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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2013

OR

o         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

COMMISSION FILE NUMBER 001-32074

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 x 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 May15, 2013, 28,999,752 common shares, 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 drilling activities, feasibility determinations, including those in the Preliminary Economic Assessment, engineering and environmental studies, environmental, reclamation and permitting requirements and the process and timing and the costs associated with the foregoing; the process and timing associated with the Montanore Project permitting process, including the issuance of biological opinions, a final environmental impact statement and a record of decision and completion of wetland mitigation plans; financing needs, including the financing required to fund the final phases of the Montanore Project advanced exploration and delineation drilling program and a bankable feasibility study; sources of financing; the sufficiency of working capital to complete the rehabilitation of the Libby adit and commence delineation drilling; planned expenditures and cash requirements for 2013 and 2014; planned exploration and evaluation of the Estrella property in Peru, and results of drilling at Estrella; efforts to reduce costs, including reducing manpower; results of the Montanore Project hydrological model and the effects thereof; the search for potential exploration and development opportunities in the mining industry; the possibility of challenges by environmental groups or others to our permitting efforts or planned exploration, development or mining activities; potential completion of a bankable feasibility study and the costs associated therewith; and markets for silver and copper.  We believe the expectations reflected in those forward-looking statements are reasonable.  However, we cannot assure that the expectations will prove to be correct.  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 statements.  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, 2012 and such things as:

·                  the availability of experienced employees;

·                  uncertainties associated with developing new mines or mining operations;

·                  the absence of any history of production;

·                  the history of losses, which we expect to continue for the foreseeable future;

·                  uncertainties associated with acquiring new mining properties, including uncertainties regarding the availability of properties or companies to be acquired, the ability to negotiate acquisitions on acceptable terms or to otherwise accomplish such acquisitions, the ability to finance such acquisitions on acceptable terms, and the ability to manage acquired assets or to achieve the goals of the acquisition;

·                  the absence of proven or probable reserves, and uncertainty regarding whether reserves will be established at our Montanore Project;

·                  the speculative nature of exploration for mineral resources, including variations in ore grade and other characteristics affecting mining and mineral recoveries, which involves substantial expenditures and is frequently non-productive;

·                  the need for additional financing to complete the underground evaluation program,  to develop the Montanore Project and to conduct additional exploration at the Estrella project in Peru;

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

·                  the availability, terms, conditions, costs, timing of, or delays in receiving required governmental permits and approvals;

·                  the competitive nature of the mining industry;

·                  risks inherent in the mining process, including geological, technical, permitting, mining and processing problems;

·                  changes in geological information and the interpretation thereof;

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·                  worldwide economic and political events affecting the supply of and demand for silver and copper and volatility in the market price for silver and copper;

·                  ongoing reclamation obligations on the Montanore Project properties;

·                  significant government regulation of mining activities;

·                  uncertainty regarding changes in mining or environmental laws that could increase costs and impair our ability to develop our properties;

·                  environmental risks;

·                  uncertainty regarding title to some of our properties;

·                  the potential for a business combination transaction pursuant to which a third party may attempt to acquire us, which may divert management attention and Company resources;

·                  anti-takeover provisions in our articles of incorporation and bylaws and under Idaho law, which may enable our incumbent management to retain control of us and discourage or prevent a change of control that may be beneficial to our stockholders;

·                  the volatility of the market price of our common stock;

·                  our intention not to pay any cash dividends in the foreseeable future;

·                  the potential depressive effect of issuances of common stock on the market price of our common stock;

·                  future dilution of shareholders by the exercise of options, and the depressive effect on the stock price of the existence of a significant number of outstanding options;

·                  obligations under a long-term contract to sell our silver production; and

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

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MINES MANAGEMENT, INC.

FORM 10-Q

QUARTER ENDED March 31, 2013

INDEX

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PART I— FINANCIAL INFORMATION

ITEM 1.                                                FINANCIAL STATEMENTS

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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 COMPREHENSIVE LOSS (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 and South America.

Summary of Significant Accounting Policies:

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

The preparation of financial statements in accordance with U.S. GAAP 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 condensed 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 month period ended March 31, 2013 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2013.

