DOWNLOAD FORMATTING INSTRUCTIONS FOR CORRECT PAGINATION:
PAGE SETUP: .5"TOP, .5"BOTTOM, .5"LEFT, .5"RIGHT
TYPE: COURIER NEW, 10pt unless otherwise specified in the text.
This space intentionally left blank.
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10 - KSB
- -X- ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1999
OR;
- --- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from
Commission File Number 0-29786
MINES MANAGEMENT, INC.
------------------------------------------------------
(Exact Name of Registrant as specified in its charter)
Idaho 91-0538859
- --------------------------------- -----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
905 W. Riverside Avenue, Suite 311
Spokane, Washington 99201
- ------------------------------------------ -------------------------
(Address of principal Executive Office) (Zip Code)
Registrant's telephone number, including area code: (509) 838-6050
Securities Registered pursuant to Section 12 (g) of the Act:
COMMON STOCK, PAR VALUE $0.01
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the past 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 ninety (90)
days. Yes (X) No ( )
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. (X)
State issuer's revenues for its most recent fiscal year. $29,622
State the aggregate market value of the voting and non-voting common equity
held by non-affiliates computed by reference to the price at which the common
equity was sold, or the average bid and asked price of such common equity, as of
a specified date within the past 60 days. Based upon the average bid price at
January 31, 1999 the aggregate market value was $1,236,739
State the number of shares outstanding of each of the issuer's classes of
common equity, as of December 31, 1999 4,946,956 shares of Common Stock
DOCUMENTS INCORPORATED BY REFERENCE: None
Transitional Small Business Disclosure Format (check one): Yes ( ) No(X)
<PAGE> 1
MINES MANAGEMENT, INC.
FORM 10 - KSB
For the year ended December 31, 1999
PART I
ITEM 1. DESCRIPTION OF BUSINESS
General
Mines Management, Inc. (together with its subsidiaries, "MMI" or the
"Company"), is engaged in the business of acquiring, exploring, and developing
mineral properties, primarily those containing silver and associated base and
precious metals. The Company was incorporated under the laws of the State of
Idaho on February 20, 1947. The Company has a wholly owned subsidiary, Newhi,
Inc. Newhi, Inc. was incorporated under the laws of the State of Washington on
November 3, 1987. The Company's executive offices are located at 905 W
Riverside, Suite 311, Spokane, WA 99201.
With the exception of historical matters, the matters discussed in this report
are forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995 and involve risks and uncertainties that could
cause actual results to differ materially from projections or estimates
contained herein. Such forward-looking statements include statements regarding
planned levels of exploration and other expenditures, anticipated mine lives,
timing of production and schedules for development. Factors that could cause
actual results to differ materially include, among others ,metals price
volatility. Most of these factors are beyond the Company's ability to predict
or control. The Company disclaims any obligation to update any forward-looking
statement made herein. Readers are cautioned not to put undue reliance on
forward-looking statements. ( See Investment Considerations).
All of the Company's properties are currently in the exploration stage except
for the Montanore property, which is in the stage of determining feasibility for
development. No property is currently in production.
The Company conducts exploration and development on projects containing silver
and associated base and precious metal values. The company primarily seeks to
obtain royalty and other carried ownership interests in these properties through
the subsequent transfer of operating interests to other mining companies.
Although the Company may engage in mining operations at some future time,
substantially all of the Company's revenue is and can be expected to be derived
from royalty interests for the foreseeable future.
The Company's principal mineral property interest is held by its wholly owned
subsidiary, Newhi, Inc., and consists of a net profits royalty interest in a
portion of the claims making up the Montanore project. The Montanore project is
located in northwestern Montana, USA, and is operated by Noranda Minerals. The
project has an approved Environmental Impact Statement, has received all of its
primary permits, and has been the subject of a variety of pre-feasibility
technical analyses. Noranda Minerals has reported a geologic resource of 142
million tons containing 0.76% copper and 2.1 ounces of silver per ton. The
Company is also conducting exploration on its Cha arcillo silver property in
Chile and its Iroquois and Advance zinc-lead properties in Washington, USA. The
Company is also evaluating opportunities in Mexico and the United States.
The Company also has a small royalty income from a working interest royalty,
acquired more than 40 years ago, for several producing oil wells located in
Kansas, USA.
<PAGE> 2
MINES MANAGEMENT, INC.
FORM 10 - KSB
For the year ended December 31, 1999
Competition
There is aggressive competition within the minerals industry to discover and
acquire properties considered to have commercial potential. The Company
competes for the opportunity to participate in promising exploration projects
with other entities, many of which have greater resources than the Company. In
addition, the Company competes with others in efforts to obtain financing to
explore and develop mineral properties.
Employees
During the year ending December 31, 1999, the Company had one full-time employee
and one part-time employee located in Spokane, Washington. The Company's
employees are not subject to a union labor contract or collective bargaining
agreement. The Company executive officers provide management service on a
non-salaried basis. On occasion, such officers perform consulting services to
the Company at their usual and customary rates.
Regulation
The Company's activities in the United States are subject to various federal,
state, and local laws and regulations governing prospecting, development,
production, labor standards, occupational health and mine safety, control of
toxic substances, and other matters involving environmental protection and
taxation. It is possible that future changes in these laws or regulations could
have a significant impact on the Company's business, causing those activities to
be economically reevaluated at that time.
Investment Considerations
The following Investment Considerations, together with other information set
forth in this Form 10-KSB, should be carefully considered by current and future
investors in the Company's securities.
Risks of Passive Ownership
At present, the Company's principal asset is its interest in the Montanore
property. The Company's success is dependent on the extent to which Montanore
proves to be successful and on the extent to which the Company is able to
acquire or create other royalty or property interests.
The holder of a royalty interest typically has no executive authority regarding
development or operation of a mineral property. Therefore, unless the Company
is able to secure and enforce certain extraordinary rights, it can be expected
that the Company will not be in control of basic decisions regarding development
and operation of the properties in which the Company may have an interest.
Thus, the Company's strategy of having others operate properties in which it
retains a royalty or other passive interest puts the Company generally at risk
to the decisions of others regarding all basic operating matters, including
permitting, feasibility analysis, mine design and operation, and processing,
plant and equipment matters, among others. While the Company attempts to obtain
contractual rights that will permit the Company to protect its position, there
can be no assurance
that such rights will be sufficient or that the Company's efforts will be
successful in achieving timely or favorable results.
<PAGE> 3
MINES MANAGEMENT, INC.
FORM 10 - KSB
For the year ended December 31, 1999
Risks Inherent in the Mining Industry
Mineral exploration and development is highly speculative and capital intensive.
Most exploration efforts are not successful, in that they do not result in the
discovery of mineralization of sufficient quantity or quality to be profitably
mined. The operations of the Company are also indirectly subject to all of the
hazards and risks normally incident to developing and operating mining
properties. These risks include insufficient ore reserves, fluctuations in
production costs that may make mining of reserves uneconomic; significant
environmental and other regulatory restrictions; labor disputes; geological
problems; failure of pit walls or dams; force majeure events; and the risk of
injury to persons, property or the environment.
Uncertainty of Reserves and Mineralization Estimates
There are numerous uncertainties inherent in estimating proven and probably
reserves and mineralization, including many factors beyond the control of the
Company. The estimation of reserves and mineralization is a subjective process
and the accuracy of any such estimates is a function of the quality of available
data and of engineering and geological interpretation and judgment. Results of
drilling, metallurgical testing and production and the evaluation of mine plans
subsequent to the date of any estimate may justify revision of such estimates.
No assurances can be given that the volume and grade of reserves recovered and
rates of production will not be less than anticipated. Assumptions about prices
are subject to greater uncertainty and metals prices have fluctuated widely in
the past. Declines in the market price of base or precious metals also may
render reserves or mineralization containing relatively lower grades of ore
uneconomic to exploit. Changes in operating and capital costs and other factors
including, but not limited to, short-term operating factors such as the need for
sequential development of ore bodies and the processing of new or different ore
grades, may materially and adversely affect reserves.
