescent blue and purple; brittle; massive; in hypogene and contact metamorphic deposits and mafic rocks; a valuable source of copper.
|Breccia                |  | Rock consisting of angular fragments of other rocks held together by mineral cement or a fine-grained matrix.                                                                                                      
|                       |  |                                                                                                                                                                                                                    

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|Chalcocite   |  | A monoclinic mineral, 96[Cu2 S]; pseudohexagonal, metallic gray-black with blue to green tarnish; sp gr, 5.5 to 5.8; a secondary vein mineral; an important source of copper.                                                                                                                                                                                                                      
|------------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Chalcopyrite |  | A tetragonal mineral, CuFeS2; brass-yellow with bluish tarnish; massive; softer than pyrite; occurs in late magmatic hydrothermal veins and secondary enrichment zones; the most important source of copper.                                                                                                                                                                                       
|Covellite    |  | A hexagonal mineral, CuS; metallic indigo blue with iridescent tarnish; soft; a supergene mineral in copper deposits; a source of copper.                                                                                                                                                                                                                                                          
|Development  |  | Work carried out for the purpose of opening up a mineral deposit and making the actual ore extraction possible.                                                                                                                                                                                                                                                                                    
|Digenite     |  | An isometric mineral, Cu9 S5; blue to black; in veins with chalcocite; a source of copper                                                                                                                                                                                                                                                                                                          
|Dip          |  | The angle at which a vein, structure or rock bed is inclined from the horizontal as measured at right angles to the strike. A vein is a mineralized zone having a more or less regular development in length, width and depth, which clearly separates it
from neighboring rock. A strike is the direction or bearing from true north of a vein or rock formation measured on a horizontal surface.
|Drift        |  | A horizontal underground opening that follows along the length of a vein or rock formation as opposed to a cross-cut which crosses the rock formation.                                                                                                                                                                                                                                             
|Enechelon    |  | Pattern of off-set mineralized strata similar to stair steps.                                                                                                                                                                                                                                                                                                                                      
|Exploration  |  | Work involved in searching for ore, usually by drilling or driving a drift.                                                                                                                                                                                                                                                                                                                        
|Facia        |  | Transition zone between rock types.                                                                                                                                                                                                                                                                                                                                                                
|Galena       |  | A sulphide mineral of lead, being a common lead ore mineral.                                                                                                                                                                                                                                                                                                                                       
|Gersdorffite |  | An isometric mineral, NiAsS; cobaltite group; massive; sp gr, 5.9 to 6.0; a source of nickel.                                                                                                                                                                                                                                                                                                      
|Grade        |  | The average assay of a ton of ore, reflecting metal content.                                                                                                                                                                                                                                                                                                                                       
|Horizon      |  | In geology, any given definite position or interval in the stratigraphic column or the scheme of stratigraphic classification; generally used in a relative sense.                                                                                                                                                                                                                                 
|Host rock    |  | The rock surrounding an ore deposit.                                                                                                                                                                                                                                                                                                                                                               
|Interbed     |  | Occurring between distinct rock layers or strata.                                                                                                                                                                                                                                                                                                                                                  
|Lensoid(al)  |  | Flat lenses of mineralized material between layers of host rock.                                                                                                                                                                                                                                                                                                                                   
|Limestone    |  | A bedded, sedimentary deposit consisting chiefly of calcium carbonate.                                                                                                                                                                                                                                                                                                                             
|Lithology    |  | The physical characteristic of a rock.                                                                                                                                                                                                                                                                                                                                                             
|Metasediment |  | A sedimentary rock which shows evidence of having been subjected to metamorphism.                                                                                                                                                                                                                                                                                                                  
|             |  |                                                                                                                                                                                                                                                                                                                                                                                                    

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|Mineral               |  | A naturally occurring homogeneous substance having definite physical properties and chemical composition and, if formed under favorable conditions, a definite crystal form.                                                                                                                                                                                            
|--------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Mineralization        |  | The presence of economic minerals in a specific area or geological formation.                                                                                                                                                                                                                                                                                           
|Molybdenite           |  | A hexagonal and trigonal mineral, MoS2; polymorphous with jordisite; foliated; soft; metallic lead gray; an accessory in granites and deep veins; an ore of molybdenum.                                                                                                                                                                                                 
|Ore                   |  | Material that can be mined and processed at a positive cash flow.                                                                                                                                                                                                                                                                                                       
|Patented mining claim |  | A patented mining claim is one for which the federal government has passed its title to the claimant, making it private land. A person may mine and remove minerals from a mining claim without a mineral patent. However, a mineral patent gives the
owner exclusive title to the locatable minerals. It also gives the owner title to the surface and other resources.
|Precambrian           |  | All geologic time before the Paleozoic era.                                                                                                                                                                                                                                                                                                                             
|Prospect              |  | A mining property, the value of which has not been determined by exploration.                                                                                                                                                                                                                                                                                           
|Quartzite             |  | A metamorphic rock formed by the transformation of a sandstone rock by heat and pressure.                                                                                                                                                                                                                                                                               
|Reclamation           |  | The restoration of a site after mining or exploration activity is completed.                                                                                                                                                                                                                                                                                            
|Recovery              |  | The percentage of valuable metal in the ore that is recovered by metallurgical treatment.                                                                                                                                                                                                                                                                               
|Shear or shearing     |  | The deformation of rocks by lateral movement along numerous parallel planes, generally resulting from pressure and producing such metamorphic structures as cleavage and schistosity.                                                                                                                                                                                   
|Siltite               |  | An indurated silt having the texture and composition of shale but lacking its fine lamination or fissility; a massive mudstone in which the silt predominates over clay; a nonfissile silt shale. It tends to be flaggy, containing hard, durable,
generally thin layers, and often showing various primary current structures.                                         
|Sphalerite            |  | Zinc sulfide based mineral.                                                                                                                                                                                                                                                                                                                                             
|Stratabound           |  | A situation in which mineralization is essentially contained in or confined to a particular sedimentary or volcanic unit.                                                                                                                                                                                                                                               
|Stratigraphy          |  | The branch of geology which studies the formation, composition, sequence and correlation of the stratified rock as parts of the earth's crust.                                                                                                                                                                                                                          
|Strike                |  | The direction, or bearing from true north, of a vein or rock formation measured on a horizontal surface.                                                                                                                                                                                                                                                                
|Sulfide               |  | A compound of bivalent sulfur with an electropositive element or group, especially a binary compound of sulfur with a metal.                                                                                                                                                                                                                                            
|                      |  |                                                                                                                                                                                                                                                                                                                                                                         

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|Tailings                |  | Material rejected from a mill after more of the recoverable valuable minerals have been extracted.                                                                                                                                                                                                                                                                                                        
|----------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Tetrahedrite            |  | An isometric mineral, (Cu,Fe)12 Sb4 S13, having copper replaced by zinc, lead, mercury, cobalt, nickel, or silver; forms a series with tennantite and freibergite; metallic; crystallizes in tetrahedra; occurs in hydrothermal veins and contact
metamorphic deposits; a source of copper and other metals.                                                                                              
|Trend                   |  | The direction, in the horizontal plane, or a linear geological feature (for example, an ore zone), measured from true north.                                                                                                                                                                                                                                                                              
|Unpatented mining claim |  | A parcel of property located on federal lands pursuant to the General Mining Law of 1872 and the requirements of the state in which the unpatented claim is located, the paramount title of which remains with the federal government. The holder of a
valid, unpatented lode-mining claim is granted certain rights including the right to explore and mine such claim under the U.S. General Mining Law.
|Vein                    |  | A mineralized zone having a more or less regular development in length, width and depth, which clearly separates it from neighboring rock.                                                                                                                                                                                                                                                                

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PART I

ITEM 1. BUSINESS

General

Mines Management, Inc. (together with its subsidiaries, "MMI," "Mines Management," the "Company" or "we"), is engaged in the business of acquiring and
exploring, and if exploration is successful, developing mineral properties, primarily those containing silver and associated base and precious metals. The Company was incorporated under the laws of
the State of Idaho on February 20, 1947. The Company's executive offices are located at 905 W. Riverside, Suite 311, Spokane, Washington 99201.

The
Company's principal mineral property interest, the Montanore Project, is held by its wholly owned subsidiary, Newhi, Inc. The Company's properties, including the Montanore
property, are currently in the exploration stage. The Company has commenced re-permitting of the Montanore Project and is determining its feasibility for development. No property is
currently in production.

The
Montanore Project is located in northwestern Montana, and from 1988 to 2002 was owned by Noranda Minerals Corporation. During that time the project received an approved environmental
impact statement and all of its primary environmental permits. From 1988 to 2002 the Company held royalty rights to a portion of the deposit. In 2002 Noranda announced that it was abandoning the
project, and subsequently transferred to the Company by quitclaim deed the patented and unpatented mining claims that control the mineral rights, and all drill core and intellectual property including
geologic, environmental and engineering studies.

In
May 2006, we acquired two Noranda subsidiaries that held title to the property providing access to the 14,000 foot Libby adit and related permits. We have obtained permit
revisions that allowed us to reopen the Libby adit and to dewater and rehabilitate the adit. The Libby adit, when extended, will provide access to the Montanore deposit for our planned underground
evaluation drilling program. We reopened the Libby adit in June 2006 and water samples and testing were completed in July 2006.

In
November 2006, we received another permit revision which would allow us to proceed with our planned $40 million underground evaluation drilling program at the Montanore
Project. This advanced exploration and delineation drilling program as currently planned includes the following:



Results
of the drill program, if successful, are expected to provide data to assist in completion of a bankable feasibility study and further optimization of the mine plan.

Also
in the fourth quarter 2006, we purchased a site generator and erected a warehouse building at the Libby adit site, along with an office and employee change facility. We established
a $1.124 million stand-by letter of credit in early January 2007 to satisfy reclamation bonding requirements related to our planned exploration at the Libby adit. Currently
we are engaged in staffing, equipment acquisition, and pilot water treatment testing for the drilling program.

Our
focus for 2007 is the commencement of our planned underground evaluation drilling program, the update of the Montanore environmental and engineering studies focused on determining an
economically viable operational design, and the re-establishment of previously issued environmental and mining permits.

The
Company continues to hold its Iroquois and Advance zinc-lead properties in Washington on a care and maintenance basis and plans to evaluate these properties in light of
the current base metals

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market
in the first half of 2007. The Company also has a small income from a working interest royalty, acquired more than 40 years ago, in several producing oil wells located in Kansas.

Competition

There is aggressive competition within the minerals industry to discover and acquire properties considered to have commercial potential. When we wish to acquire
an exploration project, we typically compete with other entities, many of which have greater resources than we do. In addition, we compete with others in efforts to obtain financing to explore and
develop mineral properties.

Employees

As of March 20, 2007, the Company had seven employees located in Spokane, Washington and six employees in Libby, Montana. Outside consultants are engaged
to perform project and permitting tasks involved in re-permitting the Montanore Project. The Company expects to continue to rely on the use of outside services in the immediate future.

Regulation

The Company's activities in the United States are subject to various federal, state, and local laws and regulations governing exploration, labor standards,
occupational health and mine safety, control of toxic substances, and other matters involving environmental protection and taxation. In addition, it is possible that future changes in these laws or
regulations could have a significant impact on the Company's business, causing those activities to be economically reevaluated at that time.

ITEM 1A. RISK FACTORS

Our business, operations, and financial condition are subject to various risks. We urge you to consider the following risk factors in addition to the other
information contained in, or incorporated by reference into, this Annual Report on Form 10-K.

We have no history recent of production.

We have no recent history of producing silver or other metals. The development of our Montanore Project would require the construction and operation of mines,
processing plants, and related infrastructure. As a result, we would be subject to all of the risks associated with establishing a new mining operation and business enterprise. We may never
successfully establish mining operations, and any operations may not achieve profitability.

We have a history of losses and we expect losses to continue for at least the next three years.

As an exploration company that has no production history, we have incurred losses since our inception and we expect to continue to incur additional losses for at
least the next three years. As of December 31, 2006, we had an accumulated deficit of $15.8 million. There can be no assurance that we will achieve or sustain profitability in the
future.

We have no proven or probable reserves.

We have no proven or probable reserves on any of our properties. We are currently focused on our Montanore Project. Substantial additional work, including
delineation drilling, will be required in order to determine if any proven or probable reserves exist on our Montanore Project. The commercial viability of a mineral deposit once discovered is
dependent on a number of factors beyond our control, including particular attributes of the deposit such as size, grade and proximity to infrastructure, as well as metal prices.

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Estimates
of reserves, mineralized material, resources, and capital and production costs can also be affected by such factors as environmental permitting regulations and requirements,
weather, environmental factors, unforeseen technical difficulties, unusual or unexpected geological formations and work interruptions. Material changes in ore reserves, grades, stripping ratios or
recovery rates may affect the economic viability of any project. Even if commercial quantities of minerals are discovered, the Montanore Project may not be brought into commercial production.

The exploration of mineral properties is highly speculative in nature, involves substantial expenditures and is frequently non-productive.

Mineral exploration is highly speculative in nature and is frequently non-productive. Substantial expenditures are required to:



If
we discover ore at the Montanore Project, we expect that it would be several additional years from the initial phases of exploration until production is possible. During this time,
the economic feasibility of production could change. As a result of these uncertainties, there can be no assurance that our exploration programs will result in new proven and probable reserves in
sufficient quantities to justify commercial operations at the Montanore Project.

We may not be able to obtain permits required for development of the Montanore Project.

In the ordinary course of business, mining companies are required to seek governmental permits for expansion of existing operations or for the commencement of new
operations. We will be required to obtain numerous permits for our Montanore Project. Obtaining the necessary governmental permits is a complex and time-consuming process involving
numerous jurisdictions and often involving public hearings and costly undertakings. Obtaining required permits for the Montanore Project may be more difficult due to its location within the Cabinet
Wilderness Area, its proximity to core habitat of certain protected species, including the grizzly bear, bull trout and lynx and the efforts of a third party to permit a mining operation near the
Montanore Project.

In
addition, mining projects require the evaluation of environmental impacts for air, water, vegetation, wildlife, cultural, historical, geological, geotechnical, geochemical, soil and
socioeconomic conditions. An Environmental Impact Statement would be required before we could commence mine development or mining activities. Baseline environmental conditions are the basis on which
direct and indirect impacts of the Project are evaluated and based on which potential mitigation measures would be proposed. If the Montanore Project were found to significantly adversely impact the
baseline conditions, we could incur significant additional costs to avoid or mitigate the adverse impact and delays in the Montanore Project could result.

In
addition, permits would also be required for, among other things, storm-water discharge; air quality; wetland disturbance; dam safety (for water storage and/or tailing storage);
septic and sewage and water rights appropriation. In addition, compliance must be demonstrated with the Endangered Species Act and the National Historical Preservation Act.

The
duration and success of our efforts to re-permit are contingent upon many variables not within our control. There can be no assurance that we will obtain all necessary
permits will be obtained and, if obtained, that the permitting costs involved will not exceed those that had been previously estimated. It is possible that the costs and delays associated with the
compliance with such standards and regulations could become such that we would not proceed with the further exploration, development or operation of a mine or mines at the Montanore Project.

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Even if our exploration efforts at Montanore are successful, we may not be able to raise the funds necessary to develop the Montanore Project.

