10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2012

OR

oTRANSITION 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)

IDAHO	91-0538859
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

905 W. Riverside Avenue, Suite 311 Spokane, Washington	99201
(Address Of Principal Executive Offices)	(Zip Code)

(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.  Yes x  No o

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.

Large accelerated filer o	Accelerated filer o
Non-accelerated filer o	Smaller reporting company x

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 August 14, 2012, 28,999,752 common shares, par value $0.001 per share, were issued and outstanding.

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 2012 and 2013;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, 2011 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;

·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.

MINES MANAGEMENT, INC.

FORM 10-Q

QUARTER ENDED JUNE 30, 2012

INDEX

			Page
PART I — FINANCIAL INFORMATION
	ITEM 1.	Financial Statements (unaudited)	i
	ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	10
	ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	12
	ITEM 4.	Controls and Procedures	12
PART II — OTHER INFORMATION
	ITEM 1.	Legal Proceedings	13
	ITEM 1A.	Risk Factors	13
	ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	13
	ITEM 3.	Defaults Upon Senior Securities	13
	ITEM 4.	Mine Safety Disclosures	13
	ITEM 5.	Other Information	13
	ITEM 6.	Exhibits	13
SIGNATURES			14

PART I— FINANCIAL INFORMATION

ITEM 1.                 FINANCIAL STATEMENTS

Contents

	Page
FINANCIAL STATEMENTS:
Condensed consolidated balance sheets	1
Condensed consolidated statements of operations	2
Condensed consolidated statements of comprehensive loss	3
Condensed consolidated statements of cash flows	4
Notes to condensed consolidated financial statements	5-9

i

Mines Management, Inc. and Subsidiaries

(An Exploration Stage Company)

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

	June 30,2012			December 31,2011
Assets
CURRENT ASSETS:
Cash and cash equivalents	$	13,905,957		$	17,121,800
Interest receivable	12,362			13,702
Prepaid expenses and deposits	327,949			207,285
Certificates of deposit	1,559,361			1,559,361
Total current assets	15,805,629			18,902,148
PROPERTY AND EQUIPMENT:
Buildings and leasehold improvements	836,454			836,454
Equipment	6,450,089			6,450,089
Office equipment	334,126			330,356
	7,620,669			7,616,899
Less accumulated depreciation	4,923,042			4,438,799
	2,697,627			3,178,100
OTHER ASSETS:
Available-for-sale securities	15,181			13,276
Reclamation deposits	1,184,966			1,236,846
	1,200,147			1,250,122
	$	19,703,403		$	23,330,370
Liabilities and Stockholders’ Equity
CURRENT LIABILITIES:
Accounts payable	$	526,676		$	370,723
Payroll and payroll taxes payable	44,631			17,631
Warrant derivatives	—			357,977
Total current liabilities	571,307			746,331
LONG-TERM LIABILITIES:
Asset retirement obligation	445,807			435,171
Total liabilities	1,017,114			1,181,502
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS’ EQUITY:
Preferred shares — no par value, 10,000,000 shares authorized; -0- shares issued and outstanding	—			—
Common shares — $0.001 par value, 100,000,000 shares authorized; 28,939,752 and 28,739,110 shares issued and outstanding, respectively	28,940			28,739
Additional paid-in capital	86,473,069			86,224,400
Accumulated deficit	(1,117,306		)	(1,117,306		)
Deficit accumulated during the exploration stage	(66,702,430		)	(62,989,076		)
Accumulated other comprehensive income	4,016			2,111
Total stockholders’ equity	18,686,289			22,148,868
	$	19,703,403		$	23,330,370

See accompanying notes to condensed consolidated financial statements.

1

Mines Management, Inc. and Subsidiaries

(An Exploration Stage Company)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

	Three Months EndedJune 30,						Six Months EndedJune 30,						From Inception of Exploration Stage August 12, 2002 ThroughJune 30,
	2012			2011			2012			2011			2012
REVENUE:
Royalties	$	5,833		$	7,092		$	20,581		$	10,390		$	140,652
OPERATING EXPENSES:
General and administrative	958,884			1,004,392			1,737,774			1,802,533			31,459,329
Technical services and exploration	1,090,976			667,357			1,621,047			1,367,334			28,567,923
Depreciation	246,992			254,007			491,388			508,090			4,943,970
Legal, accounting, and consulting	96,992			93,605			222,401			324,540			4,468,263
Fees, filing, and licenses	2,125			4,774			53,916			94,230			2,620,734
Impairment of mineral properties	—			—			—			—			504,492
Total operating expenses	2,395,969			2,024,135			4,126,526			4,096,727			72,564,711
LOSS FROM OPERATIONS	(2,390,136		)	(2,017,043		)	(4,105,945		)	(4,086,337		)	(72,424,059		)
OTHER INCOME:
Gain from warrant derivatives	21,057			370,023			357,977			1,697,207			476,381
Gain on sale of available-for-sale securities	—			—			—			2,005,904			2,005,904
Interest income, net	15,309			39,545			34,614			62,209			3,239,344
	36,366			409,568			392,591			3,765,320			5,721,629
NET LOSS	$	(2,353,770	)	$	(1,607,475	)	$	(3,713,354	)	$	(321,017	)	$	(66,702,430	)
NET LOSS PER SHARE (basic and diluted)	$	(0.08	)	$	(0.06	)	$	(0.13	)	$	(0.01	)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING (basic and diluted)	28,939,364			28,613,295			28,894,182			26,643,958

See accompanying notes to condensed consolidated financial statements.

2

Mines Management, Inc. and Subsidiaries

(An Exploration Stage Company)

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (UNAUDITED)

	Three Months EndedJune 30,						Six Months EndedJune 30,
	2012			2011			2012			2011
Net Loss	$	(2,353,770	)	$	(1,607,475	)	$	(3,713,354	)	$	(321,017	)
Adjustment to net unrealized gains (losses) on marketable securities	(843		)	(2,057		)	1,905			(1,855,214		)
Comprehensive loss	$	(2,354,613	)	$	(1,609,532	)	$	(3,711,449	)	$	(2,176,231	)

See accompanying notes to condensed consolidated financial statements.

3

 Mines Management, Inc. and Subsidiaries

(An Exploration Stage Company)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

	Six Months EndedJune 30,						From Inception of Exploration Stage August 12, 2002 Through June 30,
	2012			2011			2012
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(3,713,354	)	$	(321,017	)	$	(66,702,430	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation	50,870			87,369			10,650,539
Stock received for services	—			—			(11,165		)
Depreciation	491,388			508,090			4,943,970
Initial measurement of asset retirement obligation	—			—			344,187
Accretion of asset retirement obligation	10,636			10,077			101,620
Gain on sale of available-for-sale securities	—			(2,005,904		)	(2,005,904		)
Gain from warrant derivatives	(357,977		)	(1,697,207		)	(476,381		)
Impairment of mineral properties	—			—			504,492
Changes in assets and liabilities:
Interest receivable	1,340			(5,117		)	(12,362		)
Prepaid expenses and deposits	(120,664		)	(19,592		)	(388,360		)
Accounts payable	155,953			(156,061		)	526,512
Payroll and payroll taxes payable	27,000			37,792			41,451
Net cash used in operating activities	(3,454,808		)	(3,561,570		)	(52,483,831		)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment	(10,915		)	—			(7,675,183		)
Proceeds from disposition of property and equipment	—			—			35,423
Proceeds (purchase) of certificates of deposit	51,880			—			(2,683,415		)
Net proceeds from sale of available-for-sale securities	—			3,821,252			2,005,904
Increase in mineral properties	—			—			(144,312		)
Net cash provided by (used in) investing activities	40,965			3,821,252			(8,461,583		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from sale of common stock	198,000			15,337,494			74,804,036
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	(3,215,843		)	15,597,176			13,858,622
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	17,121,800			4,866,840			47,335
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	13,905,957		$	20,464,016		$	13,905,957
SUPPLEMENTAL INFORMATION:
Interest paid	$	—		$	—		$	65,768

See accompanying notes to condensed consolidated financial statements.

4

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 accounting principles generally accepted in the United States of America (“US 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 US 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 US 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 and six month periods ended June 30, 2012, are not necessarily indicative of the results that may be expected for the full year ending December 31, 2012.

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, 2011.

(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.

5

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 June 30, 2012 and 2011.

(f)Recent Accounting Pronouncements

In June 2011, the Financial Accounting Standards Board, or FASB, issued guidance regarding the presentation of comprehensive income (loss).  The new standard requires the presentation of comprehensive income (loss), the components of net income (loss) and the components of other comprehensive income (loss) either in a single continuous statement of comprehensive income (loss) or in two separate but consecutive statements.  The updated guidance is effective on a retrospective basis for financial statements issued for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2011.  The Company adopted the provisions of this guidance effective January 1, 2012, as reflected in the condensed consolidated statements of comprehensive loss herein.

(g)Subsequent events

The Company evaluated events and transactions subsequent to the balance sheet date of June 30, 2012 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 2012 and bear interest at the rate of 0.70%.

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, 2013, bears interest at the rate of 0.55% and renews automatically each year.  This certificate of deposit ($1,124,055 and $1,175,935 at June 30, 2012 and December 31, 2011, 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:

	June 30,2012		December 31, 2011
Cost	$	11,165	$	11,165
Unrealized Gains	4,016		2,111
Fair Market Value	$	15,181	$	13,276

6

The Company sold one investment in marketable equity securities during March 2011.  Proceeds from the sale were $3,821,252 and the realized gain from the sale was $2,005,904.  No securities have been sold during 2012.

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 June 30, 2012, 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.

	Balance atJune 30, 2012		Balance at December 31, 2011		Input HierarchyLevel
Assets:
Available-for-sale securities	$	15,181	$	13,276	Level 1
Liabilities:
Warrant derivatives	—		$	357,977	Level 3
Asset retirement obligation	$	445,807	$	435,171	Level 3

The following table presents the fair value reconciliation of Level 3 liabilities measured at fair value during the six months ended June 30, 2012:

	Warrant Derivatives			Asset Retirement Obligation
Balance January 1, 2012	$	357,977		$	435,171
Accretion expense	—			5,286
Gain on warrant derivatives	(336,920		)	—
Balance March 31, 2012	21,057			440,457
Accretion expense	—			5,350
Gain on warrant derivatives	(21,057		)	—
Balance June 30, 2012	$	—		$	445,807

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 $21,057 and $370,023 in the Condensed Consolidated Statements of Operations for the three months ended June 30, 2012 and 2011, respectively.  Gains of $357,977 and $1,697,207 were recorded for the six months ended June 30, 2012 and 2011, respectively.

NOTE 6 — CONCENTRATION OF CREDIT RISK:

The Company maintains its cash and cash equivalents in one financial institution.  Balances are insured by the Federal Deposit Insurance Corporation up to $250,000.  The Company’s total uninsured bank deposit balance totaled approximately $16,300,000 as of June 30, 2012.  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.

7

NOTE 7 — STOCKHOLDERS’ EQUITY:

Common Shares:

On March 8, 2011, the Company completed a public offering of 4,800,000 shares of common stock at a price of $3.15 per share, resulting in gross proceeds of $15,120,000 ($14,212,800 in net proceeds after deducting underwriting commissions and a corporate finance fee but before deducting offering expenses).  On April 4, 2011, the underwriters exercised the over-allotment option for 320,000 shares of common stock at a price of $3.15 per share.  The gross proceeds resulting from the over-allotment were $1,008,000 ($947,520 in net proceeds after deducting underwriting commissions and a corporate finance fee but before deducting offering expenses).  Therefore, the total offering was 5,120,000 shares of common stock, resulting in aggregate net proceeds of $15,160,320 before deducting offering expenses.

For a description of the public offering that occurred in 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, 2011.  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 as of June 30, 2012 and December 31, 2011, respectively.  During the six months ended June 30, 2012 and 2011, -0- and 101,435 warrants were exercised for gross proceeds of $-0- and $144,474, respectively.

Preferred Shares:

The Company has authorized 10,000,000 preferred shares, no par value.  Through June 30, 2012, 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 2012, 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, 2011.

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 shares of its common stock under the 2012 Plan.  The common stock subject to the 2012 Plan may be either authorized and unissued stock or reacquired stock, 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 shares of common stock 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 June 30, 2012, and changes during the period then ended, is presented below:

	Number of Options		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term	Aggregate Intrinsic Value
Outstanding at January 1, 2012	3,601,000		$	1.86
Exercised	(200,000	)	$	0.99
Outstanding at March 31, 2012	3,401,000		$	1.92
Exercised	(5,000	)	$	1.29
Outstanding at June 30, 2012	3,396,000		$	1.92	2.91	$	192,000
Exercisable at June 30, 2012	3,316,000		$	1.89	2.97	$	192,000

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

8

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.

