MSB Mesabi Trust

h

​

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

​

FORM 10-Q

​

(Mark One)

​

​

For the quarterly period ended October 31, 2024

​

or

​

​

For the transition period from                   to                 

​

Commission File Number: 1-4488

​

MESABI TRUST

(Exact name of registrant as specified in its charter)

​

​

​

​

(904) 271-2520

(Registrant’s telephone number, including area code)

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

​

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 ☒ No ☐

​

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐

​

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

​

​

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

​

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ☐ No ☒

​

As of December 11, 2024, there were 13,120,010 Units of Beneficial Interest in Mesabi Trust outstanding.

​

​

​

​

TABLE OF CONTENTS

​

​

​

Forward-Looking Statements

​

Certain information included in this Quarterly Report on Form 10-Q contains, or incorporates by reference, not only historical information, but also “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934. All such forward-looking statements, including those statements regarding estimation of iron ore pellet production, shipments, pricing, royalties and other matters, are based on information from the lessee/operator (and its parent corporation) of the mine located on the lands owned and held in trust for the benefit of the holders of units of beneficial interest of Mesabi Trust (“Mesabi Trust” or the “Trust”). These statements may be identified by the use of forward-looking words, such as “may,” “will,” “could,” “project,” “predict,” “intend,” “believe,” “anticipate,” “expect,” “estimate,” “continue,” “potential,” “plan,” “should,” “assume,” “forecast” and other similar words. Such forward-looking statements are inherently subject to known and unknown risks and uncertainties. Actual results and future developments could differ materially from the results or developments expressed in or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, volatility of iron ore and steel prices, market supply and demand, competition, environmental hazards, health and safety conditions, regulation or government action, litigation, uncertainties about estimates of reserves, general adverse business and industry economic trends, uncertainties arising from war, terrorist events and other global events, higher or lower customer demand for steel and iron ore, decisions by mine operators regarding curtailments or idling production lines or entire plants, environmental compliance uncertainties, difficulties in obtaining and renewing necessary operating permits, higher imports of steel and iron ore substitutes, processing difficulties, consolidation and restructuring in the domestic steel market, market inputs tied to indexed price adjustment factors found in some Cliffs’ customer contracts resulting in future adjustments to royalties payable to Mesabi Trust, and other factors. Further, substantial portions of royalties earned by Mesabi Trust are based on estimated prices that are subject to interim and final adjustments, which can be positive or negative, and are dependent in part on multiple price and inflation index factors under agreements to which Mesabi Trust is not a party and that are not known until after the end of a contract year. It is possible that future negative price adjustments could partially or even completely offset royalties or royalty income that would otherwise be payable to the Trust in any particular quarter, or at year-end, thereby potentially reducing cash available for distribution to the Trust’s Unitholders (as defined below) in future quarters.

For a discussion of the factors, including without limitation, those that could materially and adversely affect Mesabi Trust’s actual results and performance, see “Risk Factors” set forth on pages 4 through 17 of Mesabi Trust’s Annual Report for the fiscal year ended January 31, 2024, as updated by the “Risk Factors” on page 19 of Mesabi Trust’s Form 10-Q for the fiscal quarter ended July 31, 2024 (filed September 5, 2024). These risks and uncertainties are not exclusive and further information concerning the Trust, including factors that potentially could materially affect our operating results, financial condition or the market price of the Units, may emerge from time to time. Mesabi Trust undertakes no obligation, other than that imposed by law, to make any revisions to the forward-looking statements contained in this filing or to update them to reflect circumstances occurring after the date of this filing. We advise you, however, to consult any further disclosures we make on related subjects in our future Quarterly Reports on Form 10-Q, Annual Reports on Form 10-K and Current Reports on Form 8-K that we file with or furnish to the Securities and Exchange Commission.

​

2

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements. (Note 1)

​

Mesabi Trust

Condensed Statements of Income

Three and Nine Months Ended October 31, 2024 and 2023

​

​

See Notes to Condensed Financial Statements.

​

​

3

Mesabi Trust

Condensed Balance Sheets

October 31, 2024 and January 31, 2024

​

​

See Notes to Condensed Financial Statements.

​

4

Mesabi Trust

Condensed Statements of Cash Flows

Nine Months Ended October 31, 2024 and 2023

​

​

See Notes to Condensed Financial Statements.