Proposed Federal Legislation
The U.S. Congress is currently considering a proposed major revision of the
General Mining Law, which governs the creation of mining claims and related
activities on federal public lands in the United States. Each of the Senate and
the House of Representatives has passed a separate bill for mining law revision,
and it is possible that a new law could be enacted. The Company expects that
when the new law is effective, it will impose a royalty upon production of
minerals from federal lands and will contain new requirements for mined land
reclamation, and similar environmental control and reclamation measures. It
remains unclear to what extent any such new legislation may affect existing
mining claims or operations. The effect of any such revision of the General
Mining Law on the Company's operations in the United States cannot be determined
conclusively until such revision is enacted; however, such legislation could
materially increase costs on properties located on federal lands, and such
revision could also impair the Company's ability to develop, in the future, any
mineral prospects that are located on unpatented mining claims.
<PAGE> 4
MINES MANAGEMENT, INC.
FORM 10 - KSB
For the year ended December 31, 1999
Fluctuations in the Market Price of Minerals
The profitability of mining operations is directly related to the market price
of the metals being mined. The market price of base and precious metals such as
copper and silver fluctuate widely and is affected by numerous factors beyond
the control of any mining company. These factors include expectations with
respect to the rate of inflation, the exchange rates of the 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 drop dramatically, the value of the Company's royalty interest and
exploration properties could also drop dramatically, and the Company might not
be able to recover its investment in those interests or properties. The
selection of a property for exploration or development, the determination to
construct a mine and place it into production, and the dedication of funds
necessary to achieve such purposes are decisions that must be made long before
the first revenues from production will be received. Price fluctuations between
the time that such decisions are made and the commence of production can
drastically affect the economics of a mine.
The volatility in metals prices is illustrated by the following table, which
sets forth, for the periods indicated, the yearly high and low prices in U.S.
dollars per ounce for silver and the high and low yearly average prices for
copper in U.S. dollars per pound.
<TABLE>
Year Silver Price Per Ounce Copper Price Per Pound
---- ------------------------ ----------------------
High Low High Low
----- ----- ----- -----
<S> <C> <C> <C> <C>
1996 $5.79 $4.67 $1.17 $0.91
1997 $6.39 $4.18 $1.14 $0.87
1998 $7.09 $4.80 $0.85 $0.65
1999 $5.71 $4.93 $0.83 $0.62
</TABLE>
Environmental Risks
Mining is subject to potential risks and liabilities associated with pollution
of the environment and the disposal of waste products occurring as a result of
mineral exploration and production. Insurance against environmental risk
(including potential liability for pollution or other hazards as a result of the
disposal of waste products occurring from exploration and production) is not
generally available to the Company (or to other companies in the minerals
industry) at a reasonable price. To the extent that the Company becomes subject
to environmental liabilities, the satisfaction of any such liabilities would
reduce funds otherwise available to the Company and could have a material
adverse effect on the Company. Laws and regulations intended to ensure the
protection of the environment are constantly changing, and are generally
becoming more restrictive.
<PAGE> 5
MINES MANAGEMENT, INC.
FORM 10 - KSB
For the year ended December 31, 1999
Title to Properties
The validity of unpatented mining claims, which constitute a significant portion
of the Company's property holdings in the United States, is often uncertain, and
such validity is always subject to contest. Unpatented mining claims are unique
property interests and are generally considered subject to greater title risk
than patented mining claims, or real property interests that are owned in fee
simple. The Company has not yet filed a patent application for any of its
properties that are located on federal public lands in the United States and,
under proposed legislation to change the General Mining Law, patents may be hard
to obtain. Although the Company has attempted to acquire satisfactory title to
its undeveloped properties, the Company does not generally obtain title opinions
until financing is sought to develop a property, with the attendant risk that
title to some properties, particularly title to undeveloped properties, may be
defective.
Foreign Operations
The Company's foreign activities are subject to the risk normally associated
with conducting business in foreign countries, including exchange controls and
currency fluctuations, limitations on repatriation of earnings, foreign
taxation, laws or policies of particular countries, labor practices and
disputes, and uncertain political and economic environments, as well as risks of
war and civil disturbances, or other risk that could cause exploration or
development difficulties or stoppages, restrict the movement of funds or result
in the deprivation or loss of contract rights or the taking of property by
nationalization or expropriation without fair compensation. Foreign operations
could also be adversely impacted by laws and policies of the United States
affecting foreign trade, investment and taxation. The Company currently has
exploration projects located in Chile.
ITEM 2. DESCRIPTION OF PROPERTIES
The significant properties in which the Company has an interest are described
below. Reference is made to footnotes in the financial statements for more
information on the properties. The Company has relied on public disclosure made
by its lessee Noranda Minerals, relative to its assessment of the Montanore
deposit.
Montanore Property
The Montanore property consists of 16 mining claims covering approximately 300
acres and a 4 acre patented mill site located in Sanders County, northwestern
Montana. The mining claims are owned outright by the Company and are held
subject to a $100 per claim annual payment to the Federal government. Eleven of
the claims are leased to Noranda Minerals Corp, who is responsible for annual
claim upkeep. The claims can be reached from Noxon, the nearest town, by taking
State Highway 200 about 2 miles to the east and thence north about 5 miles on a
secondary graveled road to the junction of the west and east forks of Rock
Creek. From this point it is about a 4 mile hike up a Jeep trail behind a
locked U.S. Forest Service gate to the claims. More than half the claims are
located within the Cabinet Wilderness Area.
<PAGE> 6
MINES MANAGEMENT, INC.
FORM 10 - KSB
For the year ended December 31, 1999
Eleven of the Company's claims cover a portion of the Montanore silver/copper
deposit. The deposit occurs within rocks of the Belt Super Group, Precambrian
metasediments that crop out over much of western Montana, northern Idaho, and
parts of adjacent British Columbia. The Montanore is one of 3 similar deposits
to have been found within Revett Formation quartzite of the Belt Supergroup.
These include the Troy deposit which was mined between 1981 and 1992, and the
Rock Creek deposit currently under environmental assessment.
Mineralization within the Revett Formation is disseminated, and confined to
specific quartzite strata. The deposits are characterized by great lateral
extent, relatively uniform grades, and thicknesses that range up to 100 feet.
Often the deposits are bounded by a paleo growth fault, considered to have been
active during rock sedimentation and mineral deposition. Mineralization
consists in varying parts of bornite, primary chalcocite, and chalcopyrite.
The Montanore deposit has been defined as being at least 12,000 feet long and
varies between 500 and 5000 feet in width. The long axis of the deposit trends
in a northwesterly direction parallel with a regional fault that bounds the
mineralization of the southwest. The deposit dips approximately 12 degrees to
the northwest, parallel with its long axis. Mineralization occurs within two
mineralized beds over much of the deposit's length, but seems to coalesce up
dip. Overall the upper zone averages 29.9 feet in thickness and the lower zone
34.8 feet. Unmineralized strata between beds varies between 20 and 200 feet
thick. On the basis of 27 surface drill holes Noranda has reported a deposit
containing and estimated 142 million tons and averaging 0.78% copper and 2.1
ounces of silver to the ton.
The Company's claims are located along the fault which bounds the southwestern
margin of the deposit, and were staked to cover minor silver occurrences within
the fault or in sympathetic parallel fractures. The claims represent mineral
rights to a strip of land several hundred feet wide and about 11,500 feet long
that cover the projected position of the deposit adjoining the fault. A total
of 7 widely spaced surface drill holes have intersected the deposit beneath the
Company's claims or in close proximity to them.
In 1988, Newhi, Inc., a Washington corporation and wholly-owned subsidiary of
Mines Management, Inc. acquired the assets of Heidelberg Silver Mining Co., Inc.
through a corporate merger. The assets acquired by the Company consisted
primarily of 34 unpatented mining claims and a 4 acre patented mill site. In
1993 the Company determined that 18 of the mining claims were immaterial to the
maintenance of its interest in the Montanore project and these claims were
dropped. Of the remaining 16 claims owned by the Company, 11 claims are leased
to Noranda Minerals Corp. who is responsible for their yearly upkeep. Under
terms of the lease agreement, the Company is paid annual advance minimum royalty
payments of $25,000. In addition, the Company will be paid a production royalty
of 5% of the net profits until capital investment recovery and 20% thereafter on
all material taken from the claims. A significant portion of the Company's
claims are situated within the Cabinet Wilderness Area and may be subject to
dissolution for lack of adequate discovery. However, Noranda's mineral rights
are also based upon other claims with approved discoveries, and the agreement
between Noranda and the Company is specifically not affected by the status of
the Company's claims.