	Three Months EndedJune 30,		Six Months EndedJune 30,
	2012	2011	2012	2011
Weighted average risk-free interest rate	—	—	—	1.05		%
Weighted average volatility	—	—	—	73.80		%
Expected dividend yield	—	—	—	—
Weighted average expected life (in years)	—	—	—	3.5
Weighted average grant-date fair value	—	—	—	$	1.25

During the three months ended June 30, 2012 and 2011, there were 5000 and 195,000 stock options exercised with a weighted average exercise price of $1.29and $1.21, respectively.  The total intrinsic value of options exercised during the three months ended June 30, 2012 and 2011 was $122 and $128,436, respectively.  During the six months ended June 30, 2012 and 2011, there were 205,000 and 303,000 stock options exercised with a weighted average exercise price of $1.00 and $1.57, respectively.  The total intrinsic value of options exercised during the six months ended June 30, 2012 and 2011 was $210,122 and $218,293, respectively.

A summary of the status of the Company’s nonvested options as of June 30, 2012, and changes during the period then ended, is presented below:

	Number of Options		Weighted- Average Grant-Date Fair Value
Nonvested at January 1, 2012	730,000		$	1.18
Vested	(650,000	)	$	1.20
Nonvested at March 31, 2012	80,000		$	0.99
Granted	—		—
Vested	—		—
Nonvested at June 30, 2012	80,000		$	0.99

As of June 30, 2012, there was no unrecognized compensation cost related to nonvested share-based compensation arrangements granted under the Plans.

Total compensation costs recognized for stock-based employee compensation awards was $-0- and $30,910 for the three months ended June 30, 2012 and 2011, respectively.  Total compensation costs recognized for stock-based employee compensation awards was $50,870 and $87,369 for the six months ended June 30, 2012 and 2011, 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 six months ended June 30, 2012 and 2011 was $198,000 and $152,700, 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 million on exploration activities.  Under the terms of the agreement, the Company will 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 will also expend a minimum of $500,000 in exploration and development expenditures in each of the first and second agreement years ending February 28 or 29, as the case may be.  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 is required to be paid during the first year of the agreement regardless of whether or not the agreement is terminated.

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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, 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:

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				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.

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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.

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.

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 June 30, 2012.  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 June 30, 2012 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 Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

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There has been no change in our internal control over financial reporting during the quarter ended June 30, 2012 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

None.

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

Exhibit No.	Title of Exhibit
10.1	2012 Equity Incentive Plan
10.2	Form of Non-qualified Stock Option Award Agreement
10.3	Form of Incentive Stock Option Award Agreement
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C., 1350 (Section 906 of the Sarbanes-Oxley Act)
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C., 1350 (Section 906 of the Sarbanes-Oxley Act)
101	The following financial information from Mines Management Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets at June 30, 2012, and December 31, 2011, (ii) Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2012, and June 30, 2011 and from Inception through June 30, 2012, (iii) Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2012, and June 30, 2011, and from Inception through June 30, 2012 and (iv) the Notes to Consolidated Financial Statements. Pursuant to rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 are deemed not filed or part of any registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

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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 its behalf by the undersigned thereunto duly authorized.

	MINES MANAGEMENT, INC.
Date: August 14, 2012	By:	/s/ Glenn M. Dobbs
		Glenn M. Dobbs
		President and Chief Executive Officer
Date: August 14, 2012	By:	/s/ James H. Moore
		James H. Moore
		Chief Financial Officer

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EX-10.1

Exhibit 10.1

MINES MANAGEMENT, INC.

2012 EQUITY INCENTIVE PLAN

1.PURPOSES.

(a)Background. On April 10, 2012 (the “Effective Date”), the Board authorized the Company to establish the Plan.

(b)Eligible Stock Award Recipients.  The persons eligible to receive Stock Awards are the Employees, Directors, Officers and Consultants of the Company and its Affiliates; provided that in no event shall an Option or stock appreciation right be granted unless, with respect to the proposed grantee, the Common Stock qualifies as “service-recipient stock” for purposes of Section 409A of the Code.

(c)Available Stock Awards.  The purpose of the Plan is to provide a means by which eligible recipients may be given an opportunity to benefit from increases in value of the Common Stock through the granting of, but not limited to, the following: (i) Incentive Stock Options, (ii) Nonqualified Stock Options, (iii) restricted Common Stock, (iv) unrestricted Common Stock, (v) restricted stock units, (vi) stock appreciation rights, and (vii) other stock-based awards.

(d)General Purpose.  The Company, by means of the Plan, seeks to retain the services of the group of persons eligible to receive Stock Awards, to secure and retain the services of new members of this group and to provide incentives for such persons to exert maximum efforts for the success of the Company and its Affiliates.

2.DEFINITIONS.

(a)“Affiliate” means any entity that controls, is controlled by, or is under common control with the Company.

(b)“Board” means the Board of Directors of the Company.

(c)“Code” means the Internal Revenue Code of 1986, as amended, and the rules and regulations promulgated thereunder.

(d)“Committee” means a pre-existing or newly formed committee of members of the Board appointed by the Board in accordance with subsection 3(c).

(e)“Common Stock” means the Company’s common stock par value US$0.001 and other rights with respect to such stock.

(f)“Company” means Mines Management, Inc., an Idaho corporation.

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(g)“Consultant” means any person, including an advisor, (i) engaged by the Company or an Affiliate to render consulting or advisory services and who is compensated for such services or (ii) who is a member of the Board of Directors of an Affiliate.

(h)“Continuous Service” means that the Participant’s service with the Company or an Affiliate, whether as an Employee, Director, Officer or Consultant, is not interrupted or terminated.  Unless otherwise provided in a Stock Award Agreement or Option Agreement, as applicable, the Participant’s Continuous Service shall not be deemed to have terminated merely because of a change in the capacity in which the Participant renders service to the Company or an Affiliate as an Employee, Director, Officer or Consultant or a change in the entity for which the Participant renders such service, provided that there is no interruption or termination of the Participant’s service to the Company or an Affiliate as an Employee, Director, Officer or Consultant.  For example, a change in status from an Employee of the Company to a Consultant of an Affiliate may not constitute an interruption of Continuous Service.  The Board, in its sole discretion, may determine whether Continuous Service shall be considered interrupted in the case of any leave of absence, including sick leave, military leave or any other personal leave.

(i)“Covered Employee” means a “covered employee” as determined for purposes of Section 162(m) of the Code, which, for purposes of clarity, currently includes the Company’s chief executive officer and the four (4) other highest compensated officers of the Company (other than chief financial officer) for whom total compensation is required to be reported to stockholders under the Exchange Act..

(j)“Director” means a member of the Board of Directors of the Company.

(k)“Disability” means the Participant’s inability, due to illness, accident, injury, physical or mental incapacity or other disability, to carry out effectively the duties and obligations to the Company and its Affiliates performed by such person immediately prior to such disability for a period of at least six (6) months, as determined in the good faith judgment of the Board.

(l)“Dollars” or “$” or “US$” means United States dollars.

(m)“Employee” means any person employed by the Company or an Affiliate.  Service as a Director or payment of a director’s fee by the Company or an Affiliate alone shall not be sufficient to constitute “employment” by the Company or an Affiliate.

(n)“Exchange Act” means the Securities Exchange Act of 1934, as amended.

(o)“Fair Market Value” means, as of any date, the value of the Common Stock determined as follows:

(i)If the Common Stock is listed on any established stock exchange in the United States, such as the NYSE Amex, the Fair Market Value of a share of Common Stock shall be the closing sales price for such share as quoted on such exchange (or the exchange with the greatest volume of trading in Common Stock if such

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shares are traded on more than one such exchange) on the day of determination (or the immediately preceding trading day on which sales were reported, if the day of determination is not a trading day or no sales were reported on such date), as reported by such exchange or such other source as the Board reasonably deems reliable.

(ii)In the absence of such markets for the Common Stock, the Fair Market Value shall be determined in good faith by the Board using a reasonable valuation method in accordance with Treas. Reg. Section 1.409A-1(a)(5)(iv) or any successor thereto.

(p)“Incentive Stock Option” means an Option designated as an incentive stock option in an Option Agreement and that is granted in accordance with the requirements of, and that conforms to the applicable provisions of, Section 422 of the Code.  Notwithstanding anything herein to the contrary, no Option shall be treated as an “incentive stock option” within the meaning of Section 422 of the Code unless the Plan has been (i) approved by the shareholders of the Company in a manner intended to comply with the shareholder approval requirements of Section 422(b)(1) of the Code or (2) a determination has been made by the Committee that the method of adoption and approval of the Plan meets the shareholder approval requirements of Section 422 of the Code.  Notwithstanding the foregoing, any Option intended to be an incentive stock option shall not fail to be effective solely on account of a failure to obtain such approval, but rather such Option shall be treated as a nonqualified stock option unless and until such approval is obtained.

(q)“Independent Director”means a Director who (i) satisfies the definition of “Independent Director” or similar definition under the applicable United States stock exchange rules and regulations upon which the Common Stock is traded from time to time;  (ii) is either (A) not a current employee of the Company or an “affiliated corporation” (within the meaning of Treasury Regulations promulgated under Section 162(m) of the Code), not a former employee of the Company or an “affiliated corporation” receiving compensation for prior services (other than benefits under a tax qualified pension plan), was not an officer of the Company or an “affiliated corporation” at any time and is not currently receiving direct or indirect remuneration from the Company or an “affiliated corporation” for services in any capacity other than as a Director or (B) is otherwise considered an “outside director” for purposes of Section 162(m) of the Code; and (iii) is a “Non-Employee Director”, as defined from time to time for purposes of Section 16 of the Exchange Act.

(r)“Nonqualified Stock Option” means an Option that is not designated in an Option Agreement as an Incentive Stock Option or was not granted in accordance with the requirements of or does not otherwise conform to the applicable provisions of, Section 422 of the Code.

(s)“Officer” means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder.

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(t)“Option” means an Incentive Stock Option or a Nonqualified Stock Option granted pursuant to the Plan.

(u)“Option Agreement” means a written agreement between the Company and an Optionholder evidencing the terms and conditions of an individual Option grant.

(v)“Optionholder” means a person to whom an Option is granted pursuant to the Plan or, if applicable, such other person who holds an outstanding Option.

(w)“Participant” means a person to whom a Stock Award is granted pursuant to the Plan or, if applicable, such other person who holds an outstanding Stock Award.

(x)“Plan” means this Mines Management, Inc. 2012 Equity Incentive Plan.

(y)“Retirement” means an Employee’s retirement from the Company or an Affiliate, (i) on or after attaining age 55 and completing at least ten (10) years of service; or (ii) on or after attaining age 62.

(z)“Rule 16b-3” means Rule 16b-3 promulgated under the Exchange Act or any successor to Rule 16b-3, as in effect from time to time.

(aa)“Securities Act” means the Securities Act of 1933, as amended.

(bb)“Stock Award” means any right granted under the Plan including, but not limited to, an Option, restricted Common Stock, unrestricted Common Stock, restricted stock units. stock appreciation rights, or other stock-based awards.

(cc)“Stock Award Agreement” means a written agreement between the Company and a holder of a Stock Award (other than an Option) evidencing the terms and conditions of an individual Stock Award grant.

(dd)“Ten Percent Stockholder” means a person who owns (or is deemed to own pursuant to Section 424(d) of the Code) stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or any parent corporation or any subsidiary corporation, both as defined in Section 424 of the Code.

3.ADMINISTRATION.

(a)Administration by Board.  The Board shall administer the Plan unless and until the Board delegates administration to a Committee, as provided in subsection 3(c).  The Board may, at any time and for any reason in its sole discretion, rescind some or all of such delegation.

(b)Powers of Board.  The Board shall have the power, subject to, and within the limitations of, the express provisions of the Plan:

(i)To determine from time to time which of the persons eligible under the Plan shall be granted Stock Awards; when and how each Stock Award shall be granted; what

4

type or combination of types of Stock Award shall be granted; the provisions of each Stock Award granted (which need not be identical), including the time or times when a person shall be permitted to receive Common Stock pursuant to a Stock Award; and the number of shares of Common Stock with respect to which a Stock Award shall be granted to each such person.

(ii)To construe and interpret the Plan, Stock Awards granted under it, Option Agreements and Stock Award Agreements, and to establish, amend and revoke rules and regulations for their administration.  The Board, in the exercise of this power, may correct any defect, omission or inconsistency in the Plan or in any Option Agreement or Stock Award Agreement, in a manner and to the extent it shall deem necessary or expedient to make the Plan fully effective.

(iii)To amend the Plan, a Stock Award, a Stock Award Agreement or an Option Agreement as provided in Section 12.

(iv)Generally, to exercise such powers and to perform such acts as the Board deems necessary or expedient to promote the best interests of the Company which are not in conflict with the provisions of the Plan.

(c)Delegation to Committee.