​

​

5

Mesabi Trust

​

Notes to Condensed Financial Statements

October 31, 2024 (Unaudited)

​

​

6

7

​

​

​

8

​

​

Item 2. Trustees’ Discussion and Analysis of Financial Condition and Results of Operations.

​

This discussion should be read in conjunction with the condensed financial statements and notes presented in this Quarterly Report on Form 10-Q and the financial statements and notes in the last filed Annual Report on Form 10-K for the year ended January 31, 2024 for a full understanding of Mesabi Trust’s financial position and results of operations for the three and nine months ended October 31, 2024.

All references in this discussion and in this Quarterly Report on Form 10-Q to iron ore products “shipped” or “shipments” shall include iron ore products that are actually shipped from Silver Bay, Minnesota and/or stockpiled for intercompany use that Cleveland Cliffs Inc. (“Cliffs”) has deemed shipped, as referenced by the parties to, and in accordance with, the Amended Assignment

9

of Peters Lease. Following the outcome of the 2019 arbitration, Cliffs began accruing royalty payments to the Trust for both DR pellets and standard pellets to be sold for internal use at facilities owned by Cliffs or its subsidiaries. This accrual method was upheld in the September 6, 2024 award. As a result, the Trust recognizes revenue for internal use pellets upon production of those pellets, regardless of pellet grade. Pellets produced by Northshore Mining Company (“Northshore” or “NMC”) that are not designated for internal use by Cliffs, or its subsidiaries, and instead are intended for sale to third parties in arms’-length sales, continue to be recognized as revenue upon shipment from Silver Bay, Minnesota.

Background

Mesabi Trust, formed pursuant to the Agreement of Trust, is a trust organized under the laws of the State of New York.  Mesabi Trust holds all of the interests formerly owned by Mesabi Iron Company (“MIC”), including all right, title and interest in the Amendment of Assignment, Assumption and Further Assignment of Peters Lease dated August 17, 1989 among the trustees of Mesabi Trust, Bruce D. Sherling, as Trustee in Bankruptcy for the Estate of Reserve Mining Company, and Cypress Northshore Mining Corporation, predecessor to Northshore (referred to as the “Amended Assignment of Peters Lease” or the “Royalty Agreement”), the Amendment of Assignment, Assumption and Further Assignment of Cloquet Lease (the “Amended Assignment of Cloquet Lease” and together with the Amended Assignment of Peters Lease, the “Amended Assignment Agreements”), the beneficial interest in a trust organized under the laws of the State of Minnesota to administer the Mesabi Fee Lands (as defined below) as the trust corpus in compliance with the laws of the State of Minnesota on July 18, 1961 (the “Mesabi Land Trust”) and all other assets and property identified in the Agreement of Trust.  The Amended Assignment of Peters Lease relates to an Indenture made as of April 30, 1915 among East Mesaba Iron Company (“East Mesaba”), Dunka River Iron Company (“Dunka River”) and Claude W. Peters (the “Peters Lease”) and the Amended Assignment of Cloquet Lease relates to an Indenture made May 1, 1916 between Cloquet Lumber Company and Claude W. Peters (the “Cloquet Lease”).

The Agreement of Trust specifically prohibits the Trustees of the Mesabi Trust (the “Trustees”) from entering into or engaging in any business. This prohibition applies even to business activities the Trustees may deem necessary or proper for the preservation and protection of the Trust Estate. Accordingly, the Trustees’ activities in connection with the administration of Trust assets are limited to collecting income, paying expenses and liabilities, distributing net income to the holders of Certificates of Beneficial Interest in Mesabi Trust (“Unitholders”) after the payment of, or provision for, such expenses and liabilities, and protecting and conserving the assets held by the Trust.

The Trustees do not intend to expand their responsibilities beyond those permitted or required by the Agreement of Trust, as amended by the Amendment to the Agreement of Trust dated October 25, 1982 (the “Agreement of Trust”), and those required under applicable law. Mesabi Trust has no employees, but it engages independent consultants to assist the Trustees in, among other things, monitoring the volume and sales prices of iron ore products shipped, based on information supplied to the Trustees by Northshore, the lessee/operator of the lands leased under the Peters Lease and Cloquet Lease (the “Peters Lease Lands” and “Cloquet Lease Lands,” respectively) and the 20% fee interest of certain lands that are particularly described in, and subject to a mining lease under, the Peters Lease (the “Mesabi Fee Lands,” and together with the Peters Lease Lands and Cloquet Lease Lands, the “Mesabi Trust Lands”), and its parent company, Cliffs. References to Northshore or NMC in this quarterly report, unless the context requires otherwise, are applicable to Cliffs as well.