<PAGE> 7
MINES MANAGEMENT, INC.
FORM 10 - KSB
For the year ended December 31, 1999
In 1983, U.S. Borax and Chemical Corporation discovered a major silver/copper
deposit, later to be named the Montanore deposit, which extended in part beneath
what is now the Company's property. In 1984 a lease agreement, relative to 11
claims, was entered into between U.S. Borax and the Company's predecessor,
Heidelberg. Subsequently U.S. Borax conducted more than 70,000 feet of core
drilling from the surface which outlined the bedded silver/copper
mineralization.
In 1988, U.S. Borax and partners sold their interest in the project to a Joint
Venture made up of Noranda Minerals Corp. and Montana Reserves Co. Noranda
became the project operator, and the project name was changed to Montanore. In
1993 the Joint Venture was dissolved with Noranda retaining rights to the
project.
In late 1989, Noranda began a major tunneling program from a point east of the
Cabinet Wilderness Area. The purpose of the program was to more accurately
define and develop a portion of the deposit containing approximately 30 million
tons. The proposed work was to include a 3-mile long decline and approximately
2,000 feet of lateral development in the vicinity of the deposit. Several
lateral headings were planned to intersect the portion of the deposit owned by
the Company. Close spaced drilling was planned from these workings and bulk
metallurgical samples were to be taken during this phase. In December, 1991
tunneling was stopped at approximately 14,000 feet, or about 2,000 feet short of
the deposit, pending the completion of the project's Environmental Impact
Statement (EIS). Also during the year Noranda completed the process to acquire
patents to several of its key claims. However, the Secretary of Interior has
continued to refuse to approve any US patent applications made under the terms
of the Mining Law of 1872.
During 1993 the project Environmental Impact Statement (EIS) was approved and
all of the important permits for the mine were granted. As part of the EIS
process, this approval was subject to appeal, and several appeals were made. In
1994, after due consideration, the US Forest Service denied all appeals.
In 1991 an environmental group had brought suit against Noranda and the US
Forest Service concerning the validation of certain mining claims covering the
Montanore deposit. In 1993 the US Secretary of Agriculture found that Noranda's
key mining claims were valid, and in 1997 the Federal District Court hearing the
case also ruled that Noranda's claims were valid. The court decision was
appealed and in March, 1999 the U.S. Court of Appeals for the Ninth Circuit
upheld the U.S. District Court decision.
Chanarcillo Property
The Chanarcillo property consists of 14 exploration concessions that cover an
area of about 38 sq. km. (9,500 acres) within the Chanarcillo mining district.
The district is located in northern Chile's Third Region about 55 km south of
the mining center of Copiapo and about 350 km north of Santiago. The property is
reached by secondary roads from the Pan American Highway which passes about 10
km to the west. The Chanarcillo district is situated in the western foothills
of the Andes Mountains, with elevations that range between 900 and 1200 m above
sea level. The Company's concessions contain a number of small overlapped
concessions representing preexisting mineral rights which partially cover some
of the old mines of the district. A total of about 34 sq. km (8,500 acres) of
the Company's concessions are unobstructed, with clear exploration rights.
<PAGE> 8
MINES MANAGEMENT, INC.
FORM 10 - KSB
For the year ended December 31, 1999
The Company has an option to purchase the concessions from their owner, Minera
Calcia Ltda. of Santiago, Chile, on the basis of the amount expended on the
project. The Company has a work commitment of $50,000 in year 1, and $100,000
in year 2 of the agreement. After the Company has expended a total of $200,000
on the project it has the right to acquire title to the concessions, subject to:
- - A 2% Net Smelter Return Royalty one-half of which may be purchased during the
first 4 years of commercial production.
- - An annual fee of $25,000 to be paid prior to the start of commercial
production.
- - An annual payment equal to 5% of the preproduction exploration expenses of
the project that are incurred in Chile, the total of which is capped at
$2 million.
The Chanarcillo district, was Chile's foremost silver producing area during the
19th century, when it reportedly produced an estimated 100 million ounces of
silver between 1832 and 1885. Only minor work occurred after that time until
the 1980's when the area became the focus of exploration for large, low-grade
copper deposits similar to the La Candelaria deposit located about 22 miles to
the north. At various times to the present, several major mining companies have
drilled specific copper targets in the district, but no work has involved
exploration for silver.
The Chanarcillo district lies within northern Chile's coastal belt of Cretaceous
age sediments and intercalated volcanics. These rocks are intruded throughout
the length of the belt by Cretaceous age plutons which range in composition from
quartz monzonite to diorite. The sediments consist primarily of siltstone and
carbonates which may contain in varying degree silt or chert. Interbedded in
the sediments are a series of thick to thin tuffs, pyroclastics, aggolmerates,
and volcanic units. The intruded rocks are thermally metamorphosed for a
substantial distance from the intrusive contacts creating extensive skarn zones.
In the Chanarcillo district the host rocks are relatively flat lying, but are
gently folded into a northeast-trending double plunging anticline or dome. The
district is cut by two prominent sets of high-angle structures, which generally
show small displacements. One set trends to the north-northeast, parallel with
the fold axis, while the other trends to the northwest. The north-northeast set
contains most of the known silver veins, while faults of the northwest trending
set commonly contain andesite dikes and only locally some silver mineralization.
Silver values exploited in the 19th century occur mostly in veins but also in
mantos and brecciated zones. Exposures in mine workings extended to depths of
as much as 400 m. The character of the veins was strongly affected by the type
of host rock they cut. There was a definite correlation between increases in
vein width and grade and carbonate wall rocks. Ore shoots within the veins are
reported to have ranged from 200 to 400 m in length, had vertical dimensions of
30 to 50 m, and varied from 1 to 10 m in width. Hypogene vein minerals included
silver sulfides and sulfosalts associated with minor amounts of copper, lead,
and zinc minerals. Vein mineralization was greatly affected by supergene
processes to depths of as much as 200 m. Mineralization within the supergene
zone was altered to native silver, and silver halides and bromides. In addition
to the concentration of old silver mines on the property, internal exploration
summaries by Western Mining Exploration, S.A., and North, Ltd., report drill
<PAGE> 9
MINES MANAGEMENT, INC.
FORM 10 - KSB
For the year ended December 31, 1999
intercepts of zinc and copper mineralization in several drill holes on the
property. According to these exploration summaries, a bedded, semi-massive
sulfide occurrence about 1 m thick and running 7% zinc is reported to cut
underground workings in the old silver mines. A number of drill holes in and
around the Company's concessions are reported to have cut zinc values ranging
from 13% over 1 m to 1% over 120 m.
All exploitation of silver mineralization at Chanarcillo ceased by the early
1900's, and no systematic mapping and other exploration is known to have taken
place since that time. Despite the lack of modern day exploration it is thought
that near surface, very high grade silver vein deposits have probably all been
discovered. However, several types of targets have not been investigated.
These include: deeper hypogene mineralization, vein extensions, and bulk tonnage
targets. The Company intends to investigate all three target models in its
planned exploration, with emphasis placed upon the examination of bulk tonnage
targets.
Advance and Iroquois Properties
The Company owns the Advance and Iroquois zinc-lead properties located in
northeastern Washington state, approximately 6 miles south of the Canadian
border. The properties are situated 5 miles apart along a belt of Cambrian
carbonate sediments that have acted as host rocks for several former mines.
Both properties are easily accessible on secondary graveled roads by two wheel
drive vehicles. A large zinc smelter and refinery is located at Trail, British
Columbia, Canada, approximately 17 miles distant over excellent roads.
