UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2012
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 001-32074
MINES MANAGEMENT, INC.
(Exact Name of Registrant as Specified in its Charter)
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 |
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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
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| Management’s Discussion and Analysis of Financial Condition and Results of Operations | 10 | |
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Contents
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FINANCIAL STATEMENTS: |
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1 | |
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2 | |
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3 | |
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4 | |
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Notes to condensed consolidated financial statements | 5-9 |
Mines Management, Inc. and Subsidiaries
(An Exploration Stage Company)
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
|
| June 30, |
| December 31, |
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Assets |
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CURRENT ASSETS: |
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Cash and cash equivalents |
| $ | 13,905,957 |
| $ | 17,121,800 |
|
Interest receivable |
| 12,362 |
| 13,702 |
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Prepaid expenses and deposits |
| 327,949 |
| 207,285 |
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Certificates of deposit |
| 1,559,361 |
| 1,559,361 |
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Total current assets |
| 15,805,629 |
| 18,902,148 |
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PROPERTY AND EQUIPMENT: |
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Buildings and leasehold improvements |
| 836,454 |
| 836,454 |
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Equipment |
| 6,450,089 |
| 6,450,089 |
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Office equipment |
| 334,126 |
| 330,356 |
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| 7,620,669 |
| 7,616,899 |
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Less accumulated depreciation |
| 4,923,042 |
| 4,438,799 |
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| 2,697,627 |
| 3,178,100 |
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OTHER ASSETS: |
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Available-for-sale securities |
| 15,181 |
| 13,276 |
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Reclamation deposits |
| 1,184,966 |
| 1,236,846 |
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| 1,200,147 |
| 1,250,122 |
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| $ | 19,703,403 |
| $ | 23,330,370 |
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Liabilities and Stockholders’ Equity |
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CURRENT LIABILITIES: |
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Accounts payable |
| $ | 526,676 |
| $ | 370,723 |
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Payroll and payroll taxes payable |
| 44,631 |
| 17,631 |
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Warrant derivatives |
| — |
| 357,977 |
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Total current liabilities |
| 571,307 |
| 746,331 |
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LONG-TERM LIABILITIES: |
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Asset retirement obligation |
| 445,807 |
| 435,171 |
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Total liabilities |
| 1,017,114 |
| 1,181,502 |
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COMMITMENTS AND CONTINGENCIES |
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STOCKHOLDERS’ EQUITY: |
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Preferred shares — no par value, 10,000,000 shares authorized; -0- shares issued and outstanding |
| — |
| — |
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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 |
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Additional paid-in capital |
| 86,473,069 |
| 86,224,400 |
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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 |
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Total stockholders’ equity |
| 18,686,289 |
| 22,148,868 |
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| $ | 19,703,403 |
| $ | 23,330,370 |
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See accompanying notes to condensed consolidated financial statements.
Mines Management, Inc. and Subsidiaries
(An Exploration Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
|
| Three Months Ended |
| Six Months Ended |
| From Inception |
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| 2012 |
| 2011 |
| 2012 |
| 2011 |
| 2012 |
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REVENUE: |
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Royalties |
| $ | 5,833 |
| $ | 7,092 |
| $ | 20,581 |
| $ | 10,390 |
| $ | 140,652 |
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OPERATING EXPENSES: |
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General and administrative |
| 958,884 |
| 1,004,392 |
| 1,737,774 |
| 1,802,533 |
| 31,459,329 |
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Technical services and exploration |
| 1,090,976 |
| 667,357 |
| 1,621,047 |
| 1,367,334 |
| 28,567,923 |
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Depreciation |
| 246,992 |
| 254,007 |
| 491,388 |
| 508,090 |
| 4,943,970 |
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Legal, accounting, and consulting |
| 96,992 |
| 93,605 |
| 222,401 |
| 324,540 |
| 4,468,263 |
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Fees, filing, and licenses |
| 2,125 |
| 4,774 |
| 53,916 |
| 94,230 |
| 2,620,734 |
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Impairment of mineral properties |
| — |
| — |
| — |
| — |
| 504,492 |
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Total operating expenses |
| 2,395,969 |
| 2,024,135 |
| 4,126,526 |
| 4,096,727 |
| 72,564,711 |
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LOSS FROM OPERATIONS |
| (2,390,136 | ) | (2,017,043 | ) | (4,105,945 | ) | (4,086,337 | ) | (72,424,059 | ) | |||||
OTHER INCOME: |
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Gain from warrant derivatives |
| 21,057 |
| 370,023 |
| 357,977 |
| 1,697,207 |
| 476,381 |
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Gain on sale of available-for-sale securities |
| — |
| — |
| — |
| 2,005,904 |
| 2,005,904 |
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Interest income, net |
| 15,309 |
| 39,545 |
| 34,614 |
| 62,209 |
| 3,239,344 |
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| 36,366 |
| 409,568 |
| 392,591 |
| 3,765,320 |
| 5,721,629 |
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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 | ) |
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WEIGHTED AVERAGE COMMON SHARES OUTSTANDING (basic and diluted) |
| 28,939,364 |
| 28,613,295 |
| 28,894,182 |
| 26,643,958 |
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See accompanying notes to condensed consolidated financial statements.