(i)General.  The Board may delegate administration of the Plan and its powers and duties thereunder, or any portion thereof, to a Committee or Committees, and the term “Committee” shall apply to any person or persons to whom such authority has been delegated.  Upon such delegation, the Committee shall have the powers theretofore possessed by the Board, including the power to delegate to a subcommittee any of the administrative powers the Committee is authorized to exercise (and references in this Plan to the Board shall thereafter be deemed to include the Committee or subcommittee), subject, however, to such resolutions, not inconsistent with the provisions of the Plan, as may be adopted from time to time by the Board.  In its absolute discretion, the Board may at any time and from time to time exercise any and all rights and duties of the Committee under this Plan, except respecting matters under Rule 16b-3 of the Exchange Act or Section 162(m) of the Code, or any rules or regulations issued thereunder, which are required to be determined in the sole discretion of the Committee.

(ii)Committee Composition.  A Committee shall consist solely of two or more Independent Directors.  Within the scope of its authority, the Board or the Committee may (1) delegate to a committee of one or more members of the Board who are not Independent Directors, the authority to grant Stock Awards to eligible persons who are either (a) not then Covered Employees and are not expected to be Covered Employees at the time of recognition of income resulting from such Stock Award or (b) not persons with respect to whom the Company wishes to comply with Section 162(m) of the Code, and/or (2) delegate to a committee of one or more members of the Board who are not Independent Directors or to the Company’s Chief Executive Officer the authority to grant Stock Awards to eligible persons who are not then subject to Section 16 of the Exchange Act.

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(d)Effect of Board’s Decision; No Liability.  All determinations, interpretations and constructions relating to this Plan made by the Board in good faith shall not be subject to review by any person and shall be final, binding and conclusive on all persons.  No member of the Board or any Committee or any person to whom duties hereunder have been delegated, including any member of any committee or subcommittee, shall be liable for any action, interpretation or determination made in good faith, and such persons shall be entitled to full indemnification and reimbursement consistent with applicable law and in the manner provided in the Company’s Memorandum and Articles of Association, as the same may be amended from time to time, or as otherwise provided in any agreement between any such member and the Company.

4.STOCK SUBJECT TO THE PLAN.

(a)Stock Reserve.  Subject to the provisions of Section 11 relating to adjustments upon changes in Common Stock, the Common Stock that may be issued pursuant to Stock Awards or Incentive Stock Options shall not exceed in the aggregate three million (3,000,000) shares of the Company’s Common Stock.  Stock appreciation rights provided for in Section 7(b) hereof that are payable only in cash will not reduce the number of Common Stock available for Stock Awards granted under the Plan.

(b)Reversion of Stock to the Stock Reserve.  If any Stock Award shall for any reason expire or otherwise terminate, in whole or in part, without having been exercised in full, the Common Stock not acquired under such Stock Award shall revert to and again become available for issuance under the Plan.  If any Common Stock is withheld to satisfy any tax withholding requirement in connection with any Stock Award, only the shares issued (if any), net of the shares withheld, will be deemed delivered for purposes of determining the amount of Common Stock available for issuance under the Plan.

(c)Source of Stock.  The Common Stock subject to the Plan may be either authorized and unissued stock or reacquired stock, bought on the market or otherwise, in the discretion of the Board.

5.ELIGIBILITY.

(a)Eligibility for Specific Stock Awards.  Incentive Stock Options may be granted only to Employees.  Stock Awards other than Incentive Stock Options may be granted to Employees, Directors, Officers and Consultants.

(b)Ten Percent Stockholders.  A Ten Percent Stockholder shall not be granted an Incentive Stock Option unless the exercise price of such Option is at least one hundred ten percent (110%) of the Fair Market Value of the Common Stock at the date of grant and the Option is not exercisable after the expiration of five (5) years from the date of grant.

(c)Limitations on Stock Awards.  No Participant shall be eligible to be granted Stock Awards covering more than 200,000 shares of Common Stock during any calendar year.

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(d)Consultants.

(i)A Consultant shall not be eligible for the grant of a Stock Award if, at the time of grant, a Form S-8 Registration Statement under the Securities Act (“Form S-8”) is not available to register a sale of the Company’s securities issued to such Consultant because of the nature of the services that the Consultant is providing to the Company, or because the Consultant is not a natural person, or as otherwise provided by the rules governing the use of Form S-8, unless the Board determines both (i) that such grant (A) shall be registered in another manner under the Securities Act (e.g., on a Form S-3 Registration Statement) or (B) does not require registration under the Securities Act in order to comply with the requirements of the Securities Act, if applicable, and (ii) that such grant complies with the securities laws of all other relevant jurisdictions.

(ii)Form S-8 generally is available to consultants and advisors only if (i) they are natural persons; (ii) they provide bona fide services to the issuer, its parents, its majority-owned subsidiaries or majority-owned subsidiaries of the issuer’s parent; and (iii) the services are not in connection with the offer or sale of securities in a capital-raising transaction, and do not directly or indirectly promote or maintain a market for the issuer’s securities.

6.OPTION PROVISIONS.

Each Option Agreement shall be subject to the terms and conditions of this Plan.  Each Option and Option Agreement shall be in such form and shall contain such terms and conditions as the Board shall deem appropriate.  All Options shall be separately designated Incentive Stock Options or Nonqualified Stock Options at the time of grant, and, if certificates are issued, a separate certificate or certificates will be issued for Common Stock purchased on exercise of each type of Option.  The provisions of separate Options need not be identical.

(a)Provisions Applicable to All Options.

(i)Exercise Price.  Subject to the provisions of Section 5(b) regarding Ten Percent Shareholders, the exercise price of each Option shall be not less than one hundred percent (100%) of the Fair Market Value of the Common Stock subject to the Option on the date the Option is granted.

(ii)Exercise.  The exercise price of Common Stock acquired pursuant to an Option shall be paid in any form of lawful consideration as the Board determines from time to time, including without limitation through net settlement or other method of cashless exercise.

(iii)Vesting Generally.  In the discretion of the Board, the total number of shares of Common Stock subject to an Option may (A) vest, and therefore become exercisable, in one or more periodic installments that may, but need not, be equal, or (B) be fully vested at the time of grant.  The Option may be subject to such other terms and conditions on the time or times when it may be exercised (which may be based on performance or other criteria) as the Board may deem appropriate.  The vesting provisions, if any, of individual Options may vary and shall be set forth in the applicable Option Agreement.  The provisions of this subsection 6(a)(iii) are

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subject to any Option Agreement provisions governing the minimum number of Common Stock as to which an Option may be exercised.

(iv)Termination of Continuous Service.  Unless otherwise provided in the Option Agreement, in the event an Optionholder’s Continuous Service terminates (other than upon the Optionholder’s death, Disability, Retirement or as a result of a Change of Control), all Options held by the Optionholder shall immediately terminate; provided, however, if an Optionholder’s Continuous Service is terminated for reasons other than for cause, as determined by the Board in its discretion, all vested Options held by such person shall continue to be exercisable until the earlier of the expiration date of such Option or 180 days after the date of such termination, and all unvested Options shall immediately terminate.  All vested Options not exercised within the period described in the preceding sentence shall terminate.

(v)Disability or Death of Optionholder.  Unless otherwise provided in the Option Agreement, in the event that an Optionholder’s Disability or death, all unvested Options shall immediately terminate, and all vested Options held by such person shall continue to be exercisable until the earlier of 12 months after the date of such Disability or death or the expiration date of such Options.  All such vested Options not exercised within such 12-month period shall terminate.

(vi)Retirement.  Unless otherwise provided in the Option Agreement, in the event of the Optionholder’s Retirement, all unvested Options shall automatically vest on the date of such Retirement and all Options shall be exercisable until the earlier of 24 months after such Retirement date or the expiration date of such Options.  All such Options not exercised within the period described in the preceding sentence shall terminate.

(vii)Incentive Stock Options.  Notwithstanding anything herein to the contrary, in the event an Incentive Stock Option is exercised after the date which is three months following the date the Optionholder’s employment with the Company is terminated, other than as a result of Disability or death, such Incentive Stock Option shall be treated as a Nonqualified Stock Option, but all other terms and provisions of such Option shall remain the same.

(b)Provisions Applicable to Incentive Stock Options.

(i)Term.  Subject to the provisions of subsection 5(b) regarding Ten Percent Stockholders, no Incentive Stock Option shall be exercisable after the expiration of ten (10) years from the date it was granted.  Further, no grant of an Incentive Stock Option shall be made under this Plan more than ten (10) years after the date of the satisfaction of the stockholder approval provisions of Section 422(b)(1) of the Code.

(ii)Transferability of an Incentive Stock Option.  An Incentive Stock Option shall not be transferable except by will or by the laws of descent and distribution and shall be exercisable during the lifetime of the Optionholder only by the Optionholder.

(iii)Incentive Stock Option $100,000 Limitation.  Notwithstanding any other provision of the Plan or an Option Agreement, the aggregate Fair Market Value of the

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Common Stock with respect to which Incentive Stock Options are exercisable for the first time by an Optionholder in any calendar year, under the Plan or any other option plan of the Company or its Affiliates, shall not exceed $100,000.  For this purpose, the Fair Market Value of the Common Stock shall be determined as of the time an Option is granted.  The Options or portions thereof which exceed such limit (according to the order in which they were granted) shall be treated as Nonqualified Stock Options but all other terms and provisions of such Options shall remain the same.

(iv)Disposition During the Holding Period.  Any participant who disposes of Common Stock acquired upon the exercise of an Incentive Stock Option either (i) within two years after the date of grant of such Incentive Stock Option, or (ii) within one year after the transfer of such shares to the Participant upon exercise, shall notify the Company of such disposition and of the amount realized upon such disposition.

(c)Provisions Applicable to Nonqualified Stock Options.

(i)Transferability of a Nonqualified Stock Option. A Nonqualified Stock Option shall be transferable, if at all, to the extent provided in the Option Agreement.  If the Option Agreement does not provide for transferability, then the Nonqualified Stock Option shall not be transferable except by will or by the laws of descent and distribution and shall be exercisable during the lifetime of the Optionholder only by the Optionholder.

7.PROVISIONS OF STOCK AWARDS OTHER THAN OPTIONS.

(a)Restricted and Unrestricted Common Stock Awards.  Each Stock Award Agreement evidencing a grant of restricted or unrestricted Common Stock shall be in such form and shall contain such restrictions, terms and conditions, if any, as the Board shall deem appropriate and shall be subject to the terms and conditions of this Plan.  The terms and conditions of restricted Common Stock may change from time to time, and the terms and conditions of separate restricted Common Stock awards need not be identical, but each Stock Award Agreement evidencing a grant of restricted or unrestricted Common Stock shall include (through incorporation of provisions hereof by reference in the agreement or otherwise) the substance of each of the following provisions:

(i)Consideration.  A restricted or unrestricted Common Stock award may be awarded in consideration for past services actually rendered, or, to the extent consistent with state law, for future services to be rendered, to the Company or an Affiliate for its benefit.

(ii)Vesting.  Common Stock awarded under the Stock Award Agreement may (A) be subject to a vesting schedule to be determined by the Board (i.e. restricted Common Stock), or (B) be fully vested at the time of grant (i.e. unrestricted Common Stock).

(iii)Termination of Participant’s Continuous Service.  Unless otherwise provided in the Stock Award Agreement, in the event a Participant’s Continuous Service terminates prior to a vesting date set forth in the Stock Award Agreement, any unvested restricted Common Stock shall be forfeited and automatically transferred to and reacquired by

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the Company at no cost to the Company, and neither the Participant nor his or her heirs, executors, administrators or successors shall have any right or interest in such restricted Common Stock.  Notwithstanding the foregoing, unless otherwise provided in the Stock Award Agreement, in the event a Participant’s Continuous Service terminates as a result of (A) being terminated by the Company for reasons other than for cause, (B) death, (C) Disability, (D) Retirement, or (E) a Change of Control (subject to the provisions of Section 11(c) hereof), then any unvested restricted Common Stock shall vest immediately upon such date.

(iv)Transferability.  Rights to acquire Common Stock under the Stock Award Agreement shall be transferable by the Participant only upon such terms and conditions as are set forth in the Stock Award Agreement, as the Board shall determine in its discretion, so long as Common Stock awarded under the Stock Award Agreement remains subject to the terms of the Stock Award Agreement.

(b)Restricted Stock Units.  Grant of Restricted Stock Units. A restricted stock unit, or “RSU,” represents the right to receive from the Company on the respective scheduled vesting or payment date for such RSU, one share of Common Stock. An award of RSUs may be subject to the attainment of specified performance goals or targets, forfeitability provisions and such other terms and conditions as the Administrator may determine, subject to the provisions of this Plan.  At the time an award of RSUs is made, the Administrator shall establish a period of time during which the restricted stock units shall vest.

(i)Dividend Equivalent Accounts. If (and only if) required by the applicable award agreement, prior to the expiration of the applicable vesting period of an RSU, the Company shall pay dividend equivalent rights with respect to RSUs, in which case the Company shall establish an account for the participant and reflect in that account any securities, cash or other property comprising any dividend or property distribution with respect to the share of Common Stock underlying each RSU.  Each amount or other property credited to any such account shall be subject to the same vesting conditions as the RSU to which it relates.  The participant shall be paid the amounts or other property credited to such account upon vesting of the RSU.