The Company was originally formed in 1947 to explore the Advance and Iroquois
properties. Since that time, Mines Management has leased its holdings to major
companies including: Rare Metals, Inc. (El Paso Natural Gas) 1959-65, The
Bunker Hill Company 1962-65, Cominco American, Inc. 1966-67 and 1974-75,
Brinco, Ltd. (RTZ Group) 1977-78, and Equinox Resources Ltd. 1989-91. Total
expenditures on the properties to date are estimated to be at least $1,500,000.
The Advance and Iroquois properties are located along the Deep Lake Trend, a
northeast striking belt of Cambrian carbonate rocks collectively designated as
the Metaline Limestone. Rocks of the Deep Lake Trend have been strongly folded
and faulted by numerous high-angle as well as thrust faults. As a result the
Metaline Limestone has a complex outcrop pattern, with steeply overturned
bedding.
Zones of brecciation are found throughout the Metaline Limestone and are often,
but not always, the location of zinc and lead sulfide mineralization. These
features are predominantly stratabound and have gradational, often irregular
borders. Individual breccia bodies are crudely lensoid in cross section and
have third dimensions that attain considerable length. The zones often occur in
an en echelon, and sometimes interconnected pattern. A variety of evidence
suggests that the breccia bodies are solution collapse features controlled by
favorable stratigraphy or lithologic facies.
Mineralization consists of irregular bands, lenses, and fine disseminations of
sphalerite and galena accompanied by varying amounts of pyrite. The
mineralization is considered to have been localized by permeable zones within
and peripheral to breccia bodies created by solution collapse. The sulfide
minerals are found in white dolomite that makes up the breccia matrix and fills
<PAGE> 10
MINES MANAGEMENT, INC.
FORM 10 - KSB
For the year ended December 31, 1999
other voids, and also as selective replacements of the host carbonate rocks.
Individual deposits have irregular gradational borders and are crudely lensoidal
to oval in outline. Their elongated third dimension parallels the regional
strike of the host rocks, and often plunge at low angles. Cross sectional
widths up to 80 feet and heights of as much as 150 feet have been noted in the
more prominent zones. Lengths of mineralization vary up to 650 feet. The
deposits have a tendency to occur together in an en echelon pattern over a
stratigraphic interval of as much as 300 feet. Such groupings of deposits may
be more or less interconnected and have composite lengths of as much as 5000
feet. Metal values generally decease outward thus necessitating a border to be
established by economic consideration. Although individual sample values within
a deposit may be as high as 20% zinc, average values for a deposit will usually
range up to 7% zinc and 1% lead depending upon the "assay border" selected.
The Advance property consists of 720 acres of patented mineral rights, located
approximately 5 miles east of the town of Northport. The property is reached
from Northport, the nearest town, by taking the paved Deep Lake south for 4
miles to the graveled Black Canyon road and thence north for 3 miles. The
Metaline Formation is the principal rock unit to crop out on the Advance
property. Exploration consisting of soil sampling, drilling, trenching, and
tunneling has shown that several zones of low-grade, disseminated zinc
mineralization occur on the property. The Advance property is considered to be
of an exploratory nature, and is held by the Company on a maintenance basis.
The Iroquois property consists of 62 acres of patented mineral and surface
rights, and 18 unpatented mining claims containing about 360 acres. The
property is reached from Northport, the nearest town, by taking the paved Deep
Lake road south and east for 19 miles to the graveled road marked Iroquois Mine
Road, and thence northeast for three miles. The unpatented mining claims are
held subject to a $100 per claim annual payment to the Federal government. More
than 25,000 feet of drilling and approximately 2,600 feet of tunneling have
shown low-grade mineralization to occur in multiple zones, extending for the
entire 5,000 foot length of the property. Most of the exploration has been
concentrated in one area where a mineralized zone of disseminated zinc with
associated lead values has been outlined over approximately 900 feet in length
and within 300 feet of the surface. The property is considered to be of an
exploratory nature and is held by the company on a maintenance basis.
Oil Interests
The Company receives income from a 12.5% working interest in 4 oil wells on the
Clark lease in Sumner County, Kansas. Although the lease has now produced for
more than 30 years, independent consultants calculated the Company's 1981 share
of the remaining reserves available through primary and secondary recovery to be
at least 20,000 barrels. Production since 1981 has totaled approximately 8565
barrels to the Company's account.
ITEM 3. LEGAL PROCEEDINGS
None
<PAGE> 11
MINES MANAGEMENT, INC.
FORM 10 - KSB
For the year ended December 31, 1999
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the fiscal year covered by this report, the Annual
Meeting of the shareholders of the Company was held on November 19, 1999. The
purpose of the meeting was the election of directors, the approval of amended
and restated Articles of Incorporation, and the approval of stock option and
incentive stock option plans.
The following table sets forth information regarding the election of the board
of directors:
<TABLE>
Directors Votes For Votes Against Abstentions
- ---------------------- ------------------ ------------- -----------
<S> <C> <C> <C>
William R. Green 2,293,401 8,142 0
Jack W. Gustavel 2,293,401 8,142 0
Roy G. Franklin 2,293,401 8,142 0
Robert L. Russell 2,293,401 8,142 0
Jerry Pogue 2,293,401 8,142 0
</TABLE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock of the Company is traded in the over the counter market on the
NASD Bulletin Board under the symbol "MNMM". The following table shows the high
and low closing sales prices for the Common Stock for each quarter since January
1, -1998. The quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission and may not represent actual transactions.
<TABLE>
Fiscal Year High Closing Low Closing
- ------------ ------------- ------------
<S> <C> <C>
1998:
First Quarter .44 .25
Second Quarter .50 .31
Third Quarter .56 .25
Fourth Quarter .43 .25
1999:
First Quarter .406 .313
Second Quarter .438 .313
Third Quarter .313 .25
Fourth Quarter .375 .25
2000:
First Quarter .375 .15
</TABLE>
Holders.
As of December 31, 1999 there were 1,120 shareholders of record of the Company's
common stock.
<PAGE> 12
MINES MANAGEMENT, INC.
FORM 10 - KSB
For the year ended December 31, 1999
Dividends.
The Company has never paid any dividends and does not anticipate the payment of
dividends in the foreseeable future.
Recent Sales Of Unregistered Securities.
In January and February 1999 the Registrant sold a total of 245,000 shares of
its common stock at a price of $.25 per share for an aggregate of $ 61,250. A
commission of $6,000 was paid to selected dealers who were also granted 24,000
warrants. Each warrant is exercisable for a period of one year to acquire one
share of common stock at a price of $0.30 per share. The shares were offered and
sold pursuant to an exemption from registration under the Securities Act of
1933, as amended pursuant to Rule 504 of Regulation D. Subsequent to the year
ended December 31, 1999, the warrants expired without issue.
ITEM 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1999, COMPARED TO THE YEAR ENDED
DECEMBER 31, 1998.
For the year ended December 31, 1999 the Company had a net loss of $116,626 or
$0.0238 per share, as compared to a net loss of $152,931 or $0.035 per share for
the year ended December 31, 1998. The decrease in net loss for Fiscal Year 1999
is attributable to a lower level of property acquisition, and exploration.
During Fiscal Year 1999 the Company had revenues from oil sales of $4,622 as
compared to revenues of $4,070 for the year ended December 31, 1998. An
increase in operating costs and a slight decrease in production was nearly
offset, in Fiscal Year 1999 when 298.8 barrels were produced and sold at an
average price of $14.65 per barrel, compared with 312.5 barrels sold at an
average price of $13.02 per barrel for the year ended December 31, 1998.
The Company's plan of operation for the next twelve months will consist of
maintaining its key exploration properties and evaluating new resource
opportunities. The Company does not intend to hire a significant number of
employees to carry out its activities. It is anticipated that all exploration
work on its properties will be carried out through the services of consultants.
The Company currently has sufficient resources to maintain its key exploration
properties and satisfy its cash requirements for the next twelve months.
Although the Company intends to aggressively seek to acquire silver exploration
properties of merit, at the present time the Company has no specific plans,
arrangements agreements or undertakings to acquire any additional silver
exploration properties.