If our exploration efforts at Montanore are successful, our current estimates indicate that we would be required to raise approximately $415 million in
external financing to develop and construct the Montanore Project. Sources of external financing could include bank borrowings and debt and equity offerings. The failure to obtain financing would have
a material adverse effect on our growth strategy and our results of operations and financial condition. There can be no assurance that we will commence production at Montanore or generate sufficient
revenues to meet our obligations as they become due or obtain necessary financing on acceptable terms, if at all, and we may not be able to secure the financing necessary to begin or sustain
production at the Montanore Project. In addition, should we incur significant losses in future periods, we may be unable to continue as a going concern, and realization of assets and settlement of
liabilities in other than the normal course of business may be at amounts significantly different than those included in this prospectus supplement.

The mining industry is intensely competitive.

The mining industry is intensely competitive. We may be at a competitive disadvantage because we must compete with other individuals and companies, many of which
have greater financial resources, operational experience and technical capabilities than we do. Increased competition could adversely affect our ability to attract necessary capital funding or acquire
suitable producing properties or prospects for mineral exploration in the future. We may also encounter increasing competition from other mining companies in our efforts to hire experienced mining
professionals. Competition for exploration resources at all levels is currently intense, particularly affecting the availability of manpower and exploration equipment.

Our future success is subject to risks inherent in the mining industry.

Our future mining operations, if any, would be subject to all of the hazards and risks normally incident to developing and operating mining properties. These
risks include insufficient ore reserves, fluctuations in metal prices and increases in production costs that may make mining of reserves uneconomic; significant environmental and other regulatory
restrictions; labor disputes; geological problems; failure
of underground stopes and/or surface dams; force majeure events; and the risk of injury to persons, property or the environment.

Our future profitability will be affected by changes in the prices of metals.

If we establish reserves, complete a favorable feasibility study for the Montanore Project, and complete development of a mine, our profitability and
long-term viability will depend, in large part, on the market price of silver and copper. The market prices for these metals are volatile and are affected by numerous factors beyond our
control, including:



The
aggregate effect of these factors on metals prices is impossible for us to predict. Decreases in metals prices have delayed, and could in the future adversely affect our ability to
finance, the exploration and development of our properties, which would have a material adverse effect on our financial condition and results of operations and cash flows. There can be no assurance
that metals

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prices
will not decline. During the five-year period ended December 31, 2006, the high and low settlement prices for silver and copper were $14.94 and $4.07 per ounce and $4.08 and
$0.68 per pound, respectively.

We have ongoing reclamation obligations on the Montanore Project properties.

Although we have posted bonds with the State of Montana to cover expected future mine reclamation costs, there is no guarantee that the amount of these bonds will
satisfy the environmental regulations and requirements. Should government regulators determine that additional reclamation work is required, we may be required to fund this work, which could have a
material adverse effect on our financial position.

We are subject to significant governmental regulations.

Our operations and exploration and development activities are subject to extensive federal, state, and local laws and regulations governing various matters,
including:



Failure
to comply with applicable laws and regulations may result in civil or criminal fines or penalties or enforcement actions, including orders issued by regulatory or judicial
authorities enjoining or curtailing operations or requiring corrective measures, installation of additional equipment or remedial actions, any of which could result in us incurring significant
expenditures. We may also be required to compensate private parties suffering loss or damage by reason of a breach of such laws, regulations or permitting requirements. It is also possible that future
laws and regulations, or a more stringent enforcement of current laws and regulations by governmental authorities, could cause additional expense, capital expenditures, restrictions on or suspensions
of any future operations and delays in the exploration of our properties.

Changes in mining or environmental laws could increase costs and impair our ability to develop our properties.

From time to time the U.S. Congress may consider revisions in its mining and environmental laws. It remains unclear to what extent new legislation may affect
existing mining claims or operations. The effect of any such revisions on our operations cannot be determined conclusively until such revision is enacted; however, such legislation could materially
increase costs on properties located on federal lands, such as ours, and such revision could also impair our ability to develop the Montanore Project and other mineral projects.

We are subject to environmental risks.

Mineral exploration and mining is subject to potential risks and liabilities associated with pollution of the environment and the disposal of waste products
occurring as a result of mineral exploration and production. Insurance against environmental risk (including potential liability for pollution or other hazards as a result of the disposal of waste
products occurring from exploration and production) is not

12

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generally
available to us (or to other companies in the minerals industry) at a reasonable price. To the extent that we become subject to environmental liabilities, the satisfaction of those
liabilities would reduce funds otherwise available to us and could have a material adverse effect on us. Laws and regulations intended to ensure the protection of the environment are constantly
changing, and are generally becoming more restrictive.

The title to some of our properties may be uncertain or defective.

Although the Montanore deposit is held by patented mining claims, a significant portion of our holdings consist of unpatented lode and millsite claims. Certain of
our United States mineral rights consist of "unpatented" mining and millsite claims created and maintained in accordance with the U.S. General Mining Law of 1872. Unpatented mining and millsite claims
are unique U.S. property interests, and are generally considered to be subject to greater title risk than other real property interests because the validity of unpatented mining and millsite claims is
often uncertain. This uncertainty arises, in part, out of the complex federal and state laws and regulations that supplement the General Mining Law. Also, unpatented mining and millsite claims and
related rights, including rights to use the surface, are subject to possible challenges by third parties or contests by the federal government. The validity of an unpatented mining or millsite claim,
in terms of both its location and its maintenance, is dependent on strict compliance with a complex body of federal and state statutory and decisional law. In addition, there are few public records
that definitively control the issues of validity and ownership of unpatented mining and millsite claims. We have not filed a patent application for any of the unpatented and millsite claims that are
located on federal public lands in the United States and, under possible future legislation to change the General Mining Law, patents may be difficult to obtain.

In
recent years, the U.S. Congress has considered a number of proposed amendments to the General Mining Law, as well as legislation that would make comprehensive changes to the law.
Although no such legislation has been adopted to date, there can be no assurance that such legislation will not be adopted in the future. If ever adopted, such legislation could, among other things,
impose royalties on silver and copper production from unpatented mining and millsite claims located on federal lands or impose fees on production from patented mining and millsite claims. Further, it
could have an adverse impact on earnings from our operations, could reduce estimates of any reserves we may establish and could curtail our future exploration and development activity on federal lands
or patented claims.

While
we have no reason to believe that title to any of our properties is in doubt, title to mining properties is subject to potential claims by third parties claiming an interest in
them.

The market price of our common stock is subject to volatility and could decline significantly.

Our common stock is listed on the American Stock Exchange (AMEX) and the Toronto Stock Exchange (TSX).

Securities
of small-cap companies such as ours have experienced substantial volatility in the past, often based on factors unrelated to the financial performance or prospects
of the companies involved. These factors include macroeconomic developments in North America and globally and market perceptions of the attractiveness of particular industries. Our share price is also
likely to be significantly affected by short-term changes in silver and copper prices or in our financial condition or results of operations as reflected in our quarterly earnings reports.
Other factors unrelated to our performance that could have an effect on the price of our common stock include the following:



13

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As
a result of any of these factors, the market price of our common stock at any given point in time might not accurately reflect our long-term value. Securities class action
litigation often has been brought against companies following periods of volatility in the market price of their securities. We could in the future be the target of similar litigation. Securities
litigation could result in substantial costs and damages and divert management's attention and resources.

We do not intend to pay any cash dividends in the foreseeable future.

We have never paid dividends and any future decision as to the payment of dividends will be at the discretion of our board of directors and will depend upon our
earnings, receipt of dividends from our subsidiaries, financial position, capital requirements, plans for expansion and such other factors as our board of directors deems relevant. We intend to retain
our earnings, if any, to finance the growth and development of our business. Any return on an investment in our common stock will come from the appreciation, if any, in the value of our common stock.
See "Description of SecuritiesDividend Rights".

Our shareholders are subject to future dilution by the exercise of options and warrants, and the existence of a significant number of options and warrants can depress the price
of our common stock.

As of March 26, 2007, we had 12,899,467 shares outstanding. As of that date, there were options outstanding to purchase up to 1,874,000 shares of common
stock at exercise prices ranging from $1.60 to $5.01 per share and warrants outstanding to purchase 1,102,334 shares at an exercise prices ranging from $6.00 to $8.25 per share. 806,000 additional
shares of common stock are available for issuance under our stock option plans. If currently outstanding options or warrants to purchase our common stock are exercised, the investments of our
shareholders would be further diluted. In addition, the potential for exercise of a significant number of options and warrants can have a depressive effect on the market price for our common stock.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. DESCRIPTION OF PROPERTIES

The significant properties in which the Company has an interest are described below.

Montanore Property

The Montanore Project is located in Sanders and Lincoln Counties in northwestern Montana and consists of two federal patented mining claims and approximately
1,064 unpatented lode mining claims and mill sites. The unpatented lode claims and mill sites are owned by the Company and are held subject to a $125 per claim annual payment to the Federal
government.

The
Company's ownership of the Montanore deposit stems primarily from its ownership of two patented mining claims, identified as HR 133 and HR 134, which cover the surface outcrop or
"apex" of the gently dipping mineralized beds. According to U.S. mining law, the holders of claims covering

14

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the
apex of a dipping, tabular deposit own the minerals to depth, even if the deposit passes from beneath the apex claim. For the Company's claims at Montanore these "extralateral rights" have been
confirmed by the U.S. Secretaries of Agriculture and Interior and upheld in U.S. District Court. In addition to the patented apex claims, the Company owns unpatented claims located along the fault
which bounds the southwestern margin of the deposit and extends outside of the western border of the Cabinet Wilderness Area.

The
Company's property holdings for operational access and infrastructure support for the Montanore Project are located to the east of the deposit, south of the town of Libby, and are
accessed from Libby by about 16 miles of secondary road up Libby Creek. The apex of the deposit can be reached from Noxon, the nearest town, by taking State Highway 200 about 2 miles to the east and
then north about 5 miles on a secondary graveled road to the junction of the west and east forks of Rock Creek. From this point it is about a 4-mile hike up a Jeep trail behind a locked
U.S. Forest Service gate to the deposit outcrop. The deposit outcrops near the border of, and lies entirely within the Cabinet Wilderness Area. Because any future mining of the deposit would take
place underground and the Company has access to the deposit from outside the Cabinet Wilderness Area, (our patented mining claims and certain other mineral rights predate the wilderness area
designation), we do not believe that any future mining or associated surface activity would impact the wilderness area.

On
May 31, 2006, we acquired Hard Rock Operating Permit 150 that covers certain exploration activities and the Montana Pollution Discharge Elimination System (MPDES) water
discharge permit for the Montanore Project and title to properties providing access to the portal of the Libby adit. The 14,000 foot Libby adit was constructed in the early 1990s by previous
operators. The adit stops approximately 2,000 feet short of the deposit. During the third quarter of 2006, the Company reopened the adit and completed initial water testing to determine the treatment
method for water discharged from the adit. The necessary permit revisions were received in November 2006 to undertake a planned $40 million underground evaluation drilling program over
the next two years. Also in the fourth quarter 2006, we purchased a site generator and erected a warehouse building at the Libby adit site, along with an office and employee change facility. We
established a $1.124 million stand-by letter of credit in early January 2007 to satisfy reclamation bonding requirements related to our planned exploration at the Libby adit.
Currently we are engaged in staffing, equipment acquisition, and pilot water treatment testing for the drilling program. Prior to this acquisition there were no plant, equipment, subsurface
improvements or equipment other than the Libby adit, which was plugged and in reclamation. Power for the planned evaluation drilling program is expected to be provided by three on-site
generators. The Company owns water rights associated with the Montanore property that it believes would be sufficient for possible mining activities.

Non-ReservesMineralized Material; Measured, Indicated and Inferred Resources

Non-Reserves Reported in the United States.The estimate of mineralized material set forth below was prepared by
Mine Development Associates, referred to as MDA. The estimate was prepared in accordance with SEC Industry Guide 7.

Mineralized Material Estimate in Accordance with U.S. SEC Industry Guide 7

|                     |  |            |  | Silver Grade |  |      |   | Cutoff Grade
|-------------------- |  | ---------- |  | ------------ |  | ---- | - | ------------
|
|Mineralized Material |  | 81,506,000 |  | 2.04         |  | 0.75 | % | 1.0         

Non-Reserves Reported in Canada.In accordance with Canada's National Instrument 43-101, the estimate
of resources at Montanore as set forth below was prepared by MDA. Steve Ristorcelli, R.P.

15

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Geo.,
C.P.G., and David C. Fitch, C.P.G., acting on behalf of MDA, are the qualified persons under Canada's National Instrument 43-101 for this resource estimate.



Resource Estimate as presented in Accordance with Canada's National Instrument 43-101

|          |  |            |  | Silver Grade |  |      |   | Cutoff Grade
|--------- |  | ---------- |  | ------------ |  | ---- | - | ------------
|
|Measured  |  | 4,026,000  |  | 1.85         |  | 0.74 | % | 1.0         
|Indicated |  | 77,480,000 |  | 2.05         |  | 0.75 | % | 1.0         
|Inferred  |  | 35,080,000 |  | 1.85         |  | 0.71 | % | 1.0         

Geology

The Montanore Project contains a strata-bound silver-copper deposit occurring in the Revett Formation, which is part of an extensive series of
Precambrian-aged metasedimentary rocks belonging to the Belt Supergroup. The Revett Formation has been subdivided into three members (upper, middle and lower) based on the contained
amounts of quartzite, silty quartzite and siltite. The lower Revett, which hosts the mineralized horizons, is composed primarily of quartzite with lesser interbeds of siltite and silty quartzite.

The
silver-copper mineralization at Montanore is strata-bound in the upper portions of the lower Revett Formation. Copper and silver values are carried predominately in the minerals
bornite, chalcocite, chalcopyrite and native silver in variable proportions and concentrations. Sulfide content of the mineralized rock rarely exceeds 3% to 4% and is commonly 1% to 2%.

The
mineralized zone crops out at the surface and expends down dip at least 12,000 ft to the north-northwest. The mineralization is open ended in the down dip direction. Mineralization
occurs in at least two sub-parallel horizons separated by a silver- and copper-deficient zone containing low-grade lead in the form of galena. The two horizons are identified
as the B1 for the upper zone and the B for the lower and more extensive zone. Both zones dip to the northwest between 15 degrees and 30 degrees, with an average of just over 15 degrees. The width of
the main (B) horizon in plan view, defined by a fault on one side and a fold axis on the other, varies from 804 feet to 3,540 feet. The

16

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property
boundaries, however, limit the controlled portion of the deposit to a maximum of 2,000 feet. The average thickness for each of the two horizons is 35 feet, depending upon cutoff.

History

In 2002, Noranda notified us that it was abandoning its rights to the project. Under the terms of its claim lease agreement with Newhi, Inc., Noranda was
required to quitclaim to us any claims owned by Noranda that overlapped the original Heidelberg claims. As the newly patented apex claims were overlapping, Noranda deeded these claims to Newhi in
August 2002. The mineral rights we acquired are subject to a $0.20 per ton royalty, and a 5% net profits royalty which would commence after the operator has recovered all of its exploration and
development costs. In December 2002, Noranda transferred to us approximately 63,000 feet of drill core and all geologic, environmental, and engineering data generated during its 14 year
management of the project.

The
Company resubmitted its plan of operation and hard rock mine operating permit application for the Montanore project to the U.S. Forest Service and Montana Department of Environmental
Quality (MDEQ) at the end of December 2004. See "Permitting and Environmental."

We
are conducting an extensive optimization review and feasibility study of the Montanore Project in order to update the potential mine plan and to determine the optimal rates of
production. We have spent an estimated $5.9 million on the Montanore property since acquiring it, primarily on the re-permitting process, a pre-feasibility study,
exploration and an additional $133,000 per year in property holding costs. We estimate expenditures of at least $16.0 million in 2007 in connection with the continued permitting, engineering,
exploration and preparation for and commencement of the underground evaluation drilling program.

