** **

**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

** **

**FORM 10-Q**

 

**(Mark One)**

 

| **ý** |   | **QUARTERLY  REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**                                                                                                                                                                                                                                                                                                                            |
|------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                              |
|       |   | **For the quarterly period ended October 31,  2003 or**                                                                                                                                                                                                                                                                                                                                                           |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                              |
| **o**      |   | **TRANSITION  REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**                                                                                                                                                                                                                                                                                                                           |
|       |   |                                                                                                                                                                                                                                                                                                                                                                                                              |
|       |   | **For the transition period from                                  to                               ** |

 

**Commission File Number:  1-4488**

 

| **MESABI  TRUST**                                                                                                                              |
|------------------------------------------------------------------------------------------------------------------------------------------------|
| (Exact name of registrant as specified in  its charter)                                                                                        |
|                                                                                                                                           |   |   |
| **New York**                                                                                                                                   |   | **13-6022277** |
| (State or other jurisdiction of  incorporation or organization)                                                                                |   | (I.R.S. Employer Identification No.) |
|                                                                                                                                           |   |   |
| **c/o Deutsche Bank Trust Company Americas  Corporate Trust & Agency Services – GDS  60 Wall Street  27th Floor  New York, New York** |   | **10005**(Zip code) |
| (Address of principal executive offices)                                                                                                       |   |   |
|                                                                                                                                           |   |   |
| **(615) 835-2749**                                                                                                                             |
| (Registrant’s telephone number, including  area code)                                                                                     |

 

Indicate by check mark whether the registrant (1) has filed all reportsrequired to be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days.     Yes   ý     No   o

 

Indicate by check mark whether the registrant is an accelerated filer(as defined in Rule 12b-2 of the ExchangeAct).     Yes   o     No   ý

 

As of November 30, 2003, there were 13,120,010 Units of BeneficialInterest in Mesabi Trust outstanding.

 

 

----

 

**PART I -FINANCIAL INFORMATION**

** **

# **Item 1.**                     Financial Statements. (Note 1)

# ** **

**A.            CondensedStatements of Income**

 
|                            |   | **Three Months Ended  October 31,** |      | **Nine Months Ended  October 31,** |   |
|---------------------------------|--------|-------------------------------------|-----------|------------------------------------|--------|
|                            |   | **2003**                            |      | **2002**                           |   | **2003** |   | **2002** |   |
| Revenues                        |   |                                |      |                               |   |   |   |   |   |
| Royalty income                  |   | $                                   | 2,389,268 |                               | $      | 1,954,500 |   | $ | 3,851,324 |   | $ | 2,949,492 |   |
| Interest income                 |   | 12,227                              |      | 10,272                             |   | 35,013 |   | 35,188 |   |
|                            |   | 2,401,495                           |      | 1,964,772                          |   | 3,886,337 |   | 2,984,680 |   |
|                            |   |                                |      |                               |   |   |   |   |   |
| Expenses                        |   | 116,912                             |      | 95,995                             |   | 386,305 |   | 294,077 |   |
|                            |   |                                |      |                               |   |   |   |   |   |
| Net income                      |   | $                                   | 2,284,583 |                               | $      | 1,868,777 |   | $ | 3,500,032 |   | $ | 2,690,603 |   |
|                            |   |                                |      |                               |   |   |   |   |   |
| Number of units outstanding     |   | 13,120,010                          |      | 13,120,010                         |   | 13,120,010 |   | 13,120,010 |   |
|                            |   |                                |      |                               |   |   |   |   |   |
| Net income per unit (Note 2)    |   | $                                   | 0.174130  |                               | $      | 0.142437 |   | $ | 0.266771 |   | $ | 0.205076 |   |
|                            |   |                                |      |                               |   |   |   |   |   |
| Distributions declared per unit |   | $                                   | 0.12      |                               | $      | 0.12 |   | $ | 0.19 |   | $ | 0.17 |   |

 

See Notes to Financial Statements.

 

2

----

 