(ii)Payment. Except as otherwise provided in the applicable Stock Award agreement, Common Stock issuable under an RSU shall be treated as issued on the first date that the holder of the RSU is no longer subject to a substantial risk of forfeiture as determined for purposes of Section 409A of the Code, and the holder shall be the owner of such Common Stock on such date.  An award agreement may provide that issuance of Common Stock under an RSU may be deferred beyond the first date that the RSU is no longer subject to a substantial risk of forfeiture, provided that such deferral is structured in a manner that is intended to comply with the requirements of Section 409A of the Code.

(c)Grant of Stock Appreciation Rights.  Stock appreciation rights to receive in cash (or its equivalent in Common Stock) the excess of the Fair Market Value of Common Stock on the date the rights are surrendered over the Fair Market Value of Common Stock on the date of grant may be granted to any Employee, Director, Officer or Consultant selected by the Board.  A stock appreciation right may be granted (i) in connection and simultaneously with the grant of another Stock Award, (ii) with respect to a previously granted Stock Award, or (iii) independent

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of another Stock Award.  A stock appreciation right shall be subject to such terms and conditions not inconsistent with this Plan as the Board shall impose and shall be evidenced by a written Stock Award Agreement, which shall be executed by the Participant and an authorized officer of the Company.  The Board may, in its discretion and on such terms as it deems appropriate, require as a condition of the grant of a stock appreciation right that the Participant surrender for cancellation some or all of the Stock Awards previously granted to such person under this Plan or otherwise, provided that such action does not result in a violation of Section 409A of the Code.  A stock appreciation right, the grant of which is conditioned upon such surrender, may have an exercise price lower (or higher) than the exercise price of the surrendered Stock Award, may contain such other terms as the Board deems appropriate, and shall be exercisable in accordance with its terms, without regard to the number of shares, price, exercise period or any other term or condition of such surrendered Stock Award.

(d)Other Stock-Based Awards. The other types of stock-based awards that may be granted under this Plan include: (a) stock units, performance stock, dividend equivalents, or similar rights to purchase or acquire shares, whether at a fixed or variable price or ratio related to the Common Stock, upon the passage of time, the occurrence of one or more events, or the satisfaction of performance criteria or other conditions, or any combination thereof; or (b) any similar securities with a value derived from the value of or related to the Common Stock and/or returns thereon.

8.AVAILABILITY OF STOCK.  During the terms of the Stock Awards, the Company shall keep available at all times the number of Common Stock required to satisfy such Stock Awards.

9.USE OF PROCEEDS FROM STOCK.

Proceeds from the sale of Common Stock pursuant to Stock Awards shall constitute general funds of the Company.

10.MISCELLANEOUS.

(a)Exercise of Awards.  Stock Awards shall be exercisable at such times, or upon the occurrence of such event or events as the Board shall determine at or subsequent to grant.  Stock Awards may be exercised in whole or in part.  Common Stock purchased upon the exercise of a Stock Award shall be paid for in full at the time of such purchase.

(b)Acceleration of Exercisability and Vesting.  The Board shall have the power to accelerate the time at which a Stock Award may first be exercised or the time during which a Stock Award or any part thereof will vest in accordance with the Plan, notwithstanding the provisions in the Stock Award stating the time at which it may first be exercised or the time during which it will vest.

(c)Stockholder Rights.

(i)Options.  Unless otherwise provided in and upon the terms and conditions in the Option Agreement, no Participant shall be deemed to be the holder of, or to have any of the rights of a holder with respect to, any Common Stock subject to an Option unless and until

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such Participant has satisfied all requirements for exercise of, and has exercised, the Option pursuant to its terms.

(ii)Restricted Common Stock.  Unless otherwise provided in and upon the terms and conditions in the Stock Award Agreement, a Participant shall have the right to receive all dividends and other distributions paid or made respecting such restricted Common Stock, provided, however, no unvested restricted Common Stock shall have any voting rights of a stockholder respecting such unvested restricted Common Stock unless and until such unvested restricted Common Stock become vested.

(iii)Other Stock Awards. Unless otherwise provided in and upon the terms and conditions in the Stock Award Agreement, a Participant shall have no rights as a stockholder with respect to RSUs, stock appreciation rights, or other stock-based awards until such time as shares of Common Stock are issued to the Participant pursuant to the terms of such awards.

(d)No Employment or other Service Rights.  Nothing in the Plan or any instrument executed or Stock Award granted pursuant thereto shall confer upon any Participant any right to continue to serve the Company or an Affiliate in the capacity in effect at the time the Stock Award was granted, or any other capacity, or shall affect the right of the Company or an Affiliate to terminate with or without notice and with or without cause (i) the employment of an Employee, (ii) the service of a Consultant to the Company or an Affiliate or (iii) the service of a Director of the Company or an Affiliate.

(e)Withholding Obligations.  If the Company has or will have a legal obligation to withhold the taxes related to the grant, vesting or exercise of the Stock Award, such Award may not be granted, vested or exercised in whole or in part, unless such tax obligation is first satisfied in a manner satisfactory to the Company.  To the extent provided by the terms of a Stock Award Agreement or Option Agreement, the Participant may satisfy any federal, state or local tax withholding obligation relating to the exercise or acquisition of Common Stock under a Stock Award by any of the following means (in addition to the Company’s right to withhold from any compensation paid to the Participant by the Company) or by a combination of such means:  (i) tendering a cash payment in Dollars; (ii) authorizing the Company to withhold Common Stock from the Common Stock otherwise issuable to the Participant as a result of the exercise or acquisition of Common Stock under the Stock Award, provided, however, that no Common Stock is withheld with a value exceeding the minimum amount of tax required to be withheld by law; or (iii) delivering to the Company owned and unencumbered Common Stock held for the minimum amount of time necessary to avoid adverse accounting treatment to the Company, as determined by the Board in its discretion.

(f)Substitutions and Repricings.  The Board may, in its discretion, issue new Stock Awards in substitution for outstanding Stock Awards previously granted to Participants, or approve a repricing (within the meaning of U.S. generally accepted accounting practices or any applicable stock exchange rule) of Stock Awards issued under this Plan, in each case without the stockholders of the Company expressly approving such substitution or repricing.

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(g)Listing and Qualification of Stock.This Plan and grant and exercise of Stock Awards hereunder, and the obligation of the Company to sell and deliver Common Stock under such Stock Awards, shall be subject to all applicable United States federal and state laws, rules and regulations and to such approvals by any government or regulatory agency as may be required. The Company, in its discretion, may postpone the issuance or delivery of Common Stock upon any exercise of a Stock Award until completion of any stock exchange listing, or other qualification of such Common Stock under any United States federal or state law rule or regulation as the Company may consider appropriate, and may require any individual to whom a Stock Award is granted, such individual’s beneficiary or legal representative, as applicable, to make such representations and furnish such information as the Board may consider necessary, desirable or advisable in connection with the issuance or delivery of the Common Stock in compliance with applicable laws, rules and regulations.

(h)Non-Uniform Determinations.  The Board’s determinations under this Plan (including, without limitation, determinations of the persons to receive Stock Awards, the form, term, provisions, amount and timing of the grant of such Stock Awards and of the agreements evidencing the same) need not be uniform and may be made by it selectively among persons who receive, or are eligible to receive, Stock Awards under this Plan, whether or not such persons are similarly situated.

(i)Section 409A.  This Plan and all Stock Awards granted hereunder are intended to comply with or be exempt from the requirements of Code Section 409A, and the Plan and all Stock Award Agreements and Option Award Agreements shall be interpreted accordingly.  In no event, however, shall the Company be liable to any Participant for any tax, penalties or interest that may be due in respect of any Stock Award as a result of the application of Code Section 409A.

11.ADJUSTMENTS UPON CHANGES IN STOCK.

(a)Capitalization Adjustments.  If any change is made in the Common Stock subject to the Plan, or subject to any Stock Award, without the receipt of consideration by the Company (through merger, consolidation, reorganization, recapitalization, reincorporation, stock dividend, dividend in property other than cash, stock split, liquidating dividend, combination of shares, exchange of shares, change in corporate structure or other transaction), the Plan will be appropriately adjusted in the class(es) and maximum number of securities subject to the Plan pursuant to subsection 4(a) and the maximum number of securities subject to award to any person pursuant to subsection 5(c), and the outstanding Stock Awards will be appropriately adjusted in the class(es) and number of securities and price per share of Common Stock subject to such outstanding Stock Awards.  The Board shall make such adjustments, and its determination shall be final, binding and conclusive.  (The conversion of any convertible securities of the Company shall not be treated as a transaction “without receipt of consideration” by the Company.)

(b)Asset Sale, Merger, Consolidation or Reverse Merger.  In the event of (i) a sale, lease or other disposition of all or substantially all of the assets of the Company, (ii) a merger or consolidation of the Company with or into any other corporation or entity or person, or

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any other corporate reorganization, in which the stockholders of the Company immediately prior to such consolidation, merger or reorganization, own less than 50% of the Company’s outstanding voting power of the surviving entity (or its parent) following the consolidation, merger, or reorganization or (iii) any transaction (or series of related transactions) in which any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) acquires in excess of fifty percent (50%) of the Company’s outstanding voting power (individually, a “Change of Control”), then any surviving corporation or acquiring corporation (or parent thereof) may assume any Stock Awards outstanding under the Plan or may substitute similar stock awards (including an award to acquire the same consideration paid to the shareholders in the Change of Control for those outstanding under the Plan).  In the event any surviving corporation or acquiring corporation (or parent thereof) does not assume or substitute similar stock awards for those outstanding under the Plan, then (A) with respect to Stock Awards held by Participants whose Continuous Service to the Company has not terminated as of the date of the Change of Control, the vesting of such Stock Awards (and the time during which any Options or stock appreciation rights may be exercised) shall be accelerated in full, and any Options or stock appreciation rights shall terminate if not exercised at or prior to the Change of Control, and (B) with respect to any other Stock Awards outstanding under the Plan, such Stock Awards shall terminate if not exercised (if applicable) or vested prior to the Change of Control.  In connection with a Change of Control, the Company or any surviving corporation or acquiring corporation shall have the right, but not the obligation, in the Stock Award Agreement or otherwise, (i) to provide for accelerated vesting (in whole or in part and upon such conditions as the Board or the surviving or acquiring corporation deems appropriate) of any Stock Awards that would not otherwise vest under the default provisions of this Section 11(c), (ii) to cash out a Stock Award in lieu of requiring the Participant to exercise such Stock Award in accordance with its terms, and the Corporation or any surviving corporation or acquiring corporation shall have the right, but not the obligation, to make any such cash out subject to any escrow, earn-out or other contingent or deferred payment arrangement that is contemplated by such Change of Control transaction, or (iii) to take any such other actions not inconsistent with the terms of the Plan which the Board or the surviving or acquiring company deems expedient or desirable.  Any actions under this Section may be taken generally with respect to all Participants, or may be made on a case-by-case basis with respect to particular Participants.  The provisions of this Section 11(c) shall not apply to any transaction undertaken for the purpose of reincorporating the Company under the laws of another jurisdiction, if such transaction does not materially affect the beneficial ownership of the Company’s capital stock.

12.AMENDMENT OF THE PLAN AND STOCK AWARDS.

(a)Amendment of Plan.  The Board at any time, and from time to time, may amend the Plan, provided that such amendment does not result in a violation of Section 409A of the Code.  However, except as provided in Section 11 relating to adjustments upon changes in Common Stock, no amendment shall be effective unless approved by the stockholders of the Company to the extent stockholder approval is necessary to satisfy the requirements of applicable law (including, without limitation, Section 422 of the Code or Rule 16b-3) or any applicable securities exchange listing requirements.

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(b)Stockholder Approval.  The Board may, in its sole discretion, submit any other amendment to the Plan for stockholder approval, including, but not limited to, amendments to the Plan intended to satisfy the requirements of Section 162(m) of the Code and the regulations thereunder regarding the exclusion of performance-based compensation from the limit on corporate deductibility of compensation paid to certain executive officers.

(c)Contemplated Amendments.  It is expressly contemplated that the Board may amend the Plan in any respect the Board deems necessary or advisable to provide eligible Employees with the maximum benefits provided or to be provided under the provisions of the Code and the regulations promulgated thereunder relating to Incentive Stock Options and/or to bring the Plan and/or Incentive Stock Options granted under it into compliance therewith.

(d)No Impairment of Rights.  Rights under any Stock Award granted before amendment of the Plan shall not be impaired by any amendment of the Plan unless the Participant consents in writing.

(e)Amendment of Stock Awards.  The Board at any time, and from time to time, may amend the terms of any one or more Stock Awards; provided, however, that the rights under any Stock Award shall not be impaired by any such amendment unless the applicable Participant consents in writing and provided further that such amendment does not result in a violation of Section 409A of the Code.