Engineering

McIntosh Engineering and Hatch Ltd. completed the Cost Update Study and generated a draft report for the project in May 2006. This report included
engineering optimization, engineering review, cost updates, mine planning, and other aspects of the project. The report also provides additional optimization opportunities that should be evaluated as
part of the on-going internal engineering work currently underway.

As
part of the mine planning effort, we assembled all of the geologic information developed by Noranda and U.S. Borax for the project and incorporated the information into the Vulcan
mine modeling package. This 3-dimensional geologic model is a critical first step in further evaluating mine planning activities and projection of ore zones. This information was also used
to develop the underground drilling targets for the evaluation drilling program, described below.

Advanced Exploration and Delineation Drilling Program

In 2006, we acquired the property providing access to the 14,000 foot Libby adit. With additional development, the Libby adit will provide access to the Montanore
deposit. We also acquired two permits related to the Libby adit that, with minor revisions, allow us to reopen, dewater and rehabilitate the adit.

In
2007, we plan to commence a two-year, advanced exploration and delineation drilling program at Montanore. We expect to dewater and rehabilitate the Libby adit, and then
advance the adit approximately 3,000 feet towards the middle of the deposit. An additional 10,000 feet of development drifting will be necessary to provide drill access. Once the drifting is underway,
we expect
to undertake delineation diamond core drilling of approximately 50 holes totaling approximately 45,000 feet. The objectives of our underground evaluation program are to:



17

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With
the exception of the first 600 feet, the length of the Libby adit contains water. During the first stage of the evaluation drilling program, we plan to dewater the adit, and treat
the discharged water using ultra-filtration and possibly chemical pre-treatment so that discharged water, both during the dewatering process as well as during development of the adit and
drilling program, meets Montana's water quality standards. We completed the pilot scale tests of the water treatment method in February 2007.

As
dewatering takes place, we plan to rehabilitate the adit, which we anticipate to involve, among other activities, scaling the walls, installing new roof bolts and extending
electricity, ventilation and dewatering infrastructure into the adit. We estimate that Stage 1 activities will cost approximately $7.3 million.



Once
rehabilitation is complete, expected by the third quarter of 2007, we plan to advance the adit approximately 3,000 feet towards the middle of the deposit. Following the advancement
of the adit, we expect to commence 10,000 feet of development drifting, which will be necessary to provide drill access. Once drifting is underway we will also begin to establish drill stations. The
process of drifting and the establishment of drill stations will continue throughout the remainder of the program. We expect that Stage 2 will cost approximately $7.5 million.



In
Stage 3 of the advanced exploration and delineation drilling program, we expect to commence approximately 20,000 feet of delineation diamond core drilling. We expect to spend
approximately $0.5 million on Phase I delineation drilling. We also expect to spend approximately $12.7 million during Stages 1, 2 and 3 on site operating and capital
costs, optimization studies and general corporate support.



During
this stage we anticipate completing an additional 25,000 feet of diamond core drilling, undertaking additional metallurgical and geotechnical testing and analysis, and if the
results of our exploration are successful, preparing for and completing a bankable feasibility study at an estimated cost, with site operating and capital costs, of approximately $10.0 million.

Permitting and Environmental



In
2006, we acquired the property providing access to the portal of the Libby adit and two permits: Hard Rock Operating Permit 150 that covers certain exploration activities and the
Montana Pollution Discharge Elimination System (MPDES) water discharge permit for the Montanore Project. With minor revisions completed in 2006, these permits allow us to proceed with our planned
advanced exploration and delineation drilling program, including adit rehabilitation, dewatering and extension, drifting and establishment of drill stations, and drilling activities.

18

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In
order to advance the Montanore Project past the exploration stage, we must obtain project approval from the U.S. Forest Service (USFS) and the State of Montana and final permits. The
USFS and the State of Montana are undertaking a joint review of the Montanore Project and related permits, a process that typically takes several years.

To
initiate the joint review process, in 2004 we submitted a proposed plan of operations to the USFS and a hard rock mining program application to the State of Montana, which included
baseline environmental data, certain technical documents and other pertinent information about the Montanore Project. We have also submitted applications and technical supporting data for an air
quality permit, a wetland 404 permit that would establish the allowable level of discharge of dredged or fill material into wetlands and non-wetland waters, an MPDES water discharge permit
that would establish the allowable levels of mine and rain water discharge that might occur during any development of and operations at the Montanore Project, a power transmission line permit for the
power line that would connect the Project to the power grid; and revisions to Hard Rock Operating Permit 150 that would permit mining operations on federal land, along with a permit to cover mining
operations on private land. We have benefited from the work completed by previous holders of the Montanore Project, who obtained final Project permits in 1993. Rather than being required to develop
all of the initial data, we were able to update the environmental baseline and other environmental and technical data developed by the prior holders. This allowed us to submit applications and
technical information approximately 12 months earlier than otherwise would have been the case. Since our applications were initially submitted, we have responded to agency comments and
submitted supplemental technical information and applications.

A
central element of the federal and state project review is the completion of a thorough environmental review process, which will be documented in a joint Environmental Impact Statement
(EIS). As an integral part of drafting the EIS, the USFS is required under the Endangered Species Act to complete a biological assessment and initiate a consultation with the U.S. Fish and Wildlife
Service for the purpose of issuing a biological opinion addressing the impact of the project on threatened and endangered species, including grizzly bear, lynx and bull trout. The agencies have
initiated preparation of the draft EIS, and we expect that it will be completed in the second quarter of 2007. We continue to address technical questions and comments generated by the USFS and the
State during the EIS drafting process.

Once
the agencies have completed their review and preparation of the draft EIS, the draft EIS and the draft permits are provided to the public for review and comment. The agencies may
consider public comments in preparing the final EIS and final permits. If the public review process is successfully completed, the agencies would proceed to determine the form of the final EIS and
permits and would issue a joint Record of Decision setting forth their decisions on our proposed plan of operations and hard rock mining program. Following issuance of the Record of Decision, and
resolution of any appeals or legal challenges to the Record of Decision, we would receive the required permits and finalize the Montanore Project Description based on the results of the completed
agency review.

19

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GRAPHIC

20

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Advance and Iroquois Properties

The Company owns the Advance and Iroquois zinc-lead exploration properties located in northeastern Washington State, approximately six miles south of
the Canadian border. The properties are situated five miles apart along a belt of Cambrian carbonate sediments that have acted as host rocks for several former mines. Both properties are easily
accessible on secondary graveled roads by two wheel drive vehicles. A large zinc smelter and refinery is located at Trail, British Columbia, Canada, approximately 17 miles distance, over excellent
roads.

The
Company was originally formed in 1947 to explore the Advance and Iroquois properties. Since that time, it has leased its holdings to major companies including Rare
Metals, Inc. (El Paso Natural Gas) (1959-65), The Bunker Hill Company (1962-65), Cominco American, Inc. (1966-67 and 1974-75),
Brinco, Ltd. (RTZ Group) (1977-78), and Equinox Resources Ltd. (1989-91). Total expenditures on the properties to date are estimated to be at least $1,500,000.

The
Advance and Iroquois properties are located along the Deep Lake Trend, a northeast-striking belt of Cambrian carbonate rocks collectively designated as the Metaline Limestone. Rocks
of the Deep Lake Trend have been strongly folded and faulted by numerous high-angle as well as thrust faults. As a result the Metaline Limestone has a complex outcrop pattern, with steeply
overturned bedding.

Zones
of brecciation are found throughout the Metaline Limestone and are often, but not always, the location of zinc and lead sulfide mineralization. These features are predominantly
stratabound and have gradational, often irregular borders. Individual breccia bodies are crudely lensoid in cross section and have third dimensions that attain considerable length. The zones often
occur in an enechelon, and sometimes interconnected, pattern. A variety of evidence suggests that the breccia bodies are solution collapse features controlled by favorable stratigraphy or lithologic
facies.

Mineralization
consists of irregular bands, lenses, and fine disseminations of sphalerite and galena accompanied by varying amounts of pyrite. The mineralization is considered to have
been localized by permeable zones within and peripheral to breccia bodies created by solution collapse. The sulfide minerals are found in white dolomite that makes up the breccia matrix and fills
other voids, and also as selective replacements of the host carbonate rocks. Individual deposits have irregular gradational borders and are crudely lensoidal to oval in outline. Their elongated third
dimension parallels the regional strike of the host rocks, and often plunge at low angles. Cross sectional widths up to 80 feet and heights of as much as 150 feet have been noted in the more prominent
zones. Lengths of mineralization vary up to 650 feet. The deposits have a tendency to occur together in an enechelon pattern over a stratigraphic interval of as much as 300 feet. Such groupings of
deposits may be more or less interconnected and have composite lengths of as much as 5,000 feet. Metal values generally decrease outward thus necessitating a border to be established by economic
consideration. Although individual sample values within a deposit may be as high as 20% zinc, average values for a deposit will usually range up to 7% zinc and 1% lead depending upon the "assay
border" selected.

The
Advance property consists of 720 acres of patented mining claims located approximately five miles east of the town of Northport. The property is reached from Northport, the nearest
town, by taking the paved Deep Lake road south for four miles to the graveled Black Canyon road and thence north for three miles. The Metaline Formation is the principal rock unit to crop out on the
Advance property. Previous exploration consisting of soil sampling, drilling, trenching, and tunneling has shown that several zones of low-grade, disseminated zinc mineralization occur on
the property. The Advance property is without known reserves, is considered to be of an exploratory nature, and is held by the Company on a maintenance basis. We expect to undertake a technical review
and commence disposition of this property in mid-2007.

The
Iroquois property consists of 62 acres of patented mining claims and surface rights, and 15 unpatented mining claims containing about 300 acres. The property is reached from
Northport, the

21

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nearest
town, by taking the paved Deep Lake road south and east for 19 miles to the graveled Iroquois Mine Road, and thence northeast for three miles. The unpatented mining claims are held subject to
a $125 per claim annual payment to the U.S. Federal government. More than 25,000 feet of drilling and approximately 2,600 feet of tunneling have shown low-grade mineralization to occur in
multiple zones, extending for the entire 5,000 foot length of the property. Most of the exploration has been concentrated in one area where a mineralized zone of disseminated zinc with associated lead
values has been outlined over approximately 900 feet in length and within 300 feet of the surface. The Iroquois property is without known reserves, is considered to be of an exploratory nature and is
held by the Company on a maintenance basis. We expect to undertake a technical review and commence disposition of this property in mid-2007.

Oil Interests

We receive income from a 10.16% working interest in four oil wells on a lease in Sumner County, Kansas. We do not engage in oil and gas exploration or production
activities.

ITEM 3. LEGAL PROCEEDINGS

On August 11, 2005, Mines Management was named as a co-defendant in a lawsuit filed by Montana Reserves Company in the Superior Court of the
State of Washington in Spokane County, Washington. Named as co-defendants are Noranda Minerals, Normin Corp., Mines Management and Newhi, Inc. The action seeks damages in connection
with the conveyance of the Montanore property from Noranda to Newhi, and challenges the computation of a net proceeds royalty payable to Montana Reserves pursuant to a Royalty Agreement between
Noranda and Montana Reserves in respect of the Montanore property. We do not believe that the outcome of this lawsuit will have a material adverse effect on the Company.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matter was submitted during the fourth quarter of 2006 to a vote of security holders.

22

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PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES.

The common stock commenced trading on AMEX under the symbol, "MGN," on March 24, 2004. On January 10, 2006, the Company's common stock began trading
on the Toronto Stock Exchange under the symbol "MGT."

The
following table shows the high and low closing sales prices for our common stock for each quarter since January 1, 2005. The quotations reflect inter-dealer prices, without
retail mark-up, mark-down or commission and may not represent actual transactions. On March 20, 2007, the closing price of the Company's common stock was $5.18 on AMEX
and Cdn$5.97 on TSX.

Fiscal Year

High

Low2006:First Quarter

$
9.00

$
6.20Second Quarter

$
9.97

$
6.20Third Quarter

$
7.47

$
5.60Fourth Quarter

$
6.40

$
4.912005:First Quarter

$
6.28

$
3.75Second Quarter

$
6.15

$
4.13Third Quarter

$
5.52

$
4.92Fourth Quarter

$
8.30

$
6.22


As
of March 20, 2007 there were 879 shareholders of record of our common stock and approximately 3,175 additional shareholders whose shares are held through brokerage firms or
other institutions.

We
have never paid dividends and any future decision as to the payment of dividends will be at the discretion of our board of directors and will depend upon our earnings, receipt of
dividends from our subsidiaries, financial position, capital requirements, plans for expansion and such other factors as our board of directors deems relevant.

Securities Authorized for Issuance Under Equity Compensation Plans

|Plan Category                                       |  | Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights
(a) |  | Weighted-average
exercise price of
outstanding
options, warrants
and rights
(b) |      | Number of securities remaining
available for future issuance
under equity compensation
available for future issuance
reflected in column (a))
(c)
|--------------------------------------------------- |  | ----------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------- | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------
|Equity compensation plans approved by shareholders  |  | 2,194,000                                                                                       |  | $                                                                               | 3.70 |                                                                                                                                                  
|Equity compensation plans not approved shareholders |  |                                                                                                |  |                                                                                 |     |                                                                                                                                                  
|Total                                               |  | 2,194,000                                                                                       |  | $                                                                               | 3.70 |                                                                                                                                                  

23

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ITEM 6. SELECTED FINANCIAL DATA

The selected financial data of Mines Management, Inc. for the years ended December 31, 2006, December 31, 2005, December 31, 2004, and
the period from August 12, 2002 (inception) through December 31, 2006 are derived from audited financial statements. This table should be read in
conjunction with the Consolidated Financial Statements and Management's Discussion and Analysis of Financial Condition and Results of Operations.

|                                                    |                      |   |            |            |   |            |            | From Inception
August 12, 2002
Through
December 31,
2006 |           
|--------------------------------------------------- | -------------------- | - | ---------- | ---------- | - | ---------- | ---------- | -------------------------------------------------------- | ----------
|
|
|Statement of Operations:                            |                      |   |            |            |   |            |            |                                                          |           
|Revenues                                            |                      | $ | 13,130     |            | $ | 11,282     |            | $                                                        | 8,604     
|Operating Expenses                                  |                      | $ | (6,293,164 | )          | $ | (5,448,169 | )          | $                                                        | (2,652,056
|                                                    |                      |   |            |            |   |            |            |                                                          |           
|                                                    | Loss from Operations |   | $          | (6,280,034 | ) | $          | (5,436,887 | )                                                        | $         
|Other Income                                        |                      | $ | 296,489    |            | $ | 226,877    |            | $                                                        | 127,383   
|                                                    |                      |   |            |            |   |            |            |                                                          |           
|                                                    | Net Loss             |   | $          | (5,983,545 | ) | $          | (5,210,010 | )                                                        | $         
|Net Loss per Share of Common Stock                  |                      | $ | (0.47      | )          | $ | (0.45      | )          | $                                                        | (0.26     
|Weighted Average Shares of Common Stock Outstanding |                      |   | 12,781,827 |            |   | 11,461,043 |            |                                                          | 9,745,097 
|Cash Flow Data:                                     |                      |   |            |            |   |            |            |                                                          |           
|Cash Flows from Financing Activities                |                      | $ | 1,513,750  |            | $ | 6,686,520  |            | $                                                        | 6,448,010 
|Cash Flows from Operating Activities                |                      | $ | (4,858,322 | )          | $ | (4,178,761 | )          | $                                                        | (1,217,131
|Cash Flows from Investing Activities                |                      | $ | (560,070   | )          | $ | (284,460   | )          | $                                                        | (3,088,521
|Balance Sheet Data:                                 |                      |   |            |            |   |            |            |                                                          |           
|Total Assets                                        |                      | $ | 6,330,468  |            | $ | 9,673,157  |            | $                                                        | 7,135,017 
|Total Liabilities                                   |                      | $ | 307,614    |            | $ | 171,101    |            | $                                                        | 114,984   
|Shareholders Equity                                 |                      | $ | 6,022,854  |            | $ | 9,502,056  |            | $                                                        | 7,020,033 

24

---



ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

The following discussion and analysis is provided as a supplement to, and should be read in conjunction with, our financial statements and the accompanying notes
("Notes").