**B. Condensed Balance Sheets**

 
|                                                                       |   | **October 31, 2003** |       | **January 31, 2003** |       |
|----------------------------------------------------------------------------|--------|----------------------|------------|----------------------|------------|
|                                                                       |   |                 |       |                 |       |
| **Assets**                                                                 |   |                 | ** ** |                 | ** ** |
|                                                                       |   |                 |       |                 |       |
| Cash                                                                       |   | $                    | 1,630,538  |                 | $          | 2,515,457 |   |
|                                                                       |   |                 |       |                 |       |
| U.S. Government securities, at amortized  cost (which approximates market) |   | 951,133              |       | 891,243              |       |
|                                                                       |   |                 |       |                 |       |
| Accrued income                                                             |   | 1,060,679            |       | 175,978              |       |
| Prepaid insurance                                                          |   | 23,340               |       | 11,421               |       |
|                                                                       |   | 3,665,690            |       | 3,594,099            |       |
|                                                                       |   |                 |       |                 |       |
| Fixed property, including intangibles, at  nominal values                  |   |                 |       |                 |       |
|                                                                       |   |                 |       |                 |       |
| Amended Assignment of Peters Lease                                         |   | 1                    |       | 1                    |       |
|                                                                       |   |                 |       |                 |       |
| Assignment of Cloquet Lease                                                |   | 1                    |       | 1                    |       |
|                                                                       |   |                 |       |                 |       |
| Certificate of beneficial interest for  13,120,010 units of land trust     |   | 1                    |       | 1                    |       |
|                                                                       |   | 3                    |       | 3                    |       |
|                                                                       |   |                 |       |                 |       |
|                                                                       |   | $                    | 3,665,693  |                 | $          | 3,594,102 |   |
|                                                                       |   |                 |       |                 |       |
| **Liabilities,  Unallocated Reserve and Trust Corpus**                     |   |                 | ** ** |                 | ** ** |
|                                                                       |   |                 |       |                 |       |
| Liabilities                                                                |   |                 |       |                 |       |
| Distribution payable                                                       |   | $                    | 1,574,401  |                 | $          | 2,492,802 |   |
| Accrued expenses                                                           |   | 18,011               |       | 35,249               |       |
|                                                                       |   | 1,592,412            |       | 2,528,051            |       |
|                                                                       |   |                 |       |                 |       |
| Unallocated Reserve (Note 3)                                               |   | 2,073,278            |       | 1,066,048            |       |
| Trust Corpus                                                               |   | 3                    |       | 3                    |       |
|                                                                       |   |                 |       |                 |       |
|                                                                       |   | $                    | 3,665,693  |                 | $          | 3,594,102 |   |

 

See Notes to Financial Statements.

 

3

----

 

**C. Condensed Statements of Cash Flows**

 
|                                                                           |   | **Nine Months Ended  October 31,** |       |
|--------------------------------------------------------------------------------|--------|------------------------------------|------------|
|                                                                           |   | **2003**                           |       | **2002** |   |
|                                                                           |   |                               |       |   |   |
| Cash flows from operating activities                                           |   |                               | ** ** |   | ** ** |
| Royalties received                                                             |   | $                                  | 2,960,398  |   | $ | 2,476,068 |   |
| Interest received                                                              |   | 41,238                             |       | 44,022 |   |
| Expenses paid                                                                  |   | (415,462                           | )          | (326,981 | ) |
|                                                                           |   |                               |       |   |   |
| Net cash provided by operating activities                                      |   | 2,586,174                          |       | 2,193,109 |   |
|                                                                           |   |                               |       |   |   |
| Cash flows from investing activities                                           |   |                               |       |   |   |
| Maturities of U.S. Government Securities                                       |   | 2,063,971                          |       | 534,337 |   |
| Purchases of U.S. Government Securities                                        |   | (2,123,861                         | )          | (2,062,949 | ) |
|                                                                           |   |                               |       |   |   |
| Net cash provided by (used for) investing  activities                          |   | (59,890                            | )          | (1,528,612 | ) |
|                                                                           |   |                               |       |   |   |
| Cash flow from financing activities                                            |   |                               |       |   |   |
| Distributions to Unitholders                                                   |   | (3,411,203                         | )          | (1,705,601 | ) |
|                                                                           |   |                               |       |   |   |
| Net change in cash                                                             |   | (884,919                           | )          | (1,041,104 | ) |
|                                                                           |   |                               |       |   |   |
| Cash, beginning of year                                                        |   | 2,515,457                          |       | 1,223,246 |   |
|                                                                           |   |                               |       |   |   |
| Cash, end of quarter                                                           |   | $                                  | 1,630,538  |   | $ | 182,142 |   |
|                                                                           |   |                               |       |   |   |
| **Reconciliation of  net income to net cash provided by operating activities** |   |                               |       |   |   |
|                                                                           |   |                               |       |   |   |
| Net income                                                                     |   | $                                  | 3,500,032  |   | $ | 2,690,603 |   |
| Increase in accrued income                                                     |   | (884,701                           | )          | (464,590 | ) |
| Increase in prepaid insurance                                                  |   | (11,919                            | )          | (3,683 | ) |
| Decrease in accrued expenses                                                   |   | (17,238                            | )          | (29,221 | ) |
|                                                                           |   |                               |       |   |   |
| Net cash provided by operating activities                                      |   | $                                  | 2,586,174  |   | $ | 2,193,109 |   |

 

See Notes to Financial Statements.

 

4

----

 

**MESABITRUST**

 

**NOTES TOFINANCIAL STATEMENTS**

 

Note 1.                             The financial statementsincluded herein have been prepared without audit (except for the balance sheetat January 31, 2003) in accordance with the instructions to Form 10-Q pursuantto the rules and regulations of the Securities and Exchange Commission.  Certain information and footnote disclosuresnormally included in financial statements prepared in accordance with generallyaccepted accounting principles have been condensed or omitted pursuant to suchrules and regulations.  In the opinionof the Trustees, all adjustments, consisting only of normal recurringadjustments, necessary for a fair statement of (a) the results of operationsfor the nine months ended October 31, 2003 and 2002, (b) the financialpositions at October 31, 2003 and January 31, 2003, and (c) the cash flows forthe nine months ended October 31, 2003 and 2002, have been made.