​

Leasehold royalty income constitutes the principal source of the Trust’s revenue. The income of the Trust is highly dependent upon the activities and operations of Northshore. Royalty rates and the resulting royalty payments received by the Trust are determined in accordance with the terms of the Trust’s leases and assignments of leases.

​

Three types of royalties, as well as royalty bonuses, comprise the Trust’s leasehold royalty income:

​

​

10

​

​

​

The current royalty rate schedule became effective on August 17, 1989 pursuant to the Amended Assignment Agreements, which the Trust entered into with Cyprus Northshore Mining Corporation (“Cyprus NMC”). Pursuant to the Amended Assignment Agreements, overriding royalties are determined by both the volume and selling price of iron ore products shipped. In 1994, Cyprus NMC was sold by its parent corporation to Cliffs and renamed Northshore Mining Company. Cliffs now operates Northshore as a wholly owned subsidiary.

Under the relevant agreements, Northshore has the right to mine and ship iron ore products from lands other than Mesabi Trust Lands. Northshore alone determines whether to conduct mining operations on Mesabi Trust Lands and/or such other lands based on its current mining and engineering plan. The Trustees do not exert any influence over mining operational decisions. To encourage the use of iron ore products from Mesabi Trust Lands, Mesabi Trust receives royalties on stated percentages of iron ore shipped, whether or not the iron ore products are from Mesabi Trust Lands. Mesabi Trust receives royalties at the greater of (i) the aggregate quantity of iron ore products shipped that were mined from Mesabi Trust Lands, and (ii) a portion of the aggregate quantity of all iron ore products shipped that were mined from any lands, such portion being 90% of the first four million tons shipped during such year, 85% of the next two million tons shipped during such year, and 25% of all tonnage shipped during such year in excess of six million tons. The royalty percentage paid to the Trust increases as the aggregate tonnage of iron ore products shipped, attributable to the Trust, in any calendar year increases past each of the ton volume thresholds. Assuming a consistent sales price per ton throughout a calendar year, shipments of iron ore product attributable to the Trust later in the year generate a higher royalty to the Trust, as total shipments for the year exceed the one million ton thresholds.

During the course of its typical fiscal year, some portion of royalties expected to be paid to Mesabi Trust is based in part on estimated prices for certain iron ore products sold under some of the Cliffs’ customer contracts. The Cliffs’ customer contracts use estimated prices which are subject to interim and final pricing adjustments, which can be positive or negative, and are dependent in part on multiple price and inflation index factors that are not known until after the end of a contract year. Even though Mesabi Trust is not a party to the Cliffs’ customer contracts, these adjustments can result in significant variations in royalties payable to Mesabi Trust (and, in turn, the resulting amount available for distribution to Unitholders by the Trust) from quarter to quarter and on a comparative historical basis, and these variations, which can be positive or negative, cannot be predicted by the Trust. In either case, these price adjustments will impact future royalties payable to the Trust and, in turn, will impact cash reserves that may become available for distribution to Unitholders.

Historically, sales volumes under most of its multi-year supply agreements with Cliffs’ customers, in general, are largely dependent on customer requirements and contain a base price that is adjusted annually using one or more adjustment factors. The factors that could result in price adjustments under Cliffs’ customer contracts include changes in the Platts 62% Price, hot-rolled coil steel price, the Atlantic Basin pellet premium, published Platts international indexed freight rates and changes in specified producer price indices, including those for industrial commodities, fuel and steel.

As also described elsewhere in this report, the Trust receives a bonus royalty equal to a percentage of the gross proceeds of iron ore products (mined from Mesabi Trust Lands) shipped and sold at prices above the Adjusted Threshold Price. Although 97.4% of all the iron ore products shipped during calendar 2023 was sold at prices higher than the Adjusted Threshold Price, the Trustees are unable to project whether Cliffs will continue to be able to sell iron ore products at prices above the applicable Adjusted Threshold Price, entitling the Trust to any future bonus royalty payments.