13.TERMINATION OR SUSPENSION OF THE PLAN.

(a)Plan Term.  The Board may suspend or terminate the Plan at any time.  Unless sooner terminated, the Plan shall terminate on the tenth anniversary of the Effective Date, after which no grants of Stock Awards may be made; provided, that administration of the Plan shall continue in effect until all matters relating to Stock Awards previously granted have been settled.

(b)No Impairment of Rights.  Suspension or termination of the Plan shall not impair rights and obligations under any Stock Award granted while the Plan is in effect except with the written consent of the Participant.

(c)Savings Clause.  This Plan is intended to comply in all aspects with applicable laws and regulations. In case any one more of the provisions of this Plan shall be held invalid, illegal or unenforceable in any respect under applicable law or regulation, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby and the invalid, illegal or unenforceable provision shall be deemed null and void; however, to the extent permissible by law, any provision which could be deemed null and void shall first be construed, interpreted or revised retroactively to permit this Plan to be construed in compliance with all applicable laws so as to foster the intent of this Plan.

14.CHOICE OF LAW.

The law of Idaho shall govern all questions concerning the construction, validity and interpretation of this Plan, without regard to such state’s conflict of laws rules.

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15.PERFORMANCE-BASED COMPENSATION UNDER SECTION 162(M).

Notwithstanding anything herein to the contrary, the performance criteria for any Stock Award that is intended to satisfy the requirements for “performance-based compensation” under Section 162(m) of the Code (other than Options or stock appreciation rights) shall be established by the Committee based on one or more Qualifying Performance Criteria selected by the Committee and specified in writing in accordance with the regulations pursuant to Section 162(m).

(a)Qualifying Performance Criteria.  For purposes of this Plan, the term “Qualifying Performance Criteria” shall mean any one or more of the following performance criteria, applied to either the Company as a whole or to a business segment, subsidiary or Affiliate, and measured either annually or cumulatively over a period of years, on an absolute basis or relative to a pre-established target, to previous years’ results or to a designated comparison group, in each case as specified by the Committee in the applicable Stock Award Agreement: revenue; revenue growth; operating income (before or after taxes); pre- or after-tax income (before or after allocation of corporate overhead and bonus); earnings per share; return on equity; total stockholder return; return on assets or net assets; appreciation in and/or maintenance of the price of the Common Stock or any other publicly-traded securities of the Company; gross profits; earnings (including earnings before taxes, earnings before interest and taxes or earnings before interest, taxes, depreciation and amortization); economic value-added models or equivalent metrics; comparisons with various stock market indices; reductions in costs; cash flow, cash flow per share or cash flow from operations; return on capital; improvement in or attainment of expense levels or working capital levels; operating margins, gross margins or cash margin; year-end cash; debt reductions; stockholder equity; regulatory achievements (including submitting or filing applications or other documents with regulatory authorities or receiving approval of any such applications or other documents); financing and other capital raising transactions (including sales of the Company’s equity or debt securities); implementation, completion or attainment of objectives with respect to exploration, development, production or costs, acquisitions and divestitures, operational objectives, including those relating to environmental, health and safety requirements, recruiting and maintaining personnel, and joint venture or similar arrangements.

(b)Certification.  Before payment of any compensation under a Stock Award intended to qualify as “performance-based compensation” under Section 162(m) of the Code (other than Options and stock appreciation rights), the Committee shall certify, in writing, the extent to which any Qualifying Performance Criteria and any other material terms under such Stock Award have been satisfied.

(c)Discretionary Adjustments Pursuant to Section 162(m).  Notwithstanding satisfaction or completion of any Qualifying Performance Criteria, to the extent specified at the time of grant of a Stock Award to Covered Employees, the number of shares of Common Stock or other benefits granted, issued, retained, or vested under a Stock Award on account of satisfaction of such Qualifying Performance Criteria may be reduced by the Committee on the basis of such further considerations as the Committee in its sole discretion shall determine.  In

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addition, in the event that the requirements of Section 162(m) of the Code and the regulations thereunder change to permit the Committee discretion to alter the Qualifying Performance Criteria without obtaining shareholder approval of such changes, the Committee shall have sole discretion to make such changes without obtaining shareholder approval.  Furthermore, in the event that the Committee determines that it is advisable to grant Stock Awards that shall not qualify as performance-based compensation and/or to amend previously granted Stock Awards in a way that would disqualify them as performance-based compensation, the Committee may make such grants without satisfying the requirements of Section 162(m) of the Code and may base vesting on performance measures other than those set forth above and/or make such amendments.

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EX-10.2

Exhibit 10.2

MINES MANAGEMENT, INC.
2012 EQUITY INCENTIVE PLAN

NONQUALIFIED STOCK OPTION AWARD AGREEMENT

This Nonqualified Stock Option Award Agreement (the “Agreement”), is made as of the        day of                 , 201 , by and between Mines Management, Inc., an Idaho corporation (the “Company”), and                          (the “Participant”).

WHEREAS, the Company desires to encourage and enable the Participant to acquire a proprietary interest in the Company through ownership of shares of the Company’s Common Stock, par value $0.001 per share (the “Shares”), pursuant to the terms and conditions of the Company’s 2012 Equity Incentive Plan (the “Plan”) and this Agreement.  Such ownership will provide the Participant with an additional incentive to promote the success of the Company.

NOW, THEREFORE, in consideration of the mutual covenants hereinafter set forth and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows:

1.Definitions.  For purposes of this Agreement, all capitalized terms used herein and not otherwise defined herein shall have the meanings ascribed to them in the Plan.

2.Grant of Option.  The Company hereby grants to the Participant Nonqualified Stock Options (the “Options”) to purchase                  Shares at the exercise price (the “Exercise Price”) of $         per Share, subject to the terms and conditions of this Agreement and the Plan.

3.Option Term.  The Options granted hereby shall expire on                            (the “Expiration Date”), unless sooner terminated or modified under the provisions of this Agreement or the Plan.  Except as otherwise set forth herein, the Options may not be exercised after the Expiration Date.

4.Vesting.  The Options shall vest and be exercisable by the Participant in accordance with the following schedule, provided that the Participant’s Continuous Service does not terminate prior to the vesting date:

Date Number of Options Vested

To the extent vested, Options may be exercised in whole or in part prior to the Expiration Date except as otherwise provided in this Agreement or the Plan.

5.Termination of Continuous Service.

(a)Unless otherwise determined by the Committee and reflected in an employment contract or other applicable agreement between the Participant and the Company, all Options held by a Participant whose Continuous Service terminates, other than upon

Retirement, Disability, or death, shall terminate immediately upon such termination of Continuous Service, provided, however, if such Participant’s Continuous Service is terminated for reasons other than for cause, as determined by the Board in its discretion, each vested Option held by such person shall continue to be exercisable until the earlier of the Expiration Date of such Option or 180 days after the date of such termination of Continuous Service.  All vested Options not exercised within the period described in the preceding sentence shall terminate at the end of such period.

(b)In the event of a Participant’s termination of Continuous Service on account of Disability prior to the termination of the Participant’s Continuous Service, all unvested Options shall immediately terminate, and any vested Option held by such person shall continue to be exercisable until the earlier of twelve (12) months after the date of such Disability or the Expiration Date of such Option.  All vested Options not exercised within the period described in the preceding sentence shall terminate at the end of such period.

(c)In the event of termination of a Participant’s Continuous Service due to the death of the Participant, all unvested Options shall immediately terminate, and any vested Option held by such person shall continue to be exercisable until the earlier of twelve (12) months after the date of death or the Expiration Date of such Option.  All vested Options not exercised within the period described in the preceding sentence shall terminate at the end of such period.  In the event of the death of a Participant after the termination of Participant’s Continuous Service, all vested Options held by such person shall continue to be exercisable until the earlier of twelve (12) months after the termination of the Particpant’s Continuous Service or the Expiration Date of such Option.  All such vested Options not exercised within the period described in the preceding sentence shall terminate at the end of such period.

(d)In the event of a Participant’s Retirement, all unvested Options shall automatically vest on the date of such Retirement and any vested Options shall be exercisable until the earlier of twenty four (24) months after such Retirement date or the Expiration Date of such Options.  All such vested Options not exercised within the period described in the preceding sentence shall terminate at the end of such period.

(e)If more than one of the conditions specified in (a), (b), (c), or (d) above applies to a Participant, the provision that provides for the latest last date to exercise an Option shall apply

6.Non-Assignability.  The Option granted hereby and any right arising thereunder may not be transferred, assigned, pledged or hypothecated (whether by operation of law or otherwise), except by will or the applicable laws of descent and distribution, and the Option and any right arising thereunder shall not be subject to execution, attachment or similar process.  Any attempted assignment, transfer, pledge, hypothecation or other disposition of an Option not specifically permitted herein or in the Plan shall be null and void and without effect.

7.Mode of Exercise.  The exercise price of Common Stock acquired pursuant to an Option shall be paid in any form of lawful consideration as the Board determines from time to time, including without limitation through net settlement or other method of

2

cashless exercise.  The person exercising an Option (or his or her designee) may request a certificate for such Shares.

8.Plan Controlling.  This Agreement is intended to conform in all respects with the requirements of the Plan.  Inconsistencies between the requirements of this Agreement and the Plan shall be resolved according to the terms of the Plan.  The Participant acknowledges receipt of a copy of the Plan.

9.Rights Prior to Exercise of Option.  The Participant shall not have any rights as a shareholder with respect to any Shares subject to the Options prior to the date on which the Participant is recorded as the holder of such Shares on the records of the Company.

10.Withholding Obligations.  If the Company has or will have a legal obligation to withhold any taxes related to the grant, vesting or exercise of an Option, such Option may not be granted, vested or exercised in whole or in part, as applicable, unless such tax obligation is first satisfied in a manner satisfactory to the Company.  The Participant may satisfy any federal, state or local tax withholding obligation relating to the exercise or acquisition of Common Stock under an Option by any of the following means (in addition to the Company’s right to withhold from any compensation otherwise payable to the Participant by the Company) or by a combination of such means: (i) tendering a cash payment in Dollars; (ii) authorizing the Company to withhold Common Stock from the Common Stock otherwise issuable to the Participant as a result of the exercise or acquisition of Common Stock under an Option, provided, however, that no Common Stock may be withheld with a value exceeding the minimum amount of tax required to be withheld by law; or (iii) delivering to the Company owned and unencumbered Common Stock held for the minimum amount of time necessary to avoid adverse accounting treatment to the Company, as determined by the Board in its discretion.

11.Code Section 409A.  This Agreement and the Plan are intended to provide rights that do not provide for the deferral of compensation subject to Code Section 409A by means of complying with Treasury Regulations Section 1.409A-1(b)(5) or to otherwise be exempt from Code Section 409A.  The provisions of Agreement and the Plan shall be interpreted and administered in a manner so as to avoid the imposition of additional tax, interest, or other sanction pursuant to Code Section 409A.  If any provision of this Agreement or the Plan would otherwise frustrate or conflict with such intent, the provision, term or condition will be interpreted and deemed amended so as to avoid such conflict to the fullest extent possible.  If, at any time, the Board determines that the terms of this Agreement or the Plan may result in additional tax, interest, or other sanction to an Participant under Code Section 409A, the Board shall have the authority, but shall not be required, to enter into an amendment of this Agreement or the Plan that is designed to avoid such additional tax, interest, or other sanction.  Notwithstanding any other provision of this Agreement, the Company does not guarantee or warrant to any Participant or any other person that this Agreement, the Plan, or any Option that is intended to be exempt from Code Section 409A shall be so exempt, nor that this Agreement, the Plan, or any Option intended to comply with Code Section 409A shall so comply, nor will the Company indemnify, defend or hold harmless any person with respect to the tax consequences of any such failure.  Each Participant shall be solely responsible for all of the tax consequences to the Participant of this Agreement, the Plan, or any Option, including any consequences arising

3

under Code Section 409A.  The Company provides no guaranty or assurance concerning the tax consequences to the participants of this Agreement, the Plan, or any Option.

12.Governing Law.  This Agreement and all rights arising hereunder shall be governed by, and construed and interpreted in accordance with, the laws of the State of Idaho, without regard to such state’s conflict of laws rules.

13.No Employment Rights Created.  NEITHER THE PLAN NOR THIS AGREEMENT SHALL BE CONSTRUED AS GIVING THE PARTICIPANT THE RIGHT TO BE RETAINED IN THE EMPLOY OR SERVICE OF THE COMPANY OR ANY AFFILIATE THEREOF, NOR SHALL THEY INTERFERE IN ANY WAY WITH THE RIGHT OF THE COMPANY OR ANY AFFILIATE THEREOF, AS APPLICABLE, TO TERMINATE THE PARTICIPANT’S EMPLOYMENT OR SERVICE AT ANY TIME WITH OR WITHOUT CAUSE.

* * * * *

Executed as of the day and year first above written.

