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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

COMMISSION FILE NUMBER  000-29786

MINES MANAGEMENT, INC.

(Exact Name of Registrant as Specified in its Charter)

(509) 838-6050

(Registrant’s Telephone Number, Including Area Code)

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

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

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

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

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

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CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS

Information contained in or incorporated by reference into this Quarterly Report on Form 10-Q may contain forward looking statements, as that term is defined in the Private Securities Litigation Reform Act of 1995.  The use of any of the words “development”, “anticipate”, “continues”, “estimate”, “expect”, “may”, “project”, “should”, “believe”, or similar expressions are intended to identify such statements.  Forward looking statements included in this report relate to, among other things, comments regarding further exploration and evaluation of the Montanore Project, including planned rehabilitation and extension of the Libby adit, drilling activities, feasibility determinations, engineering studies, environmental and permitting requirements, process and timing; estimates of mineralized material and measured, indicated and inferred resources; financing needs; planned expenditures for the remainder of 2009 and in 2010; potential completion of a bankable feasibility study; the markets for silver and copper; and the search for potential exploration and development opportunities in the mining industry.  We believe the expectations reflected in those forward looking statements are reasonable.  However, we cannot assure that the expectations will prove to be correct.  Disclosure of important factors that could cause actual results to differ materially from our expectations, or cautionary statements, are included under the heading “Risk Factors” in this report and our Annual Report on Form 10-K for the year ended December 31, 2008.  Certain cautionary statements are also included elsewhere in this report, including, without limitation, in conjunction with the forward-looking statements.  All forward-looking statements speak only as of the date made.  All subsequent written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by the cautionary statements.  Except as required by law, we undertake no obligation to update any forward-looking statement.  Factors that could cause actual results to differ materially from our expectations include, among others, those factors referenced in the “Risk Factors” section of this report and our Annual Report on Form 10-K for the year ended December 31, 2008 and such things as:

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

·                  Volatility in the market price for silver and copper;

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

·                  Uncertainty regarding whether reserves will be established at our Montanore Project;

·                  Uncertainties associated with developing new mines;

·                  Variations in ore grade and other characteristics affecting mining, crushing, milling and smelting and mineral recoveries;

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

·                  The availability, terms, conditions and timing of required governmental permits and approvals, and potential opposition to the issuance of significant permits;

·                  Uncertainty regarding future changes in applicable laws or implementation of existing laws;

·                  The availability of experienced employees;

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

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

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MINES MANAGEMENT, INC.

FORM 10-Q

QUARTER ENDED September 30, 2009

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PART I— FINANCIAL INFORMATION

ITEM 1.                                                     FINANCIAL STATEMENTS (UNAUDITED)

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Mines Management, Inc. and Subsidiaries

(An Exploration Stage Company)

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

See accompanying notes to condensed consolidated financial statements.

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Mines Management, Inc. and Subsidiaries

(An Exploration Stage Company)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

See accompanying notes to condensed consolidated financial statements.

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 Mines Management, Inc. and Subsidiaries

(An Exploration Stage Company)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

See accompanying notes to condensed consolidated financial statements.

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NOTE 1— ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Organization:

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

Summary of Significant Accounting Policies:

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

The preparation of financial statements in accordance with U.S. generally accepted accounting principles requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities known to exist as of the date the financial statements are published, and the reported amounts of revenues and expenses during the reporting period. Uncertainties with respect to such estimates and assumptions are inherent in the preparation of the Company’s consolidated financial statements; accordingly, it is possible that the actual results could differ from these estimates and assumptions, which could have a material effect on the reported amounts of the Company’s consolidated financial position and results of operations. Operating results for the three and nine month periods ended September 30, 2009, are not necessarily indicative of the results that may be expected for the full year ending December 31, 2009.

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

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

(a)                                  Exploration Stage Enterprise

Since the Company is in the exploration stage of operation, the Company’s financial statements are prepared in accordance with the provisions of ASC 915 Development Stage Enterprises, as it devotes substantially all of its efforts to acquiring and exploring mining interests that management believes should eventually provide sufficient net profits to sustain the Company’s existence.  Until such interests are engaged in commercial production, the Company will continue to prepare its consolidated financial statements and related disclosures in accordance with this standard.