 

Note 2.                             Earnings per unit arebased on weighted average number of units outstanding during the period(13,120,010 units).

 

Note 3.                             The Trustees havedetermined to maintain an Unallocated Reserve of at least $1,000,000 in liquidassets.  The actual amount of suchUnallocated Reserve may vary from quarter to quarter depending upon conditionsin the industry and the judgment of the Trustees.  The Unallocated Reserve consists of these liquid assets andaccrued revenue (primarily royalties not yet received).  At October 31, 2003, the Unallocated Reservewas represented by $1,012,599 in unallocated cash and U.S. Governmentsecurities, and $1,060,679 of accrued revenue primarily representing royaltiesnot yet received by the Trust but anticipated to be received in January 2004from Northshore as part of the royalty due with respect to the third fiscalquarter, based upon reported lessee shipping activity for the month of October2003.

 

5

----

 

**Item2.****                     Trustees’Discussion and Analysis of Financial Condition and Results of Operations.**

 

**Forward-Looking Information**

 

Certainstatements contained in this document are forward-looking, includingspecifically those statements estimating calendar year 2003 and 2004 productionor shipments and comments related to the commencement of construction andopening of additional plants in 2003 and beyond.  All such forward-looking statements are based on input fromNorthshore Mining Company (“Northshore”), which is the lessee/operator and awholly-owned subsidiary of Cleveland-Cliffs Inc (“CCI”), and publishedannouncements of CCI.  The Trust has nocontrol over the operations or activities of Northshore except within theframework of current agreements.  Thisdocument also contains forward-looking statements based on the general politicalclimate as it currently exists concerning the possible current and futureeffects of United States government tariffs and the termination of thetariffs.  Actual results could differmaterially from those indicated in such statements.  Important factors that could cause actual results to differmaterially include those listed below under the heading “Important FactorsAffecting Mesabi Trust”.

 

**Background**

 

Leaseholdroyalty income constitutes the principal source of the Trust’s revenue.  Royalty rates are determined in accordancewith the terms of Mesabi Trust’s leases and assignments of leases.  Three types of royalties comprise theTrust’s leasehold royalty income:

 

•                  Overridingroyalties, which historically constitute the majority of Mesabi Trust’s royaltyincome, are determined by both the volume and selling price of iron oreproducts shipped.

 

•                  Fee royalties,which historically constitute a smaller component of the Trust’s royaltyincome, are payable to Mesabi Land Trust, a Minnesota land trust of whichMesabi Trust is the sole beneficiary and for which US Bank N.A. acts astrustee, and are based on the amount of crude ore mined.  Currently, the fee royalty on crude ore isbased on an agreed price per ton, subject to certain indexing.  Crude ore is the source of iron oxides usedto make iron ore pellets and other products.

 

•                  Minimum advanceroyalties, the third type of royalty, are discussed below.

 

With respectto the volume component of royalty calculation, Northshore is obligated to payMesabi Trust base overriding royalties in varying amounts.  The volume component of overriding royaltiesconstitutes a percentage of the gross proceeds of iron ore products produced atMesabi Trust lands (and to a limited extent other lands) and shipped from SilverBay, Minnesota.  The percentage rangesfrom 2-1/2% of the gross proceeds for the first one million tons of iron oreproducts so shipped annually to 6% of the gross proceeds for all iron oreproducts in excess of 4 million tons so shipped annually.

 

With respectto the selling price component of the overriding royalty calculation,Northshore is obligated to pay to Mesabi Trust royalty bonuses.  The royalty bonus is a percentage of thegross proceeds of product shipped from Silver Bay and sold at prices above athreshold price.  The threshold price isadjusted on an annual basis for inflation and deflation (but not below $30.00)(the “Adjusted Threshold Price”).  TheAdjusted Threshold Price was $39.82 per ton for calendar year 2001, $40.61 perton for calendar year 2002, and is $41.13 per ton for calendar year 2003.  The royalty bonus percentage ranges from 1/2of 1% of the gross proceeds (on all tonnage shipped for sale at prices betweenthe Adjusted Threshold Price and $2.00 above the Adjusted Threshold Price) to3% of the gross proceeds on all

 

6

----

 

tonnage shipped for sale atprices $10.00 or more above the Adjusted Threshold Price.  No royalty bonus has been paid to the Trustfor several years.

 

Generally,Northshore’s obligation to pay base overriding royalties and royalty bonuseswith respect to the sale of iron ore products accrues upon the shipment ofthose products from Silver Bay.  However, regardless of whether any shipment has occurred, Northshore isobligated to pay to Mesabi Trust a minimum advance royalty.  Each year, the amount of the minimum advanceroyalty is adjusted for inflation and deflation (but not below $500,000 perannum).  Advance royalties payable were$663,682****forcalendar year 2001, $676,814 for calendar year 2002, and are $685,630 forcalendar year 2003.  Until overridingroyalties (and royalty bonuses, if any) for a particular year equal or exceedthe minimum advance royalty for the year, Northshore must make quarterlypayments of up to 25% of the minimum advance royalty for the year.  Because advance minimum royalties areessentially prepayments of base overriding and bonus royalties earned eachyear, any advance minimum royalties paid in a fiscal quarter are recouped bycredits against base overriding and bonus royalties earned in later fiscalquarters during the year.  Historically,advance minimum royalties have been paid in the first fiscal quarter andrecouped in the second fiscal quarter.