11

As previously disclosed, on May 1, 2022, Cliffs idled Northshore, and the idle continued until April 2023. On April 25, 2023, Cliffs announced a partial restart of some operations at Northshore and that Cliffs would continue to treat Northshore as a swing operation. The Trustees have not been provided with any additional information regarding the anticipated volume of production, stockpiling or shipping of iron ore products at the Northshore operations in Babbitt and Silver Bay, Minnesota.

In order to calculate the royalties owed by Northshore to Mesabi Trust, the Royalty Agreement requires that Northshore make sales of iron ore products to third parties on an arms’-length basis without regard to any other business relationship between Northshore and the third-party buyer of the iron ore products. In order to calculate royalties on less than arms’-length sales (including sales from Northshore to Cliffs’ corporate affiliates), the Royalty Agreement requires reference to the highest contract price obtained by Northshore in the preceding four calendar quarters in a sale to a buyer not affiliated with Northshore and made on an arms’-length basis without regard to any other business relationship. Since Cliffs’ acquisition of ArcelorMittal USA in late-2020, and accelerating after Cliffs’ Toledo HBI plant came online in mid-2021, Northshore has increased the proportion of iron ore mined from the Mesabi Trust Lands that it sells to Cliffs’ corporate affiliates and decreased the proportion of such iron ore that it sells to third parties in arms’-length transactions. Cliffs’ public statements beginning in third quarter of 2021 have indicated that Cliffs will be limiting the tonnage of iron ore pellets that it sells to third parties from all of its mines, and particularly Northshore. The Cliffs’ Royalty Report dated July 30, 2024 reported two low-volume sale transactions of iron ore pellets to a single third-party customer, one in May 2024 and one in June 2024. These two sale transactions are the only reported third-party pellet sales transactions since Cliffs’ July 28, 2023 quarterly royalty report when it reported two low-volume sales transactions to the same third-party customer in June 2023. The Trustees are continuing due diligence review of these transactions to evaluate whether such transactions meet the requirements of the Royalty Agreement. See “Risk Factors --- Risks Related to Pass – Through Trust Structure of Mesabi Trust – – The limited or lack of arms’-length third-party sales of iron ore pellets (processed at Northshore using Mesabi Trust’s iron ore) by Cliffs could lead to uncertainty under the Royalty Agreement with respect to the calculation of royalties, which could in turn result in potential disputes regarding the amount of royalties owed to the Trust,” as set forth on page 6 of Mesabi Trust’s Annual Report on Form 10-K for the fiscal year ended January 31, 2024 (filed April 24, 2024) and as set forth on page 19 of Mesabi Trust’s Quarterly Report on Form 10-Q for the fiscal quarter ended July 31, 2024 (filed September 5, 2024).

Deutsche Bank Trust Company Americas, the Corporate Trustee of Mesabi Trust, performs certain administrative functions for Mesabi Trust. The Trust maintains a website at www.mesabi-trust.com. The Trust makes available (free of charge) its annual, quarterly and current reports (and any amendments thereto) filed with the SEC through its website as soon as reasonably practicable after electronically filing or furnishing such material with or to the SEC.

​

Results of Operations

​

Comparison of Iron Ore Pellet Production and Shipments for the Three and Nine Months Ended October 31, 2024 and October 31, 2023

​

As shown in the table below, during the three months ended October 31, 2024, production and shipments of iron ore pellets at Northshore from Mesabi Trust Lands both totaled 1,066,665 tons. By comparison, pellet production and shipments for the comparable period in 2023 were both 918,482 tons. The increase in production and shipments is attributable to higher demand from Northshore’s customers as compared to the prior comparable period. For the three months ended October 31, 2024, 100% of shipments originated from Trust lands.

​

As shown in the table below, during the nine months ended October 31, 2024, production and shipments of iron ore pellets at Northshore from Mesabi Trust Lands both totaled 3,019,695 tons. By comparison, pellet production and shipments for the comparable period in 2023 were both 2,123,063 tons. The increase in production and shipments is attributable to three full quarters of operations of Northshore’s facility during the nine months ended October 31, 2024 as compared to the nine months ended October 31, 2023, when Northshore’s facilities were idled until late April 2023. For the nine months ended October 31, 2024, 100% of shipments originated from Trust lands.