(b)                                 Mining properties, exploration and development costs

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

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(c)                                  Stock compensation

The Company measures and records the costs of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award, recognized over the period during which an employee is required to provide services in exchange for such award.  Compensation cost is recognized for awards granted and for awards modified, repurchased or cancelled.  At September 30, 2009, the Company had three stock option plans which are described more fully in note 10.

(d)                                 Net loss per share

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

(e)                                  Reclassifications

Certain amounts in the prior-period financial statements have been reclassified for comparative purposes to conform to current period presentation with no effect on total assets or net loss as previously reported.

(f)                                    Subsequent events

The Company evaluated events and transactions for potential recognition or disclosure in the condensed consolidated financial statements through November 9, 2009, the date the financial statements were issued.

(g)                                 New accounting standards

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

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

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

In May 2009, the FASB issued ASC 855, Subsequent Events.  ASC 855 establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued.  ASC 855 is effective for interim or annual periods ending after June 15, 2009.  The Company adopted ASC 855 in the second quarter of fiscal 2009.  See note 1(f) above.

NOTE 2  — PROPERTY, PLANT AND EQUIPMENT:

Construction has begun on the underground electrical, pumping, and ventilation systems at the Libby adit at the Montanore Project.  The anticipated cost of these projects is expected to total $2,517,000, with approximately $1,500,000 included in construction in progress as of September 30, 2009.  Also included in construction in progress as of September 30, 2009 is $189,000 in costs associated with the construction of a nitrate treatment and removal system at the Montanore Project site.  The estimated total cost of this project is $1,798,000.

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

NOTE 3  — CERTIFICATES OF DEPOSIT:

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

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

NOTE 4  — AVAILABLE-FOR-SALE SECURITIES:

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

Effective January 1, 2008, the Company adopted accounting provisions for financial assets and liabilities measured at fair value on a recurring basis.  These provisions established a framework for measuring fair value in the form of a fair value hierarchy which prioritizes inputs into valuation techniques used to measure fair value into three broad levels.  This hierarchy gives the highest priority to quoted prices in active markets (Level 1) and the lowest priority to unobservable inputs (Level 3).  The Company’s available-for-sale securities are classified within Level 1 of the fair value hierarchy.  These securities are comprised of common stocks which have been valued using quoted prices in active markets.

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NOTE 5  — LINE OF CREDIT:

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

NOTE 6  —ASSET RETIREMENT OBLIGATION:

The Company has an asset retirement obligation (ARO) associated with its underground evaluation program at the Montanore Project.  The ARO resulted from the reclamation and remediation requirements of the Montana Department of Environmental Quality as outlined in the Company’s permit to carry out the evaluation program.

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

NOTE 7  — COMPREHENSIVE LOSS:

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

NOTE 8  — CONCENTRATION OF CREDIT RISK:

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

NOTE 9  — STOCKHOLDERS’ EQUITY:

Common Stock:

In 2004, the Company sold 1,285,000 common shares for $6,425,000 ($5.00 per share).  The Company paid a cash finder’s fee of 7% of the gross purchase price received in the offering.  In connection with the stock sales, the Company issued

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warrants to purchase up to 511,000 shares of common stock at $7.25 per share through February 18, 2009, including 3% warrant compensation, or warrants to purchase 192,750 common shares, issued to the finder.  In January of 2009, the Company extended the expiration date of the outstanding warrants to February 10, 2010.  These warrants were repriced to $6.00 per share in October 2005, to $5.00 per share in April 2007, and to $4.00 per share in November 2007 in accordance with the terms of the 2004 warrant agreement. Cumulative warrants exercised relating to this issue were 148,750 at September 30, 2009 and December 31, 2008.

In 2005, the Company sold 1,016,667 common shares for $6,100,002 ($6.00 per share).  The Company paid a cash finder’s fee of 7% of the gross purchase price received in the offering.  In connection with the stock sales, the Company granted warrants to purchase up to 737,084 shares of common stock at $8.25 per share through October 20, 2010, which included 3.75% warrant compensation, or warrants to purchase 228,750 common shares, issued to the finder.  These warrants were repriced at $5.00 per share in April 2007, and to $4.00 per share in November 2007, and the number of shares purchasable on exercise of options increased, in accordance with the anti-dilution provisions of the 2005 warrant agreement.  To date, no warrants relating to this issue have been exercised.