Overview

We made significant progress on advancing the Montanore Project in 2006.

2006 Highlights



Our
year end cash and certificates of deposit balance remained strong at over $5.1 million. Our net cash expenditures for operating activities for the year 2006 totaled
$4.9 million, as expected. In 2007, the Company plans to focus on commencement of a $40 million advanced exploration and delineation drilling program at the Montanore Project's Libby
adit located in northwestern Montana. The Company intends to continue its emphasis on the re-permitting applications and commencement of a phased financing plan for the Montanore project.
The Company will require additional capital to complete the proposed $40 million advanced exploration and delineation drilling program starting in early 2007.

Financial and Operating Results

Mines Management, Inc. reported a net loss for the year ended December 31, 2006 of $6.0 million or $0.47 per share versus a loss of
$5.2 million or $0.45 per share and $2.5 million or $0.26 per share for the years ending December 31, 2005 and 2004, respectively. The 2006 increase in net loss versus

25

---



2005
of $0.8 million, and the 2005 net loss increase versus 2004 of $2.7 million, were primarily due to increased expenditures in Montanore Project and administrative expense:

Expense SummaryExpenditures2006

2005

2004(millions)Montanore Project Expense

$
2.7

$
2.7

$
.3Administrative Expense

$
2.7

$
1.7

$
.9Non Cash Stock Option Expense

$
0.9

$
1.0

$
1.4Interest Income

$
(.3
)
$
(.2
)
$
(.1
)


Montanore
project expense includes exploration, fees, filing and licenses, environmental, engineering and permitting expense. Increased activity on the Montanore Project was primarily
the result of increased payments to consultants for permitting activities, collecting additional environmental baseline data, mineralized material and resource studies, and exploration activities
related to reopening the Libby adit. Administrative expense, which includes general overhead and office expense, legal, accounting, compensation, rent, taxes, and investor relations expense, increased
$1.0 million or 50% in 2006 over 2005 as we added two additional staff members, increased legal and accounting fees due to increased regulatory requirements and implementation of the
requirements of the Sarbanes-Oxley Act of 2002 reporting on internal controls as an accelerated filer for 2006, and a general increase in the Company's activities. Stock option expense, which includes
stock options granted to officers, employees and consultants, remained approximately unchanged from 2005 to 2006, while interest income increased slightly due to a full year of interest for
certificates of deposit purchased in October of 2005.

The
major area for additional spending for 2005 over 2004 was the increased activity on the Montanore Project, primarily as a result of increased payments to consultants for permitting
activities, collecting additional environmental baseline data, mineralized material and resource studies, and mine
engineering and optimization. Administrative expense doubled in 2005 over 2004 as we commenced an investor relations program targeted at increasing liquidity, hired additional employees for the
Montanore Project, and leased additional office space in January 2005 to accommodate our expanded staff. Stock option expense, which includes stock options granted to officers, employees and
consultants, decreased from 2004 to 2005 due to fewer options being granted and no previously issued options vesting in 2005.

Liquidity

At December 31, 2006, our aggregate cash, short term investments, and long term investments totaled $5.2 million compared to $8.9 million at
December 31, 2005. In 2006, we received $1.5 million from the exercise of warrants and stock options. The net cash used for operating activities was $4.9 million, which consisted
primarily of permitting, environmental exploration, and engineering expenses for the Montanore project and administrative expenses. The net decrease in cash and cash equivalents for the year ending
December 31, 2006 was $3.9 million.

We
anticipate spending approximately $1.0 million each quarter in 2007 for ongoing operating expenses and an additional $5.0 million per quarter for the advanced
exploration and delineation drilling program starting with the second quarter of 2007 for estimated total 2007 expenditures of approximately $19.0 million. The Company will require external
financing in 2007 and 2008 to fund the advanced exploration and delineation drilling program.

Off Balance Sheet Arrangements

We have no off balance sheet arrangements.

26

---



Table of Contractual Obligations

The following table summarizes our contractual obligations at December 31, 2006:

|Contractual Obligations |  | Total |         | Less Than
1 Year |   | 23
Years |  | 45
Years |         | Thereafter
|----------------------- |  | ----- | ------- | ---------------- | - | --------- |  | --------- | ------- | ----------
|Operating leases        |  | $     | 416,000 |                  | $ | 72,000    |  | $         | 144,000 |           

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

All of our cash balances are held in U.S. dollars and our long term investment certificates of deposit are denominated in U.S. dollars and held in local and
national banking institutions. We manage the timing of cash required for the re-permitting, review of the Montanore deposit, and engineering of the Montanore Project and for general
corporate purposes by utilizing our money market account. We invest funds not immediately required in investments, currently in certificates of deposit, with varying maturities and fixed early
retirement costs equal to three months interest. Our policy is to invest only in government and corporate grade securities rated "investment grade" or better.

The
market prices of base and precious metals such as copper and silver fluctuate widely and are affected by numerous factors beyond the control of any mining company. These factors
include expectations with regard to the rate of inflation, the exchange rates of the dollar and other currencies, interest rates, global or regional political, economic or banking crises, and a number
of other factors. If the market price of silver or copper should drop dramatically, the value of the Company's Montanore Project could drop and the Company might not be able to recover its investment
in that project. The decision to develop or construct a mine would be made several years before the first revenues from production would be received. Price fluctuations between the time that such
decision is made and the commencement of production could affect the economics of the mine.

27

---



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The consolidated financial statements for the years ended December 31, 2006, 2005 and 2004 are included in this Report on Form 10-K as
set forth below.

|REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM |                                                 | 28-31
|------------------------------------------------------- | ----------------------------------------------- | -----
|FINANCIAL STATEMENTS:                                   |                                                 |      
|                                                        | Consolidated balance sheets                     |      
|                                                        | Consolidated statements of income               |      
|                                                        | Consolidated statements of stockholders' equity |      
|                                                        | Consolidated statements of cash flows           |      
|                                                        | Notes to consolidated financial statements      |      

28

---





[LE MASTER AND DANIELS PLLC LETTERHEAD]

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board
of Directors and Stockholders
Mines Management, Inc. and Subsidiaries
Spokane, Washington

We
have audited the consolidated balance sheets of Mines Management, Inc. (an Idaho Corporation) and Subsidiaries as of December 31, 2006, 2005, and 2004, and the related
consolidated statements of income, stockholders' equity, and cash flows for the years then ended and for the period from inception of the development stage (August 12, 2002 through
December 31, 2006). These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based
on our audits.

We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provided a reasonable basis for our opinion.

In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Mines Management, Inc. and Subsidiaries' as of
December 31, 2006, 2005, and 2004, and the results of their operations and their cash flows for the years then ended and for the period from inception of the development stage
(August 12, 2002 through December 31, 2006) in conformity with U.S. generally accepted accounting principles.

We
have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Mines Management, Inc. and Subsidiaries'
internal control over financial reporting as of December 31, 2006, based on criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated February 26, 2007, expressed an unqualified opinion thereon.

SIGNATURE

Spokane,
Washington
February 26, 2007

29

---



[LE
MASTER AND DANIELS PLLC LETTERHEAD]

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board
of Directors and Stockholders
Mines Management, Inc. and Subsidiaries
Spokane, Washington

We
have audited management's assessment, included in the accompanying Management's Report on Internal Control, that Mines Management, Inc. and Subsidiaries maintained effective internal
control over financial reporting as of December 31, 2006, based on criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations
of
the Treadway Commission (the COSO criteria). Mines Management, Inc. and Subsidiaries' management is responsible for maintaining effective internal control over financial reporting and for its
assesment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management's assessment and an opinion on the effectiveness of the Company's
internal control over financial reporting based on our audit.

We
conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control
over financial reporting, evaluating management's assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A
company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with U.S. generally accepted accounting principles. A company's internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and
that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because
of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In
our opinion, management's assessment that Mines Management, Inc. and Subsidiaries maintained effective internal control over financial reporting as of December 31, 2006, is
fairly stated, in all material respects, based on the COSO criteria. Also, in our opinion, Mines Management, Inc. and Subsidiaries maintained, in all material respects, effective internal control over
financial reporting as of December 1, 2006, based on the COSO criteria.

We
also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Mines Management, Inc. and
Subsidiaries as of December 31, 2006, 2005, and 2004, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended

30

---



December 31,
2006, of Mines Management, Inc. and Subsidiaries and our report dated February 26, 2007, expressed an unqualified opinion thereon.

SIGNATURE

Spokane,
Washington
February 26, 2007

31

---





Mines Management, Inc. and Subsidiaries        CONSOLIDATED BALANCE SHEETS

|                                     |                                                                                                                                     | December 31,               |          
|------------------------------------ | ----------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ---------
|
|Assets                               |                                                                                                                                     |                            |          
|CURRENT ASSETS:                      |                                                                                                                                     |                            |          
|                                     | Cash and cash equivalents                                                                                                           |                            | $        
|                                     | Interest receivable                                                                                                                 |                            |          
|                                     | Prepaid expenses and deposits                                                                                                       |                            |          
|                                     |                                                                                                                                     |                            |          
|                                     |                                                                                                                                     | Total current assets       |          
|                                     |                                                                                                                                     |                            |          
|MINERAL PROPERTIES                   |                                                                                                                                     |                            | 504,492  
|                                     |                                                                                                                                     |                            |          
|PROPERTY AND EQUIPMENT:              |                                                                                                                                     |                            |          
|                                     | Mine buildings and leasehold improvements                                                                                           |                            |          
|                                     | Equipment                                                                                                                           |                            |          
|                                     | Office equipment                                                                                                                    |                            |          
|                                     |                                                                                                                                     |                            |          
|                                     |                                                                                                                                     |                            | 654,963  
|                                     | Less accumulated depreciation                                                                                                       |                            |          
|                                     |                                                                                                                                     |                            |          
|                                     |                                                                                                                                     |                            | 498,683  
|                                     |                                                                                                                                     |                            |          
|INVESTMENTS:                         |                                                                                                                                     |                            |          
|                                     | Certificates of deposit                                                                                                             |                            |          
|                                     | Available-for-sale securities                                                                                                       |                            |          
|                                     |                                                                                                                                     |                            |          
|                                     |                                                                                                                                     |                            | 4,448,097
|                                     |                                                                                                                                     |                            |          
|                                     |                                                                                                                                     | $                          | 6,330,468
|                                     |                                                                                                                                     |                            |          
|Liabilities and Stockholders' Equity |                                                                                                                                     |                            |          
|CURRENT LIABILITIES:                 |                                                                                                                                     |                            |          
|                                     | Accounts payable                                                                                                                    |                            | $        
|                                     | State income taxes payable                                                                                                          |                            |          
|                                     | Due to officer                                                                                                                      |                            |          
|                                     | Severance currently payable                                                                                                         |                            |          
|                                     | Payroll taxes payable                                                                                                               |                            |          
|                                     |                                                                                                                                     |                            |          
|                                     |                                                                                                                                     | Total current liabilities  |          
|OTHER LIABILITIES:                   |                                                                                                                                     |                            |          
|                                     | Severance payable, long term                                                                                                        |                            |          
|                                     |                                                                                                                                     |                            |          
|                                     |                                                                                                                                     | Total liabilities          |          
|                                     |                                                                                                                                     |                            |          
|CONTINGENCIES                        |                                                                                                                                     |                            |          
|STOCKHOLDERS' EQUITY:                |                                                                                                                                     |                            |          
|                                     | Common stock100,000,000 shares, $0.001 par value, authorized; 12,849,467, 12,469,510, and 10,630,590 shares issued and outstanding |                            |          
|                                     | Preferred stock10,000,000 shares, no par value, authorized                                                                         |                            |          
|                                     | Additional paid-in capital                                                                                                          |                            |          
|                                     | Accumulated deficit                                                                                                                 |                            |          
|                                     | Deficit accumulated during the development stage                                                                                    |                            |          
|                                     | Accumulated other comprehensive income                                                                                              |                            |          
|                                     |                                                                                                                                     |                            |          
|                                     |                                                                                                                                     | Total stockholders' equity |          
|                                     |                                                                                                                                     |                            |          
|                                     |                                                                                                                                     | $                          | 6,330,468
|                                     |                                                                                                                                     |                            |          

See accompanying notes to consolidated financial statements.

32

---



Mines Management, Inc. and Subsidiaries        CONSOLIDATED STATEMENTS OF INCOME

|                                                    |                                                 |                          |            |           |           |            |           | From Inception
August 12, 2002
through
December 31,
2006 |           
|--------------------------------------------------- | ----------------------------------------------- | ------------------------ | ---------- | --------- | --------- | ---------- | --------- | -------------------------------------------------------- | ----------
|
|
|REVENUE:                                            |                                                 |                          |            |           |           |            |           |                                                          |           
|                                                    | Royalties                                       |                          | $          | 13,130    |           | $          | 11,282    |                                                          | $         
|                                                    |                                                 |                          |            |           |           |            |           |                                                          |           
|OPERATING EXPENSES:                                 |                                                 |                          |            |           |           |            |           |                                                          |           
|                                                    | Depreciation                                    |                          |            | 54,810    |           |            | 22,655    |                                                          |           
|                                                    | Administrative                                  |                          |            | 867,240   |           |            | 701,064   |                                                          |           
|                                                    | Legal, accounting, and consulting               |                          |            | 437,940   |           |            | 197,972   |                                                          |           
|                                                    | Miscellaneous                                   |                          |            | 16,329    |           |            | 4,573     |                                                          |           
|                                                    | Exploration                                     |                          |            | 148,614   |           |            | 718       |                                                          |           
|                                                    | Oil and gas operating                           |                          |            |          |           |            |          |                                                          |           
|                                                    | Rent and office                                 |                          |            | 291,331   |           |            | 115,814   |                                                          |           
|                                                    | Compensation, directors, officers and staff     |                          |            | 874,599   |           |            | 628,860   |                                                          |           
|                                                    | Taxes and licenses                              |                          |            | 52,129    |           |            | 38,569    |                                                          |           
|                                                    | Telephone                                       |                          |            | 20,699    |           |            | 16,421    |                                                          |           
|                                                    | Fees, filing, and licenses                      |                          |            | 565,549   |           |            | 474,549   |                                                          |           
|                                                    | Environmental                                   |                          |            | 275,065   |           |            | 112,954   |                                                          |           
|                                                    | Engineering                                     |                          |            | 348,799   |           |            | 988,653   |                                                          |           
|                                                    | Permitting                                      |                          |            | 1,402,165 |           |            | 1,141,018 |                                                          |           
|                                                    | Commissions                                     |                          |            |          |           |            |          |                                                          |           
|                                                    | Stock options granted to officers and employees |                          |            | 899,260   |           |            | 443,780   |                                                          |           
|                                                    | Stock options granted for services              |                          |            | 38,635    |           |            | 560,569   |                                                          |           
|                                                    |                                                 |                          |            |           |           |            |           |                                                          |           
|                                                    |                                                 | Total operating expenses |            |           | 6,293,164 |            |           | 5,448,169                                                |           
|                                                    |                                                 |                          |            |           |           |            |           |                                                          |           
|LOSS FROM OPERATIONS                                |                                                 |                          | (6,280,034 | )         |           | (5,436,887 | )         |                                                          | (2,643,452
|                                                    |                                                 |                          |            |           |           |            |           |                                                          |           
|OTHER INCOME:                                       |                                                 |                          |            |           |           |            |           |                                                          |           
|                                                    | Interest                                        |                          |            | 296,489   |           |            | 226,877   |                                                          |           
|                                                    | Miscellaneous                                   |                          |            |          |           |            |          |                                                          |           
|                                                    |                                                 |                          |            |           |           |            |           |                                                          |           
|                                                    |                                                 |                          | 296,489    |           |           | 226,877    |           |                                                          | 127,383   
|                                                    |                                                 |                          |            |           |           |            |           |                                                          |           
|NET LOSS                                            |                                                 | $                        | (5,983,545 | )         | $         | (5,210,010 | )         | $                                                        | (2,516,069
|                                                    |                                                 |                          |            |           |           |            |           |                                                          |           
|NET LOSS PER SHARE                                  |                                                 | $                        | (0.47      | )         | $         | (0.45      | )         | $                                                        | (0.26     
|WEIGHTED-AVERAGE SHARES OF COMMON STOCK OUTSTANDING |                                                 |                          | 12,781,827 |           |           | 11,461,043 |           |                                                          | 9,745,097 
|                                                    |                                                 |                          |            |           |           |            |           |                                                          |           

See
accompanying notes to consolidated financial statements.