12

Comparison of Royalty Income for the Three and Nine Months Ended October 31, 2024 and October 31, 2023

​

As reflected in the table below, the Trust’s total royalty income for the three months ended October 31, 2024 increased by $2,684,274 to $7,348,366 as compared to the three months ended October 31, 2023. The increase in total royalty income is attributable to an increase in both pricing and shipments of iron ore during the three months ended October 31, 2024 as compared to the three months ended October 31, 2023.

​

The table below shows that the base overriding royalties increased $1,935,432 and the bonus royalties increased by $775,085 for the three months ended October 31, 2024, as compared to the three months ended October 31, 2023. Fee royalties decreased by $26,243 over the same period. The increase in the base overriding royalties and bonus royalties is attributable to an increase in both pricing and shipments of iron ore during the three months ended October 31, 2024 as compared to the three months ended October 31, 2023. The decrease in the fee royalties is attributable to a decrease in the royalty rate paid during the three months ended October 31, 2024 as compared to the three months ended October 31, 2023.

​

The table below summarizes the components of Mesabi Trust’s total royalty income for the three months ended October 31, 2024 and October 31, 2023, respectively:

​

​

As reflected in the table below, the Trust’s total royalty income for the nine months ended October 31, 2024 increased by $3,507,685 to $19,613,693 as compared to the nine months ended October 31, 2023. The increase in royalty income is attributable to three full quarters of operations of Northshore’s facility during the nine months ended October 31, 2024, as compared to the nine months ended October 31, 2023, when Northshore’s facilities were idled until late April.

​

The table below shows that the base overriding royalties increased $2,581,677 and the bonus royalties increased by $973,945 for the nine months ended October 31, 2024, as compared to the nine months ended October 31, 2023. Fee royalties decreased by $47,937 over the same period. The increase in the base overriding royalties and bonus royalties is attributable to three full quarters of operations of Northshore’s facility during the nine months ended October 31, 2024, as compared to the nine months ended October 31, 2023, when Northshore’s facilities were idled until late April. The decrease in the fee royalties is attributable to a decrease in the royalty rate paid during the nine months ended October 31, 2024 as compared to the nine months ended October 31, 2023.

​

The table below summarizes the components of Mesabi Trust’s total royalty income for the nine months ended October 31, 2024 and October 31, 2023, respectively:

​

​

Comparison of Net Income, Expenses and Distributions for the Three and Nine Months Ended October 31, 2024 and October 31, 2023

​

Net income for the three months ended October 31, 2024 was $78,325,525, an increase of $74,239,459 as compared to the three months ended October 31, 2023. The increase in net income for the three months ended October 31, 2024 is primarily attributable to the recognition of revenue related to the AAA arbitration award in the current fiscal quarter (which is non-recurring) as well as an increase in royalty income which is attributable to an increase in pricing and shipments of iron ore, as compared to the three months ended October 31, 2023. Pursuant to the AAA arbitration final award dated September 6, 2024, Northshore and Cliffs paid Mesabi Trust $71,185,029 on October 4, 2024. In addition, the Trust’s expenses for the three months ended October 31, 2024 were $676,315, a decrease of $133,685 compared to the expenses for the three months ended October 31, 2023. The decrease in expenses was primarily attributable to a decrease in legal fees and expenses incurred for the three months ended October 31, 2024 (mostly

13

related to the arbitration award), as compared to the prior comparable period. The table below summarizes the Trust’s income and expenses for the three months ended October 31, 2024 and October 31, 2023, respectively.

​

​

Net income for the nine months ended October 31, 2024 was $87,207,203, an increase of $72,914,658 as compared to the nine months ended October 31, 2023. The increase in net income for the nine months ended October 31, 2024 is primarily attributable to the recognition of revenue related to the AAA arbitration award in the current fiscal year (which is non-recurring) as well as an increase in royalty income which is attributable to an increase in pricing and shipments of iron ore, as compared to the prior comparable period. The Trust’s expenses for the nine months ended October 31, 2024 were $4,535,119, an increase of $2,193,504 compared to the expenses for the nine months ended October 31, 2023. The increase in expenses was primarily attributable to an increase in legal fees and expenses incurred for the nine months ended October 31, 2024 (mostly related to the arbitration award), as compared to the prior comparable period. The table below summarizes the Trust’s income and expenses for the nine months ended October 31, 2024 and October 31, 2023, respectively.