MINES MANAGEMENT, INC.
By:
	Name:
	Title:
PARTICIPANT
By:
	Name:

4

EX-10.3

Exhibit 10.3

MINES MANAGEMENT, INC.
2012 EQUITY INCENTIVE PLAN

INCENTIVE STOCK OPTION AWARD AGREEMENT

This Incentive Stock Option Award Agreement (the “Agreement”), is made as of the        day of                 , 201 , by and between Mines Management, Inc., an Idaho corporation (the “Company”), and                          (the “Participant”).

WHEREAS, the Company desires to encourage and enable the Participant to acquire a proprietary interest in the Company through ownership of shares of the Company’s Common Stock, par value $0.001 per share (the “Shares”), pursuant to the terms and conditions of the Company’s 2012 Equity Incentive Plan (the “Plan”) and this Agreement.  Such ownership will provide the Participant with an additional incentive to promote the success of the Company.

NOW, THEREFORE, in consideration of the mutual covenants hereinafter set forth and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows:

1.Definitions.  For purposes of this Agreement, all capitalized terms used herein and not otherwise defined herein shall have the meanings ascribed to them in the Plan.

2.Grant of Option.  The Company hereby grants to the Participant Incentive Stock Options (the “Options”) to purchase                  Shares at the exercise price (the “Exercise Price”) of $         per Share, subject to the terms and conditions of this Agreement and the Plan.

3.Option Term.  The Options granted hereby shall expire on                            (the “Expiration Date”), unless sooner terminated or modified under the provisions of this Agreement or the Plan.  Except as otherwise set forth herein, the Options may not be exercised after the Expiration Date.

4.Vesting.  The Options shall vest and be exercisable by the Participant in accordance with the following schedule, provided that the Participant’s Continuous Service does not terminate prior to the vesting date:

Date Number of Options Vested

To the extent vested, Options may be exercised in whole or in part prior to the Expiration Date except as otherwise provided in this Agreement or the Plan.

5.Termination of Continuous Service.

(a)Unless otherwise determined by the Committee and reflected in an employment contract or other applicable agreement between the Participant and the Company, all Options held by a Participant whose Continuous Service terminates, other than upon

Retirement, Disability, or death, shall terminate immediately upon such termination of Continuous Service, provided, however, if such Participant’s Continuous Service is terminated for reasons other than for cause, as determined by the Board in its discretion, each vested Option held by such person shall continue to be exercisable until the earlier of the Expiration Date of such Option or 180 days after the date of such termination of Continuous Service.  All vested Options not exercised within the period described in the preceding sentence shall terminate at the end of such period.

(b)In the event of a Participant’s termination of Continuous Service on account of Disability prior to the termination of the Participant’s Continuous Service, all unvested Options shall immediately terminate, and any vested Option held by such person shall continue to be exercisable until the earlier of twelve (12) months after the date of such Disability or the Expiration Date of such Option.  All vested Options not exercised within the period described in the preceding sentence shall terminate at the end of such period.

(c)In the event of termination of a Participant’s Continuous Service due to the death of the Participant, all unvested Options shall immediately terminate, and any vested Option held by such person shall continue to be exercisable until the earlier of twelve (12) months after the date of death or the Expiration Date of such Option.  All vested Options not exercised within the period described in the preceding sentence shall terminate at the end of such period.  In the event of the death of a Participant after the termination of Participant’s Continuous Service, all vested Options held by such person shall continue to be exercisable until the earlier of twelve (12) months after the termination of the Particpant’s Continuous Service or the Expiration Date of such Option.  All such vested Options not exercised within the period described in the preceding sentence shall terminate at the end of such period.

(d)In the event of a Participant’s Retirement, all unvested Options shall automatically vest on the date of such Retirement and any vested Options shall be exercisable until the earlier of twenty four (24) months after such Retirement date or the Expiration Date of such Options.  All such vested Options not exercised within the period described in the preceding sentence shall terminate at the end of such period.

(e)If more than one of the conditions specified in (a), (b), (c), or (d) above applies to a Participant, the provision that provides for the latest last date to exercise an Option shall apply.

6.Incentive Stock Option Tax Matters.

(a)The Options are intended to qualify as incentive stock options within the meaning of Section 422 of the Code.  The Board may take all appropriate action to achieve this result.  The Exercise Price has been determined to be equal to or greater than the Fair Market Value per Share at the time of grant.

(b)To the extent the aggregate Fair Market Value (determined at the time of grant) of the Shares underlying the Options and all other incentive stock options the Participant holds that are exercisable for the first time by the Participant during any calendar year, exceeds One Hundred Thousand Dollars (US $100,000), Participant’s option(s) or portions

2

thereof that exceed such limit (according to the order in which they were granted) shall be treated as Nonqualified Stock Options.

(c)Notwithstanding paragraph 5 hereof, Participant acknowledges that an Option will be an incentive stock option within the meaning of Section 422 of the Code only if:

i.at all times during the period beginning on the date of the granting of the Option and ending on the day 3 months (or 12 months in the case of a Participant who experiences Disability) before the date of such exercise, the Participant was an employee of the Company, a parent or subsidiary corporation of the Company, or a corporation or a parent or subsidiary corporation of a corporation issuing or assuming a stock option in a transaction to which Section 422(a) of the Code applies, or,

ii.Participant dies during employment or during the 3 month (or 12 month, in the case of a Participant who experiences Disability) period described in (i) above and the Option is exercised during the period permitted by paragraph 5 hereof by the Participant’s estate, or by a person who by bequest or inheritance, or otherwise by reason of the Participant’s death, acquired the right to exercise it.

If Participant exercises an Option at any time not described in (i) or (ii) immediately above, such Option shall be treated as a Nonqualified Stock Option.

7.Disposition During the Holding Period.  If the Participant disposes of the Common Stock acquired upon the exercise of an Option either (i) within two (2) years after the date of grant of such Option, or (ii) within one (1) year after the transfer of Common Stock to the Participant upon exercise, such Participant shall notify the Company of such disposition and of the amount realized upon such disposition.

8.Non-Assignability.  The Option granted hereby and any right arising thereunder may not be transferred, assigned, pledged or hypothecated (whether by operation of law or otherwise), except by will or the applicable laws of descent and distribution, and the Option and any right arising thereunder shall not be subject to execution, attachment or similar process.  Any attempted assignment, transfer, pledge, hypothecation or other disposition of an Option not specifically permitted herein or in the Plan shall be null and void and without effect.

9.Mode of Exercise.  The exercise price of Common Stock acquired pursuant to an Option shall be paid in any form of lawful consideration as the Board determines from time to time, including without limitation through net settlement or other method of cashless exercise.  The person exercising an Option (or his or her designee) may request a certificate for such Shares.

10.Plan Controlling.  This Agreement is intended to conform in all respects with the requirements of the Plan.  Inconsistencies between the requirements of this Agreement and the Plan shall be resolved according to the terms of the Plan.  The Participant acknowledges receipt of a copy of the Plan.

3

11.Rights Prior to Exercise of Option.  The Participant shall not have any rights as a shareholder with respect to any Shares subject to the Options prior to the date on which the Participant is recorded as the holder of such Shares on the records of the Company.

12.Withholding Obligations.  If the Company has or will have a legal obligation to withhold any taxes related to the grant, vesting or exercise of an Option, such Option may not be granted, vested or exercised in whole or in part, as applicable, unless such tax obligation is first satisfied in a manner satisfactory to the Company.  The Participant may satisfy any federal, state or local tax withholding obligation relating to the exercise or acquisition of Common Stock under an Option by any of the following means (in addition to the Company’s right to withhold from any compensation otherwise payable to the Participant by the Company) or by a combination of such means: (i) tendering a cash payment in Dollars; (ii) authorizing the Company to withhold Common Stock from the Common Stock otherwise issuable to the Participant as a result of the exercise or acquisition of Common Stock under an Option, provided, however, that no Common Stock may be withheld with a value exceeding the minimum amount of tax required to be withheld by law; or (iii) delivering to the Company owned and unencumbered Common Stock held for the minimum amount of time necessary to avoid adverse accounting treatment to the Company, as determined by the Board in its discretion.

13.Code Section 409A.  This Agreement and the Plan are intended to provide rights that do not provide for the deferral of compensation subject to Code Section 409A by means of complying with Treasury Regulations Section 1.409A-1(b)(5) or to otherwise be exempt from Code Section 409A.  The provisions of Agreement and the Plan shall be interpreted and administered in a manner so as to avoid the imposition of additional tax, interest, or other sanction pursuant to Code Section 409A.  If any provision of this Agreement or the Plan would otherwise frustrate or conflict with such intent, the provision, term or condition will be interpreted and deemed amended so as to avoid such conflict to the fullest extent possible.  If, at any time, the Board determines that the terms of this Agreement or the Plan may result in additional tax, interest, or other sanction to an Participant under Code Section 409A, the Board shall have the authority, but shall not be required, to enter into an amendment of this Agreement or the Plan that is designed to avoid such additional tax, interest, or other sanction.  Notwithstanding any other provision of this Agreement, the Company does not guarantee or warrant to any Participant or any other person that this Agreement, the Plan, or any Option that is intended to be exempt from Code Section 409A shall be so exempt, nor that this Agreement, the Plan, or any Option intended to comply with Code Section 409A shall so comply, nor will the Company indemnify, defend or hold harmless any person with respect to the tax consequences of any such failure.  Each Participant shall be solely responsible for all of the tax consequences to the Participant of this Agreement, the Plan, or any Option, including any consequences arising under Code Section 409A.  The Company provides no guaranty or assurance concerning the tax consequences to the participants of this Agreement, the Plan, or any Option.

14.Governing Law.  This Agreement and all rights arising hereunder shall be governed by, and construed and interpreted in accordance with, the laws of the State of Idaho, without regard to such state’s conflict of laws rules.

15.No Employment Rights Created.  NEITHER THE PLAN NOR THIS AGREEMENT SHALL BE CONSTRUED AS GIVING THE PARTICIPANT THE RIGHT TO

4

BE RETAINED IN THE EMPLOY OR SERVICE OF THE COMPANY OR ANY AFFILIATE THEREOF, NOR SHALL THEY INTERFERE IN ANY WAY WITH THE RIGHT OF THE COMPANY OR ANY AFFILIATE THEREOF, AS APPLICABLE, TO TERMINATE THE PARTICIPANT’S EMPLOYMENT OR SERVICE AT ANY TIME WITH OR WITHOUT CAUSE.

* * * * *

Executed as of the day and year first above written.

MINES MANAGEMENT, INC.
By:
	Name:
	Title:
PARTICIPANT
By:
	Name:

5

EX-31.1

EXHIBIT 31.1

CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Glenn M. Dobbs, certify that:

1.       I have reviewed this quarterly report on Form 10-Q of Mines Management, Inc.;

2.       Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.       Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.       The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.         Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.         Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.         Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.         Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.     The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors:

a.         All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.         Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 14, 2012
	/s/ Glenn M. Dobbs
	Glenn M. Dobbs
	President and Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATION OF THE CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, James H. Moore, certify that:

1.I have reviewed this quarterly report on Form 10-Q of Mines Management, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.         Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.         Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.         Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.         Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors:

a.         All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.         Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 14, 2012
	/s/ James H. Moore
	James H. Moore
	Chief Financial Officer

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Mines Management, Inc. (the “Company”) on Form 10-Q for the quarter ended June 30, 2012, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned hereby certifies, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

/s/ Glenn M. Dobbs

Glenn M. Dobbs

President and Chief Executive Officer

August 14, 2012

A signed original of this written statement required by Section 906 has been provided to Mines Management, Inc. and will be retained by Mines Management, Inc and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Mines Management, Inc. (the “Company”) on Form 10-Q for the quarter ended June 30, 2012, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned hereby certifies, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

/s/ James H. Moore

James H. Moore

Chief Financial Officer

August 14, 2012

A signed original of this written statement required by Section 906 has been provided to Mines Management, Inc. and will be retained by Mines Management, Inc and furnished to the Securities and Exchange Commission or its staff upon request.

XML

CONCENTRATION OF CREDIT RISK: (Details) (Cash and cash equivalents, Concentration of credit risk, USD $)	6 Months Ended
	Jun. 30, 2012 item
Cash and cash equivalents | Concentration of credit risk
CONCENTRATION OF CREDIT RISK
Number of financial institutions	1
Maximum balances insured by Federal Deposit Insurance Corporation	$ 250,000
Uninsured bank deposit balance	$ 16,300,000

XML

AVAILABLE-FOR-SALE SECURITIES:

6 Months Ended

Jun. 30, 2012

AVAILABLE-FOR-SALE SECURITIES:

AVAILABLE-FOR-SALE SECURITIES:

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:

	June 30,2012		December 31, 2011
Cost	$	11,165	$	11,165
Unrealized Gains	4,016		2,111
Fair Market Value	$	15,181	$	13,276

The Company sold one investment in marketable equity securities during March 2011.  Proceeds from the sale were $3,821,252 and the realized gain from the sale was $2,005,904.  No securities have been sold during 2012.