33

---





Mines Management, Inc. and Subsidiaries        CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY        YEAR ENDED DECEMBER 31, 2006, 2005 AND 2004

|                                      |                                         |                                                            |                    |   |        | Issuable
Common Stock |        |         |   |        |         | Deficit
Accumulated
During the
Development
Stage |            |           |   |            |  
|------------------------------------- | --------------------------------------- | ---------------------------------------------------------- | ------------------ | - | ------ | --------------------- | ------ | ------- | - | ------ | ------- | ------------------------------------------------ | ---------- | --------- | - | ---------- | -
|
|
|
|Balances, August 12, 2002 (Inception) |                                         | 5,316,956                                                  |                    | $ | 5,317  |                       | 90,000 |         | $ | 22,500 |         | $                                                | 1,495,998  |           | $ | (1,117,306 | )
|                                      | Common stock issued for cash            |                                                            | 2,376,506          |   |        | 2,377                 |        |         |   |        |         |                                                  |            | 2,034,752 |   |            |  
|                                      | Exercise of stock options               |                                                            | 561,246            |   |        | 561                   |        |         |   |        |         |                                                  |            | (561      | ) |            |  
|                                      | Issuance of stock options               |                                                            |                    |   |        |                       |        |         |   |        |         |                                                  |            | 560,800   |   |            |  
|                                      | Common stock issued to directors        |                                                            | 375,000            |   |        | 375                   |        |         |   |        |         |                                                  |            | 149,625   |   |            |  
|                                      | Common stock issued for services        |                                                            | 5,000              |   |        | 5                     |        |         |   |        |         |                                                  |            | 1,995     |   |            |  
|                                      | Issuable common stock issued            |                                                            | 90,000             |   |        | 90                    |        | (90,000 | ) |        | (22,500 | )                                                |            | 22,410    |   |            |  
|                                      | Comprehensive loss:                     |                                                            |                    |   |        |                       |        |         |   |        |         |                                                  |            |           |   |            |  
|                                      |                                         | Adjustment to net unrealized gain on marketable securities |                    |   |        |                       |        |         |   |        |         |                                                  |            |           |   |            |  
|                                      |                                         | Net loss                                                   |                    |   |        |                       |        |         |   |        |         |                                                  |            |           |   |            |  
|                                      |                                         |                                                            | Comprehensive loss |   |        |                       |        |         |   |        |         |                                                  |            |           |   |            |  
|BALANCES, DECEMBER 31, 2003           |                                         | 8,724,708                                                  |                    |   | 8,725  |                       |       |         |   |       |         |                                                  | 4,265,019  |           |   | (1,117,306 | )
|                                      | Common stock issued for cash            |                                                            | 1,736,139          |   |        | 1,736                 |        |         |   |        |         |                                                  |            | 6,446,274 |   |            |  
|                                      | Exercise of stock options               |                                                            | 168,685            |   |        | 169                   |        |         |   |        |         |                                                  |            | (169      | ) |            |  
|                                      | Issuance of stock options               |                                                            |                    |   |        |                       |        |         |   |        |         |                                                  |            | 1,417,291 |   |            |  
|                                      | Issuance of stock for Heidelberg shares |                                                            | 1,058              |   |        | 1                     |        |         |   |        |         |                                                  |            | (1        | ) |            |  
|                                      | Comprehensive loss:                     |                                                            |                    |   |        |                       |        |         |   |        |         |                                                  |            |           |   |            |  
|                                      |                                         | Adjustment to net unrealized gain on marketable securities |                    |   |        |                       |        |         |   |        |         |                                                  |            |           |   |            |  
|                                      |                                         | Net loss                                                   |                    |   |        |                       |        |         |   |        |         |                                                  |            |           |   |            |  
|                                      |                                         |                                                            | Comprehensive loss |   |        |                       |        |         |   |        |         |                                                  |            |           |   |            |  
|BALANCES, DECEMBER 31, 2004           |                                         | 10,630,590                                                 |                    |   | 10,631 |                       |       |         |   |       |         |                                                  | 12,218,414 |           |   | (1,117,306 | )
|                                      | Common stock issued for cash            |                                                            | 1,016,667          |   |        | 1,017                 |        |        |   |        |        |                                                  |            | 5,671,589 |   |            | 
|                                      | Exercise of stock options               |                                                            | 178,157            |   |        | 178                   |        |        |   |        |        |                                                  |            | 79,322    |   |            | 
|                                      | Exercise of stock warrants              |                                                            | 618,367            |   |        | 618                   |        | 927,834 |   |        | 934,018 |                                                  |            | 933,400   |   |            |  
|                                      | Issuance of stock options               |                                                            |                   |   |        |                      |        |        |   |        |        |                                                  |            | 984,419   |   |            | 
|                                      | Revaluation of stock options            |                                                            |                   |   |        |                      |        |        |   |        |        |                                                  |            | 19,930    |   |            | 
|                                      | Issuance of stock for Heidelberg shares |                                                            | 25,729             |   |        | 26                    |        |        |   |        |        |                                                  |            | (26       | ) |            | 
|                                      | Comprehensive loss:                     |                                                            |                    |   |        |                       |        |         |   |        |         |                                                  |            |           |   |            |  
|                                      |                                         | Adjustment to net unrealized gain on marketable securities |                    |  |        |                       |       |         |  |        |         |                                                 |            |           |  |            |  
|                                      |                                         | Net loss                                                   |                    |  |        |                       |       |         |  |        |         |                                                 |            |           |  |            |  
|                                      |                                         |                                                            | Comprehensive loss |   |        |                       |        |         |   |        |         |                                                  |            |           |   |            |  
|BALANCES, DECEMBER 31, 2005           |                                         | 12,469,510                                                 |                    |   | 12,470 |                       |       |         |   |       |         |                                                  | 19,817,444 |           |   | (1,117,306 | )
|                                      | Exercise of stock options               |                                                            | 273,374            |   |        | 273                   |        |        |   |        |        |                                                  |            | 878,956   |   |            | 
|                                      | Exercise of stock warrants              |                                                            | 105,750            |   |        | 106                   |        |        |   |        |        |                                                  |            | 634,959   |   |            | 
|                                      | Issuance of stock options to employees  |                                                            |                   |   |        |                      |        |        |   |        |        |                                                  |            | 899,260   |   |            | 
|                                      | Issuance of stock options for services  |                                                            |                   |   |        |                      |        |        |   |        |        |                                                  |            | 38,635    |   |            | 
|                                      | Issuance of stock for Heidelberg shares |                                                            | 833                |   |        |                      |        |        |   |        |        |                                                  |            |          |   |            | 
|                                      | Comprehensive loss:                     |                                                            |                    |   |        |                       |        |         |   |        |         |                                                  |            |           |   |            |  
|                                      |                                         | Adjustment to net unrealized gain on marketable securities |                    |  |        |                       |       |         |  |        |         |                                                 |            |           |  |            |  
|                                      |                                         | Net loss                                                   |                    |  |        |                       |       |         |  |        |         |                                                 |            |           |  |            |  
|                                      |                                         |                                                            | Comprehensive loss |   |        |                       |        |         |   |        |         |                                                  |            |           |   |            |  
|                                      |                                         |                                                            |                    |   |        |                       |        |         |   |        |         |                                                  |            |           |   |            |  
|BALANCES, DECEMBER 31, 2006           |                                         | 12,849,467                                                 |                    | $ | 12,849 |                       |       |         | $ |       |         | $                                                | 22,268,710 |           | $ | (1,117,306 | )
|                                      |                                         |                                                            |                    |   |        |                       |        |         |   |        |         |                                                  |            |           |   |            |  

See accompanying notes to consolidated financial statements.

34

---



Mines Management, Inc. and Subsidiaries        CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                 |                                                                             |                                    |                                       |            |         |            |            | From Inception
August 12, 2002
through
December 31,
2006 |           
|------------------------------------------------ | --------------------------------------------------------------------------- | ---------------------------------- | ------------------------------------- | ---------- | ------- | ---------- | ---------- | -------------------------------------------------------- | ----------
|
|
|Increase (Decrease) in Cash and Cash Equivalents |                                                                             |                                    |                                       |            |         |            |            |                                                          |           
|CASH FLOWS FROM OPERATING ACTIVITIES:            |                                                                             |                                    |                                       |            |         |            |            |                                                          |           
|                                                 | Net loss                                                                    |                                    | $                                     | (5,983,545 | )       | $          | (5,210,010 | )                                                        | $         
|                                                 | Adjustments to reconcile net loss to net cash used in operating activities: |                                    |                                       |            |         |            |            |                                                          |           
|                                                 |                                                                             | Issuance of stock options          |                                       |            | 937,895 |            |            | 1,004,349                                                |           
|                                                 |                                                                             | Stock received for services        |                                       |            |        |            |            |                                                         |           
|                                                 |                                                                             | Depreciation                       |                                       |            | 54,810  |            |            | 22,655                                                   |           
|                                                 |                                                                             | Changes in assets and liabilities: |                                       |            |         |            |            |                                                          |           
|                                                 |                                                                             |                                    | Interest receivable                   |            |         | 36,954     |            |                                                          | (49,692   
|                                                 |                                                                             |                                    | Prepaid expenses and deposits         |            |         | (40,949    | )          |                                                          | (2,180    
|                                                 |                                                                             |                                    | Accounts payable                      |            |         | 171,012    |            |                                                          | 112,483   
|                                                 |                                                                             |                                    | Severance payable                     |            |         | (20,000    | )          |                                                          | (60,000   
|                                                 |                                                                             |                                    | State income taxes payable            |            |         |           |            |                                                          | (345      
|                                                 |                                                                             |                                    | Payroll taxes payable                 |            |         | (14,499    | )          |                                                          | 3,979     
|                                                 |                                                                             |                                    |                                       |            |         |            |            |                                                          |           
|                                                 |                                                                             |                                    | Net cash used in operating activities |            |         | (4,858,322 | )          |                                                          | (4,178,761
|                                                 |                                                                             |                                    |                                       |            |         |            |            |                                                          |           
|CASH FLOWS FROM INVESTING ACTIVITIES:            |                                                                             |                                    |                                       |            |         |            |            |                                                          |           
|                                                 | Purchase of fixed assets                                                    |                                    |                                       | (348,509   | )       |            | (161,528   | )                                                        |           
|                                                 | Purchase of certificates of deposit                                         |                                    |                                       | (211,561   | )       |            | (122,932   | )                                                        |           
|                                                 | Increase in mineral properties                                              |                                    |                                       |           |         |            |           |                                                          |           
|                                                 |                                                                             |                                    |                                       |            |         |            |            |                                                          |           
|                                                 |                                                                             |                                    | Net cash used in investing activities |            |         | (560,070   | )          |                                                          | (284,460  
|                                                 |                                                                             |                                    |                                       |            |         |            |            |                                                          |           
|CASH FLOWS FROM FINANCING ACTIVITIES:            |                                                                             |                                    |                                       |            |         |            |            |                                                          |           
|                                                 | Proceeds from sales of common stock                                         |                                    |                                       | 1,513,750  |         |            | 6,686,520  |                                                          |           
|                                                 |                                                                             |                                    |                                       |            |         |            |            |                                                          |           
|NET INCREASE IN CASH AND CASH EQUIVALENTS        |                                                                             |                                    | (3,904,642                            | )          |         | 2,223,299  |            |                                                          | 2,142,358 
|CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD   |                                                                             |                                    | 4,648,294                             |            |         | 2,424,995  |            |                                                          | 282,637   
|                                                 |                                                                             |                                    |                                       |            |         |            |            |                                                          |           
|CASH AND CASH EQUIVALENTS, END OF PERIOD         |                                                                             | $                                  | 743,652                               |            | $       | 4,648,294  |            | $                                                        | 2,424,995 
|                                                 |                                                                             |                                    |                                       |            |         |            |            |                                                          |           

See
accompanying notes to consolidated financial statements.

35

---



Mines Management, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

NOTE 1ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Organization:

Mines Management, Inc. (the Company) is a publicly held Idaho corporation incorporated in 1947. The Company acquires, explores, and develops mineral
properties principally in North America. The Company performed exploration activities in South America in 2002.

Summary of Significant Accounting Policies:



36

---





37

---





Years Ended
December 31,2006

2005

2004Weighted average risk-free interest rate

4.67
%
3.56
%
1.27
%Weighted average volatility

59.02
%
70.48
%
72.50
%Expected dividend yield





Weighted average expected life (in years)

2.00

2.00

1.00




38

---





NOTE 2STOCKHOLDERS' EQUITY:

Common Stock:

In 2003, the Company sold 1,152,007 shares of common stock for $1,267,207 ($1.10 per share). In connection with the stock sales, the Company granted warrants to
purchase up to 1,152,007 shares of common stock at $1.20 per share through two years from the date of issue. Cumulative warrants exercised relating to this issue at December 31, 2006, 2005, and
2004, were 1,152,007, 1,152,007, and 573,640 shares, respectively.

In
2004, the Company sold 1,285,000 shares of common stock for $6,425,000 ($5.00 per share). In connection with the stock sales, the Company granted warrants to purchase up to 511,000
shares of common stock at $7.25 per share through five years from the initial exercise date. The Company paid a
cash finder's fee of 7% of the gross offering funds received in the offering. The finder received 3% warrant compensation or warrants to purchase 192,750 shares of common stock at $7.25 per share
through February 18, 2009. These warrants are included in the initial 511,000 warrants issued. These warrants were repriced at $6.00 per share in October 2005, in accordance with the
terms of the 2004 warrant agreement. Cumulative warrants exercised relating to this issue at December 31, 2006, 2005, and 2004, were 145,750, 40,000, and -0-,
respectively.