 

Northshore isobligated to make quarterly royalty payments in January, April, July andOctober of each year.  In the case ofbase overriding royalties and royalty bonuses, these quarterly royalty paymentsare to be made whether or not the related proceeds of sale have been receivedby Northshore by the time such payments become due.

 

Under therelevant documents, Northshore may mine and ship iron ore products from landsother than Mesabi Trust lands.  Toencourage the use of iron ore products from Mesabi Trust lands, Mesabi Trustreceives royalties on stated percentages of iron ore shipped from Silver Bay,whether or not the iron ore products are from Mesabi Trust lands.  Mesabi Trust receives royalties at thegreater of (i) the aggregate quantity of iron ore products shipped that werefrom Mesabi Trust lands, and (ii) a portion of the aggregate quantity of alliron ore products shipped that were from any lands, such portion being 90% ofthe first four million tons shipped during such year, 90% of the next twomillion tons shipped during such year, and 25% of all tonnage shipped duringsuch year in excess of six million tons.

 

Mesabi Trusthas no employees, but it engages independent consultants to assist the Trusteesin monitoring, among other things, the amount and sales prices of iron ore productsshipped by Northshore from Silver Bay, Minnesota.  As noted above, the information regarding amounts and salesprices of shipped iron ore products is used to compute the royalties payable toMesabi Trust by Northshore.  DeutscheBank Trust Company Americas, the Corporate Trustee, also performs certainadministrative functions for Mesabi Trust.

 

**Current Developments**

 

***General***.  In an October 29, 2003 press release, CCIforecasted total calendar year 2003 production for Northshore at 4.8 milliontons of iron ore pellets.  While thisreflects a decrease of 100,000 tons from the 2003 estimate stated in CCI’s July30, 2003 press release, there has been no net change from the initial full-yearestimate for Northshore reported in CCI’s January 29, 2003 press release.  Although CCI previously announced in itsJanuary 29, 2003 press release that it had then expected to operate all five ofits mines (which are located in Eastern Canada and the United States) atcapacity levels in calendar year 2003, CCI reported in its October 29, 2003press release that its current 2003 total production estimate for all of itsinterests in the mines is 18.2 million tons of iron ore pellets, a decrease of1.7 million tons from its initial full-year estimate for 2003.  CCI attributed this reduction in itsproduction estimate to production losses which were caused by the powerinterruption resulting from flooding and lower plant throughput at CCI’s Empireand Tilden mines.  In addition, CCI’s TildenMine

 

7

----

 

was forced to idle one of itskilns due to a crack in a kiln riding ring on November 26, 2003.  CCI announced in a December 2, 2003 pressrelease that it expects its fourth quarter results to be adversely affected inexcess of $6 million as a result.   CCIalso anticipates a 2003 production loss of nearly 300,000 tons of iron orepellets; the impact of the outage on 2004 production is uncertain.

 

CCI alsoannounced in its October 29, 2003 press release that it expects 2003 pellet salesto be approximately 18.5 million tons. This represents an increase of .5 million tons over its July 30, 2003estimates, which CCI attributes to strengthened demand for iron ore pelletsresulting from steel mills running at higher rates.  However, CCI’s current pellet sales estimate is still an overalldecrease of 1.5 million tons from its initial forecast of 20 million tons.  CCI has not indicated the impact that thesechanges in its 2003 pellet sales forecast may have on shipments from Northshoreor from any other particular mine that it operates.

 

Three of CCI’scustomers have filed for Chapter 11 bankruptcy protection since May 2003.  Neither Weirton Steel Corporation nor RougeIndustries, Inc. currently purchases pellets from Northshore.  WCI Steel, Inc. (“WCI”), a customer ofNorthshore, filed for Chapter 11 bankruptcy protection in September 2003.  CCI reported in its October 29, 2003 pressrelease that it has recorded a special charge aggregating $12.4 million relatedto the bankruptcies of customers WCI and Weirton Steel Corporation.  To date, WCI continues to purchase pelletsfrom Northshore while it seeks to reorganize. The Trustees are unable to determine whether the WCI bankruptcy filingwill have any impact on Mesabi Trust royalties.

 

CCI announceda comprehensive set of cost-saving initiatives in July 2003.  As part of these initiatives, CCI initiateda salaried employee reduction program in its third quarter.  According to CCI’s October 29, 2003 pressrelease, the reduction program will result in a 20% total reduction in itssalaried workforce and $8.2 million in total restructuring charges by the endof its fourth quarter.  The Trustees areunable to determine what, if any, impact CCI’s restructuring efforts will haveon Mesabi Trust royalties.