​

​

As presented on the “Trust’s Condensed Statements of Operations” on page 3 of this quarterly report, the Trust’s net income per unit increased $5.6585 per unit to $5.9699 per unit for the fiscal quarter ended October 31, 2024 as compared to the fiscal quarter ended October 31, 2023. On October 17, 2024, the Trust declared a distribution of $0.39 per unit payable on November 20, 2024 to Unitholders of record on October 30, 2024. Comparatively, the Trust declared a distribution of $0.35 per unit during the quarter ended October 31, 2023. During the nine months ended October 31, 2024 and October 31, 2023, the Trust declared distributions totaling $0.98 per unit to Unitholders of record and $0.35, respectively.

​

On a quarterly basis, the Trustees review a variety of financial and economic data and information impacting the Trust, and upon the Trustees’ determination, distributions may be declared approximately eleven weeks after the Trustees receive a quarterly royalty report from Northshore and Cliffs and the Trust receives the actual royalty payment with respect to royalty income that is payable for iron ore shipments through the end of each prior calendar quarter. Royalty payments may include pricing adjustments with respect to shipments made during prior periods. The Trust accounts for and reports accrued income receivable based on shipments during the last month of each of the Trust’s fiscal quarters (April, July, October and January) and price adjustments under Cliffs’ customer contracts (which can be positive or negative and can result in significant variations in royalties received by Mesabi Trust and cash available for distribution to Unitholders) as reported to the Trust by Northshore. The Trust accounts for these amounts by using estimated prices and reports such amounts as revenue even though accrued income receivable is not available for distribution to Unitholders until it is received by the Trust. Accordingly, distributions declared by the Trust are not equivalent to the Trust’s net income during the periods reported in this Quarterly Report on Form 10-Q.

​

Comparison of Unallocated Reserve as of October 31, 2024, October 31, 2023 and January 31, 2024

​

As set forth in the table below, Unallocated Reserve increased from $21,138,756 as of October 31, 2023 to $95,324,736 as of October 31, 2024. The increase in Unallocated Reserve as of October 31, 2024, as compared to October 31, 2023, is primarily the result of an increase in unallocated cash and cash equivalents due to the recognition and receipt of $71,185,029 in revenue related to the arbitration award in the current fiscal quarter and an increase in accrued income receivable. The increase in the accrued income receivable portion of the Unallocated Reserve is attributable to an increase in pricing and shipments in the last month of the fiscal quarter ended October 31, 2024 as compared to the prior comparable period.

14

​

​

The Trust’s Unallocated Reserve as of October 31, 2024 increased by $74,349,593 to $95,324,736, as compared to the fiscal year ended January 31, 2024. The increase in the Unallocated Reserve as of October 31, 2024, as compared to January 31, 2024, is the result of an increase in unallocated cash and cash equivalents and an increase in the accrued income receivable and contract asset. The increase in the unallocated cash and cash equivalents portion of the Unallocated Reserve is attributable to the recognition and receipt of $71,185,029 in revenue related to the arbitration award in October 2024. The increase in the accrued income receivable portion of the Unallocated Reserve is attributable to an increase in pricing in the last month of the fiscal quarter ended October 31, 2024 as compared to the last month of the fiscal year ended January 31, 2024. The increase in the contract asset portion of the Unallocated Reserve is attributable to estimates of variable considerations related to the shipments calendar year-to-date through October 31, 2024, as compared to only one month of shipments for the quarter ended January 31, 2024. See “Note 2” for further discussion of contract asset and contract liability.

​

It is possible that future negative price adjustments could offset, or even eliminate, future royalties or royalty income that would otherwise be payable to the Trust in any particular quarter, or at year end, thereby potentially reducing cash available for distribution to the Trust’s Unitholders in future quarters. See the discussion under the heading “Risk Factors” beginning on page 4 of the Trust’s Annual Report on Form 10-K for the fiscal year ended January 31, 2024 (filed April 24, 2024).

