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, 2011, 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 2012, 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 Second Quarter 2012

† The U.S. Forest Service ("USFS") and the Montana Department of Environmental Quality ("MDEQ") issued the Supplemental Draft Environmental Impact Study ("SDEIS") in late September 2011. The comment period on the SDEIS was completed on December 21, 2011 and the USFS and MDEQ are currently incorporating the responses in the final EIS.

† The Company submitted supplemental information to the Corps of Engineers concerning permit compensatory mitigation and other information to assist the agencies in the review of the Company's application. This process will continue on a current path with the Environmental Impact Study ("EIS").

† The Company continued meeting 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.

† The Company's cash and investment position remained strong at $15.5 million as of June 30, 2012.

† On April 5, 2012 the Company executed an agreement with Estrella Gold Corp. in which MMI can earn 75% of the La Estrella gold exploration project in central Peru. This is the Company's first venture into South America. The initial core drilling commenced in April 2012.

Current Activities

Montanore:

During the second quarter of 2012, the Company continued to maintain the Libby adit in a care and maintenance condition in preparation for development activities when the Record of Decision is received. Technical support and assistance were provided for ongoing permitting and environmental efforts. Monthly regulatory data gathering and reporting to state agencies is ongoing.

The Company continued to work on mine plan reviews related to optimization of the Preliminary Economic Assessment ("PEA"). Utilizing the LIDAR generated topographical maps of the site, the Company also continued work on resource model evaluations and identification of target areas which are being incorporated into the planned underground drill program.

La Estrella:

The Company has completed four exploration diamond drill holes on the La Estrella gold-silver deposit in eastern Huancavelica, Peru, for a total of 1106 meters. The program is planned to include a total of seven holes and 2500 meters of drilling per the Earn-in Agreement with Estrella Gold Corp. Bradley MDH, Lima, has been chosen as the drill services provider and has averaged about 35 meters per day. Assay results from three of the four holes completed to date, shown below, indicate long intervals of continuously mineralized rock:

                                                Gold (Grams   Silver (Grams
Drill Hole   From (m)   To (m)   Interval (m)   per tonne)     per tonne)
E-23             84.4    197.2          112.8          0.41            21.4
                  154      160              6          0.83             204
                166.6    197.2           30.6          0.63             7.9

E-24            101.8    262.4          160.6          0.37              23
                  182    239.4           57.4          0.57              41

E-25               75    276.4          201.4          0.35            12.9
                141.4    175.2           33.8          0.59             4.9
                252.7    268.7           16.0          0.50            41.8

The local community has demonstrated cordial relations toward the project throughout the program, and much effort on the part of the Company has been directed toward communication and community involvement. The exploration program has been designed to use community labor in the construction of drill platforms and access roads, and has utilized manually-portable drilling equipment. All excavation work has been manually performed and has preserved soil layers in an organized manner, to provide for restoration when reclamation is underway. An exploration camp under the direction of ExploSupport, Lima, has provided continuous logistic support for the project.

During the second quarter of 2012, the Company also commenced a 3D geologic modeling effort for the La Estrella gold-silver project in Peru which includes data input from historic drilling completed by companies previously associated with the project.

Montanore Permitting and Environmental

The agencies have compiled public comments and are preparing responses to these comments along with updates/revisions to the Draft Environmental Impact Statement ("DEIS") and the Supplement EIS towards completion of a Final EIS. The Company continues to work with the agencies in developing response and details that will become integral to the Final EIS.

The Company submitted supplemental information to the Corps of Engineers concerning permit compensatory mitigation and other information to assist the agencies in the review of the Company's application. This process should continue on a current path with the EIS.

The USFS submitted a Fisheries Biological Assessment ("BA") and a Terrestrial Biological Assessment to the U.S. Fish and Wildlife Service ("FWS") in July 2011. The FWS provided comments on the Fisheries BA to the USFS in late 2011. The Company has agreed to provide assistance to the USFS in preparing a revised Fisheries BA. This process was initiated during the second quarter 2012 and is anticipated to be completed sometime during the third quarter. In addition, the Company has agreed to fund a staff person for the FWS to support its effort in reviewing the Terrestrial BA submitted last year. It is anticipated that this funding support will help to ensure the schedule is maintained as both of the BAs are critical to the overall schedule.

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 June 30, 2012

The Company reported a net loss of $2.4 million for the quarter ended June 30, 2012 compared to a net loss of $1.6 million for the quarter ended June 30, 2011. This $0.8 million dollar increase in net loss during the second quarter of 2012 was primarily due to the following items: (1) a $0.4 million increase in operating expenditures primarily for technical services associated with the exploration of the La Estrella Project; and (2) a $0.4 million decrease in other income primarily from the change in the fair market value of warrant derivatives which expired in April of 2012.

Six Months Ended June 30, 2012

The Company reported a net loss of $3.7 million for the six months ended June 30, 2012 compared to a net loss of $0.3 million for the six months ended June 30, 2011. The $3.4 million increase in net loss was primarily attributable to the change in other income, including: (1) a decrease of $1.3 million in the net gain on fair market value of warrant derivatives which expired in April of 2012; and (2) the absence of the 2011 period gain of $2.0 million on the sale of available-for-sale securities.

Liquidity

During the six months ended June 30, 2012, the net cash used for operating activities was approximately $3.5 million, which is $0.1 million less than the same period during the prior year. 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 $4.5 million for the final six months of 2012, which we expect to consist of approximately $3.0 million for general and administrative expenses, $1.0 million for permitting, engineering, and geologic studies for the permitting for the Montanore Project and $0.5 million on exploration at La Estrella. Additional external financing, however, would be required following receipt of the Record of Decision to complete the evaluation drilling program and a bankable feasibility study at the Montanore Project and to fund increased exploration efforts at the La Estrella property in 2013. The timing and amount of additional external financing will be based on the timing of the Record of Decision and planned drilling program for Montanore and on 2012 exploration results and additional exploration plans, if any, for La Estrella.

Off-Balance Sheet Arrangements

As of June 30, 2012, 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.