ITEM 7. FINANCIAL STATEMENTS
Financial Statements of the Company for the fiscal years ended December 31, 1999
and 1998, which have been audited by LeMaster & Daniels PLLC and Williams and
Webster, P.S. respectively, are included elsewhere in this Form 10-KSB.
<PAGE> 13
MINES MANAGEMENT, INC.
FORM 10 - KSB
For the year ended December 31, 1999
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no disagreements between the Company and its accountants
regarding any matter or accounting principles or practices or financial
statement disclosures. The Company elected to engage the services of LeMaster &
Daniels PLLC to undertake its audit for the year ended December 31, 1999.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Directors and Officers
<TABLE>
Name Age Office with the Company Appointed to Office
- --------------------- --- ------------------------------ -------------------
<S> <C> <C> <C>
William R. Green 61 Chairman of the Board 1965
President
Chief Executive Officer
Chris Broili 51 Vice President - Exploration 1998
Roy G. Franklin 63 Director & Secretary/Treasurer 1988
Jack W. Gustavel 59 Director 1974
Robert L. Russell 66 Director 1999
Jerry Pogue 58 Director 1999
</TABLE>
The directors are elected for a one-year term and until their successors have
been elected and qualified. Executive Officers are appointed to serve until the
meeting of the Board of Directors following the next annual meeting of
shareholders and until their successors have been elected and qualified. There
are no arrangements or understandings between any of the directors, executive
officers, and other persons pursuant to which any of the foregoing persons were
named as Directors or executive officers. There is no family relationship
between any Director, Executive Officer, or person nominated or chosen by the
Registrant to become a Director or Executive Officer.
William R. Green is a mining engineer and geologist, and was a professor of
mining engineering at the University of Idaho from 1965 to 1983. He has been
actively involved in the mining business since 1965 and is a former officer and
director of Yamana Resources and currently an officer and director of Canadian
public companies: Maya Gold Limited and Petromin Resources Ltd., and US
companies Cimarron-Grandview Group, Inc. and Metaline Mining and Leasing Co.
Dr. Green dedicates approximately 80% of his time to the management of the
Company. The balance of Dr. Green's time is devoted to consulting for various
mining exploration companies.
<PAGE> 14
MINES MANAGEMENT, INC.
FORM 10 - KSB
For the year ended December 31, 1999
Chris Broili holds an MSc degree in exploration geology and has more than 25
years experience in mineral exploration worldwide. From 1984 to 1994 Mr. Broili
was employed by Atlas Precious Metals, Inc., most recently as an Exploration
Manager and was involved in the discovery of the Grassy Mountain gold deposit.
From 1994 to 1997 Mr. Broili was employed by Yamana Resources, Inc. as chief
geologist and later as Vice-President of Exploration. Since January 1998, Mr.
Broili has been employed as an independent consulting geologist. Mr. Broili
dedicates approximately 30% of his time to the management of the Company and
provides independent consulting services to several mining exploration companies
for the balance of his time.
Robert L. Russell, a Professional Engineer has been a director of the Company
since March, 1999. Since September, 1998 Mr. Russell has provided mining
management consulting services through his consulting company, R.L. Russell
Associates. From 1995-1998 Mr. Russell was employed by Zambia Consolidated
Copper Mines, most recently as General Manager of the Nchanga Division. In that
position Mr. Russell was responsible for all functions of two operating mines
and several metallurgical facilities. Under Mr. Russell, the Nchanga Division
had 8700 employees and produced 150,000 tons of copper and 3500 tons (about 12%
of the world's supply) of cobalt per year.
Jerry G. Pogue is a businessman with an extensive background in the management
and financing of junior resource companies. He has managed a large sales
organization, has worked as a highly successful stock broker and investment
analyst, and has financed and managed a number of companies in the resource and
technology sectors. He frequently lectures at international mining investment
conferences.
Roy G. Franklin is a certified public accountant with 30 years experience in
small company administration and finance. He was formerly a director of
Heidelberg Silver Mining Company and is a principal in the accounting firm of
Oswalt, Teel, and Franklin, P.S.
Jack W. Gustavel has more than 30 years experience in the banking industry and
is a former member of the Board, and Director of, the Portland branch of the
Federal Reserve Bank of San Francisco. He is currently a Director and Chairman
and CEO of Idaho Independent Bank.
None of the Directors is also a director of any company with a class of
securities registered pursuant to Section 12 of the Exchange Act or subject to
Section 15(d) of the Act, or of any company registered under the Investment
Company Act of 1940 except William R. Green, and Jack W. Gustavel, as noted
above.
No Director, or person nominated to become a Director or Executive Officer, has
been involved in any legal action involving the Company during the past five
years.
Promoters and Control Person: Not Applicable
<PAGE> 15
MINES MANAGEMENT, INC.
FORM 10 - KSB
For the year ended December 31, 1999
Compliance with Section 16(a) of the Exchange Act
Based solely upon a review of forms 3 and 4 and amendments thereto furnished to
the Registrant pursuant to Section 240.16a-3 during the most recent fiscal year,
and Form 5 and amendments thereto furnished to the Registrant with respect to
the most recent fiscal year, no person who at any time during the fiscal year
was a director, officer, or beneficial owner or more than ten percent of any
class of equity securities of the Registrant registered pursuant to Section 12
of the Exchange Act, or any other person subject to Section 16 of the Exchange
Act with respect to the Registrant because of the requirements of Section 30 of
the Investment Company Act or Section 17 of the Public Utility Holding Company
Act (A reporting person) failed to file on a timely basis, as disclosed in the
above Forms, reports required by Section 16(a) of the Exchange Act during the
most recent fiscal year or prior fiscal years, except William R. Green, Roy G.
Franklin, Jack A. Gustavel, Jerry G. Pouge, who had one delinquent filing and
Robert L. Russell with two delinquent filings.
ITEM 10. EXECUTIVE COMPENSATION
A summary of cash and other compensation for the Company's President and Chief
Executive Officer for the three most recent years is as follows:
<TABLE>
SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION
Annual Compensation Awards Payouts
- -------------------------------------------- ----------------- ----------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Name Other Restricted Securities
and Annual Stock Underlying LTIP All Other
Principal Year Salary Bonus Comp. Awards(1) Options/ Payouts Comp.
Position ($) ($) ($) ($) SARs(#) ($) ($)
- ----------- ---- ------- ------- ------- ---------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
William R.
Green 1997 $15,600 $0 $0 $3,000 -0- $0 $150
President & 1998 $15,600 $0 $0 $3,000 -0- $0 $ 0
Director 1999 $15,600 $0 $0 $3,000 -0- $0 $ 0
</TABLE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
INDIVIDUAL GRANTS
- ---------------------------------------------------------------------------
(a) (b) (c) (d) (e)
Number of % of Total
Securities Options/SARs Exercise
Underlying Granted to or Base
Options/SARs Employees in Prices Expiration
Name Granted (#) Fiscal Year $/Sh Date
- ------------------ -------------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
Robert L. Russell 100,000 16.6% $.30 2/22/04
</TABLE>
<PAGE> 16
MINES MANAGEMENT, INC.
FORM 10 - KSB
For the year ended December 31, 1999
DIRECTOR COMPENSATION FOR LAST FISCAL YEAR
<TABLE>
Cash Compensation Security Grants
----------------------------------- -----------------------------
Number of
Annual Consulting Securities
Retainer Meeting Fees/Other Number of Underlying
Fees ($) Fees Fees ($) Shares (#) Options/SARs (#)
Name (a) (b) (c) (d) (e) (f)
- --------------------- ----------- --------- ----------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
Roy G. Franklin 0 0 0 15,000 0
Jack A. Gustavel 0 0 0 15,000 0
William R. Green 0 0 0 15,000 0
Robert L. Russell 0 0 0 15,000 0
Jerry G. Pogue 0 0 0 15,000 0
</TABLE>
The Company has no employment contracts with executive officers or directors.
While there is no formal compensation arrangement with directors, historically
directors have received an annual restricted stock award or stock options. In
1999, the directors were granted restricted stock awards.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth information as of March 30, 2000 regarding any
person known to the Company to be the beneficial owner of more than five percent
of any class of the Company's voting securities.