In 2005, the Company sold 40,000 common shares for $240,000 ($6.00 per share).

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

The underwriters were granted an over-allotment option, exercisable for a period of 30 days following the closing, to acquire up to an additional 900,000 units.   On May 7, 2007, the underwriters exercised the over-allotment option for 836,600 units.  The total offering was therefore 6,836,600 units for gross proceeds to the Company of $34,183,000, or $32,124,697 in net proceeds to the Company, after deducting underwriting commissions but before deducting offering expenses.  To date, no warrants relating to this issue have been exercised.

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

The following table summarizes exercise prices and expiration dates of outstanding common stock purchase warrants as of September 30, 2009.

Preferred Stock:

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

Shareholder Rights Plan:

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

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

In general terms, the Rights impose a significant penalty upon any person or group that acquires beneficial ownership of 20% or more of the Company’s outstanding common stock without the prior approval of the Board of Directors. The Rights become exercisable only if a person or group acquires 20% or more of the Company’s outstanding shares of common stock or commences a tender offer the consummation of which would result in ownership by a person or group of 20% or more of the outstanding shares of common stock.  All holders of Rights except that person or group may, for $12.00, purchase shares of the Company’s common stock with a market value of $24.00, based on the market price of the Company’s common stock prior to such acquisition.  Prior to the acquisition by a person or group of beneficial ownership of 20% or more of the Company’s outstanding shares of common stock, the Rights are redeemable for $0.001 per Right at the option of the Board of Directors of the Company.

NOTE 10 — STOCK OPTIONS:

During the year ended December 31, 2003, the stockholders of the Company approved two stock-based compensation plans — the 2003 Stock Option Plan (which includes both qualified and nonqualified options) and the 2003 Consultant Stock Compensation Plan.  Under the 2003 Stock Option Plan, the Company may grant options to purchase up to 1,200,000 shares of common stock.  Under the 2003 Consultant Stock Compensation Plan, the Company could grant options to purchase up to 400,000 shares of common stock.  During 2004, the Company increased the maximum number of common shares available under the 2003 Stock Option Plan and the 2003 Consultant Stock Compensation Plan to 3,000,000 and 700,000 shares, respectively.  The shares are issued from the Company’s authorized and unissued common stock upon exercise.

Under both 2003 Stock Option Plans, the option exercise price may not be less than 100% of the fair market value per share on the date of grant.  Stock options are exercisable within ten years from the date of the grant of the option.  The schedule for vesting of the options granted under both plans is at the discretion of the Board of Directors.

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

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

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

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

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

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

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

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

ITEM 2.                 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

We are an exploration stage company with a large silver-copper project, the Montanore Project, located in northwestern Montana.  The Montanore Silver-Copper Project continues to be the Company’s sole focus.  In addition to its advanced exploration and delineation drilling program, the Company is continuing its repermitting efforts with federal and state agencies and its engineering optimization review of the Project.

Overview

In the third quarter of 2009, the Company:

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

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

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

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

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

The net cash expenditures for the nine months ended September 30, 2009 were $0.2 million for the purchase of equipment and completion of the water treatment plant and other site infrastructure and $5.7 million for operating activities.  The Company believes that it has sufficient working capital to complete the rehabilitation of the Libby adit and commencement of delineation drilling.  The Company estimates that it will require approximately $10.0 million of additional funds to complete the delineation drilling program and a bankable feasibility study.

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Advanced Exploration and Delineation Drilling Program

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

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

Engineering refinement and geology work continues using existing information.  Geology confirmation mapping is beginning with the advance of the rehabilitation down the decline.  The agencies have reviewed our three-dimensional hydrologic model and are working collaboratively to determine how it can be implemented in the final EIS.  The new model addresses water quantity, water quality, and other public and agency comments for the project.  We have also started to initiate hydrological investigation in the Libby adit, as required by minor revisions to our Hard Rock Operating Permit 150, which will provide important technical data for the hydrologic model.