For further information, refer to the consolidated financial statements and notes thereto in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.

(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 Accounting Standards Codification (“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.

(c)                                  Fair value measurements

The Company discloses the inputs used to develop the fair value measurements for the Company’s financial assets and liabilities that are measured at fair value on a recurring basis as well as the level within the fair value hierarchy in which the fair value measurements in their entirety fall.  The three levels of the fair value hierarchy are as follows:

Level 1:  Unadjusted quoted market prices in active markets for identical assets or liabilities that are accessible at the measurement date.

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Level 2:  Quoted prices in inactive markets for identical assets or liabilities, quoted prices for similar assets or liabilities in active markets, or other observable inputs either directly related to the asset or liability or derived principally from corroborated observable market data.

Level 3:  Unobservable inputs due to the fact that there is little or no market activity.

(d)                                 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.

(e)                                  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 period.   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 March 31, 2013 and 2012.

(f)                                   Recent Accounting Pronouncements

In February 2013, the Financial Accounting Standards Board issued guidance related to items reclassified from accumulated other comprehensive income. The new standard requires either in a single note or parenthetically on the face of the financial statements: (i) the effect of significant amounts reclassified from each component of accumulated other comprehensive income based on its sources and (ii) the income statement line items affected by the reclassification. The Company adopted the provisions of this guidance effective January 1, 2013. This guidance did not have a significant impact on our consolidated financial position, results of operations or cash flows.

(g)                                  Subsequent events

The Company evaluated events and transactions subsequent to the balance sheet date of March 31, 2013 for potential recognition or disclosure in the condensed consolidated financial statements.

NOTE 2  — CERTIFICATES OF DEPOSIT:

The Company owns two certificates of deposit for a total of $1,559,361.  These investments mature in August 2013 and bear interest at the rate of 0.30%.

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, 2014, bears interest at the rate of 0.45% and renews automatically each year.  This certificate of deposit ($1,130,271 and $1,124,055 as of March 31, 2013 and December 31, 2012, respectively) is included with reclamation deposits on the Condensed Consolidated Balance Sheets.

NOTE 3  — AVAILABLE-FOR-SALE SECURITIES:

Available-for-sale securities are comprised of common stocks which have been valued using quoted market prices in active markets.  The following table summarizes the Company’s available-for-sale securities:

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NOTE 4 — FAIR VALUE MEASUREMENTS:

The following table summarizes the Company’s financial assets and liabilities that were accounted for at fair value on a recurring basis as of March 31, 2013, and the fair value calculation input hierarchy level determined to apply to each asset and liability category.  Quoted market prices were used to determine the fair value of available-for-sale securities.  See note 5 for further discussion on the fair value measurement technique used to value the warrant derivatives.  The Company has no financial assets or liabilities that are measured at fair value on a nonrecurring basis.

The following table presents the fair value reconciliation of Level 3 liabilities measured at fair value during the three months ended March 31, 2013 and 2012:

NOTE 5 — WARRANT DERIVATIVES:

The Company had common share purchase warrants with exercise price reset features which qualified for treatment as a derivative liability.  These warrants expired on April 20, 2012.  The warrants did not qualify for hedge accounting and, as such, all changes in the fair value of the warrants were recognized in earnings until they expired.  The Company reported a gain from the change in fair value of these warrants of $-0- and $336,920 in the Condensed Consolidated Statements of Operations for the three months ended March 31, 2013 and 2012, respectively.

NOTE 6 — CONCENTRATION OF CREDIT RISK:

The Company maintains most of its cash and cash equivalents in one financial institution.  Balances are insured by the Federal Deposit Insurance Corporation up to $250,000.  The Company’s total uninsured bank deposit balance totaled approximately $11,110,000 as of March 31, 2013.  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 7 — STOCKHOLDERS’ EQUITY:

Common Shares:

For a description of the public offerings that occurred in 2011 and 2007 and the sales of common stock during 2007 and 2005, refer to the consolidated financial statements and notes thereto in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.  The warrants associated with the public offering completed in April 2007 expired on April 20, 2012.  No warrants related to this offering were exercised before they expired.  The warrants associated with the sale of stock in October 2005 also expired on April 20, 2012.  Cumulative warrants exercised relating to this issue were 269,620 for each of the periods ended March 31, 2013 and December 31, 2012.  No warrants were exercised during the three months ended March 31, 2013 and 2012.

