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MGN > SEC Filings for MGN > Form 10-Q on 14-Nov-2011All Recent SEC Filings

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Form 10-Q for MINES MANAGEMENT INC


14-Nov-2011

Quarterly Report


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, 2010, 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.


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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 sole focus. During 2011, 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 Third Quarter 2011

The U.S. Forest Service ("USFS") and the Montana Department of Environmental Quality ("MDEQ") continued their environmental review of the Montanore Project and the responses to comments received from the public and from the Environmental Protection Agency ("EPA") and issued the Supplemental Draft Environmental Impact Study ("SDEIS") in late September 2011.

The Company continued meetings with federal and state agencies, Montana legislators, local Lincoln County Commissioners, Libby City officials, business leaders and community members and kept them informed of the project status.

The Company continued its program to reduce expenditures and conserve cash pending the completion of permitting.

Cash and investment position remained strong at $20.5 million as of September 30, 2011.

The Company's exploration and corporate development team continued to examine and evaluate additional opportunities in North America and Latin America.

The net decrease in cash and cash equivalents for the quarter ended September 30, 2011 was approximately $1.5 million. Management has reviewed the near term spending forecast and continued a plan to diligently conserve cash where prudent. Given our current cash and investment position of approximately $20.5 million as of September 30, 2011, we have sufficient funds to complete the permitting process and initiate the adit rehabilitation and drill station development. Additional financing would be required to complete the evaluation drilling program and a bankable feasibility study.

Current Activities

During the third quarter of 2011, work at the Montanore Project included ongoing support operations for the permitting process. Studies continued on the ground water intake for the adit, monitoring wells and the surface waters in the area. Additional support for the permitting process includes data gathering for the biological aspects of the permit relating to fisheries and other wildlife in the area.

A light, imaging, detection and ranging ("LIDAR") survey, which commenced in the second quarter of 2011, was completed in the third quarter of 2011. The LIDAR survey provides a more accurate topographic rendition of the Montanore Project area. LIDAR survey methods have the ability to "see through" the trees and underbrush to yield a very accurate topographic map. This accuracy is necessary for the final engineering of surface facility layouts including the tailings area, plant site, conveyor runs and roads.

Community support activities included participation in the local Chamber of Commerce meetings, Montanore Positive Action Committee ("MPAC") activities, and job service surveys. MPAC is a local support group that is actively promoting and supporting the Montanore Project. An MPAC rally was held in late September of 2011with speakers from several local businesses, local state legislators and representatives from the offices of U.S. Representative Dennis Rehberg, U.S. Senator Max Baucus, and U.S. Senator Jon Testor.

Permitting and Environmental

The Company continues its efforts to obtain the requisite approvals, permits and opinions from the USFS, the MDEQ, the U.S. Army Corps of Engineers and the U.S. Fish and Wildlife Service ("USFWS") that would allow the Company to initiate its underground exploration drilling program. As part of this process, the USFS and MDEQ completed a draft environmental impact statement ("DEIS") in March 2009, evaluated the environmental impacts of the project, and circulated the DEIS to the EPA and to the public for comment. The USFS and MDEQ analyzed and responded to EPA and public comments in the SDEIS which addressed certain issues including wetlands mitigation, water quality analyses, and the placement and impact of the transmission line. The SDEIS was completed in late September 2011, which is followed by submission of the SDEIS to the public and a public comment period. The public comment period is currently underway


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and was scheduled to close on November 21, 2011, but has been extended 30 days to December 21, 2011 by the USFS. A meeting soliciting comments from the public on the SDEIS was held in Libby, Montana on October 25, 2011.

The Company is currently reviewing the SDEIS and will provide comments to the same which will supplement comments made previously by the Company to the DEIS. Once the public comment period expires, the agencies will prepare responses to comments generated by the public, following which, edits will be made to the DEIS and the SDEIS with a view to issuance of a final EIS.

During the third quarter of 2011, the MDEQ issued a draft air quality permit relating to the Montanore Project. This permit was issued as a draft several years ago but was updated to reflect EPA changes to the Clean Air Act. The draft air quality permit is included in the SDEIS for public review and comment.

As part of the development of a final EIS and the determination of the agencies' preferred alternatives, the U.S. Army Corps of Engineers must complete an analysis of potential project discharges of dredged or fill material into waters of the United States, including wetlands. Such discharges are regulated by
Section 404 of the Clean Water Act which requires a permit before dredged or fill material may be discharged. The Company submitted its formal application to the U.S. Army Corps of Engineers for the 404 permit for the project in the second quarter of 2011. The Company also recently completed critical wetlands field work and jurisdictional water field investigations, the results of which were submitted with 404 permit application support documents. It is anticipated the U.S. Army Corps of Engineers will initiate the public comment period for the 404 permit application in the forth quarter of 2011.

As part of the Montanore Project permitting process, the USFS must undertake certain biological assessments and submit draft reports of these assessments to the USFWS for consideration in connection with the USFWS's biological opinions addressing the impact of the project on threatened and endangered species. The issuance of the biological opinions by the USFWS is required prior to the completion of a record of decision, which is the final step of the federal approval process. The USFS completed draft biological assessments in the second quarter of 2011 and the USFWS continues its review of the same.

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 interest income, general and administrative expenses, permitting, project advancement and engineering expenses.

Quarter Ended September 30, 2011

The Company reported a net loss of $2.8 million for each of the quarters ended September 30, 2011 and 2010. Operating costs for the third quarter were $0.9 million higher in 2011 compared to 2010, primarily due to the issuance of stock options during the third quarter of 2011. This was offset by an increase of $0.9 million in the net gain on fair market value of warrant derivatives in the third quarter of 2011 compared to the same period during the prior year.

Nine Months Ended September 30, 2011

The Company reported a net loss for the nine months ended September 30, 2011 of $3.1 million, or $0.11 per share, compared to a loss of $7.4 million or $0.32 per share for the nine months ended September 30, 2010. The $4.3 million decrease in net loss from 2010 is attributable to the following items:
(i) increased general and administrative costs of $0.2 million in 2011, which were primarily the result of increased property evaluation expenditures of $0.1 million and investor relation consulting fees of $0.1 million; (ii) decreased technical services costs of $0.7 million in 2011 principally due to a reduction in consultant fees paid to Mine and Quarry Engineering and the completion of the Grizzly Bear Study in 2010; (iii) gain on sale of available-for sale securities of $2.0 million during 2011; and (iv) an increase of $1.8 million in the net gain on fair market value of warrant derivatives during 2011.


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Liquidity

During the nine months ended September 30, 2011, the net cash used for operating activities was approximately $5.1 million, which is $0.1 million less than the same period during the prior year. We have continued to limit expenditures, including capital expenditures, until the timing for the receipt of the Record of Decision becomes clearer.

We anticipate expenditures of approximately $1.8 million for the final three months of 2011, which we expect to consist of $1.1 million for general and administrative expenses and $0.7 million for permitting, engineering, and geologic studies to finalize the permitting for the Montanore Project. Depending on the amount and rate of progress with our permitting efforts and market conditions, the Company might seek additional financing before the end of 2012.

Off-Balance Sheet Arrangements

As of September 30, 2011, 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.

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