**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C. 20549**

 

**FORM 10-Q**

 
| **x**      | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE  ACT OF 1934**                                                                                                                                                                                                                                                                                                                                                           |
|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| ** ** | **For the quarterly period ended October 31,  2008**                                                                                                                                                                                                                                                                                                                                                                                                         |
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| **or**     |
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| **o**      | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE  ACT OF 1934**                                                                                                                                                                                                                                                                                                                                                          |
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| ** ** | **For the transition period from                                      to                                   ** |

 

**Commission FileNumber:  1-4488**

 

**MESABI TRUST**

(Exact name of registrant as specified in its charter)

 

| **New York**                                                                                                                                            | ** ** | **13-6022277**                       |
|---------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------|
| (State or other jurisdiction ofincorporation or organization)                                                                                           | ** ** | (I.R.S. Employer Identification No.) |
|                                                                                                                                                    | ** ** |                                 |
| **c/o Deutsche Bank Trust Company Americas****Trust &  Securities Services – GDS****60 Wall Street****27th Floor****New York, New  York** | ** ** | **10005**                            |
| (Address of principal executive offices)                                                                                                                | ** ** | (Zip code)                           |

 

**(615) 835-2749**

(Registrant’s telephone number, including area code)

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements forthe past 90 days.    Yes  x  No  o

 

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer. See definition of “accelerated filer and largeaccelerated filer” in Rule 12b-2 of the Exchange Act:

 
| Large accelerated filer o | Accelerated  filer x | Non-accelerated  filer o | Small Reporting Company o |
|---------------------------|----------------------|--------------------------|---------------------------|

 

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act).    Yes  o  No  x

 

 

 

----

 

**PART I - FINANCIAL INFORMATION**

** **

**Item 1.   FinancialStatements.  (Note 1)**

 

**MesabiTrust**

**CondensedStatements of Income**

**Three andNine Months Ended October 31, 2008 and 2007**

** **
| ** ** | ** ** | ** **                                | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|------------|------------|-------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** ** | ** ** | ** **                                | ** ** | **October 31,**             | ** ** | **October 31,**            | ** ** |
| ** ** | ** ** | ** **                                | ** ** | **2008**                         | ** ** | **2007**                        | ** ** | **2008** | ** ** | **2007** | ** ** |
| ** ** | ** ** | ** **                                | ** ** | **(unaudited)**                  | ** ** | **(unaudited)**                 | ** ** | **(unaudited)** | ** ** | **(unaudited)** | ** ** |
| **A.**     | ** ** | **Condensed Statements of Income**        | ** ** | ** **                       | ** ** | ** **                      | ** ** | ** ** | ** ** | ** ** | ** ** |
|       |       |                                      |       |                             |       |                            |       |   |   |   |   |
|       |       | Revenues                                  |       |                             |       |                            |       |   |   |   |   |
|       |       | Royalty income                            |       | $                                | 11,778,367 |                            | $          | 6,690,125 |   | $ | 32,392,640 |   | $ | 12,896,302 |   |
|       |       | Interest income                           |       | 17,749                           |       | 12,930                          |       | 37,086 |   | 27,293 |   |
|       |       |                                      |       | 11,796,116                       |       | 6,703,055                       |       | 32,429,726 |   | 12,923,595 |   |
|       |       |                                      |       |                             |       |                            |       |   |   |   |   |
|       |       | Expenses                                  |       | 138,805                          |       | 109,924                         |       | 562,446 |   | 456,707 |   |
|       |       |                                      |       |                             |       |                            |       |   |   |   |   |
|       |       | Net income                                |       | $                                | 11,657,311 |                            | $          | 6,593,131 |   | $ | 31,867,280 |   | $ | 12,466,888 |   |
|       |       |                                      |       |                             |       |                            |       |   |   |   |   |
|       |       | Number of units  outstanding              |       | 13,120,010                       |       | 13,120,010                      |       | 13,120,010 |   | 13,120,010 |   |
|       |       |                                      |       |                             |       |                            |       |   |   |   |   |
|       |       | Net income per unit  (Note 2)             |       | $                                | 0.8885     |                            | $          | 0.5025 |   | $ | 2.4289 |   | $ | 0.9502 |   |
|       |       |                                      |       |                             |       |                            |       |   |   |   |   |
|       |       | Distributions declared  per unit (Note 3) |       | $                                | 1.2500     |                            | $          | 0.4800 |   | $ | 2.3700 |   | $ | 0.8350 |   |

 

See Notes to Condensed Financial Statements.