Each quarter, as authorized by the Agreement of Trust, the Trustees will reevaluate all relevant factors including all costs, expenses, obligations, and present and future liabilities of the Trust (whether fixed or contingent) in determining a prudent level of unallocated reserve in light of the unpredictable nature of the iron ore industry, current and projected future mining operations and current economic conditions. Although the actual amount of the Unallocated Reserve will fluctuate from time to time and may increase or decrease from its current level, it is currently anticipated that future distributions will be highly dependent upon royalty income as it is received and the level of Trust expenses. The amount of future royalty income available for distribution will be subject to the volume of iron ore product shipments and the dollar level of sales by Northshore. Shipping activity is greatly reduced during the winter months. As previously disclosed, on April 25, 2023, Cliffs announced that “higher levels of steel production have led to the partial restart of some operations at … [its] iron ore mining and pelletizing swing facility at Northshore earlier this month.” Cliffs also announced that it “…will continue to treat that facility as our swing operation. And at this time, we still do not expect to operate Northshore in full any time this year.” The Trustees have not been provided with any additional information regarding the anticipated volume of production, stockpiling or shipping of iron ore products at the Northshore operations in Babbitt and Silver Bay, Minnesota. General adverse business and industry economic trends, uncertainties arising from war, terrorist events and other global events, higher or lower customer demand for steel and iron ore, decisions by mine operators regarding curtailments or idling production lines or entire plants, environmental compliance uncertainties, difficulties in obtaining and renewing necessary operating permits, higher imports of steel and iron ore substitutes, processing difficulties and consolidation and restructuring in the domestic steel market may adversely affect the amount and timing of such future shipments and sales. The Trustees will continue to monitor the economic and other circumstances of the Trust to strike a responsible balance between distributions to Unitholders and the need to maintain adequate reserves at a prudent level, given the unpredictable nature of the iron ore and steel industry, the Trust’s dependence on the actions of Cliffs/Northshore, and the fact that the Trust essentially has no other liquid assets.

Recent Developments

​

Quarterly Royalty Report and Royalty Payment Received

On October 30, 2024, the Trustees of Mesabi Trust received the Royalty Report from Cliffs, the parent company of Northshore.

15

As reported to Mesabi Trust by Cliffs in the Royalty Report, based on shipments of iron ore products by Northshore during the three months ended September 30, 2024, Mesabi Trust was credited with a base royalty of $4,469,814. For the three months ended September 30, 2024, Mesabi Trust was also credited with a bonus royalty in the amount of $2,718,456. Cliffs reported that no adjustments were made in the third quarter 2024. In addition, a royalty payment of $167,659 was paid to the Mesabi Land Trust. Accordingly, the total royalty payments received by Mesabi Trust on October 30, 2024 from Cliffs were $7,355,929.

The royalties paid to Mesabi Trust are based on the volume of iron ore pellets and other products produced or shipped during the quarter and the year to date, the pricing of iron ore product sales, and the percentage of iron ore pellet production and shipments from Mesabi Trust lands rather than from non-Mesabi Trust lands. In the third calendar quarter of 2024, Cliffs credited Mesabi Trust with 972,154 tons of iron ore shipped, as compared to 1,019,311 tons shipped or produced during the third calendar quarter of 2023.

The volume of iron ore pellets (and other iron ore products) produced or shipped by Northshore varies from quarter to quarter and year to year based on a number of factors, including, among others, Cliffs’ decisions to idle Northshore operations (which occurred from May 2022 until April 2023), the requested delivery schedules of customers (including affiliates), general economic conditions in the iron ore industry, and production schedules and weather conditions on the Great Lakes. These multiple factors can result in significant variations in royalties received by Mesabi Trust (and in turn, the resulting funds available for distribution to Unitholders by Mesabi Trust) from quarter to quarter and from year to year. These variations, which can be positive or negative, cannot be predicted by the Trustees of Mesabi Trust. Based on the above factors, and as indicated by Mesabi Trust’s historical distribution payments, the royalties received by Mesabi Trust, and the distributions paid to Unitholders, if any, in any particular quarter are not necessarily indicative of royalties that will be received, or distributions that will be paid, if any, in any subsequent quarter or full year.

The Trustees of Mesabi Trust have received no specific updates concerning Cliffs’ plans with respect to Northshore iron ore operations. The last reported Cliffs’ public announcements made in April 2023 included that Northshore was then being partially restarted and would be run at less than full capacity for the remainder of 2023, and that Cliffs would continue to treat Northshore as a swing operation. With respect to calendar year 2024, Northshore has not advised Mesabi Trust of its expected shipments of iron ore products, or what percentage of 2024 shipments will be from Mesabi Trust iron ore.