Mines Management, Inc. and Subsidiaries
(An Exploration Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (UNAUDITED)
|
| Three Months Ended |
| Six Months Ended |
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| 2012 |
| 2011 |
| 2012 |
| 2011 |
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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.
Mines Management, Inc. and Subsidiaries
(An Exploration Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
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| Six Months Ended |
| From Inception of |
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| 2012 |
| 2011 |
| 2012 |
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CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net loss |
| $ | (3,713,354 | ) | $ | (321,017 | ) | $ | (66,702,430 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: |
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Stock-based compensation |
| 50,870 |
| 87,369 |
| 10,650,539 |
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Stock received for services |
| — |
| — |
| (11,165 | ) | |||
Depreciation |
| 491,388 |
| 508,090 |
| 4,943,970 |
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Initial measurement of asset retirement obligation |
| — |
| — |
| 344,187 |
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Accretion of asset retirement obligation |
| 10,636 |
| 10,077 |
| 101,620 |
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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 |
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Changes in assets and liabilities: |
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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 |
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Payroll and payroll taxes payable |
| 27,000 |
| 37,792 |
| 41,451 |
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Net cash used in operating activities |
| (3,454,808 | ) | (3,561,570 | ) | (52,483,831 | ) | |||
CASH FLOWS FROM INVESTING ACTIVITIES: |
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Purchase of property and equipment |
| (10,915 | ) | — |
| (7,675,183 | ) | |||
Proceeds from disposition of property and equipment |
| — |
| — |
| 35,423 |
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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 |
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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: |
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Net proceeds from sale of common stock |
| 198,000 |
| 15,337,494 |
| 74,804,036 |
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
| (3,215,843 | ) | 15,597,176 |
| 13,858,622 |
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CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD |
| 17,121,800 |
| 4,866,840 |
| 47,335 |
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CASH AND CASH EQUIVALENTS, END OF PERIOD |
| $ | 13,905,957 |
| $ | 20,464,016 |
| $ | 13,905,957 |
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SUPPLEMENTAL INFORMATION: |
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Interest paid |
| $ | — |
| $ | — |
| $ | 65,768 |
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See accompanying notes to condensed consolidated financial statements.
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.
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:
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| June 30, |
| December 31, |
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Cost |
| $ | 11,165 |
| $ | 11,165 |
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Unrealized Gains |
| 4,016 |
| 2,111 |
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Fair Market Value |
| $ | 15,181 |
| $ | 13,276 |
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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.
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| Balance at |
| Balance at |
| Input |
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Assets: |
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Available-for-sale securities |
| $ | 15,181 |
| $ | 13,276 |
| Level 1 |
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Liabilities: |
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Warrant derivatives |
| — |
| $ | 357,977 |
| Level 3 |
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Asset retirement obligation |
| $ | 445,807 |
| $ | 435,171 |
| Level 3 |
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The following table presents the fair value reconciliation of Level 3 liabilities measured at fair value during the six months ended June 30, 2012:
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| Warrant |
| Asset |
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Balance January 1, 2012 |
| $ | 357,977 |
| $ | 435,171 |
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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.
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 |
| Weighted- |
| Weighted- |
| Aggregate |
| ||
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 Ended |
| Six Months Ended |
| |||||
|
| 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 |
| Weighted- |
| |
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.