 

Finally, CCIand Laiwu Steel Group of China (“Laiwu”) received approval in November 2003from the bankruptcy court to jointly acquire and restart the Eveleth Mine inNortheast Minnesota.  Eveleth will beowned by United Taconite, a newly formed entity (70% owned by CCI, 30% owned byLaiwu), which plans to sell or trade all pellets produced at the facility toNorth American buyers, and an equivalent amount of pellets from other CCIfacilities will be shipped to Laiwu. The Trustees are unable to determine whether CCI’s acquisition of theEveleth Mine will have any impact on Mesabi Trust royalties.

 

Northshore hasnot provided the Trust with an estimate for total calendar year 2003shipments.  (See description of theuncertainty of market conditions in the iron ore and steel industry under“Important Factors Affecting Mesabi Trust” below.)  During calendar years 2002, 2001, 2000, 1999, and 1998, thepercentage of shipments of iron ore products from Mesabi Trust lands wasapproximately 97.5%, 99.2%, 99.8%, 98.9%, and 99.3%, respectively, of totalshipments.  Northshore has not advisedthe Trustees as to the percentage of iron ore products it anticipates shippingfrom Mesabi Trust lands in calendar year 2003.

 

***Mesabi NuggetProject***. On November 14, 2001, CCI announced that it entered into a Memorandum ofUnderstanding with Mesabi Nugget LLC and other parties to participate in theMesabi Nugget Project.  The project’sobjective is to develop a new iron making technology (Kobe Steel’s ITmk3process) for converting iron ore into nearly pure iron nugget form (the term“nugget” is apparently used to differentiate the product from lower-ironcontent pellets and from other types of direct reduction products produced fromcurrent technology).  The project’sinitial phase, Phase I, was completed in the early part of the fiscal year2003.  On April 4, 2002, IronUnits LLC,a subsidiary of CCI, signed an agreement to

 

8

----

 

commit itself through Phase II,which involves construction of a pilot plant at Northshore to test the KobeSteel ITmk3 process and its ability to convert iron ore into nearly pureiron.  Furthermore, as reported bySkillings Mining Review on March 2, 2002, the Iron Range Resources andRehabilitation Board and the Minnesota Department of Trade and EconomicDevelopment have each approved loans of $8.0 million to assist in the fundingof Phase II of the Mesabi Nugget Project.

 

Constructionof the pilot plant at the Northshore facility was completed in May 2003.  As reported by Skillings Mining Review on May30, 2003, the first batch of iron nuggets was successfully completed in aone-hour test run on May 24, 2003. According to this report by Skillings Mining Review, Mesabi Nugget LLCplans to continue conducting test operations at the pilot plant over the nextnine months using iron ore concentrate from Northshore, and will then continuesuch test operations for an additional three months using concentrate fromother iron ore sources.  According toearlier published reports of CCI, if this pilot plant is successful,construction of a commercial-sized facility capable of producing within a rangeof 300,000 to 700,000 tons of iron nuggets could commence as early as2004.  In addition, Skillings MiningReview reported on August 18, 2003 that if the pilot plant proves successful, acommercial plant capable of producing 500,000 tons of iron nuggets per yearcould be built in Silver Bay as early as 2006 for an estimated cost of $90million.  CCI stated in its October 29,2003 press release that CCI and its partners in the Mesabi Nugget Project haverecently entered into a “second operating campaign” of the pilot plant.  This campaign will last for approximatelysix months and is intended to demonstrate the commercial viability of the ITmk3technology.  In the same press release,CCI stated that much work needs to be done to prove the economics of theproject, but technical results to date have been promising.  However, it is still uncertain that if CCIdecides to build a fully operational facility, it will do so at Northshore.

 

AlthoughMesabi Trust is not a direct party to the Mesabi Nugget Project and itsinvolvement in this project was not solicited, it appears that in the eventthat the fully-operational plant is located at the Northshore facility, theproject may involve the use of iron ore from the Mesabi Trust lands.  Nevertheless, because it is still uncertainas to whether the Mesabi Nugget Project will successfully achieve commercialization(in addition to the uncertainty surrounding whether CCI will elect to locateany such fully-operational plant at Northshore and use iron ore from the MesabiTrust lands for the Project), the Trustees are unable to make projections as toany future royalties that might be payable to the Trust.

 

CCI hasindicated that if the Mesabi Nugget Project successfully achievescommercialization, iron nuggets from this new process would be used as analternative or supplement to pig iron in the steel making process.

 

***Other Information***.  On March 20, 2002, a three-year tariffschedule adopted by President Bush took effect, imposing tariffs on asignificant number of imported steel products. On July 11, 2003, the World Trade Organization (WTO) made public itsfinal ruling that the steel tariffs were in violation of global traderules.  The United States’ appeal wasrejected by the WTO on November 10, 2003. On December 4, 2003, President Bush announced an end to the tariffs,citing “changed economic circumstances” and stating the tariffs had “achievedtheir purpose.”  The Bush Administrationannounced plans to continue licensing and tracking steel imports in order toallow for prior notice of any future surges in imports.