Trust’s Prior Announcement of a Thirty-Nine Cents Distribution

On October 17, 2024, Mesabi Trust issued a press release announcing that the Trustees of Mesabi Trust declared a distribution of thirty-nine cents ($0.39) per Unit of Beneficial Interest payable on November 20, 2024 to Mesabi Trust Unitholders of record at the close of business on October 30, 2024. This compares to a thirty-five cents ($0.35) per Unit distribution declared for the same period last year.

AAA Arbitration Final Award and Payment

As previously reported, the arbitration initiated by the Trust in October 2022 concluded in June 2024.

Pursuant to the AAA tribunal’s final award dated September 6, 2024, Northshore Mining Company and Cleveland-Cliffs Inc. paid Mesabi Trust $71,185,029 on October 4, 2024. This payment satisfied the AAA panel’s unanimous award of damages (including pre-award interest) for underpayment of royalties due to the Trust in 2020, 2021 and the first four months of 2022.

The distribution announcement by Mesabi Trust on October 17, 2024 included information that the Trustees’ determined to hold these AAA award funds received on October 4, 2024 in reserve pending the expiration of procedural deadlines related to the arbitration, and an assessment of all other facts and contingencies. In the interim, the Trustees have invested the funds in appropriate interest-bearing accounts.

Forward-Looking Statements

This report contains certain forward-looking statements based on Cliffs’ publicly announced plans with respect to Northshore in the future, which statements are intended to be made under the safe harbor protections of the Private Securities Litigation Reform Act of 1995, as amended. Cliffs’ implementation of, or changes to, these plans are beyond Mesabi Trust’s control. As such, such statements are subject to risks and uncertainties, which could cause actual results to differ materially.

Although the Mesabi Trustees believe that any such forward-looking statements are based on reasonable assumptions, such statements are subject to risks and uncertainties, which could cause actual results to differ materially. Additional information concerning these and other risks and uncertainties is contained in Mesabi Trust’s filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the fiscal year ended January 31, 2024 (filed April 24, 2024) and Quarterly Report on Form 10-Q for the fiscal quarter ended July 31, 2024 (filed September 5, 2024). Mesabi Trust undertakes no

16

obligation to publicly update or revise any of the forward-looking statements made herein to reflect events or circumstances after the date hereof.

Important Factors Affecting Mesabi Trust

​

The Agreement of Trust specifically prohibits the Trustees from entering into or engaging in any business. This prohibition seemingly applies even to business activities the Trustees deem necessary or proper for the preservation and protection of the Trust’s assets. Accordingly, the Trustees’ activities in connection with the administration of Trust assets are limited to collecting income, paying expenses and liabilities, distributing net income to Mesabi Trust’s Unitholders after the payment of, or provision for, such expenses and liabilities, monitoring royalties and protecting and conserving the held assets.

Neither Mesabi Trust nor the Trustees have any control over the operations and activities of Northshore, except within the framework of the Royalty Agreement. Cliffs alone controls (i) historical operating data, including iron ore production volumes, decisions to reduce or idle the Northshore plant and mining operations, marketing of iron ore products, operating and capital expenditures as they relate to Northshore, environmental and other liabilities and the effects of regulatory changes; (ii) plans for Northshore’s future operating and capital expenditures; (iii) geological data relating to ore reserves; (iv) projected production of iron ore products; (v) contracts between Cliffs and Northshore with their customers; and (vi) the decision to mine off Mesabi Trust and/or state lands, based on Cliffs’ current mining and engineering plan. The Trustees do not exert any influence over mining operational decisions at Northshore, nor do the Trustees provide any input regarding the ore reserve estimated at Northshore as reported by Cliffs. While the Trustees request relevant information from Cliffs and Northshore in accordance with the Royalty Agreement for use in periodic reports as part of their evaluation of Mesabi Trust’s disclosure controls and procedures, the Trustees do not control this information and they rely on the information in Cliffs’ periodic and current filings with the SEC, as well as information from Northshore, to provide accurate and timely information in Mesabi Trust’s reports filed with the SEC.