XML

COMMITMENTS: (Details) (Exploration Earn-In Agreement, Estrella Gold Corp., USD $)	1 Months Ended	6 Months Ended
	Apr. 30, 2012	Jun. 30, 2012	Apr. 05, 2012
Exploration Earn-In Agreement | Estrella Gold Corp.
Commitments
Percentage of Estrella exploration property located in central Peru that could be acquired by the company			75.00%
Amount to be expended on exploration activity for acquiring certain percentage of Estrella exploration property	$ 5,000,000
Annual cash payments to be made prior to the end of the first agreement year ending on February 28, 2013		100,000
Annual cash payments to be made prior to the end of each subsequent agreement year until the earn-in has been completed		200,000
Minimum amount of expenditure in exploration and development activity in each of the first and second years		500,000
Minimum amount of expenditure in exploration and development activity to be paid during the first year if the agreement is terminated		$ 350,000

XML

CERTIFICATES OF DEPOSIT:

6 Months Ended

Jun. 30, 2012

CERTIFICATES OF DEPOSIT:

CERTIFICATES OF DEPOSIT:

NOTE 2 — CERTIFICATES OF DEPOSIT:

The Company owns two certificates of deposit for a total of $1,559,361.  These investments mature in August 2012 and bear interest at the rate of 0.70%.

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, 2013, bears interest at the rate of 0.55% and renews automatically each year.  This certificate of deposit ($1,124,055 and $1,175,935 at June 30, 2012 and December 31, 2011, respectively) is included with reclamation deposits on the Condensed Consolidated Balance Sheets.

XML

CONDENSED CONSOLIDATED BALANCE SHEETS (USD $)	Jun. 30, 2012	Dec. 31, 2011
CURRENT ASSETS:
Cash and cash equivalents	$ 13,905,957	$ 17,121,800
Interest receivable	12,362	13,702
Prepaid expenses and deposits	327,949	207,285
Certificates of deposit	1,559,361	1,559,361
Total current assets	15,805,629	18,902,148
PROPERTY AND EQUIPMENT:
Buildings and leasehold improvements	836,454	836,454
Equipment	6,450,089	6,450,089
Office equipment	334,126	330,356
Total property and equipment, gross	7,620,669	7,616,899
Less accumulated depreciation	4,923,042	4,438,799
Total property and equipment, net	2,697,627	3,178,100
OTHER ASSETS:
Available-for-sale securities	15,181	13,276
Reclamation deposits	1,184,966	1,236,846
Total other assets	1,200,147	1,250,122
Total assets	19,703,403	23,330,370
CURRENT LIABILITIES:
Accounts payable	526,676	370,723
Payroll and payroll taxes payable	44,631	17,631
Warrant derivatives		357,977
Total current liabilities	571,307	746,331
LONG-TERM LIABILITIES:
Asset retirement obligation	445,807	435,171
Total liabilities	1,017,114	1,181,502
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred shares - no par value, 10,000,000 shares authorized; -0- shares issued and outstanding
Common shares - $0.001 par value, 100,000,000 shares authorized; 28,939,752 and 28,739,110 shares issued and outstanding, respectively	28,940	28,739
Additional paid-in capital	86,473,069	86,224,400
Accumulated deficit	(1,117,306)	(1,117,306)
Deficit accumulated during the exploration stage	(66,702,430)	(62,989,076)
Accumulated other comprehensive income	4,016	2,111
Total stockholders' equity	18,686,289	22,148,868
Total liabilities and stockholders' equity	$ 19,703,403	$ 23,330,370

XML

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)	6 Months Ended		119 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$ (3,713,354)	$ (321,017)	$ (66,702,430)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation	50,870	87,369	10,650,539
Stock received for services			(11,165)
Depreciation	491,388	508,090	4,943,970
Initial measurement of asset retirement obligation			344,187
Accretion of asset retirement obligation	10,636	10,077	101,620
Gain on sale of available-for-sale securities		(2,005,904)	(2,005,904)
Gain from warrant derivatives	(357,977)	(1,697,207)	(476,381)
Impairment of mineral properties			504,492
Changes in assets and liabilities:
Interest receivable	1,340	(5,117)	(12,362)
Prepaid expenses and deposits	(120,664)	(19,592)	(388,360)
Accounts payable	155,953	(156,061)	526,512
Payroll and payroll taxes payable	27,000	37,792	41,451
Net cash used in operating activities	(3,454,808)	(3,561,570)	(52,483,831)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment	(10,915)		(7,675,183)
Proceeds from disposition of property and equipment			35,423
Proceeds (purchase) of certificates of deposit	51,880		(2,683,415)
Net proceeds from sale of available-for-sale securities		3,821,252	2,005,904
Increase in mineral properties			(144,312)
Net cash provided by (used in) investing activities	40,965	3,821,252	(8,461,583)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from sale of common stock	198,000	15,337,494	74,804,036
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	(3,215,843)	15,597,176	13,858,622
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	17,121,800	4,866,840	47,335
CASH AND CASH EQUIVALENTS, END OF PERIOD	13,905,957	20,464,016	13,905,957
SUPPLEMENTAL INFORMATION:
Interest paid			$ 65,768

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FAIR VALUE MEASUREMENTS: (Details) (USD $)	Jun. 30, 2012	Dec. 31, 2011
Assets:
Available-for-sale securities	$ 15,181	$ 13,276
Liabilities:
Asset retirement obligation	445,807	435,171
Recurring basis | Level 1
Assets:
Available-for-sale securities	15,181	13,276
Recurring basis | Level 3
Liabilities:
Warrant derivatives		357,977
Asset retirement obligation	$ 445,807	$ 435,171

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WARRANT DERIVATIVES: (Details) (USD $)	3 Months Ended		6 Months Ended		119 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012
WARRANT DERIVATIVES:
Gain from warrant derivatives	$ 21,057	$ 370,023	$ 357,977	$ 1,697,207	$ 476,381

XML

ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

6 Months Ended

Jun. 30, 2012

ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

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 accounting principles generally accepted in the United States of America (“US 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 US 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 US 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 and six month periods ended June 30, 2012, are not necessarily indicative of the results that may be expected for the full year ending December 31, 2012.

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, 2011.

(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.

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 June 30, 2012 and 2011.

(f)Recent Accounting Pronouncements

In June 2011, the Financial Accounting Standards Board, or FASB, issued guidance regarding the presentation of comprehensive income (loss).  The new standard requires the presentation of comprehensive income (loss), the components of net income (loss) and the components of other comprehensive income (loss) either in a single continuous statement of comprehensive income (loss) or in two separate but consecutive statements.  The updated guidance is effective on a retrospective basis for financial statements issued for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2011.  The Company adopted the provisions of this guidance effective January 1, 2012, as reflected in the condensed consolidated statements of comprehensive loss herein.

(g)Subsequent events

The Company evaluated events and transactions subsequent to the balance sheet date of June 30, 2012 for potential recognition or disclosure in the condensed consolidated financial statements.

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CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $)	Jun. 30, 2012	Dec. 31, 2011
CONDENSED CONSOLIDATED BALANCE SHEETS
Preferred shares, shares authorized	10,000,000	10,000,000
Preferred shares, shares issued	0	0
Preferred shares, shares outstanding	0	0
Common shares, par value (in dollars per share)	$ 0.001	$ 0.001
Common shares, shares authorized	100,000,000	100,000,000
Common shares, shares issued	28,939,752	28,739,110
Common shares, shares outstanding	28,939,752	28,739,110

XML

AVAILABLE-FOR-SALE SECURITIES: (Tables)

6 Months Ended

Jun. 30, 2012

AVAILABLE-FOR-SALE SECURITIES:

Schedule of the Company's available-for-sale securities

	June 30,2012		December 31, 2011
Cost	$	11,165	$	11,165
Unrealized Gains	4,016		2,111
Fair Market Value	$	15,181	$	13,276

XML

Document and Entity Information	6 Months Ended
	Jun. 30, 2012	Aug. 14, 2012
Document and Entity Information
Entity Registrant Name	MINES MANAGEMENT INC
Entity Central Index Key	0000066649
Document Type	10-Q
Document Period End Date	Jun. 30, 2012
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	Yes
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		28,999,752
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	Q2

XML

FAIR VALUE MEASUREMENTS: (Tables)

6 Months Ended

Jun. 30, 2012

FAIR VALUE MEASUREMENTS:

Schedule of financial assets and liabilities accounted for at fair value on a nonrecurring basis

	Balance atJune 30, 2012		Balance at December 31, 2011		Input HierarchyLevel
Assets:
Available-for-sale securities	$	15,181	$	13,276	Level 1
Liabilities:
Warrant derivatives	—		$	357,977	Level 3
Asset retirement obligation	$	445,807	$	435,171	Level 3

Schedule of fair value reconciliation of level 3 liabilities measured at fair value

	Warrant Derivatives			Asset Retirement Obligation
Balance January 1, 2012	$	357,977		$	435,171
Accretion expense	—			5,286
Gain on warrant derivatives	(336,920		)	—
Balance March 31, 2012	21,057			440,457
Accretion expense	—			5,350
Gain on warrant derivatives	(21,057		)	—
Balance June 30, 2012	$	—		$	445,807

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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (USD $)	3 Months Ended		6 Months Ended		119 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012
REVENUE:
Royalties	$ 5,833	$ 7,092	$ 20,581	$ 10,390	$ 140,652
OPERATING EXPENSES:
General and administrative	958,884	1,004,392	1,737,774	1,802,533	31,459,329
Technical services and exploration	1,090,976	667,357	1,621,047	1,367,334	28,567,923
Depreciation	246,992	254,007	491,388	508,090	4,943,970
Legal, accounting, and consulting	96,992	93,605	222,401	324,540	4,468,263
Fees, filing, and licenses	2,125	4,774	53,916	94,230	2,620,734
Impairment of mineral properties					504,492
Total operating expenses	2,395,969	2,024,135	4,126,526	4,096,727	72,564,711
LOSS FROM OPERATIONS	(2,390,136)	(2,017,043)	(4,105,945)	(4,086,337)	(72,424,059)
OTHER INCOME:
Gain from warrant derivatives	21,057	370,023	357,977	1,697,207	476,381
Gain on sale of available-for-sale securities				2,005,904	2,005,904
Interest income, net	15,309	39,545	34,614	62,209	3,239,344
Total other income (loss)	36,366	409,568	392,591	3,765,320	5,721,629
NET LOSS	$ (2,353,770)	$ (1,607,475)	$ (3,713,354)	$ (321,017)	$ (66,702,430)
NET LOSS PER SHARE (basic and diluted) (in dollars per share)	$ (0.08)	$ (0.06)	$ (0.13)	$ (0.01)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING (basic)	28,939,364	28,613,295	28,894,182	26,643,958
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING (diluted)	28,939,364	28,613,295	28,894,182	26,643,958

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CONCENTRATION OF CREDIT RISK:

6 Months Ended

Jun. 30, 2012

CONCENTRATION OF CREDIT RISK:

CONCENTRATION OF CREDIT RISK:

NOTE 6 — CONCENTRATION OF CREDIT RISK:

The Company maintains its cash and cash equivalents in one financial institution.  Balances are insured by the Federal Deposit Insurance Corporation up to $250,000.  The Company’s total uninsured bank deposit balance totaled approximately $16,300,000 as of June 30, 2012.  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.

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WARRANT DERIVATIVES:

6 Months Ended

Jun. 30, 2012

WARRANT DERIVATIVES:

WARRANT DERIVATIVES:

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 $21,057 and $370,023 in the Condensed Consolidated Statements of Operations for the three months ended June 30, 2012 and 2011, respectively.  Gains of $357,977 and $1,697,207 were recorded for the six months ended June 30, 2012 and 2011, respectively.

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FAIR VALUE MEASUREMENTS: (Details 2) (USD $)	3 Months Ended
	Jun. 30, 2012	Mar. 31, 2012
Warrant Derivatives
Fair value reconciliation of level 3 liabilities measured at fair value
Balance at the beginning of the period	$ 21,057	$ 357,977
Gain on warrant derivatives	(21,057)	(336,920)
Balance at the end of the period		21,057
Asset Retirement Obligation
Fair value reconciliation of level 3 liabilities measured at fair value
Balance at the beginning of the period	440,457	435,171
Accretion expense	5,350	5,286
Balance at the end of the period	$ 445,807	$ 440,457

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STOCK OPTIONS: (Tables)

6 Months Ended

Jun. 30, 2012

STOCK OPTIONS:

Summary of stock option activity

	Number of Options		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term	Aggregate Intrinsic Value
Outstanding at January 1, 2012	3,601,000		$	1.86
Exercised	(200,000	)	$	0.99
Outstanding at March 31, 2012	3,401,000		$	1.92
Exercised	(5,000	)	$	1.29
Outstanding at June 30, 2012	3,396,000		$	1.92	2.91	$	192,000
Exercisable at June 30, 2012	3,316,000		$	1.89	2.97	$	192,000

Schedule of assumptions used to estimate the fair value of stock options

	Three Months EndedJune 30,		Six Months EndedJune 30,
	2012	2011	2012	2011
Weighted average risk-free interest rate	—	—	—	1.05		%
Weighted average volatility	—	—	—	73.80		%
Expected dividend yield	—	—	—	—
Weighted average expected life (in years)	—	—	—	3.5
Weighted average grant-date fair value	—	—	—	$	1.25

Schedule of nonvested options

	Number of Options		Weighted- Average Grant-Date Fair Value
Nonvested at January 1, 2012	730,000		$	1.18
Vested	(650,000	)	$	1.20
Nonvested at March 31, 2012	80,000		$	0.99
Granted	—		—
Vested	—		—
Nonvested at June 30, 2012	80,000		$	0.99

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COMMITMENTS:

6 Months Ended

Jun. 30, 2012

COMMITMENTS:

COMMITMENTS:

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 million on exploration activities.  Under the terms of the agreement, the Company will 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 will also expend a minimum of $500,000 in exploration and development expenditures in each of the first and second agreement years ending February 28 or 29, as the case may be.  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 is required to be paid during the first year of the agreement regardless of whether or not the agreement is terminated.