<TABLE>
Title of Class Name of Amount and nature of
Beneficial owner Beneficial Ownership Percent of Class (1)
- ---------------- ------------------- ------------------------ --------------------
<C> <S> <S> <S>
Common William R. Green 627,500(2) 11.4%
</TABLE>
(1) Fully Diluted (assumes exercise of all 450,000 outstanding options)
(2) Does not include options to acquire 100,000 shares of Common Stock
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth certain information as of March 30, 2000
regarding the number and percentage of shares of Common Stock of the Company or
any of its parents or subsidiaries beneficially owned (as such term is defined
in Rule 13d-3 under the Exchange Act) by each director, each of the named
executive officers and directors and officers as a group:
<PAGE> 17
MINES MANAGEMENT, INC.
FORM 10 - KSB
For the year ended December 31, 1999
<TABLE>
Title of Class Name of Amount and nature of
Beneficial owner Beneficial Ownership Percent of Class (1)
- ---------------- ------------------- ------------------------ --------------------
<C> <S> <S> <S>
Common William R. Green 627,500(2) 11.4
Common Christopher Broili 180,000(2) 3.3
Common Jack W. Gustavel 104,500(3) 1.9
Common Roy G. Franklin 91,229(3) 1.7
Common Robert R. Russell 15,000(2) .003
Common Jerry Pogue 15,000 .003
Common Total of all officers
and directors
(6 individuals) 1,033,229(4) 18.8
</TABLE>
(1) Fully Diluted (assumes exercise of all 450,000 outstanding options)
(2) Does not include options to acquire 100,000 shares
(3) Does not include options to acquire 75,000 shares
(4) Does not include options to acquire 700,000 shares
CHANGES IN CONTROL
There are no arrangements known to the Registrant the operation of which may at
a subsequent time result in the change of control of the Registrant.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There have been no transactions or series of transactions, or proposed
transactions during the last two years to which the Registrant is a party in
which any director, nominee for election as a director, executive officer or
beneficial owner of five percent or more of the Registrant's common stock, or
any member of the immediate family of the foregoing had or is to have a direct
or indirect material interest exceeding $60,000.
<PAGE> 18
MINES MANAGEMENT, INC.
FORM 10 - KSB
For the year ended December 31, 1999
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K.
(a) the following documents are filed as part of the report:
1. Financial Statements
Accountants' Report
Consolidated Balance Sheets
December 31, 1999 and 1998
Consolidated Statements of Operations and Comprehensive Income
for the years ended December 31, 1999, and 1998
Consolidated Statement of Changes in Stockholders' Equity
for the years ending December 31, 1999, and 1998
Consolidated Statements of Cash Flows
for the years ending December 31, 1999, and 1998
Notes to Financial Statements
2. Exhibits required by Item 601
(2) Plan of Acquisition, reorganization, arrangement,
liquidation or succession.(1)
(3)(i) Articles of Incorporation (2)
(3)(ii) Bylaws. (2)
(4) Instruments defining the rights of security holders,
including indentures. (1)
(9) Voting trust agreements. (1)
(10) Material contracts. (2)
(11) Statement re: computation of per share earnings. (1)
(12) Statements re: computation of ratios. (1)
(13) Annual report to security holders, Form 10Q
or quarterly report to security holders.(1)
(16) Letter re: change in certifying accountant. (1)
(18) Letter re: change in accounting principles .(1)
(19) Subsidiaries of the Registrant. (2)
(22) Publisher report regarding matters submitted
to vote of security holders. (1)
(23) Consents of Experts and counsel. (1)
(24) Power of Attorney. (1)
(27) Financial Data Schedule Attached
(99) Additional Exhibits. (1)
(1) These items have either been omitted or are not applicable
(2) Incorporated by reference to previous filing
(b) Reports on Form 8-K. No reports on Form 8-K have been filed during the
last quarter of the period covered by this report.
<PAGE> 19
MINES MANAGEMENT, INC.
FORM 10 - KSB
For the year ended December 31, 1999
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
MINES MANAGEMENT, INC.
/s/ William R. Green
By:---------------------------------------
Date: April 13, 2000 WILLIAM R. GREEN
President (Principal Executive Officer)
/s/ Roy G. Franklin
By:---------------------------------------
Date: April 13, 2000 ROY G. FRANKLIN
Treasurer (Principal Financial Officer)
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
/s/ William R. Green
---------------------------------
Date: April 13, 2000 WILLIAM R. GREEN, Director
/s/ Roy G. Franklin
---------------------------------
Date: April 13, 2000 ROY G. FRANKLIN, Director
/s/ Jack W. Gustavel
---------------------------------
Date: April 13, 2000 JACK W. GUSTAVEL, Director
/s/ Robert L. Russell
---------------------------------
Date: April 13, 2000 ROBERT L .RUSSELL, Director
/s/ Jerry G. Pogue
---------------------------------
Date: April 13, 2000 JERRY G. POGUE, Director
<PAGE> 20
MINES MANAGEMENT, INC.
CONSOLIDATED FINANCIAL STATEMENTS AND
INDEPENDENT AUDITORS' REPORT
DECEMBER 31, 1999 AND 1998
CONTENTS
Page
INDEPENDENT AUDITORS' REPORT 2
CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated balance sheets 3
Consolidated statements of income 4
Consolidated statements of stockholders' equity 5
Consolidated statements of cash flows 6
Notes to consolidated financial statements 7-12
<PAGE> 21
INDEPENDENT AUDITORS' REPORT
Board of Directors
Mines Management, Inc.
Spokane, Washington
We have audited the accompanying consolidated balance sheets of Mines
Management, Inc. (an Idaho Corporation) as of December 31, 1999, and the
related consolidated statements of income, stockholders' equity, and cash
flows for the year then ended. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Mines Management,
Inc., as of December 31, 1999, and the results of its operations and its cash
flows for the year then ended, in conformity with generally accepted accounting
principles.