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:
|
|
|
|
|
|
|
| Gold (Grams |
| Silver (Grams |
|
Drill Hole |
| From (m) |
| To (m) |
| Interval (m) |
| per tonne) |
| per tonne) |
|
E-23 |
| 84.4 |
| 197.2 |
| 112.8 |
| 0.41 |
| 21.4 |
|
|
| 154 |
| 160 |
| 6 |
| 0.83 |
| 204 |
|
|
| 166.6 |
| 197.2 |
| 30.6 |
| 0.63 |
| 7.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
E-24 |
| 101.8 |
| 262.4 |
| 160.6 |
| 0.37 |
| 23 |
|
|
| 182 |
| 239.4 |
| 57.4 |
| 0.57 |
| 41 |
|
|
|
|
|
|
|
|
|
|
|
|
|
E-25 |
| 75 |
| 276.4 |
| 201.4 |
| 0.35 |
| 12.9 |
|
|
| 141.4 |
| 175.2 |
| 33.8 |
| 0.59 |
| 4.9 |
|
|
| 252.7 |
| 268.7 |
| 16.0 |
| 0.50 |
| 41.8 |
|
The local community has demonstrated cordial relations toward the project throughout the program, and much effort on the part of the Company has been directed toward communication and community involvement. The exploration program has been designed to use community labor in the construction of drill platforms and access roads, and has utilized manually-portable drilling equipment. All excavation work has been manually performed and has preserved soil layers in an organized manner, to provide for restoration when reclamation is underway. An exploration camp under the direction of ExploSupport, Lima, has provided continuous logistic support for the project.
During the second quarter of 2012, the Company also commenced a 3D geologic modeling effort for the La Estrella gold-silver project in Peru which includes data input from historic drilling completed by companies previously associated with the project.
Montanore Permitting and Environmental
The agencies have compiled public comments and are preparing responses to these comments along with updates/revisions to the Draft Environmental Impact Statement (“DEIS”) and the Supplement EIS towards completion of a Final EIS. The Company continues to work with the agencies in developing response and details that will become integral to the Final EIS.
The Company submitted supplemental information to the Corps of Engineers concerning permit compensatory mitigation and other information to assist the agencies in the review of the Company’s application. This process should continue on a current path with the EIS.
The USFS submitted a Fisheries Biological Assessment (“BA”) and a Terrestrial Biological Assessment to the U.S. Fish and Wildlife Service (“FWS”) in July 2011. The FWS provided comments on the Fisheries BA to the USFS in late 2011. The Company has agreed to provide assistance to the USFS in preparing a revised Fisheries BA. This process was initiated during the second quarter 2012 and is anticipated to be completed sometime during the third quarter. In addition, the Company has agreed to fund a staff person for the FWS to support its effort in reviewing the Terrestrial BA submitted last year. It is anticipated that this funding support will help to ensure the schedule is maintained as both of the BAs are critical to the overall schedule.
Financial and Operating Results
Mines Management, Inc. is an exploration stage company with a large silver-copper project, the Montanore Project, located in northwestern Montana. The Company continues to expense all of its expenditures when incurred, with the exception of equipment and buildings which are capitalized. The Company has no revenues from mining operations. Financial results of operations include primarily interest income, general and administrative expenses, permitting, project advancement and engineering expenses.
Quarter Ended June 30, 2012
The Company reported a net loss of $2.4 million for the quarter ended June 30, 2012 compared to a net loss of $1.6 million for the quarter ended June 30, 2011. This $0.8 million dollar increase in net loss during the second quarter of 2012 was primarily due to the following items: (1) a $0.4 million increase in operating expenditures primarily for technical services associated with the exploration of the La Estrella Project; and (2) a $0.4 million decrease in other income primarily from the change in the fair market value of warrant derivatives which expired in April of 2012.
Six Months Ended June 30, 2012
The Company reported a net loss of $3.7 million for the six months ended June 30, 2012 compared to a net loss of $0.3 million for the six months ended June 30, 2011. The $3.4 million increase in net loss was primarily attributable to the change in other income, including: (1) a decrease of $1.3 million in the net gain on fair market value of warrant derivatives which expired in April of 2012; and (2) the absence of the 2011 period gain of $2.0 million on the sale of available-for-sale securities.
Liquidity
During the six months ended June 30, 2012, the net cash used for operating activities was approximately $3.5 million, which is $0.1 million less than the same period during the prior year. We have continued to limit activity levels, including capital expenditures, until the timing for the receipt of the Record of Decision for the Montanore Project becomes clearer.
We anticipate expenditures of approximately $4.5 million for the final six months of 2012, which we expect to consist of approximately $3.0 million for general and administrative expenses, $1.0 million for permitting, engineering, and geologic studies for the permitting for the Montanore Project and $0.5 million on exploration at La Estrella. Additional external financing, however, would be required following receipt of the Record of Decision to complete the evaluation drilling program and a bankable feasibility study at the Montanore Project and to fund increased exploration efforts at the La Estrella property in 2013. The timing and amount of additional external financing will be based on the timing of the Record of Decision and planned drilling program for Montanore and on 2012 exploration results and additional exploration plans, if any, for La Estrella.
Off-Balance Sheet Arrangements
As of June 30, 2012, we had no existing off-balance sheet arrangements (as defined under SEC rules) that have, or are reasonably likely to have, a material current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
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.
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.
None.
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.
None.
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. |
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 |