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Preferred Shares:

The Company has authorized 10,000,000 preferred shares, no par value.  Through March 31, 2013, the Company had not issued any preferred shares.

NOTE 8 — STOCK OPTIONS:

There has been no change to the Company’s 2003 and 2007 Stock Option Plans during 2013, other than the items summarized below.  For a description of these Stock Option Plans, refer to the consolidated financial statements and notes thereto in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.

The Board of Directors authorized the Company to establish the 2012 Equity Incentive Plan (“2012 Plan”) which was approved by the shareholders in June 2012.  The Company may grant options to purchase up to 3,000,000 common shares under the 2012 Plan.  The common shares subject to the 2012 Plan may be either authorized and unissued shares or reacquired shares, bought on the market or otherwise, at the discretion of the Board.  The 2012 Plan provides for the issuance of incentive stock options to employees and nonqualified stock options to directors, employees and consultants of the Company.  No participant is eligible to be granted more than 200,000 common shares during any calendar year.  The option exercise price may not be less than 100% of fair market value per share on the date of grant and the options are exercisable within ten years from the date of grant of the option.  The vesting schedule of the options is at the discretion of the Board of Directors.

A summary of the option activity under the Company’s Stock Option Plans as of March 31, 2013, and changes during the period then ended, is presented below:

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 shares 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 ended March 31, 2012.

During the three months ended March 31, 2013, there were no stock options exercised.  During the three months ended March 31, 2012, there were 200,000 stock options exercised with a weighted average price of $0.99 and a total intrinsic value of $210,000.

As of March 31, 2013, the Company did not have any nonvested options and there was no unrecognized compensation cost related to nonvested share-based compensation arrangements granted under the Plans.

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Total compensation costs recognized for stock-based employee compensation awards was $249,600 and $50,870 for the three months ended March 31, 2013 and 2012, 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 three months ended March 31, 2013 and 2012 was $-0- and $198,000, respectively.

NOTE 9 — COMMITMENTS:

The Company entered into an Exploration Earn-In Agreement with Estrella Gold Corp. on April 5, 2012, pursuant to which the Company could acquire 75% of the Estrella gold and silver exploration property located in central Peru by expending $5,000,000 on exploration activities.  Under the terms of the agreement, the Company is required to make annual cash payments to Estrella of $100,000 prior to the end of the first agreement year ending on February 28, 2013, and $200,000 prior to the end of each subsequent agreement year until the earn-in has been completed.  The Company is also required to expend a minimum of $500,000 in exploration and development expenditures in each of the first and second agreement years.  The Company may terminate this agreement at any time during the earn-in period; however, a minimum of $350,000 in exploration and development expenses was required during the first year of the agreement regardless of whether or not the agreement was terminated.  The Company met the first year’s exploration and development expenditure requirements during 2012.  During February 2013, the Company made the required $100,000 cash payment prior to the end of the first agreement year and continued the Exploration Earn-In Agreement into the second year.

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, 2012, 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 Project continues to be the Company’s main focus.  During 2013, the Company has continued to plan for the advanced exploration and delineation drilling program at the Montanore Project, principally through the pursuit of federal and state agency permitting approvals.

Overview First Quarter 2013

·                  The U.S. Forest Service (“USFS”) completed a revised aquatic Biological Assessment (“BA”) and formal consultation commenced with the U.S. Fish and Wildlife Service (“USFWS”).  The USFS also submitted a draft terrestrial BA, and informal consultation with the USFWS is ongoing.  These are important steps towards the issuance of a Biological Opinion by the USFWS and in the permitting process generally.

·                  The Company continues to work with the U.S. Army Corps of Engineers (“USACE”) on the Clean Water Act 404 permitting process.  This process will continue concurrently with the Final Environmental Impact Study (“EIS”).   The Company commenced discussions with the USACE concerning preliminary mitigation plan designs.  A final mitigation design is required for permit approval.