 

2

----

 

**MesabiTrust**

**CondensedBalance Sheets**

**October 31,2008 and January 31, 2008**

 
| ** ** | ** ** | ** **                                                                 | ** ** | **October 31, 2008** | ** ** | **January 31, 2008** | ** ** |
|------------|------------|----------------------------------------------------------------------------|------------|--------------------------------|------------|--------------------------------|------------|
| ** ** | ** ** | ** **                                                                 | ** ** | **(unaudited)**                | ** ** | ** **                     | ** ** |
| **B.**     | ** ** | **Condensed Balance Sheets**                                               | ** ** | ** **                     | ** ** | ** **                     | ** ** |
| ** ** | ** ** | ** **                                                                 | ** ** | ** **                     | ** ** | ** **                     | ** ** |
| ** ** | ** ** | **Assets**                                                                 | ** ** | ** **                     | ** ** | ** **                     | ** ** |
| ** ** | ** ** | ** **                                                                 | ** ** | ** **                     | ** ** | ** **                     | ** ** |
|       |       | Cash and cash equivalents                                                  |       | $                              | 16,698,667 |                           | $          | 6,959,701 |   |
|       |       |                                                                       |       |                           |       |                           |       |
|       |       | U.S. Government securities, at amortized cost (which  approximates market) |       | 565,252                        |       | 544,193                        |       |
|       |       |                                                                       |       |                           |       |                           |       |
|       |       | Accrued income receivable                                                  |       | 1,551,874                      |       | 959,925                        |       |
|       |       | Prepaid expenses                                                           |       | 53,533                         |       | 24,687                         |       |
|       |       |                                                                       |       | 18,869,326                     |       | 8,488,506                      |       |
|       |       |                                                                       |       |                           |       |                           |       |
|       |       | 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                              |       |
|       |       |                                                                       |       |                           |       |                           |       |
|       |       |                                                                       |       | $                              | 18,869,329 |                           | $          | 8,488,509 |   |
|       |       |                                                                       |       |                           |       |                           |       |
| ** ** | ** ** | **Liabilities, Unallocated  Reserve and Trust Corpus**                     | ** ** | ** **                     | ** ** | ** **                     | ** ** |
| ** ** | ** ** | ** **                                                                 | ** ** | ** **                     | ** ** | ** **                     | ** ** |
|       |       | Liabilities                                                                |       |                           |       |                           |       |
|       |       | Distribution payable                                                       |       | $                              | 16,400,013 |                           | $          | 6,756,805 |   |
|       |       | Accrued expenses                                                           |       | 36,435                         |       | 71,680                         |       |
|       |       |                                                                       |       | 16,436,448                     |       | 6,828,485                      |       |
|       |       |                                                                       |       |                           |       |                           |       |
|       |       | Unallocated Reserve (Note 4)                                               |       | 2,432,878                      |       | 1,660,021                      |       |
|       |       | Trust Corpus                                                               |       | 3                              |       | 3                              |       |
|       |       |                                                                       |       |                           |       |                           |       |
|       |       |                                                                       |       | $                              | 18,869,329 |                           | $          | 8,488,509 |   |

 

SeeNotes to Condensed Financial Statements.