/s/ Lemaster & Daniels
Certified Public Accountants
Spokane, Washington
March 22, 2000
Auditors' page 2
<PAGE> 22
MINES MANAGEMENT, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
December 31,
----------------------------
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
`
CURRENT ASSETS:
Cash $ 20,090 $ 45,734
Accounts receivable 376 500
Prepaid expenses 18,467 19,217
------------ ------------
Total current assets 38,933 65,451
------------ ------------
MINERAL PROPERTIES 360,180 360,180
------------ ------------
PROPERTY AND EQUIPMENT:
Mine buildings 11,031 11,031
Equipment 44,098 44,098
Office equipment 10,723 10,196
------------ ------------
65,852 65,325
Less accumulated depreciation 61,824 60,236
------------ ------------
4,028 5,089
------------ ------------
INVESTMENTS:
Available for sale securities,
Bitteroot Resources, Ltd. 623 1,765
------------ ------------
$ 403,764 $ 432,485
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
Auditors' page 3
<PAGE> 23
MINES MANAGEMENT, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
December 31,
----------------------------
1999 1998
------------ ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 2,649 $ 4,919
Payroll payable 1,300 1,300
State income taxes payable 164 121
Payroll taxes payable 199 175
------------ ------------
Total current liabilities 4,312 6,515
------------ ------------
COMMITMENTS - -
STOCKHOLDERS' EQUITY:
Common stock-100,000,000 shares, $.01
par value, authorized; 4,946,956 and
4,676,956 shares, respectively, issued
and outstanding 49,470 46,770
Issuable common stock 22,500 -
Preferred stock-10,000,000 shares, no
par value, authorized; no shares
issued and outstanding - -
Additional paid-in capital 1,362,365 1,296,315
Retained earnings (deficit) (1,035,506) (918,880)
Accumulated other comprehensive income 623 1,765
------------ ------------
Total stockholders' equity 399,452 425,970
------------ ------------
$ 403,764 $ 432,485
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
Auditors' page 3
<PAGE> 24
MINES MANAGEMENT, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
December 31,
----------------------------
1999 1998
------------ ------------
<S> <C> <C>
REVENUES:
Royalties $ 25,000 $ 25,000
Oil and gas 4,622 4,070
------------ ------------
Total revenues 29,622 29,070
------------ ------------
EXPENSES:
Operating expenses:
Depreciation 1,584 1,407
Legal and accounting 15,344 17,017
Miscellaneous 6,362 15,104
Oil and gas operating expense 3,789 2,686
Professional fees 8,546 28,459
Rent and office expenses 10,510 14,817
Salaries, officer and staff 19,350 15,600
Taxes and licenses 2,161 1,533
Telephone 2,201 3,824
Travel expense 1,112 4,463
Exploration expense 55,447 58,423
Commissions - 3,650
Fees, filing, licenses 2,409 2,576
Assays - 714
Directors' fees 18,750 15,000
------------ ------------
Total operating expenses 147,565 185,273
------------ ------------
LOSS FROM OPERATIONS (117,943) (156,203)
OTHER INCOME:
Interest 1,372 3,272
------------ ------------
LOSS BEFORE INCOME TAXES (116,571) (152,931)
PROVISION FOR INCOME TAXES 55 -
------------ ------------
NET LOSS $ (116,626) $ (152,931)
============ ============
NET LOSS PER SHARE $ (0.0238) $ (0.035)
============ ============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 4,910,244 4,402,385
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
Auditors' page 4
<PAGE> 25
MINES MANAGEMENT, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999 AND 1998
*begin 8pt type*
<TABLE>
Accumu-
lated
Other
Common Stock Issuable Common Stock Additional Retained Compre-
--------------------- ----------------------- Paid-in Earnings hensive
Shares Amount Shares Amount Capital (Deficit) Income Total
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCES,
DECEMBER 31, 1997 3,873,706 $ 38,737 - $ - $1,139,698 $(765,949) $ 10,800 $ 423,286
ADD (DEDUCT):
Common stock
issued for
services at
deemed value
of $.20 to $.28
per share 163,250 1,633 - - 35,017 - - 36,650
Stock sold during
the period for
$.20 per share 640,000 6,400 - - 121,600 - - 128,000
Comprehensive loss:
Adjustment to net
unrealized gain on
marketable
securities - - - - - - (9,035) (9,035)
Net loss - - - - - (152,931) - (152,931)
----------
Comprehensive loss (161,966)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
BALANCES,
DECEMBER 31, 1998 4,676,956 46,770 - - 1,296,315 (918,880) 1,765 425,970
ADD (DEDUCT):
Common stock
issued for
payment of
property holding
fee at deemed
value of $.30
per share 25,000 250 - - 7,250 - - 7,500
Common stock
to be issued
for services
at deemed value
of $.25 per share - - 90,000 22,500 - - - 22,500
Stock sold
during the
period for $.25
per share 245,000 2,450 - - 58,800 - - 61,250
Comprehensive loss:
Adjustment to net
unrealized gain
on marketable
securities - - - - - - (1,142) (1,142)
Net loss - - - - - (116,626) - (116,626)
----------
Comprehensive loss (117,768)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
BALANCES,
DECEMBER 31, 1999 4,946,956 $ 49,470 90,000 $ 22,500 $1,362,365 $(1,035,506) $ 623 $ 399,452
========== ========== ========== ========== ========== ========== ========== ==========
</TABLE>
*end 8pt type*
See accompanying notes to consolidated financial statements.
Auditors' page 5
<PAGE> 26
MINES MANAGEMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
December 31,
----------------------------
1999 1998
------------ -------------
<S> <C> <C>
INCREASE (DECREASE) IN CASH
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (116,626) $ (152,931)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation 1,584 1,407
Common stock issued/issuable
for services 30,000 36,650
Changes in assets and liabilities:
Accounts receivable 124 58
Prepaid expenses 750 (16,917)
Taxes payable 71 (512)
Accounts payable (2,270) 4,014
------------ -------------
Net cash used in operating activities (86,367) (128,231)
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of equipment (527) (2,831)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock for cash 61,250 128,000
------------ -------------
NET DECREASE IN CASH (25,644) (3,062)
CASH, BEGINNING OF YEAR 45,734 48,796
------------ -------------
CASH, END OF YEAR $ 20,090 $ 45,734
============ =============
SUPPLEMENTAL CASH FLOWS DISCLOSURES:
Noncash financing activities:
Common stock issued/issuable
for property holding fee
and services $ 30,000 $ 36,650
============ =============
Interest paid $ - $ -
============ =============
Income taxes paid $ 103 $ -
============ =============
</TABLE>
See accompanying notes to consolidated financial statements.
Auditors' page 6
<PAGE> 27
MINES MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization:
Mines Management, Inc. (hereinafter the "Company") is a publicly held Idaho
corporation incorporated in 1947. The Company acquires, explores, develops, and
operates mineral and oil properties principally in North America. Currently,
the Company is beginning exploration activities in South America.
Summary of Significant Accounting Policies:
a. The accompanying consolidated financial statements include the accounts
of Mines Management, Inc., and its wholly owned subsidiary, Newhi, Inc.
Intercompany balances and transactions have been eliminated.
Newhi, Inc., was formed by the Company for the purpose of merger with Heidelberg
Silver Mining Company, Inc. In the merger, completed on April 15, 1988,
Heidelberg Silver Mining Company, Inc., was merged into Newhi, Inc. To effect
the merger, the Company issued 367,844 shares of its previously unissued common
stock. Also in connection with this merger, the Company issued 11,117 shares of
common stock and paid $4,446 as a finders' fee. As of December 31, 1999 and
1998, a portion of the shares to be distributed to the Heidelberg Silver Mining
Company, Inc., shareholders has yet to be issued. Even though a number of
shareholders have elected not to return their shares upon the merger, the
Company is holding approximately 60,000 shares to be delivered at their request.
b. The Company receives a majority of its income from a lease arrangement
which pays an annual minimum royalty of $25,000, with contingent production
royalties of 5 percent of the net profits until capital investment is recovered
and 20 percent thereafter. Management believes that this source of income will
continue in the foreseeable future due to the large investment of capital by the
lessor in this project; however, royalties are unearned by the Company until
received.
c. The Company capitalizes acquisition and exploration costs on
nonoperating mining properties. Costs to maintain the mineral rights and leases
are expensed as incurred. Upon commencement of operations, the capitalized
costs will be amortized based on proven or probable reserves. Capitalized costs
are charged to operations as impairment losses when title to the property has
expired or when management believes the properties are not economically feasible
to develop or hold for future development.
d. In accordance with FASB Statement No. 121,"Accounting for Impairment of
Long-Lived Assets," the Company reviews its long-lived assets quarterly to
determine if any events or changes in circumstances have transpired which
indicate that the carrying value of its assets may not be recoverable. The
Company does not believe that any impairment adjustment is needed to the
carrying value of its assets at December 31, 1999.
e. Property and equipment are stated at cost. Buildings were depreciated on
the straight-line basis and were fully depreciated at December 31, 1999.
Machinery and furniture are generally being depreciated using accelerated
methods over lives ranging from five to ten years
Auditors' page 7
<PAGE> 28
MINES MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED):
Summary of Significant Accounting Policies (continued):
f. Basic and diluted loss per share are computed using the weighted average
number of shares outstanding during the year (4,910,244 in 1999 and 4,402,385 in
1998). Stock options and warrants outstanding and issuable shares are
antidilutive and are not considered in the computation.
g. Deferred income tax is provided for differences between the basis of
assets and liabilities for financial and income tax reporting. A deferred tax
asset, subject to a valuation allowance, is recognized for estimated future tax
benefits of tax-basis operating losses being carried forward.
h. The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results may differ from estimates.
i. In 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive
Income," which establishes rules for the reporting of income and its components.
Comprehensive income consists of net income (loss) and changes in unrealized
losses on securities available-for-sale. The adoption of SFAS No. 130 had no
impact on total stockholders' equity. Prior year financial statements have been
reclassified to conform to the SFAS No. 130 requirements.