In
2005, the Company sold 1,016,667 shares of common stock for $6,100,002 ($6.00 per share). In connection with the stock sales, the Company granted warrants to purchase up to 737,084
common stock shares at $8.25 per share through five years from the initial exercise date. To date, no warrants have been exercised. The Company paid a cash finder's fee of 7% of the gross offering
funds received in the offering. The finder also received 3.75% warrant compensation or warrants to purchase 228,750 shares of common stock at $8.25 per share through October 20, 2010. These
warrants are included in the initial 737,084 warrants issued.

In
2005, the Company also sold an additional 40,000 shares of common stock for $240,000 ($6.00 per share).

Preferred Stock:

The Company has authorized 10,000,000 shares of no-par-value preferred stock. Through December 31, 2006, the Company had not issued
any of the authorized preferred stock.

NOTE 3MINING PROPERTIES:

Mining properties are comprised of acquisition, exploration, and development costs related to the Advance and Iroquois properties in the Northport region of
northeastern Washington State and the Montanore property in northwestern Montana, as shown below:

December 31,2006

2005

2004Montanore

$
278,519

$
278,519

$
278,519Advance


2,139


2,139


2,139Iroquois


223,834


223,834


223,834$
504,492

$
504,492

$
504,492


39

---



The
Montanore property (formerly the Noxon property) located in northwestern Montana includes 18 mining claims covering 355 acres plus one 5-acre patented mill site. In
August 2002, the Company acquired a controlling interest in the Montanore silver and copper deposit in Sanders County, Montana. The Company received a quitclaim deed from Noranda Mineral Corp.
(Noranda) when Noranda elected to withdraw from the project. The mineral rights acquired by the Company are subject to a $0.20 per ton royalty, and a 5% net profits royalty which would commence after
the operator has recovered all of its exploration and development costs. In December 2002, the Company received a quitclaim deed to all intellectual property connected with studies that Noranda
carried out on the project.

The
Advance property consists of 720 acres of patented mineral rights. Although the Company does not own the overlying surface rights to its patented mineral rights, it does have right
of access to explore and mine.

The
Iroquois property consists of 64 acres of patented mineral and surface rights and 15 unpatented mining claims containing 300 acres.

NOTE 4INVESTMENTS:

The Company owns four $110,416 certificates of deposit and six $111,549 certificates of deposit for a total of $1,110,959. These investments mature in 2008 and
earn rates from 3.3% to 3.64%. The Company owns ten $217,568 certificates of deposit and ten $108,361 certificates of deposit for a total of $3,259,293. These investments mature in 2009 and earn rates
of 4.21% and 4%, respectively.

The
Company owns 45,000 free-trading shares of Bitterroot Resources, Ltd. (BTT), a public Canadian corporation traded on the Toronto Venture Exchange. The shares are
held as "available for sale." This investment is being recorded at fair market value with a corresponding adjustment to stockholders' equity. The 45,000 free-trading shares at
December 31, 2006, 2005, and 2004, have a market value of $28,213, $15,057, and $14,210 U.S. funds, respectively. The Company also owns 196,000 free-trading shares of Centram
Exploration Ltd., a public Canadian corporation traded on the Toronto Venture Exchange. The shares are held as "available for sale." The shares were received in year 2002 in exchange for
administrative services provided by the Company. The 196,000 free-trading shares at December 31, 2006, 2005, and 2004, have a market value of $49,631, $10,089, and $9,722 U.S.
funds, respectively.

NOTE 5STOCK OPTIONS:

During the year ended December 31, 1998, the stockholders of the Company approved two stock-based compensation plans: a fixed employee stock-based
compensation plan and a performance-based plan. Under the fixed plan, the Company may grant options to purchase up to 460,000 shares of common stock. The option price shall not be less than the fair
market value on the date of grant of the shares. Stock options shall be exercisable within ten years from the date of the grant of the option. Options under the fixed plan vest immediately.

At
December 31, 2006, no 1998 nonqualified plan options were outstanding.

Under
the performance based plan, the Company may grant options to purchase up to 460,000 shares of common stock. The option price shall not be less than the fair market value on the
date of grant of the shares. Stock options shall be exercisable within ten years from the date of the grant of the option. Options under the incentive plan vest immediately.

At
December 31, 2006, no incentive-based plan options were outstanding.

During
the year ended December 31, 2003, the stockholders of the Company approved two new stock-based compensation plansthe 2003 Stock Option Plan (which includes
both qualified and

40

---



nonqualified
options) and the 2003 Consultant Stock Compensation Plan. Under the 2003 Stock Option Plan, the Company may grant options to purchase up to 1,200,000 shares of common stock. Under the
2003 Consultant Stock Compensation Plan the Company may grant options to purchase up to 400,000 shares of common stock. During 2004, the Company increased the maximum number of shares of common stock
available under the 2003 Stock Option Plan and the 2003 Consultant Stock Compensation Plan to 3,000,000 and 700,000 shares, respectively.

Under
both 2003 plans the option price shall be no less than 100% of the fair market value per share on the date of grant. Stock options shall be exercisable within ten years from the
date of the grant of the option. Vesting of the options granted under both plans is at the prerogative of the Board of Directors. Options granted under the plans in 2003 vest immediately except for
options issued to Glenn Dobbs, President and Chairman of the Board of Directors. Options issued to Mr. Dobbs were 50% vested at year end December 31, 2003, and become fully vested upon
completion of certain financing arrangements. The options granted to Mr. Dobbs were fully vested at year end December 31, 2004.

At
December 31, 2006, the following 2003 plan options were outstanding:

| |          | Exercise
Prices |           | Number of
Options |         | Weighted
Average
Exercise Price |   | Remaining
Contractual
Life |  | Number
Exercisable
| | -------- | --------------- | --------- | ----------------- | ------- | ------------------------------- | - | -------------------------- |  | ------------------
|
| |          | $               | 1.60      |                   | 500,000 |                                 | $ | 1.60                       |  | 1.18              
| |          |                 | 1.85      |                   | 100,000 |                                 |   | 1.85                       |  | 1.66              
| |          |                 | 3.95      |                   | 20,000  |                                 |   | 3.95                       |  | 2.48              
| |          |                 | 4.65      |                   | 475,000 |                                 |   | 4.65                       |  | 2.34              
| |          |                 | 3.75      |                   | 220,000 |                                 |   | 3.75                       |  | 3.01              
| |          |                 | 3.93      |                   | 155,000 |                                 |   | 3.93                       |  | 3.09              
| |          |                 | 4.01      |                   | 214,000 |                                 |   | 4.01                       |  | 3.41              
| |          |                 | 5.01      |                   | 5,000   |                                 |   | 5.01                       |  | 3.47              
| |          |                 | 5.01      |                   | 175,000 |                                 |   | 5.01                       |  | 4.45              
| |          |                 | 5.01      |                   | 30,000  |                                 |   | 5.01                       |  | 4.66              
| |          |                 | 5.01      |                   | 100,000 |                                 |   | 5.01                       |  | 3.96              
| |          |                 | 5.01      |                   | 200,000 |                                 |   | 5.01                       |  | 4.58              
| |          |                 |           |                   |         |                                 |   |                            |  |                   
| | Subtotal |                 | 2,194,000 |                   | $       | 3.70                            |   |                            |  | 1,874,000         
| |          |                 |           |                   |         |                                 |   |                            |  |                   

During
January 2005, the Company issued 214,000 stock options to an individual as compensation for the performance of marketing services. The options have an exercise price of
$4.01 and vest 25% at the time of issuance, 25% in 60 days thereafter, and the remaining balance on May 28, 2005. The options expire five years from issuance.

During
February 2005, the Company issued 205,000 stock options to directors and employees. The options have an exercise price of $3.93 and vest immediately. The options expire
five years from issuance.

During
June 2005, the Company issued 25,000 stock options to an individual as compensation for the performance of consulting services. The options have an exercise price of $5.70
and vest immediately. The options expire five years from issuance.

During
June 2005, the Company issued 25,000 stock options to an individual as compensation for the performance of consulting services. The options had an exercise price of $5.99
per share, representing the share price at the close of trading on June 6, 2005, and vested 40% at the time of issuance (June 6, 2005), and 20% each on June 6, 2006, 2007, and
2008. The Company has a policy of re-pricing all incentive stock options as market conditions allow. As a result, the above stock option

41

---



grants
on June 6, 2005, were cancelled and replaced by the same number of stock options at an exercise price of $4.92 per share representing the stock price as of the close of trading on
September 7, 2005. During September 2006, the remaining options outstanding were forfeited.

During
December 2005, the Company issued 100,000 stock options to an officer. The options have an exercise price of $6.34 per share, representing the share price at the close of
trading on December 13, 2005, and vest 50% at the time of issuance (December 13, 2005), and 50% on December 13, 2006. During October 2006, the options were cancelled and
replaced by the same number of stock options at
an exercise price of $5.01 per share representing the stock price as of the close of trading on October 3, 2006.

During
June 2006, the Company issued 170,000 stock options to officers, directors, and employees and 5,000 stock options to an individual as compensation for the performance of
consulting services. The options had an exercise price of $6.20 and vest immediately. The options expire five years from issuance. During October 2006, the options were cancelled and replaced
by the same number of stock options at an exercise price of $5.01 per share representing the stock price as of the close of trading on October 3, 2006.

During
July and September 2006, the Company issued 200,000 stock options to directors and 30,000 to the new Project Engineer for the Montanore Project. The options have an
exercise price of $6.42 and $6.21, respectively. The options issued to the directors vest over a two-year period, 20,000 on July 9, 2007, and 20,000 on July 9, 2008, for each
director. For the options issued to the new employee, 10,000 vest immediately while the remaining 20,000 vest over a two-year period, 10,000 on September 20, 2007, and 10,000 on
September 20, 2008. Fair value of the options is calculated using the Black-Scholes option-pricing model and is recognized as the options vest. During October 2006, the options were
cancelled and replaced by the same number of stock options at an exercise price of $5.01 per share representing the stock price as of the close of trading on October 3, 2006.

For
purposes of calculating the fair value of options, volatility for the two years presented is based on the historical volatility of the Company's common stock over its public trading
life. The Company currently does not foresee the payment of dividends in the near term. The fair value for these options was estimated at the date of grant using the Black-Scholes option-pricing model
with the following assumptions:

Years Ended
December 31,2006

2005

2004Weighted average risk-free interest rate


4.67
%

3.56
%

1.27
%Weighted average volatility


59.02
%

70.48
%

72.50
%Expected dividend yield








Weighted average expected life (in years)


2.00


2.00


1.00Weighted fair value (in dollars)

$
1.78

$
1.94

$
3.01


42

---



The following summarizes option activity for the years presented:

Shares
Under Option

Weighted-Average
Exercise Price
Per ShareBalance, at January 1, 2004

1,060,000

$
1.49Issued

930,000


4.91Exercised

(178,907
)

1.28Forfeited (Cashless Purchase)

(21,093
)

1.21Balance, at January 1, 2005

1,790,000

$
3.02Issued

549,000


4.46Exercised

(178,157
)

1.65Forfeited (Cashless Purchase)

(72,343
)

3.92Balance at January 1, 2006

2,088,500

$
3.48Issued

695,000


5.77Exercised

(273,374
)

3.36Forfeited

(316,126
)

6.12Balance at December 31, 2006

2,194,000

$
3.70


Options
outstanding at December 31, 2006, have a remaining contractual life of approximately three years.

NOTE 6CONCENTRATION OF CREDIT RISK:

The Company maintains its cash and cash equivalents in one financial institution. Balances are insured by the Federal Deposit Insurance Corporation up to $100,000
per institution.

NOTE 7DEFERRED INCOME TAX:

At December 31, 2006, 2005, and 2004, the Company had deferred tax assets that were fully reserved by valuation allowances. Following are the components of
such assets and allowances:

December 31,2006

2005

2004Deferred tax assets arising from:Net operating loss carryforwards

$
1,770,000

$
959,000

$
373,000Stock option compensation


610,000


460,000


310,000Accrued severance compensation





2,000


12,0002,380,000


1,421,000


695,000Less valuation allowance


2,380,000


1,421,000


695,000Net deferred tax assets

$


$


$



For
the periods presented, the effective income tax rate differed from the expected rate because of the effects of annual changes in the deferred tax asset valuation allowance. Changes
in the deferred tax asset valuation allowance for the years ended December 31, 2006, 2005, and 2004, relate only to corresponding changes in deferred tax assets for those periods.

At
December 31, 2006, the Company had federal tax-basis net operating loss carryforwards totaling approximately $11,800,000, which will expire in various amounts from
2006 through 2025.

43

---



NOTE 8CONTINGENCY:

On August 11, 2005, Mines Management was named as a co-defendant in a lawsuit filed by Montana Reserves Company (MRC) in the Superior Court of
the State of Washington in Spokane County, Washington. Named as co-defendants are Noranda Minerals, Normin Corp., Mines Management and Newhi, Inc. The action seeks damages in
connection with the conveyance of the Montanore property from Noranda to Newhi, and challenges the computation of a net proceeds royalty
payable to MRC pursuant to a Royalty Agreement between Noranda and MRC in respect to the Montanore property. Management does not believe that the outcome of this lawsuit will have a material adverse
effect.

NOTE 9BUSINESS COMBINATION:

On May 31, 2006, Noranda Finance Corporation and Newhi, Inc., executed a stock transfer agreement by which all issued and outstanding shares of
capital stock for both Noranda Minerals Corporation and Normin Corporation have been transferred to Newhi, Inc. Noranda Minerals Corporation and Normin Corporation are Delaware corporations
registered to do business in Montana. At the same time, Newhi submitted a $30,000 cash bond to the MDEQ (DEQ) to replace Noranda's previous bond. Subsequently, the official names of the companies
where changed to Montanore Mineral Corporation and Montmin Corporation, respectively. The existing Montana State Hard Rock Permit #00150 and MPDES permit MT-00320279 stayed in place with
Montanore Mineral Corporation, formerly known as Noranda Minerals Corporation, which is now owned by Newhi, Inc., a wholly-owned subsidiary of the Company.

44

---





ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES.



We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit under
the Securities Exchange Act of 1934, as amended (the "Exchange Act") is recorded, processed, summarized and reported within the time period specified in the rules and forms of the Securities and
Exchange Commission, and that such information is accumulated and communicated to the Company's management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow
timely decisions regarding required financial disclosure.

The
management of the Company, under the supervision and with the participation of the Company's Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the
Company's disclosure controls and procedures, pursuant to Exchange Act Rules 13a-15(e) or 15d-15(e) as of the end of the period covered by this report. Based on that
evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective as of the end of the period covered by this report.



The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in
Rule 13a-15(f) under the Exchange Act. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:



Because
of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management
has assessed the effectiveness of its internal control over financial reporting as of December 31, 2006. In making its assessment of the effectiveness of internal
control over financial reporting, management used the criteria described in "Internal ControlIntegrated Framework" issued by the Committee of Sponsoring Organizations of the Treadway
Commission.

45

---



Based
on its assessment using those criteria, management concluded that Mines Management maintained effective internal control over financial reporting as of December 31, 2006.

Management's
assessment of the effectiveness of Mines Management's internal control over financial reporting as of December 31, 2006, has been audited by LeMaster & Daniels
LLP, our independent registered accounting firm, as stated in their report which appears herein.



There was no change in the Company's internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of
Exchange Act Rules 13a-15 that occurred during the Company's last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company's internal
control over financial reporting.

ITEM 9B. OTHER INFORMATION

None.