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STOCKHOLDERS' EQUITY:

6 Months Ended

Jun. 30, 2012

STOCKHOLDERS' EQUITY:

STOCKHOLDERS' EQUITY:

NOTE 7 — STOCKHOLDERS’ EQUITY:

Common Shares:

On March 8, 2011, the Company completed a public offering of 4,800,000 shares of common stock at a price of $3.15 per share, resulting in gross proceeds of $15,120,000 ($14,212,800 in net proceeds after deducting underwriting commissions and a corporate finance fee but before deducting offering expenses).  On April 4, 2011, the underwriters exercised the over-allotment option for 320,000 shares of common stock at a price of $3.15 per share.  The gross proceeds resulting from the over-allotment were $1,008,000 ($947,520 in net proceeds after deducting underwriting commissions and a corporate finance fee but before deducting offering expenses).  Therefore, the total offering was 5,120,000 shares of common stock, resulting in aggregate net proceeds of $15,160,320 before deducting offering expenses.

For a description of the public offering that occurred in 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, 2011.  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 as of June 30, 2012 and December 31, 2011, respectively.  During the six months ended June 30, 2012 and 2011, -0- and 101,435 warrants were exercised for gross proceeds of $-0- and $144,474, respectively.

Preferred Shares:

The Company has authorized 10,000,000 preferred shares, no par value.  Through June 30, 2012, the Company had not issued any preferred shares.

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STOCK OPTIONS:

6 Months Ended

Jun. 30, 2012

STOCK OPTIONS:

STOCK OPTIONS:

NOTE 8 — STOCK OPTIONS:

There has been no change to the Company’s 2003 and 2007 Stock Option Plans during 2012, 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, 2011.

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 shares of its common stock under the 2012 Plan.  The common stock subject to the 2012 Plan may be either authorized and unissued stock or reacquired stock, 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 shares of common stock 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 June 30, 2012, and changes during the period then ended, is presented below:

	Number of Options		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term	Aggregate Intrinsic Value
Outstanding at January 1, 2012	3,601,000		$	1.86
Exercised	(200,000	)	$	0.99
Outstanding at March 31, 2012	3,401,000		$	1.92
Exercised	(5,000	)	$	1.29
Outstanding at June 30, 2012	3,396,000		$	1.92	2.91	$	192,000
Exercisable at June 30, 2012	3,316,000		$	1.89	2.97	$	192,000

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.

	Three Months EndedJune 30,		Six Months EndedJune 30,
	2012	2011	2012	2011
Weighted average risk-free interest rate	—	—	—	1.05		%
Weighted average volatility	—	—	—	73.80		%
Expected dividend yield	—	—	—	—
Weighted average expected life (in years)	—	—	—	3.5
Weighted average grant-date fair value	—	—	—	$	1.25

During the three months ended June 30, 2012 and 2011, there were 5000 and 195,000 stock options exercised with a weighted average exercise price of $1.29and $1.21, respectively.  The total intrinsic value of options exercised during the three months ended June 30, 2012 and 2011 was $122 and $128,436, respectively.  During the six months ended June 30, 2012 and 2011, there were 205,000 and 303,000 stock options exercised with a weighted average exercise price of $1.00 and $1.57, respectively.  The total intrinsic value of options exercised during the six months ended June 30, 2012 and 2011 was $210,122 and $218,293, respectively.

A summary of the status of the Company’s nonvested options as of June 30, 2012, and changes during the period then ended, is presented below:

	Number of Options		Weighted- Average Grant-Date Fair Value
Nonvested at January 1, 2012	730,000		$	1.18
Vested	(650,000	)	$	1.20
Nonvested at March 31, 2012	80,000		$	0.99
Granted	—		—
Vested	—		—
Nonvested at June 30, 2012	80,000		$	0.99

As of June 30, 2012, there was no unrecognized compensation cost related to nonvested share-based compensation arrangements granted under the Plans.

Total compensation costs recognized for stock-based employee compensation awards was $-0- and $30,910 for the three months ended June 30, 2012 and 2011, respectively.  Total compensation costs recognized for stock-based employee compensation awards was $50,870 and $87,369 for the six months ended June 30, 2012 and 2011, 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 six months ended June 30, 2012 and 2011 was $198,000 and $152,700, respectively.

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ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Policies)

6 Months Ended

Jun. 30, 2012

ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Exploration Stage Enterprise

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.

Mining properties, exploration and development costs

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.

Fair value measurements

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.

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.

Stock compensation

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.

Net loss per share

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 June 30, 2012 and 2011.

Recent Accounting Pronouncements

Recent Accounting Pronouncements

In June 2011, the Financial Accounting Standards Board, or FASB, issued guidance regarding the presentation of comprehensive income (loss).  The new standard requires the presentation of comprehensive income (loss), the components of net income (loss) and the components of other comprehensive income (loss) either in a single continuous statement of comprehensive income (loss) or in two separate but consecutive statements.  The updated guidance is effective on a retrospective basis for financial statements issued for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2011.  The Company adopted the provisions of this guidance effective January 1, 2012, as reflected in the condensed consolidated statements of comprehensive loss herein.

Subsequent events

Subsequent events

The Company evaluated events and transactions subsequent to the balance sheet date of June 30, 2012 for potential recognition or disclosure in the condensed consolidated financial statements.

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AVAILABLE-FOR-SALE SECURITIES: (Details) (USD $)	1 Months Ended	6 Months Ended	119 Months Ended
	Mar. 31, 2011 item	Jun. 30, 2011	Jun. 30, 2012	Dec. 31, 2011
AVAILABLE-FOR-SALE SECURITIES:
Cost			$ 11,165	$ 11,165
Unrealized Gains			4,016	2,111
Fair Market Value			15,181	13,276
Number of investments in marketable equity securities sold	1
Proceeds from the sale of investment in marketable equity securities	3,821,252
Gain on sale of available-for-sale securities	$ 2,005,904	$ 2,005,904	$ 2,005,904

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STOCKHOLDERS' EQUITY: (Details) (USD $)	6 Months Ended		119 Months Ended		1 Months Ended		2 Months Ended	6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Dec. 31, 2011	Apr. 30, 2011 Common stock	Mar. 31, 2011 Common stock	Apr. 30, 2011 Common stock	Jun. 30, 2012 Common stock	Jun. 30, 2011 Common stock	Dec. 31, 2011 Common stock	Apr. 04, 2011 Common stock	Mar. 08, 2011 Common stock
Common Shares:
Number of shares of common stock issued in public offering						4,800,000
Number of shares issued on exercise of over-allotment option by underwriters					320,000
Total offering of shares of common stock							5,120,000
Issue price (in dollars per share)											$ 3.15	$ 3.15
Gross proceeds					$ 1,008,000	$ 15,120,000
Net proceeds	198,000	15,337,494	74,804,036		947,520	14,212,800	15,160,320
Cumulative warrants exercised (in shares)								269,620		269,620
Warrants exercised (in shares)								0	101,435
Gross proceeds on exercise of warrants								$ 0	$ 144,474
Preferred Shares:
Authorized preferred shares	10,000,000		10,000,000	10,000,000

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CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Net Loss	$ (2,353,770)	$ (1,607,475)	$ (3,713,354)	$ (321,017)
Adjustment to net unrealized gains (losses) on marketable securities	(843)	(2,057)	1,905	(1,855,214)
Comprehensive loss	$ (2,354,613)	$ (1,609,532)	$ (3,711,449)	$ (2,176,231)

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FAIR VALUE MEASUREMENTS:

6 Months Ended

Jun. 30, 2012

FAIR VALUE MEASUREMENTS:

FAIR VALUE MEASUREMENTS:

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 June 30, 2012, 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.

	Balance atJune 30, 2012		Balance at December 31, 2011		Input HierarchyLevel
Assets:
Available-for-sale securities	$	15,181	$	13,276	Level 1
Liabilities:
Warrant derivatives	—		$	357,977	Level 3
Asset retirement obligation	$	445,807	$	435,171	Level 3

The following table presents the fair value reconciliation of Level 3 liabilities measured at fair value during the six months ended June 30, 2012:

	Warrant Derivatives			Asset Retirement Obligation
Balance January 1, 2012	$	357,977		$	435,171
Accretion expense	—			5,286
Gain on warrant derivatives	(336,920		)	—
Balance March 31, 2012	21,057			440,457
Accretion expense	—			5,350
Gain on warrant derivatives	(21,057		)	—
Balance June 30, 2012	$	—		$	445,807

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STOCK OPTIONS: (Details) (USD $)	3 Months Ended			6 Months Ended
	Jun. 30, 2012	Mar. 31, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Number of Options
Outstanding at the beginning of the period (in shares)	3,401,000	3,601,000		3,601,000
Exercised (in shares)	(5,000)	(200,000)	(195,000)	(205,000)	(303,000)
Outstanding at the end of the period (in shares)	3,396,000	3,401,000		3,396,000
Exercisable at the end of the period (in shares)	3,316,000			3,316,000
Weighted-Average Exercise Price
Outstanding at the beginning of the period (in dollars per share)	$ 1.92	$ 1.86		$ 1.86
Exercised (in dollars per share)	$ 1.29	$ 0.99	$ 1.21	$ 1.00	$ 1.57
Outstanding at the end of the period (in dollars per share)	$ 1.92	$ 1.92		$ 1.92
Exercisable at the end of the period (in dollars per share)	$ 1.89			$ 1.89
Weighted-Average Remaining Contractual Term
Outstanding at the end of the period				2 years 10 months 28 days
Exercisable at the end of the period				2 years 11 months 19 days
Aggregate Intrinsic Value
Outstanding at the end of the period	$ 192,000			$ 192,000
Exercisable at the end of the period	192,000			192,000
Assumptions used to estimate the fair value of stock options
Weighted average risk-free interest rate (as a percent)					1.05%
Weighted average volatility (as a percent)					73.80%
Expected life					3 years 6 months
Weighted-average grant-date fair value (in dollars per share)					$ 1.25
Additional disclosure for stock options
Intrinsic value of awards exercised	122		128,436	210,122	218,293
Number of Options
Nonvested at the beginning of the period (in shares)	80,000	730,000		730,000
Vested (in shares)		(650,000)
Nonvested at the end of the period (in shares)	80,000	80,000		80,000
Weighted-Average Grant-Date Fair Value
Nonvested at the beginning of the period (in dollars per share)	$ 0.99	$ 1.18		$ 1.18
Granted (in dollars per share)					$ 1.25
Vested (in dollars per share)		$ 1.20
Nonvested at the end of the period (in dollars per share)	$ 0.99	$ 0.99		$ 0.99
Disclosures for share-based compensation cost
Total compensation costs recognized for stock-based employee compensation awards	0		30,910	50,870	87,369
Cash received from options exercised				$ 198,000	$ 152,700
2012 Plan | Minimum
Stock options
Maximum number of shares to grant a participant in a calendar year				200,000
2012 Plan | Maximum
Stock options
Shares authorized for grant under the plans	3,000,000			3,000,000
Option exercise price as percentage of fair market value per share on the date of grant				100.00%
Term of expiration				10 years

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CERTIFICATES OF DEPOSIT: (Details) (USD $)	6 Months Ended
	Jun. 30, 2012	Dec. 31, 2011
CERTIFICATES OF DEPOSIT
Number of certificates of deposit owned	2
Certificate of deposit value	$ 1,559,361	$ 1,559,361
Certificate of deposit value	1,184,966	1,236,846
Certificates of deposit maturing in August 2012
CERTIFICATES OF DEPOSIT
Certificate of deposit value	1,559,361
Interest rate (as a percent)	0.70%
Certificates of deposit maturing on January 3, 2013
CERTIFICATES OF DEPOSIT
Certificate of deposit value	$ 1,124,055	$ 1,175,935
Interest rate (as a percent)	0.55%