Permitting and Environmental

In the second quarter of 2009, the U.S Forest Services (USFS) and the Montana Department of Environmental Quality (DEQ) issued the draft environmental impact statement for public review.   The agencies extended the public review period for 30 days to June 29, 2009.  The public meeting for comments was held as scheduled on April 16, 2009.  The Company finished its review of the draft EIS and is working with the agencies on its comments to the draft EIS.

In the third quarter of 2009, the Company continues to work on technical and regulatory issues with the agencies with regard to the EIS, project mitigation, public comments and other project issues.  The Company continues to collect baseline data in anticipation of starting up the evaluation work in 2010.  This includes data regarding fisheries, water quality, grizzly bear, and other important environmental receptors.  Also, a site meeting occurred in June 2009 with the Montana DEQ, USFS, Environmental Protection Agency, and Army Corps of Engineers to review the project as part of the Least Damaging Practicable Alternative process.  Specifically, in selecting the least environmentally damaging practicable alternative, the relevant government agencies are evaluating the proposed locations for the construction of a tailings impoundment based on which location best affords protection of the aquatic ecosystem while enabling the Company to meet its project purpose.

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

Financial and Operating Results

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

Quarter Ended September 30, 2009

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

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operating expenses in the second and third quarters of 2009 to conserve resources pending the determination of environmental permits.

Nine Months Ended September 30, 2009

The Company reported a net loss for the nine months ended September 30, 2009 of $7.2 million, or $0.32 per share, versus a loss of $7.5 million or $0.33 per share for the nine months ended September 30, 2008.  The decrease in net loss in 2009 is largely attributable to a decrease in general and administrative expenses of $1.1 million which is comprised of a decline in promotion and investor relations expenses of $0.2 million and a decrease in stock compensation of $0.9 million.  Technical services costs increased by $0.2 million in 2009 for work on the Libby adit water treatment system including rehabilitation, sump and decant construction, and pumping station installation.   Legal, accounting, and consulting expenses decreased by $0.2 million. Other income (loss) for the nine months ending September 30, 2009 decreased by $0.9 million from 2008 because of a $0.5 million loss from the change in fair market value of warrant derivatives and a reduction of net interest income of $0.4 million.

Liquidity

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

We continue to reduce activity levels, including capital expenditures, until the timing of the Record of Decision becomes more clear.  We anticipate expenditures of approximately $2.0 million in the final quarter of 2009, which will consist of $1.0 million for general and administrative expenses and $1.0 million for ongoing expenses in preparation for the delineation drilling program, additional mine scoping studies, and responding to EIS comments.  Given our current available funds of $14.2 million on September 30, 2009, we will require approximately $10.0 million of external financing in 2010 to fund the final phases of the advanced exploration program and delineation drilling program and completion of a bankable feasibility study.  The Company continues to investigate financing opportunities and the potential for equity or debt financing during the current year.

Off-Balance Sheet Arrangements

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

ITEM 3.                 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK AND HEDGING ACTIVITIES

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 in local and national banking institutions.  We manage the timing of cash required for review of the permitting and engineering of the Montanore Project and for general corporate purposes utilizing our money market account and we invest funds not immediately required in certificates of deposit with varying maturities and fixed early retirement costs of three months interest.  Our policy is to invest only in government securities rated “investment grade” or better.

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

ITEM 4.                 CONTROLS AND PROCEDURES

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

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reasonable assurances that the information required to be disclosed in the reports that the Company’s files or submits under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission, and that such information is also accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

There were no changes in the Company’s internal controls over financial reporting that occurred during the quarterly period ended September 30, 2009 that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II— OTHER INFORMATION

ITEM 1.                                                     LEGAL PROCEEDINGS

None.

ITEM 1A.                                            RISK FACTORS

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

ITEM 2.                                                     UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3.                                                     DEFAULTS UPON SENIOR SECURITIES

None.

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

None.

ITEM 5.                                                     OTHER INFORMATION

None.

ITEM 6.                                                     EXHIBITS

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SIGNATURES

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

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