 

3

----

 

**Mesabi Trust**

**Condensed Statements of Cash Flows**

**NineMonths Ended October 31, 2008 and 2007**

 
| ** ** | ** ** | ** **                                                                     | ** ** | **Nine Months Ended** | ** ** |
|------------|------------|--------------------------------------------------------------------------------|------------|---------------------------------|------------|
| ** ** | ** ** | ** **                                                                     | ** ** | **October 31,**            | ** ** |
| ** ** | ** ** | ** **                                                                     | ** ** | **2008**                        | ** ** | **2007** | ** ** |
| ** ** | ** ** | ** **                                                                     | ** ** | **(unaudited)**                 | ** ** | **(unaudited)** | ** ** |
| **C.**     | ** ** | **Condensed Statements of Cash  Flows**                                        | ** ** | ** **                      | ** ** | ** ** | ** ** |
|       |       |                                                                           |       |                            |       |   |   |
| ** ** |       | Cash flows from  operating activities                                          | ** ** | ** **                      | ** ** | ** ** | ** ** |
|       |       | Royalties received                                                             |       | $                               | 31,795,442 |   | $ | 11,341,053 |   |
|       |       | Interest received                                                              |       | 39,785                          |       | 33,523 |   |
|       |       | Expenses paid                                                                  |       | (623,987                        | )          | (555,489 | ) |
|       |       |                                                                           |       |                            |       |   |   |
|       |       | Net cash provided by operating activities                                      |       | 31,211,240                      |       | 10,819,087 |   |
|       |       |                                                                           |       |                            |       |   |   |
|       |       | Cash flows from  investing activities                                          |       |                            |       |   |   |
|       |       | Maturities of U.S. Government Securities                                       |       | 368,954                         |       | 9,464,477 |   |
|       |       | Purchases of U.S. Government Securities                                        |       | (390,012                        | )          | (9,231,258 | ) |
|       |       |                                                                           |       |                            |       |   |   |
|       |       | Net cash provided by (used for) investing activities                           |       | (21,058                         | )          | 233,219 |   |
|       |       |                                                                           |       |                            |       |   |   |
|       |       | Cash flow used for  financing activities                                       |       |                            |       |   |   |
|       |       | Distributions to Unitholders                                                   |       | (21,451,216                     | )          | (8,790,406 | ) |
|       |       |                                                                           |       |                            |       |   |   |
|       |       | Net change in cash and  cash equivalents                                       |       | 9,738,966                       |       | 2,261,900 |   |
|       |       |                                                                           |       |                            |       |   |   |
|       |       | Cash, beginning of year                                                        |       | 6,959,701                       |       | 4,258,201 |   |
|       |       |                                                                           |       |                            |       |   |   |
|       |       | Cash, end of period                                                            |       | $                               | 16,698,667 |   | $ | 6,520,101 |   |
|       |       |                                                                           |       |                            |       |   |   |
|       | ** ** | **Reconciliation of net income to  net cash provided by operating activities** |       |                            |       |   |   |
|       |       |                                                                           |       |                            |       |   |   |
|       |       | Net income                                                                     |       | $                               | 31,867,280 |   | $ | 12,466,888 |   |
|       |       | Increase in accrued  income receivable                                         |       | (591,949                        | )          | (1,549,019 | ) |
|       |       | Increase in prepaid  expenses                                                  |       | (28,846                         | )          | (16,031 | ) |
|       |       | Decrease in accrued  expenses                                                  |       | (35,245                         | )          | (82,751 | ) |
|       |       |                                                                           |       |                            |       |   |   |
|       |       | Net cash provided by operating activities                                      |       | $                               | 31,211,240 |   | $ | 10,819,087 |   |

 

See Notes to Condensed Financial Statements.

 

4

----

 

**MESABI TRUST**

 

**NOTES TO CONDENSED FINANCIAL STATEMENTS**

** **

**October 31, 2008 (Unaudited)**

** **

Note1.                          The financial statements included herein havebeen prepared without audit (except for the balance sheet at January 31,2008) in accordance with the instructions to Form 10-Q pursuant to the rules andregulations of the Securities and Exchange Commission.  Certain information and footnote disclosuresnormally included in financial statements prepared in accordance withaccounting principles generally accepted in the United States have beencondensed or omitted pursuant to such rules and regulations.  In the opinion of the Trustees, alladjustments, consisting only of normal recurring adjustments, necessary for afair statement of (a) the results of operations for the three months andnine months ended October 31, 2008 and 2007, (b) the financialposition at October 31, 2008 and (c) the cash flows for the ninemonths ended October 31, 2008 and 2007, have been made.