 

The Trusteesdo not transact business directly with steel producers and are therefore not ina position to determine how, if at all, the steel tariffs impacted the demandand pricing of iron ore pellets mined from the Mesabi Trust lands.  At this time, the Trustees are unable todetermine the effect that the enactment, and subsequent repeal of, the steeltariffs may ultimately have on royalties already paid to the Trust, or onroyalties payable to the Trust in the current fiscal year and beyond.

 

9

----

 

**Important Factors Affecting Mesabi Trust**

 

The Agreementof Trust dated July 18, 1961 (the “Agreement of Trust”) specifically prohibitsthe Trustees from entering into or engaging in any business.  This prohibition seemingly applies even tobusiness activities the Trustees deem necessary or proper for the preservationand protection of the Trust Estate. Accordingly, the Trustees’ activities in connection with theadministration of Trust assets are limited to collecting income, payingexpenses and liabilities, distributing net income to the Trust’s CertificateHolders after the payment of, or provision for, such expenses and liabilities,and protecting and conserving the assets held.

 

Accordingly,the income of the Trust is highly dependent upon the activities and operationsof Northshore, and the terms and conditions of the Amendment of Assignment,Assumption and Further Assignment of Peters Lease (the “Amended Assignment ofPeters Lease”), the Amendment of Assignment, Assumption and Further Assignmentof Cloquet Lease (the “Amended Assignment of Cloquet Lease”), and theAssumption and Assignment of Mesabi Lease (together with the Amended Assignmentof Peters Lease and the Amended Assignment of Cloquet Lease, the “AmendedAssignment Agreements”).  The Trust andthe Trustees have no control over the operations and activities of Northshore,except within the framework of the Amended Assignment Agreements.

 

Due to winterweather, and the increasing royalty percentages based on tonnage shipped in acalendar year, results for a particular calendar quarter are typically notindicative of results for future quarters or the year as a whole.  Factors which can impact the results of theTrust in any quarter or year include:

 

1.                             Shipping Conditions inthe Great Lakes.  Shipping activityby Northshore is dependent upon when the Great Lakes shipping lanes freeze forthe winter months (typically in January) and when they re-open in the spring(typically late-March or April).  Baseoverriding royalties to Mesabi Trust are based on shipments made in a calendarquarter.  Because there ordinarily islittle or no shipping activity in the first calendar quarter, the Trusttypically receives only the minimum royalty (or slightly more than the minimum)for that period.

 

2.                             Operations ofNorthshore.  Because the primaryportion of the Trust’s revenues derive from iron ore product shipped byNorthshore from Silver Bay, Northshore’s processing and shipping activitiesdirectly impact the Trust’s revenues in each quarter and for each year.  In turn, a number of factors affectNorthshore shipment volume.  Thesefactors include, among others, the economic conditions in the iron oreindustry, pricing by domestic and international competitors, long-term customercontracts or arrangements by Northshore or its competitors, availability of oreboats, production at Northshore’s mining operations, and production at thepelletizing/processing facility.  If anypelletizing line becomes idle for any reason, production and shipments (and,consequently, Trust income) could be adversely impacted.

 

3.                             Increasing Royalties.  As described elsewhere in this Report, theroyalty percentage paid to the Trust increases as the aggregate tonnage of ironore products shipped, attributable to the Trust, in any calendar yearincreases.  Assuming a consistent salesprice per ton throughout a calendar year, shipments of iron ore productattributable to the Trust later in the year generate a higher royalty to theTrust.

 

4.                             Percentage of MesabiTrust Ore.  As described elsewherein this Report, Northshore has the ability to process and ship iron oreproducts from lands other than Mesabi Trust lands.  In certain circumstances, the Trust may be entitled to royaltieson those other shipments, but not in all cases.  In general, the Trust will receive higher royalties (assuming allother factors are equal) if a higher

 

10

----

 

percentage of shipments are from Mesabi Trust lands.  The percentages of shipments that came fromMesabi Trust lands were 97.5%, 99.2%, 99.8%, 98.9%, and 99.3% in calendar years2002, 2001, 2000, 1999, and 1998, respectively.

 

5.                             Uncertainty of MarketConditions in the Steel and Iron Ore Industry.  Although CCI reported in its Form 10-K for its fiscal year endingDecember 31, 2002 that it experienced a record year in iron ore pellet salesand has projected a further increase of pellet sales for its fiscal year 2003,CCI also stated in such Form 10-K that it continues to face a significantnumber of business risks and other potentially adverse factors.  Such risks and factors include, amongothers, lower customer demand, an increase in certain steel imports and ironore substitutes, a decrease in iron ore production in North America, customerfailure, and customer or potential customer restructuring and financialdifficulty (which could result in reduced production capacity over time).  Furthermore, despite the intendedameliorative effects of the Presidential tariffs on the price and demand fordomestic steel products, there remains a high degree of uncertainty andsignificant consolidation and restructuring in the domestic steel market.  Moreover, CCI reduced its overall initialpellet sales forecast of 20 million tons to approximately 18.5 million tonsprimarily as a result of a reduction in CCI’s expected sales to ISG.