NOTE 2 - STOCKHOLDERS' EQUITY:
Common Stock:
In 1998, the Company issued 75,000 shares of common stock to directors for
services rendered. These shares were valued at $0.20 per share, which was the
estimated fair market value on the date of issuance.
In 1999, the Company authorized the issuance of 90,000 shares of common stock
for director fees and officer compensation. The shares were valued at $.25 per
share, the estimated market value on the authorized date. As of March 22, 2000,
the shares had not been issued.
In 1998, the Company issued 88,250 shares of common stock to outside parties for
services rendered. These shares were valued at prices ranging from $0.20 to
$0.28 per share, which was the estimated fair market value on the date of
issuance.
In 1999, the Company sold 245,000 common shares for $61,250 ($0.25 per share) in
cash. In 1998, the Company sold 640,000 shares for $128,000 ($0.20 per share)
in cash. In connection with the 1999 stock sales, the company granted selected
dealers warrants to purchase up to 24,000 common shares at $0.30 per share
through February 2000. Compensation was not recognized for the warrant grant,
as such amount was not material. The warrants expired unexercised.
In 1999, the Company issued 25,000 shares of common stock to an outside party
for an annual property holding fee. These shares were valued at $0.30 per
share, which was the estimated fair market value at the date of issuance.
<PAGE> 29
MINES MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - STOCKHOLDERS' EQUITY (CONTINUED):
Preferred Stock:
During 1998, the Company authorized 10,000,000 shares of no par value preferred
stock. Through December 31, 1999, the Company had not issued any of the
authorized preferred stock.
NOTE 3 - MINING PROPERTIES:
Mining properties are comprised of acquisition, exploration, and development
costs related to the Advance and Iroquois properties in the Northport region of
northeastern Washington State and the Montanore property in northwestern Montana
as shown below:
December 31,
------------------------
1999 1998
------- -------
Advance $ 2,139 $ 2,139
Montanore 134,207 134,207
Iroquois 223,834 223,834
------- -------
$ 360,180 $ 360,180
======= =======
The Advance property consists of 720 acres of patented mineral rights. Although
the Company does not own the overlying surface rights to its patented mineral
rights, it does have right of access to explore and mine.
The Montanore property (formerly the Noxon property) located in northwestern
Montana includes 16 mining claims covering 320 acres and a 5-acre patented mill
site.
The Iroquois property consists of 64 acres of patented mineral and surface
rights and 18 unpatented mining claims containing 360 acres.
In 1998, the Company signed an agreement, effective June 1, 1998, to explore and
develop certain lands located in the country of Chile along with an option to
purchase the property. The agreement provides for an initial deposit of $25,000
as a holding fee and annual holding fees of $25,000 until such time as the
property is placed in production. The initial fee is being amortized currently.
The agreement provides for certain qualified expenditures as work requirements.
NOTE 4 - MARKETABLE SECURITIES:
The Company owns 45,000 free trading shares of Bitterroot Resources, Ltd. (BTT),
a public Canadian corporation traded on the Vancouver Stock Exchange. The
shares are held as "available for sale." This investment is being recorded at
fair market value with a corresponding adjustment to stockholders' equity. The
45,000 free trading shares at December 31, 1999 and 1998, have an approximate
market value of $623 and $1,765 U.S. funds, respectively.
<PAGE> 30
MINES MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - STOCK OPTIONS:
During the year ended December 31,1998, the shareholders of the Company approved
two stock-based compensation plans: a fixed employee stock-based compensation
plan and a performance-based plan. Under the fixed plan, the Company may grant
options to purchase up to 460,000 shares of common stock. The option price
shall not be less than the fair market value on the date of grant of the shares.
Stock options shall be exercisable within ten years from the date of the grant
of the option. Options under the fixed plan vest immediately.
Through December 31, 1999, the following fixed plan options had been granted:
<TABLE>
Number of
Optionee Shares Granted Option Price Option Period
- ---------------------- -------------- ----------------- -------------
<S> <C> <C> <C>
Directors:
Robert L. Russell 100,000 $0.30 per share 5 years
Jack Gustavel 75,000 $0.40 per share 5 years
Phillip Piffer 75,000 $0.40 per share 5 years
Roy Franklin 75,000 $0.40 per share 5 years
General Counsel:
Greg Lipsker 75,000 $0.40 per share 5 years
-------
Total 400,000
=======
</TABLE>
Under the incentive plan, the Company may grant options to purchase up to
460,000 shares of common stock. The option price shall not be less than the
fair market value on the date of grant of the shares. Stock options shall be
exercisable within ten years from the date of the grant of the option. Options
under the incentive plan vest immediately.
Through December 31, 1999, the following incentive based plan options had been
granted:
<TABLE>
Number of
Optionee Shares Granted Option Price Option Period
- ---------------------- -------------- ----------------- -------------
<S> <C> <C> <C>
William Green 100,000 $0.40 per share 5 years
Chris Broili 100,000 $0.40 per share 5 years
-------
Total 200,000
=======
</TABLE>
As permitted under generally accepted accounting principles, option grants under
the plans are accounted for following the provisions of APB Opinion No. 25 and
its related interpretations. Accordingly, no compensation cost has been
recognized for the grants. Had compensation cost been determined based on the
fair value method prescribed in FASB Statement No. 123 (FAS 123), the reported
net loss and loss per share would have been increased to approximately $127,000
for 1999 and $252,000 for 1998 ($.0259 and $.057, respectively, per share).
<PAGE> 31
MINES MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - STOCK OPTIONS (CONTINUED):
In determining the pro forma amounts above, the value of the grants was
estimated at the grant date to be $0.11 and $0.15 per optioned share for 1999
and 1998, respectively, using the fair value method prescribed in FAS 123, based
on the Black Scholes option-pricing model with the following assumptions:
Dividend rate -0-%
Risk-free interest rate 6 %
Expected lives of options 5 years
Estimated price volatility 30 %
The following summarizes option activity for the years presented:
<TABLE>
Weighted Average
Exercise
Shares Price
Under Per
Option Share
------- ----------------
<S> <C> <C>
Balance, at January 1, 1998 - $ -
Issued 600,000 0.40
Exercised - -
------- ----------------
Balance at December 31, 1998 600,000 0.40
Issued 100,000 0.30
Forfeited (100,000) 0.40
Exercised - -
------- ----------------
Balance at December 31, 1999 600,000 $ 0.38
======= ================
</TABLE>
Options outstanding at December 31, 1999, have a remaining contractual life of
approximately 3.4 years.
NOTE 6 - CONCENTRATION OF CREDIT RISK:
The Company maintains its cash and cash equivalents in two financial
institutions. Balances are insured by the Federal Deposit Insurance Corporation
(FDIC) up to $100,000 per institution.
NOTE 7 - DEFERRED INCOME TAX:
At December 31, 1999 and 1998, the Company had deferred tax assets of $150,000
and $140,000, respectively, related to tax-basis net operating loss
carryforwards. The deferred tax assets were fully reserved by a valuation
allowance at each date. Changes in the deferred tax asset valuation allowance
for 1999 and 1998 relate only to corresponding changes in the deferred tax
assets for those years.
At December 31, 1999, the Company had federal tax-basis net operating loss
carryforwards totaling approximately $944,000 which expire in various amounts
from 2000 through 2019.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheets for Mines Management, Inc. at December 31,
1999 and the Consolidated Statements of Operations and Comprehensive Income
for the year ended December 31, 1999 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 20,090
<SECURITIES> 0
<RECEIVABLES> 376
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 38,933
<PP&E> 65,852
<DEPRECIATION> 61,824
<TOTAL-ASSETS> 403,764
<CURRENT-LIABILITIES> 4,312
<BONDS> 0
0
0
<COMMON> 71,970
<OTHER-SE> 327,482
<TOTAL-LIABILITY-AND-EQUITY> 403,764
<SALES> 4,622
<TOTAL-REVENUES> 29,622
<CGS> 0
<TOTAL-COSTS> 147,565
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (116,571)
<INCOME-TAX> 55
<INCOME-CONTINUING> (116,626)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (116,626)
<EPS-BASIC> (0.024)
<EPS-DILUTED> (0.024)
</TABLE>