 

Note2.                          Net income per unit includes accrued income receivable.  For the three months ended October 31,2008 the Trust recorded $1,551,874 of accrued income receivable as reflected onthe Condensed Balance Sheet as of October 31, 2008 (unaudited).  Accrued income receivable is accounted forand reported for the Trust’s third fiscal quarter based on shipments during themonth of October even though such accrued income receivable is notavailable for distribution to unitholders until it is actually received by theTrust at the end of January 2009. Net income per unit is based on 13,120,010 units outstanding during theperiod.

 

Note3.                          The Trust declares distributions each year inApril, July, October and January. Distributions are declared after receiving notification from NorthshoreMining Company as to the amount of royalty income that is expected to be paidto the Trust based on shipments through the end of each calendar quarter.  The Trust’s financial statements are preparedon an accrual basis and present the Trust’s results of operations based on eachfiscal quarter which ends one month after the close of each calendarquarter.  Because distributions aredeclared based on royalty income that is payable as of the end of each calendarquarter and the Trust’s Net Income is calculated as of the end of each fiscalquarter, the distributions declared by the Trust are not equivalent to theTrust’s Net Income during the periods reported in this quarterly report on Form 10-Q.

 

Note4.                          The Trustees have determined that theunallocated cash and U.S. Government securities portion of the UnallocatedReserve should be maintained at a prudent level, usually within the range of$500,000 to $1,000,000, to meet present or future liabilities of theTrust.  Accordingly, although the actualamount of the Unallocated Reserve will fluctuate from time to time, and mayincrease or decrease from its current level, it is currently intended thatfuture distributions will be highly dependent upon royalty income as it isreceived quarterly and the level of Trust expenses that the Trustees anticipateoccurring in subsequent quarters.  At October 31,2008, the Unallocated Reserve consisted of $881,004 (unaudited) in unallocatedcash and U.S. Government securities, and $1,551,874 (unaudited) of accruedrevenue primarily representing royalties not yet received by the Trust butanticipated to be received from Northshore Mining Company in January 2009based upon reported lessee shipping activity during the month of October 2008.

 

5

----

 

**Item 2.   Trustees’ Discussion and Analysis of FinancialCondition and Results of Operations.**

 

**Forward-Looking Statements**

** **

Certain information included in this Quarterly Report on Form 10-Qcontains “forward-looking statements” within the meaning of Section 21E ofthe Securities Exchange Act of 1934 and Section 27A of the Securities Actof 1933.  All such forward-lookingstatements, including those statements estimating iron ore pellet production orshipments, are based on information from the lessee/operator (and its parentcorporation) of the mine located on the lands owned and held in trust for thebenefit of the holders of units of beneficial interest of Mesabi Trust.  These statements may be identified by the useof 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 areinherently subject to known and unknown risks and uncertainties.  Actual results and future developments coulddiffer materially from the results or developments expressed in or implied bythese forward-looking statements.  Theserisks and uncertainties include volatility of iron ore and steel prices,product supply and demand, competition, regulation or government action,litigation and uncertainties about estimates of reserves.  Further, substantial portions of royalties earned by Mesabi Trust arebased on estimated prices that are subject to interim and final adjustmentswhich can be positive or negative and are dependent in part on multiple priceand inflation index factors under agreements to which Mesabi Trust is not aparty and that are not known until after the end of a contract year.  Fora discussion of the factors, including, without limitation, those that couldmaterially and adversely affect Mesabi Trust’s actual results and performance,see “Risk Factors” in Part I – Item 1A of Mesabi Trust’s Annual Report on Form 10-Kfor the year-ended January 31, 2008, as updated by Part II, Item 1Aof this Quarterly Report on Form 10-Q. Mesabi Trust undertakes no obligation, other than that imposed by law,to make any revisions to the forward-looking statements contained in thisfiling or to update them to reflect circumstances occurring after the date ofthis filing.