46

---



PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Directors and Officers

|Name               |  | Age |  | Office Held                                                  |  | Year First Elected
|------------------ |  | --- |  | ------------------------------------------------------------ |  | ------------------
|Glenn M. Dobbs     |  | 64  |  | President and Chief Executive Officer, Director              |  | 2003              
|James H. Moore     |  | 62  |  | Chief Financial Officer                                      |  | 2004              
|Eric C. Klepfer    |  | 50  |  | Vice President, Operations                                   |  | 2004              
|Douglas D. Dobbs   |  | 40  |  | Vice President, Corporate Development and Investor Relations |  | 2002              
|Roy G. Franklin    |  | 70  |  | Director                                                     |  | 1988              
|Robert L Russell   |  | 72  |  | Director                                                     |  | 1999              
|Jerry G. Pogue     |  | 64  |  | Director                                                     |  | 1999              
|Russell C. Babcock |  | 69  |  | Director                                                     |  | 2004              

Glenn M Dobbsis President and Chief Executive Officer and a member of the Board of Directors of Mines Management, Inc., with
experience in international finance, investment banking, natural resource financing and as a business development consultant. He has been President and CEO of MMI since January 2003 and served
as Vice President from December 2002 to January 2003. Prior to joining MMI Mr. Dobbs was the Managing Director of the InterGold (Hedge Fund) from 1996 to December 2002.
Mr. Dobbs was the founder of the Alpha Commodities Fund in 1976, founder and Board Chairman of First American Bank in 1978, Dallas regional manager for Monex International, founder of the
InterGold (Hedge) Fund in 1996, and a former member of the Washington State House of Representatives. Mr. Dobbs has written and lectured on precious metals sector investing, resource
development and financing.

James H. Mooreis Chief Financial Officer of Mines Management, Inc. and has over 30 years senior level experience in
financial management with the mining sector. Prior to joining Mines Management, from 2002 to 2004, Mr. Moore was an independent mining consultant for Idaho General Mining Inc. From 1997 through
2003 he was the Vice President of Business Development for RAHCO International, Inc., a heavy mining equipment designer and manufacturer in Spokane, Washington. Prior to that time
Mr. Moore was employed by Barrick Gold Corporation in Santiago, Chile as Vice President and Chief Financial Officer for its Latin American division. Other experience include service as Division
Controller Mobil Oil, Energy Minerals Division, and Operations Controller for United Nuclear Corporation. Mr. Moore attended Stanford University and graduated from University of Utah with a
B.S. in accounting.

Eric C. Klepferis Vice President, Operations of Mines Management, Inc. Mr. Klepfer has more than 22 years mining
experience including project management, regulatory and environmental engineering, and mine planning and is responsible for all activities related to the advancement of the Montanore Project. Prior to
joining us in August 2004, he worked as an environmental engineering and regulatory consultant from October 2003. Mr. Klepfer was employed by Coeur d'Alene Mines from 1995 through
2003: as Manager of Environmental Affairs from 1995 through 1998 for subsidiary Coeur Alaska; Director of Environmental Affairs from 1998 through 2002; and as Vice President of Technical Services from
2002 through October 2003 for subsidiary Earthworks Technology. Mr. Klepfer was employed by Newmont Mining from 1994 through 1995. Mr. Klepfer is a director of Timberline Resources
Corporation, a company traded on the Pink Sheets under the symbol TBLC.PK.

Douglas D. Dobbsis Vice President, Corporate Development and Investor Relations of Mines Management, Inc. Mr. Dobbs has
13 years experience in investments, corporate planning and

47

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marketing.
He joined MMI in October 2002, prior to which he served from April 2001 to October 2002 as senior business and marketing analyst with Avista Labs, a wholly owned subsidiary of
Avista Corp., involved in the development of energy technology. While at Avista, Mr. Dobbs was responsible for strategic planning, as well as market and corporate development activities. Prior
to joining Avista, Mr. Dobbs worked with companies including Piper Jaffray Co., and National Securities Corp., and was the founder and principal of Dobbs Financial Services, an investment
management firm involved with investment and market analysis and portfolio management. Mr. Dobbs holds a B.A. in economics from Hillsdale College and was formerly a licensed investment manager
and registered investment advisor.

Roy G. Franklinis a certified public accountant with 38 years experience in small company administration and finance. He was
formerly a director of Heidelberg Silver Mining Company and was a principal in the accounting firm of Oswalt, Teel, and Franklin, P.S. from 1964 until his retirement in June 2003. Since his
retirement, he has served as a consultant for several businesses in the State of Washington.

Robert L. Russell, a Professional Engineer, has served as President and Director of Idaho General Mines, a publicly held metals
exploration company, since March 1999. From September 1998 to May 2004, Mr. Russell was engaged in providing mining management consulting services through his consulting company,
R.L. Russell Associates. Prior to 1998, Mr. Russell has held positions with Exxon Minerals and Freeport McMoRan Copper and Gold, where he served as Vice President of Mining. Mr. Russell
acted as General Manager of Freeport's Indonesian gold operations. From 1995 to 1998 Mr. Russell was employed by Zambia Consolidated Copper Mines, including as General Manager of the Nchanga
Division. In that position Mr. Russell was responsible for two operating mines and several metallurgical facilities.

Jerry G. Pogueis a businessman with experience in the management and financing of junior resource companies. Mr. Pogue has been a
self employed financial consultant since 1995 in the mining sector. He has managed a large sales organization, has worked as a stockbroker and investment analyst, and has financed and managed a number
of companies in the resource and technology sectors. He lectures at international mining investment conferences.

Russell C. Babcockreceived a B.S. in geology from Lawrence College in 1957 and an M.S. in geology from the University of Wisconsin,
Madison. He was employed by Kennecott in various exploration geology positions from 1956 through his retirement in 1994, including service as Director of Exploration from January 1986 through
November 1990 and Chief Geologist from November 1990 until he retired in 1994. Since his retirement, he has worked as a consulting economic geologist, specializing in exploration for and
evaluation of base and precious metal deposits worldwide. In 2003, he was the recipient of the Society for Mining Metallurgy, and Exploration Ben Dickerson Award.

Code of Ethics

We have adopted a Code of Ethics, which applies to our CEO and senior financial officers. The text can be found on our website www.minesmanagement.com under the
heading "Corporate Governance."

Section 16(a) Compliance

Based solely upon a review of Forms 3 and 4 and amendments thereto furnished to the Company pursuant to Section 240.16a-3 during the most
recent fiscal year, and Form 5 and amendments thereto furnished to the Registrant with respect to the most recent fiscal year, no person who at any time during the fiscal year was a director,
officer, or beneficial owner or more than ten percent of any class of equity securities of the Company failed to file on a timely basis, as disclosed in the above forms, reports required by
Section 16(a) of the Exchange Act during the most recent fiscal year, except Eric Klepfer (two Forms 4), James Moore (one Form 4), Jerry Pogue (three Forms 4), Robert L. Russell

48

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(two
Forms 4), Roy G. Franklin (three Forms 4), Glenn M. Dobbs (two Forms 4), Douglas D. Dobbs (two Forms 4), and Russell C. Babcock (two Forms 4).

Director Nomination

There have been no material changes to our policies regarding director nomination. Shareholders wishing to recommend a director candidate to serve on the Board
may do so by providing advance written notice to the Corporate Secretary, which identifies the candidate and includes certain information regarding the nominating shareholder and the candidate. A
nominee for director should be a person of integrity and be committed to devoting the time and attention necessary to fulfill his or her duties to Mines Management. The Nominating Committee will
evaluate the independence of directors and potential directors, as well as his or her business experience, or specialized skills or experience. Diversity of background and experience, including
diversity of race, ethnicity, international background, gender and age, are also important factors in evaluating candidates for board membership. The Nominating Committee will also consider issues
involving possible conflicts of interest of directors or potential directors.

Audit and Finance Committee and Financial Expert

Roy B. Franklin (Chairman), Russell C. Babcock, and Robert L. Russell comprise the Audit and Finance Committee, with Roy B. Franklin qualifying as an "Audit
Committee financial expert" within the meaning of the rules adopted by the Securities and Exchange Commission. The Board has determined that each member of the Audit Committee is "independent" as that
term is defined in the listing rules of the American Stock Exchange.

ITEM 11. EXECUTIVE COMPENSATION

Compensation Discussion & Analysis



We compensate our executives through a mix of base salary, cash bonus awards and performance-based equity compensation. Our compensation program is designed to
attract and retain the best possible executive talent, to tie annual and long-term cash and equity incentive compensation to the achievement of measurable corporate, business unit and
individual performance objectives, and to align compensation incentives available to our executives with the goal of creating stockholder value. To achieve these objectives, we tie a substantial
portion of our executives' overall compensation to goals specific to the areas of the executive's responsibility and that relate to the achievement of corporate objectives, including financial
objectives. In addition, we provide our executives a variety of other benefits that we also make available generally to all salaried employees.



Overall, our aim is to offer our executives total compensation opportunities that represent a compensatory level consistent with a peer group of competitive
companies. Accordingly, we seek to review the compensation that we offer against that offered by peer group companies on an annual basis. Peer group companies reviewed in 2006 include: Idaho General
Mines, Inc., Gold Reserve Corporation, Golden Star Resources, Ltd., and Hecla Mining Co.

49

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Base Salary

Cash Bonus
Awards

Equity
CompensationGlenn M. Dobbs, President and Chief Executive Officer

70%

18%

12%James H. Moore, Chief Financial Officer

73%

9%

18%Eric C. Klepfer, Vice President Operations

72%

8%

20%Douglas D. Dobbs, Vice President Corporate Development, Investor Relations

74%

2%

24%




We provide the following compensation components to our executives:

Base Salary.We establish base salaries for our executives based on the scope of their
responsibilities, and take into account competitive market compensation paid by companies in our competitive peer group for similar positions. Generally, we believe that executive base salaries should
be targeted to be consistent with the salaries for executives in similar positions and with similar responsibilities at comparable companies in order to best attract, retain and equitably reward our
executives.

We
review base salaries annually, and adjust base salaries from time to time to realign salaries with market levels after taking into account individual responsibilities, performance and
experience. Our Compensation Committee determines the salary for our Chief Executive Officer, and, after consideration of the Chief Executive Officer's recommendations, for each officer other than the
Chief Executive Officer. In 2006, we increased base salaries for each of our executive officers in the following percentages: Mr. Dobbs: 14%; Mr. Moore: 40%; Mr. Klepfer: 6% and
Mr. Douglas Dobbs: 11%. The increases were based on individual performance, the Company's performance, and to bring salaries in line with our identified peer group.

Based
on information gathered, we believe that we compensate our executives equitably when compared to competitive or similar companies.

Cash Bonus Awards.We utilize cash bonus awards to align executive compensation with corporate
objectives and individual performance and contribution. Our Compensation Committee determines the bonus level for our Chief Executive Officer, and, after consideration of the Chief Executive Officer's
recommendations, for each officer other than the Chief Executive Officer.

In
2006, cash bonuses were awarded to our executive officers in the following amounts: Mr. Dobbs: $53,000; Mr. Moore: $18,000; Mr. Klepfer: $14,000; and
Mr. Douglas Dobbs: $3,000. Cash bonuses were
awarded in recognition of achievement of individual goals and completion of the acquisition of Noranda Mineral Corporation and Normin Corporation in May 2006.

Performance-Based Equity Awards.We believe that share ownership, facilitated in part through the use
of stock-based awards, encourages long-term performance by our executive officers. Our 2003 Stock Option Plan permits the grant of stock options to our employees, directors and
consultants.

In
2006, we granted stock options to three of our executive officers, Mr. Dobbs, Mr. Moore and Mr. Klepfer, to purchase 60,000, 20,000 and 20,000 shares,
respectively, of our common stock at exercise prices ranging from $6.20 to $6.42 per share. Incentive awards for officers are based on achievement of corporate objectives and are determined annually
by the Board of Directors.

50

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In
addition to granting equity-based awards to our executives as part of a long-term incentive plan, we also intend to utilize these shares in recognition of individual
achievements and contributions to corporate or business unit performance or in circumstances where we face a critical retention need. We do not maintain any equity or other security ownership
guidelines or requirements for our executives. Additionally, we do not have a formal or informal policy regarding adjustment or recovery of awards or payments if the relevant performance goals or
measures upon which they are based are restated or otherwise adjusted so that awards or payments are reduced.

In
May 2004 the Company adopted a repricing policy. Under that policy, if the price of our Common Stock drops $1.00 or more below the exercise price of a previously granted
option, the exercise price of such options is reduced to the closing price of our Common Stock on the date of the repricing. This policy may be applied to an option that was previously repriced. This
policy has been consistently applied since its implementation.



Upon termination of a participant's employment or service, the participant will forfeit any outstanding performance-based equity awards except that a participant
will have 90 days following termination of employment or service to exercise any vested options or stock appreciation rights (one year if termination of employment or service is a result of the
participant's disability or death). Additionally, Mr. Dobbs and Mr. Moore are entitled to receive certain payments from us in the event of certain change of control events.

Companies
of our size in the mining industry face a number of risks, including the risk of being acquired in the future. We believe that entering into change of control and severance
arrangements with certain of our executives has helped us attract and retain the best possible executive talent. Without these provisions, some of our executives may not have chosen to accept
employment with us or to remain employed by us. For a further description of the payments that Mr. Dobbs and Mr. Moore, two of our executive officers, are entitled to receive in the
event of certain change of control or termination events, please see "Potential Payments Upon Termination or Change of Control" below.



Under Section 162(m) of the Internal Revenue Code of 1986, as amended, a public company is generally denied deductions for compensation paid to the chief
executive officer and the next four most highly compensated executive officers to the extent the compensation for any such individual exceeds one million dollars for the taxable year. Our Compensation
Committee intends to preserve the deductibility of compensation payable to our executives, although deductibility will be only one among a number of factors considered in determining appropriate
levels or modes of compensation.



We are incorporated in the State of Idaho. Sections 30-1-351 through 30-1-852 of the Idaho Business Corporation
Act provide that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any action, whether civil, criminal, administrative or investigative, by reason of
the fact that such person is or was a director, officer, employee, fiduciary, or agent of the Company, or was serving at its request in a similar capacity for another entity, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection therewith if he acted in good faith and in a manner he reasonably
believed to be in the best interest of the Company and which was at least not opposed to the best interests of the Company, and with respect to any criminal action or proceeding, had no reasonable
cause to believe his conduct was unlawful. In case of an action brought by or in the right of

51

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the
Company, such persons are similarly entitled to indemnification if they acted in accordance with the standard of conduct set forth above, but no indemnification shall be made if such person was
adjudged liable on the basis that he received a financial benefit to which he was not entitled. In such event, indemnification is limited to reasonable expenses. Such indemnification is not deemed
exclusive of any other rights to which those indemnified may be entitled under the Company's Articles of Incorporation, bylaws, agreement, vote of shareholders or disinterested directors, or
otherwise.

Our
Articles of Incorporation generally allow indemnification of officers and directors to the fullest extent allowed by law. We currently intend to indemnify our officers and directors
to the fullest extent permitted by the Articles of Incorporation and Idaho law. We have no other agreements with our officers or directors that pertain to indemnification.

We
also maintain insurance policies under which our directors and officers are insured, within the limits and subject to the limitations of the policies, against expenses in connection
with the defense of actions, suits or proceedings, and certain liabilities that might be imposed as a result of such actions, suits or proceedings, to which they are parties by reason of being or
having been a director or officer of Mines Management, Inc.