·                  The Company entered into an agreement with the Montana Fish Wildlife and Parks to fund additional mountain goat surveys as part of the monitoring and data collection requirements required to be completed prior to initiating major construction activities for the project.

·                  The Company elected to extend the exploration program at its La Estrella gold-silver project in central Peru into its second year under the terms of its agreement with the owner, Estrella Gold Corp, whereby the Company may earn a 75% interest in the property.

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Current Activities

Montanore:

During the first quarter of 2013, the Company continued to maintain the Libby adit in a care and maintenance condition in preparation for evaluation activities and adit rehabilitation expected to recommence when the Record of Decision is received.  Technical support and assistance were provided for ongoing permitting and environmental efforts.   Gathering of environmental data and reporting to state and federal agencies as part of the permitting process is ongoing.

La Estrella:

Geophysics.  The major activity on La Estrella during the first quarter was completion of two phases of 3D-Induced Polarization/Resistivity (“IP/Res”) surveys over the entire area of prospective ground.  The lateral resolution of the survey ranged from 100 to 400 meters, with depth resolution to approximately 488 meters below the surface.  Results of this survey identified a large, previously unknown area of anomalous chargeability extending north and northwest from the 2012 area of interest for a distance of approximately 1,400 meters.  This new target area, when combined with previously known areas of anomalous chargeability, forms a prospective zone over 2000 meters in length and up to 1100 meters in width.   A strongly positive correlation between drill-indicated mineralization and moderate to high chargeability has been repeatedly demonstrated at La Estrella.

Metallurgical Analyses.  Following the decision to continue the Project into a second year, an initial round of metallurgical analyses of La Estrella mineralization was begun.   A composite sample was designed based on assays from the 2012 drilling.  Eighty samples were carefully selected to contain low, moderate, and strong gold-silver mineralization and form a composite sample representative of La Estrella mineralization.   At the end of March, the metallurgical analysis was in the initial stages, with completion expected mid-May.

Permitting.  During the first quarter of 2013, the Company applied for a new Water-Use Permit, prepared an application for a modified Assessment of Environmental Impact, and responded to a Peruvian governmental request for information regarding the Company’s 2012 exploration program.   The Company provided all required information to the appropriate offices, and the Company and its project are in good standing with the Peruvian government and its Ministry of Energy and Mines.

Montanore Permitting and Environmental

Approval by regulatory agencies will be required before the Montanore Project can proceed with exploration and project development.  The agencies that are involved with the major permits include the USFS, Montana Department of Environmental Quality (“MDEQ”), and USACE.  The permitting process requires completion of the Final Environmental Impact Statement (“EIS”) before a Record of Decision can be issued by the USFS and MDEQ.  The Final EIS describes various elements of the project, provides analysis of impacts, includes public input, and discloses aspects of the proposed project that were considered by the agencies.  Significant progress has been made on the Final EIS.  The agencies continue to edit and re-write various resource sections in the Final EIS which are based on the Draft EIS and Supplemental Draft EIS previously issued.

This process is occurring concurrently with the review of other regulatory elements of the project.  Part of the review requires consultation between the USFS and the USFWS under the Endangered Species Act.  The USFS prepares a terrestrial BA and an aquatic BA and submits them to the USFWS.  In turn, the USFWS prepares a Biological Opinion (“BO”) that provides guidance to the USFS and any mitigation that may be required.  The USFS completed a revised aquatic BA during the first quarter of 2013 and formal consultation has commenced between the two agencies.  The terrestrial BA and the original aquatic BA were submitted in 2011 and subsequently the USFS and the USFWS have been working under an informal consultation process.  A draft terrestrial BA was submitted during the first quarter of 2013 as well.  Mitigation for impacts to both aquatic and terrestrial wildlife were also prepared at that time.  It is anticipated that the formal consultation process on the terrestrial BA will be initiated in the second quarter of 2013.