 

In light of the current steel industry environment, uncertaintiesarising from war and other global events, and the above-mentioned risks andfactors, it is uncertain whether prices on domestic steel products will be atrelatively higher levels, and whether steel mills will be able to operate atcapacity levels in the current fiscal year and beyond.  Furthermore, although overall there appearsto have been a modest increase in the demand for domestic steel products overthe last fiscal year, it is nevertheless uncertain (in light of CCI’s July 30,2003 announcement of its reduction in its 2003 pellet sales forecast and giventhe other risks and factors referenced in this Report) whether this increase indemand will continue and the extent to which it will impact royalties paid tothe Trust in the current fiscal year and beyond.

 

**Comparison of three months ended October 31,2003 and October 31, 2002**

 

Mesabi Trust’snet income increased to $2,284,583 for the three months ended October 31, 2003,as compared to net income of $1,868,777 for the three months ended October 31,2002.  Mesabi Trust’s gross income forthe three months ended October 31, 2003 was $2,401,495, consisting of $0 inminimum advance royalty income, $2,296,889 in overriding royalty income,$92,379 in fee royalty income and $12,227 in interest income, as compared togross income of $1,964,772, consisting of $0 in minimum advance royalty income,$1,877,596 in overriding royalty income, $76,904 in fee royalty income and$10,272 in interest income, for the three months ended October 31, 2002.  The increase in royalty income was primarilydue to increased pellet shipments and prices as compared to the comparableprior period.  Mesabi Trust’s expensesfor the three months ended October 31, 2003 were $116,912, compared to expensesof $95,995 for the three months ended October 31, 2002.  This increase was primarily due to increasedlegal and insurance costs.

 

**Comparison of nine months ended October 31,2003 and October 31, 2002**

 

Mesabi Trust’snet income increased to $3,500,032 for the nine months ended October 31, 2003,as compared to net income of $2,690,603 for the nine months ended October 31,2002.  Mesabi Trust’s gross income forthe nine months ended October 31, 2003 was $3,886,337, consisting of $0 inminimum advance royalty income, $3,574,097 in overriding royalty income,$277,227 in fee royalty income and $35,013 in interest income, as compared togross income of $2,984,680, consisting of $0 in minimum advance royalty income,$2,714,448 in overriding royalty income, $235,044 in fee royalty income and$35,188 in interest income, for the nine months ended October 31, 2002.  The increase in royalty income

 

11

----

 

was primarily due to increasedpellet shipments and prices as compared to the comparable prior period.  Mesabi Trust’s expenses for the nine monthsended October 31, 2003 were $386,305, compared to expenses of $294,077 for thenine months ended October 31, 2002. This increase was primarily due to increased legal, insurance and stockexchange listing costs.

 

Mesabi Trust’s Unallocated Reserve aggregated $2,073,278 at October 31,2003, as compared with an Unallocated Reserve of $1,554,922 at October 31,2002.  The increase of $518,356 was dueto the net effect of increased pellet shipments and prices.  The Trustees anticipate that the amount ofUnallocated Reserve will fluctuate from time to time, depending upon a numberof factors, including but not limited to the income for a particular period,the amount and timing of distributions, uncertainty about future royalty incomeand the uncertainty of future expenses.

 

**Royalty Comparisons**

 

The followingchart summarizes Mesabi Trust’s royalty income for the nine months endedOctober 31, 2003 and October 31, 2002, respectively:

 

|                                          |   | **Nine  Months Ended October 31** |      |
|-----------------------------------------------|--------|-----------------------------------|-----------|
|                                          |   | **2003**                          |      | **2002** |   |
| Base overriding royalties                     |   | $                                 | 3,574,097 |   | $ | 2,714,448 |   |
| Bonus royalties                               |   | 0                                 |      | 0 |   |
| Minimum advance royalty paid  (recouped) |   | 0                                 |      | 0 |   |
| Fee royalties                                 |   | 277,227                           |      | 235,044 |   |
| Total royalty income                          |   | $                                 | 3,851,324 |   | $ | 2,949,492 |   |

 

**Item 3.  Quantitative and Qualitative DisclosureAbout Market Risk.**

 

Not applicable.

 

**Item 4.  Controls and Procedures.**

 

***Evaluation ofDisclosure Controls and Procedures***.  The Trustees maintain disclosure controlsand procedures designed to ensure that information required to be disclosed bythe Trust in the reports that it files or submits under the Securities ExchangeAct of 1934, as amended, is recorded, processed, summarized and reported withinthe time periods specified in the rules and regulations of the Securities andExchange Commission.  Disclosurecontrols and procedures include controls and procedures designed to ensure thatinformation required to be disclosed by the Trust is accumulated andcommunicated by Northshore, and the Trust’s independent auditors andconsultants to the Trustees as appropriate to allow timely decisions regardingrequired disclosure.