Summary Compensation

The following table sets forth the compensation paid or accrued for the benefit of the principal executive officer, principal financial officer and each other
executive officer whose total compensation exceeded $100,000 for the year ended December 31, 2006 (together, the "Named Executive Officers").

|Name and Principal Position(1)                                  |  | Year |  | Salary
($) |  | Bonus
($) |  | Option Awards
($)(2) |     | All Other
Compensation
($) |  | Total
($)
|--------------------------------------------------------------- |  | ---- |  | ---------- |  | --------- |  | -------------------- | --- | -------------------------- |  | ---------
|Glen M. Dobbs,
    Chief Executive Officer and
    President(3) |  | 2006 |  | 205,000    |  | 53,000    |  | 35,360               | (4) |                           |  | 293,560  
|James H. Moore,
    Chief Financial Officer                     |  | 2006 |  | 143,331    |  | 18,000    |  | 213,360              | (5) |                           |  | 374,691  
|Eric C. Klepfer,
    Vice President Operations                  |  | 2006 |  | 127,000    |  | 14,000    |  | 35,560               |     |                           |  | 176,560  
|Douglas Dobbs,
    Vice President Corporate
    Development     |  | 2006 |  | 108,000    |  | 3,000     |  | 35,560               |     |                           |  | 146,560  

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Grants of Plan Based Awards

The following table sets forth information with respect to options granted to the Named Executive Officers under our 2003 Stock Option Plan in fiscal year 2006.
No restricted stock, stock appreciation rights or other equity awards were granted in 2006.

|Name            |  | Grant Date        |  | Number of Securities
Underlying
Options(1) |     | Exercise or Base
Price of Option
Awards ($) |  | Closing Market
Price on
Grant Date ($)(2)
|--------------- |  | ----------------- |  | ------------------------------------------ | --- | ------------------------------------------- |  | -----------------------------------------
|Glenn M. Dobbs  |  | 06/13/06
07/10/06 |  | 20,000
40,000                              | (3) | 5.01
5.01                                   |  | 6.20
6.42                                
|James H. Moore  |  | 06/13/06          |  | 20,000                                     |     | 5.01                                        |  | 6.20                                     
|Eric C. Klepfer |  | 06/13/06          |  | 20,000                                     |     | 5.01                                        |  | 6.20                                     
|Douglas Dobbs   |  | 06/13/06          |  | 20,000                                     |     | 5.01                                        |  | 6.20                                     

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Outstanding Equity Awards at December 31, 2006

The following table sets forth information with respect to outstanding options held by the Named Executive Officers as of December 31, 2006.

|                |  | Option Awards                        
|--------------- |  | -------------------------------------
|
|Glenn M. Dobbs  |  | 500,000
100,000
250,000
25,000
20,000
|James H. Moore  |  | 15,000
25,000
50,000
50,000
20,000   
|Eric C. Klepfer |  | 120,000

20,000                     
|Douglas Dobbs   |  | 150,000
50,000
20,000                

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54

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Option Exercises and Stock Vested

The following table sets forth information concerning all exercises of stock options during fiscal year 2006 by each of the Named Executive Officers.

Option AwardsName

Number of Shares
Acquired on Exercise
(#)(1)

Value Realized on
Exercise
($)(2)Glenn M. Dobbs



James H. Moore



Eric C. Klepfer

30,000

122,073Douglas Dobbs






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55

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Potential Payments upon Termination or Change in Control

Glenn M. Dobbs.We entered into an Executive Compensation Agreement with Glenn Dobbs, our Chief Executive Officer and
President, dated November 20, 2003 (the "Compensation Agreement"). Under the terms of the Compensation Agreement, Mr. Dobbs' salary of $100,000 took effect as of September 1, 2003
and automatically increased to $120,000 effective January 1, 2004. Mr. Dobbs was granted an option to acquire 500,000 shares of our common stock pursuant to the Mines
Management, Inc. 2003 Stock Option Plan. Mr. Dobbs is also eligible to participate in the Company's employee benefit plans. In the event of either a change of control or termination
without Cause or for Good Reason, as such terms are defined in the Compensation Agreement, Mr. Dobbs shall receive a lump sum payment equal to thirty-six (36) months salary,
such payment calculated on his annual salary at the highest rate in effect during the twelve (12) month period immediately preceding change of control plus 25% of such base amount in lieu of
employee benefit programs and club fees. In addition, all unvested options owned by Mr. Dobbs on the date of such termination shall vest immediately.

James H. Moore.We entered into an Employment Agreement with James H. Moore, our Chief Financial Officer, dated
August 10, 2005 (the "Employment Agreement"), effective as of April 1, 2005. Under the terms of the Employment Agreement, Mr. Moore receives an annual base salary of $120,000 and
is eligible to receive incentive stock options in such amounts as may be recommended from time to time by the Compensation Committee and approved by the Board of Directors. Mr. Moore is also
eligible to participate in the Company's employee benefit plans. In the event of either a change of control or termination without Cause or for Good Reason, as such terms are defined in the Employment
Agreement, he will be entitled to receive a lump sum payment equaling two (2) times his annual base salary and two (2) years of continued health benefits. In addition, all unvested
options owned by Mr. Moore as of the date of such termination shall vest immediately.

Director Compensation

The following table sets forth information concerning the compensation of the directors during the fiscal year ended December 31, 2006.

|Name               |  | Fees Earned or
Paid in Cash
($)(1) |  | Option Awards
($)(2) |  | All Other
Compensation
($) |  | Total
($)
|------------------ |  | ---------------------------------- |  | -------------------- |  | -------------------------- |  | ---------
|Roy G. Franklin    |  | 4,500                              |  | 35,560               |  |                           |  | 40,060   
|Robert L Russell   |  | 3,500                              |  | 35,560               |  |                           |  | 39,060   
|Jerry G. Pogue     |  | 2,500                              |  | 35,560               |  |                           |  | 38,060   
|Russell C. Babcock |  | 5,000                              |  | 35,560               |  |                           |  | 40,560   

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Compensation Committee Interlocks and Insider Participation

During 2006, our compensation committee consisted of Roy G. Franklin, Russell C. Babcock and Jerry Pogue. We did not compensate any of the current members of the
compensation committee during 2006 other than for service on the board of directors. No member of our compensation

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committee
and none of our executive officers serve as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving as a member of our
board of directors or compensation committee.

Compensation Committee Report

The compensation committee of the Company has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of
Regulation S-K with management and, based on such review and discussions, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be
included in this Form 10-K/A.



ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following table sets forth certain information as of March 20, 2007 regarding the number and percentage of shares of Common Stock of the Company
beneficially owned (as such term is defined in Rule 13d-3 under the Exchange Act) by each beneficial holder of more than five percent of the Common Stock, each director, each of the
named executive officers and the Company's directors and officers as a group:

|Name of Beneficial Owner(1)                         |  | Amount and Nature of Beneficial Ownership(2) |  | Percent of
Class(3) |  
|--------------------------------------------------- |  | -------------------------------------------- |  | ------------------- | -
|Glenn M. Dobbs                                      |  | 436,919 shares(4)
895,000 vested options     |  | 9.66                | %
|Roy G. Franklin                                     |  | 78,053 shares
85,000 vested options          |  | 1.26                | %
|Robert L. Russell                                   |  | 20,000 vested options                        |  | *                   |  
|Jerry G. Pogue                                      |  | 12,000 shares
20,000 vested options          |  | *                   |  
|Russell C. Babcock                                  |  | 70,000 vested options                        |  | *                   |  
|James H. Moore                                      |  | 160,000 vested options                       |  | *                   |  
|Eric C. Klepfer                                     |  | 140,000 vested options                       |  | *                   |  
|Douglas D. Dobbs                                    |  | 2,011 shares
220,000 vested options          |  | 1.07                | %
|Total of all officers and Directors (8 individuals) |  | 535,183 shares
1,610,000 vested options      |  | 14.78               | %

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Douglas Dobbs, son of Glenn Dobbs, President, Chief Executive Officer and a director of the Company, is employed by the Company as Vice President, Corporate
Development and Investor Relations and Corporate Secretary. Douglas Dobbs was employed by the Company prior to Glenn Dobbs becoming an officer or director of the Company. During the year ending
December 31, 2006, Mr. Dobbs received a salary of $108,000.00.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

Auditor Fees

The following presents fees for professional audit services rendered by LeMaster & Daniels PLLC, for the audit or review of the Company's financial
statements for the years ended December 31, 2006 and December 31, 2005, and fees billed for other services rendered by LeMaster & Daniels, during those periods.

Audit Fees.The aggregate fees billed for professional services rendered by the Company's principal accountant for the audit
of the Company's annual financial statements for the fiscal years ended December 31, 2006 and 2005 were $36,800 and $13,325, respectively.

Audit Related Fees.The Company did not incur any Audit Related Fees in 2006 or 2005.

Tax Fees.The Company incurred fees totaling $2,878 and $2,500 during the fiscal years ended December 31, 2006 and
2005, respectively, for the professional services rendered by the Company's principal accountant for tax compliance, tax advice and tax planning.

All Other Fees.The Company incurred no other fees during the last two fiscal years for products and services rendered by the
Company's principal accountant.

Pre-approval Policies and Procedures

The Audit and Finance Committee charter includes certain policies and procedures regarding the pre-approval of audit and non-audit
services performed by an outside accountant. The Committee is required to pre-approve all engagement letters and fees for all auditing services (including providing comfort letters in
connection with securities underwritings) and non-audit services performed by the outside auditors, subject to any exception under Section 10A of the Securities Exchange Act of 1934
and any rules promulgated thereunder. Pre-approval authority may be delegated to a Committee member or a subcommittee, and any such member or subcommittee shall report any decisions to the
full Committee at its next scheduled meeting. All of the services provided under the captions "Audit-Related Fees," "Tax Fees" and "All Other Fees," were approved by the Audit and Finance Committee
pursuant to its pre-approval policy as provided in the Audit and Finance Committee charter.

58

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PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.

EXHIBITS

|Exhibit
Number |  | Description of Exhibits                                                                                                                                   
|-------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1            |  | Articles of Incorporation of Mines Management, Inc., as amended.(1)(2)                                                                                    
|3.2            |  | Bylaws of Mines Management, Inc.(3)                                                                                                                       
|4.1            |  | Specimen of Certificate of Common Stock, par value $0.001(4)                                                                                              
|4.2            |  | Securities Purchase Agreement dated October 21, 2003.(5)                                                                                                  
|4.3            |  | Form of Warrant issued pursuant to the Securities Purchase Agreement.(5)                                                                                  
|4.4            |  | Registration Rights Agreement dated October 21, 2003.(5)                                                                                                  
|10.1           |  | William R. Green Separation Agreement January 13, 2003.(6)                                                                                                
|10.2           |  | Glenn Dobbs Executive Compensation Agreement dated November 20, 2003.(6)                                                                                  
|10.3           |  | James H. Moore Employment Agreement.(7)                                                                                                                   
|10.4           |  | Eric C. Klepfer Employment Agreement.                                                                                                                     
|10.5           |  | Mines Management, Inc., 1998 Stock Option Plan.(8)                                                                                                        
|10.6           |  | Mines Management, Inc., 1998 Incentive Stock Option Plan.(8)                                                                                              
|10.7           |  | Mines Management, Inc., 2003 Stock Option Plan.(9)                                                                                                        
|10.8           |  | Mines Management, Inc., 2003 Consultant Stock Compensation Plan.(9)                                                                                       
|14             |  | Code of Ethics.(10)                                                                                                                                       
|21             |  | Subsidiaries of the Registrant.                                                                                                                           
|23.1           |  | Consent of Mine Development Associates, Inc.(11)                                                                                                          
|23.2           |  | Consent of LeMaster & Daniels PLLC.                                                                                                                       
|31.1           |  | Certification of Chief Executive Officer of Periodic Report pursuant to Rule 13a-14(a) and Rule 15d-14(a)(Section 302 of the Sarbanes- Oxley Act of 2002).
|31.2           |  | Certification of Chief Financial Officer of Periodic Report pursuant to Rule 13a-14(a) and Rule 15d-14(a)(Section 302 of the Sarbanes- Oxley Act of 2002).
|32.1           |  | Certificate of Principal Executive Officer pursuant to 18 U.S.C. 1350 (Section 906 of the Sarbanes-Oxley Act of 2002).                                    
|32.2           |  | Certificate of Principal Financial Officer pursuant to 18 U.S.C. 1350 (Section 906 of the Sarbanes-Oxley Act of 2002).                                    
|99.1           |  | Audit Committee Charter.(10)                                                                                                                              
|99.2           |  | Form of Audit Committee Pre-approval Policies.(10)                                                                                                        
|99.3           |  | Committee Charters (Board of Directors)(12)                                                                                                               

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59

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed
March 27, 2007 on its behalf by the undersigned, thereunto duly authorized.

| |  | MINES MANAGEMENT, INC.Registrant
| |  | --------------------------------
| |  | By:                             

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EXHIBIT INDEX

|Exhibit
Number |  | Description of Exhibits                                                                                                                                   
|-------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1            |  | Articles of Incorporation of Mines Management, Inc., as amended.(1)(2)                                                                                    
|3.2            |  | Bylaws of Mines Management, Inc.(3)                                                                                                                       
|4.1            |  | Specimen of Certificate of Common Stock, par value $0.001(4)                                                                                              
|4.2            |  | Securities Purchase Agreement dated October 21, 2003.(5)                                                                                                  
|4.3            |  | Form of Warrant issued pursuant to the Securities Purchase Agreement.(5)                                                                                  
|4.4            |  | Registration Rights Agreement dated October 21, 2003.(5)                                                                                                  
|10.1           |  | William R. Green Separation Agreement January 13, 2003.(6)                                                                                                
|10.2           |  | Glenn Dobbs Executive Compensation Agreement dated November 20, 2003.(6)                                                                                  
|10.3           |  | James H. Moore Employment Agreement.(7)                                                                                                                   
|10.4           |  | Eric C. Klepfer Employment Agreement.                                                                                                                     
|10.5           |  | Mines Management, Inc., 1998 Stock Option Plan.(8)                                                                                                        
|10.6           |  | Mines Management, Inc., 1998 Incentive Stock Option Plan.(8)                                                                                              
|10.7           |  | Mines Management, Inc., 2003 Stock Option Plan.(9)                                                                                                        
|10.8           |  | Mines Management, Inc., 2003 Consultant Stock Compensation Plan.(9)                                                                                       
|14             |  | Code of Ethics.(10)                                                                                                                                       
|21             |  | Subsidiaries of the Registrant.                                                                                                                           
|23.1           |  | Consent of Mine Development Associates, Inc.(11)                                                                                                          
|23.2           |  | Consent of LeMaster & Daniels PLLC.                                                                                                                       
|31.1           |  | Certification of Chief Executive Officer of Periodic Report pursuant to Rule 13a-14(a) and Rule 15d-14(a)(Section 302 of the Sarbanes- Oxley Act of 2002).
|31.2           |  | Certification of Chief Financial Officer of Periodic Report pursuant to Rule 13a-14(a) and Rule 15d-14(a)(Section 302 of the Sarbanes- Oxley Act of 2002).
|32.1           |  | Certificate of Principal Executive Officer pursuant to 18 U.S.C. 1350 (Section 906 of the Sarbanes-Oxley Act of 2002).                                    
|32.2           |  | Certificate of Principal Financial Officer pursuant to 18 U.S.C. 1350 (Section 906 of the Sarbanes-Oxley Act of 2002).                                    
|99.1           |  | Audit Committee Charter.(10)                                                                                                                              
|99.2           |  | Form of Audit Committee Pre-approval Policies.(10)                                                                                                        
|99.3           |  | Committee Charters (Board of Directors)(12)                                                                                                               

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