The other major permit required is the 404 permit issued by the USACE under the Clean Water Act.  This permit is required when waters of the U.S. are impacted by a proposed action, in this case by the project tailings impoundment.  The USACE has issued a preliminary jurisdictional determination which is a critical step towards a decision to issue a 404 permit.  During the quarter, the Company commenced discussions with the USACE concerning preliminary mitigation plan designs.  The agency provided the Company with comments and the plan is advancing towards a final mitigation design

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that will be required for permit approval.  This review effort by the USACE is occurring concurrently with the Final EIS and Record of Decision review path.

The Company continues to work on related environmental regulatory processes towards a targeted completion in 2013.  In 2012, the Company initiated certain monitoring and data collection requirements that are included in the Supplemental Draft EIS which must be completed prior to initiating certain development activities.  In 2013, the Company will continue to advance and/or expand these pre-activity monitoring requirements.  As part of this effort, during the first quarter the Company entered into an agreement with the Montana Fish Wildlife and Parks to fund additional mountain goat surveys which are currently part of their goat management plan.  Helicopter surveys over the project area will meet the two years of mountain goat monitoring required prior to initiating major construction activities for the project.

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 when incurred, with the exception of equipment and buildings which are capitalized.  The Company has no revenues from mining operations.  Financial results of operations include primarily general and administrative expenses, permitting, project advancement and engineering expenses.

Quarter Ended March 31, 2013

The Company reported a net loss of $2.1 million for the quarter ended March 31, 2013 compared to a net loss of $1.4 million for the quarter ended March 31, 2012.  The increased net loss in the 2013 quarter resulted primarily from:  (1) a $0.2 million increase in general and administrative expenses primarily due to the higher value of stock based compensation issued during the first quarter of 2013 compared to 2012,  (2) a $0.2 million increase in technical services associated with the exploration of the Estrella Project, and (3) a $0.3 million decrease in other income primarily from the change in the fair market value of warrant derivatives which expired in April of 2012.

Liquidity

During the three months ended March 31, 2013, the net cash used for operating activities was approximately $1.6 million, which is $0.2 million more than the same period during the prior year primarily due to expenditures related to the Estrella Project.  This reduced our cash and cash equivalents and certificates of deposit from $11.8 at December 31, 2012 to approximately $10.2 million at March 31, 2013.  We have continued to limit activity levels, including capital expenditures, until the timing for the receipt of the Record of Decision for the Montanore Project becomes clearer.

We anticipate expenditures of approximately $4.8 million for the final three quarters of 2013, which we expect to consist of approximately $1.5 million each quarter for general and administrative expenses, permitting, engineering, and geologic studies for the permitting for the Montanore Project and $0.3 million on exploration support including permit renewals and resource modeling at La Estrella.  We expect to fund these expenditures from cash on hand.  We expect to require external financing before mid 2014 in order to continue our business. We expect that the timing and amount of additional external financing will be affected by the anticipated timing of the Record of Decision and planned drilling program for Montanore and by exploration results and additional exploration plans, if any, for the La Estrella project.  There can be no assurance that external financing will be available on acceptable terms or at all.

Off-Balance Sheet Arrangements

As of March 31, 2013, 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

The majority 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.

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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 the Company’s Chief Executive Officer and the Company’s Controller and Principal Financial Officer, has evaluated the Company’s disclosure controls and procedures as of March 31, 2013.  Based upon this evaluation, the Chief Executive Officer and Principal Financial Officer concluded that the Company’s disclosure controls and procedures are designed and were effective as of March 31, 2013 to give 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 Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

There has been no change in our internal control over financial reporting during the quarter ended March 31, 2013 that has materially affected, or that is reasonably likely to materially affect, our internal control over financial reporting.

PART II— OTHER INFORMATION

ITEM 1.                                                LEGAL PROCEEDINGS

There has been no material change to the Company’s previously reported legal proceedings since filing of the Company’s 2012 Annual Report. For further information, refer to ‘ITEM 3 Legal Proceedings’ in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.

ITEM 1A.                                       RISK FACTORS

None.

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

None.

ITEM 3.                                                DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.                                                MINE SAFETY DISCLOSURES

None.

ITEM 5.                                                OTHER INFORMATION

None.

ITEM 6.                                                EXHIBITS

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Table of Contents

SIGNATURES

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

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