 

As of the endof the period covered by this Report, the Trustees carried out an evaluation ofthe Trust’s disclosure controls and procedures.  The Trustees have concluded that the disclosure controls andprocedures are effective, while noting certain limitations on disclosurecontrols and procedures as set forth below.

 

Due to thecontractual arrangements of the Agreement of Trust and the Amendment to theAgreement of Trust dated October 25, 1982 (the “Amendment”), there are certainpotential weaknesses that may limit the effectiveness of disclosure controlsand procedures established by the Trustees and

 

12

----

 

their ability to verify theaccuracy of certain financial information. The contractual limitations creating potential weaknesses in disclosurecontrols and procedures may be deemed to include:

 

•                  Northshore alonecontrols (i) historical operating data, including iron ore production volumes,marketing of iron ore products, operating and capital expenditures as theyrelate to Northshore, environmental and other liabilities and the effects ofregulatory changes; (ii) plans for Northshore’s future operating and capitalexpenditures; (iii) geological data relating to reserves; and (iv) projectedproduction of iron ore products.  Whilethe Trustees request material information for use in periodic reports as partof their disclosure controls and procedures, the Trustees do not control thisinformation, and they rely on Northshore to provide accurate and timelyinformation for use in the Trust’s reports filed with the Securities andExchange Commission.  Moreover, whileeach quarter Northshore furnishes shipment and royalty calculations to theTrustees, Northshore has declined to support this information with a writtencertification attesting to whether Northshore has established disclosurecontrols and procedures and internal controls sufficient to enable it to verifythat the information furnished to the Trustees is accurate and complete.  Northshore is not required either bycontract or by governmental laws or regulations to provide such a certification.

 

•                  Eide Bailly LLP,which serves as the Trust’s independent accountants (“Eide Bailly”), hasdelivered a report to the Trust concluding that based upon its review of thefinancial statements of the Trust for its quarter ended October 31, 2003 (the“Financial Statements”), it is not aware of any material modifications thatshould be made to the Financial Statements in order for the FinancialStatements to be in conformity with generally accepted accounting principles.

 

•                  Under the termsof the Agreement of Trust and the Amendment, the Trustees are entitled to, andin fact do rely, upon certain experts in good faith, including (i) theindependent consultants with respect to monthly production and shipmentreports, which include figures on crude ore production and iron ore pelletshipments and discussions concerning the condition and accuracy of the scalesand plans regarding the development of the Trust’s mining property; and (ii)the independent auditors they have contracted with respect to reviews offinancial data related to shipping and sales reports provided by Northshore.

 

The Trusteesdo not intend to expand their responsibilities beyond those permitted orrequired by the Agreement of Trust, the Amendment, and those required underapplicable law.

 

***Changes in InternalControl Over Financial Reporting***.  To the knowledge of the Trustees, there havebeen no significant changes in the Trust’s internal control over financialreporting that occurred during the Trust’s last fiscal quarter that has materiallyaffected, or is reasonably likely to materially affect, the Trust’s internalcontrol over financial reporting.  TheTrustees note for purposes of clarification that they have no authority over,and make no statement concerning, the internal control over financial reportingof Northshore.

 

**PART II - OTHER INFORMATION**

 

**Item1.    Legal Proceedings.**

 

None.

 

13

----

 

**Item2.    Changes in Securities and Use ofProceeds.**

 

None.

 

**Item3.    Defaults Upon Senior Securities.**

 

None.

 

**Item4.    Submission of Matters to a Vote ofSecurity Holders.**

 

None.

 

**Item5.    Other Information.**

 

None.

 

**Item6.    Exhibits and Reports on Form 8-K.**

 

(a)                                  Exhibits.

 

31.1                           Certification of CorporateTrustee of Mesabi Trust pursuant to Rule 13a-14 of the Securities Exchange Actof 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

32.1                           Certification of CorporateTrustee of Mesabi Trust pursuant to 18 U.S.C. Section 1350, as adopted pursuantto Section 906 of the Sarbanes-Oxley Act of 2002.

 

99.1                           Report of Eide Bailly LLPregarding its review of the unaudited interim financial statements of MesabiTrust for its quarter ending October 31, 2003.

 

(b)                                 Reports on Form 8-K.

 

None.

 

14

----

 

**SIGNATURES**

 

Pursuant tothe requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.

 
|                          |                                                              | MESABI TRUST                                     |
|-------------------------------|-------------------------------------------------------------------|--------------------------------------------------|
|                          | (Registrant)                                                      |
|                          |
|                          | By:                                                               | DEUTSCHE BANK TRUST COMPANY  AMERICAS            |
|                          | Corporate Trustee                                                 |
|                          | Principal Administrative Officer and duly authorized  signatory:* |
|                          |                                                              |                                             |
|                          |                                                              |                                             |
| Date:  December 15, 2003 | By:                                                               | /s/ Rodney Gaughan                               |
|                          |                                                              | Name: Rodney Gaughan                        |
|                          |                                                              | Title:   Assistant Vice President |
|                               |                                                                   |                                                  |  |  |  |  |

 

 

----

* There are no principal executive officers or principal financialofficers of the registrant.

 

15

----