 

**Background**

** **

Mesabi Trust (“Mesabi Trust”or the “Trust”), formed pursuant to an Agreement of Trust dated July 18,1961 (the “Agreement of Trust”), is a trust organized under the laws of theState of New York.  Mesabi Trust holdsall of the interests formerly owned by Mesabi Iron Company (“MIC”), includingall right, title and interest in the Amendment of Assignment, Assumption andFurther Assignment of Peters Lease (the “Amended Assignment of Peters Lease”),the Amendment of Assignment, Assumption and Further Assignment of Cloquet Lease(the “Amended Assignment of Cloquet Lease” and together with the AmendedAssignment of Peters Lease, the “Amended Assignment Agreements”), thebeneficial interest in the Mesabi Land Trust (as such term is defined below)and all other assets and property identified in the Agreement of Trust. TheAmended 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 (“DunkaRiver”) and Claude W. Peters (the “Peters Lease”) and the Amended Assignment ofCloquet Lease relates to an Indenture made May 1, 1916 between CloquetLumber Company and Claude W. Peters (the “Cloquet Lease”).

 

The Agreement of Trustspecifically prohibits the Trustees from entering into or engaging in anybusiness.  This prohibition applies evento business activities the Trustees may 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 holders ofCertificates of Beneficial Interest in Mesabi Trust (“Unitholders”) after thepayment of, or provision for, such expenses and liabilities, and protecting andconserving the assets held.

 

6

----

 

The Trustees do not intendto expand their responsibilities beyond those permitted or required by theAgreement of Trust, the Amendment to the Agreement of Trust dated October 25,1982 (the “Amendment”), and those required under applicable law.  Mesabi Trust has no employees, but it engagesindependent consultants to assist the Trustees in, among other things,monitoring the volume and sales prices of iron ore products shipped from SilverBay, Minnesota, based on information supplied to the Trustees by NorthshoreMining Company (“Northshore”), the lessee/operator of the Mesabi Trust lands,and its parent company Cliffs Natural Resources Inc (“Cliffs”).  References to Northshore in this quarterlyreport, unless the context requires otherwise, are applicable to Cliffs aswell.

 

Leasehold royalty incomeconstitutes the principal source of Mesabi Trust’s revenue.  Royalty rates are determined in accordancewith the terms of Mesabi Trust’s leases and assignments of leases.  Three types of royalties, as well as royaltybonuses, comprise the Trust’s leasehold royalty income:

 

·                                          Base overriding royalties.  Baseoverriding royalties have historically constituted the majority of Mesabi Trust’sroyalty income.  Base overridingroyalties are determined by both the volume and selling price of iron oreproducts shipped.  Northshore is obligatedto pay Mesabi Trust base overriding royalties in varying amounts, based on thevolume of iron ore products shipped. Base overriding royalties are calculated as a percentage of the grossproceeds of iron ore products produced at Mesabi Trust lands (and to a limitedextent other lands) and shipped from Silver Bay, Minnesota.  The percentage ranges from 2-1/2% of thegross proceeds for the first one million tons of iron ore products so shippedannually to 6% of the gross proceeds for all iron ore products in excess of 4million tons so shipped annually.  Baseoverriding royalties are subject to price adjustments under the Cliffs PelletAgreements and, as described elsewhere in this report, such adjustments may bepositive or negative.

 

·                                          Royalty bonuses. Mesabi Trust earns royalty bonuses when iron ore products shipped fromSilver Bay are sold at prices above a threshold price.  The royalty bonus is based on a percentage ofthe gross proceeds of product shipped from Silver Bay and sold at prices abovea threshold price.  The threshold priceis adjusted (but not below $30.00 per ton) on an annual basis for inflation anddeflation (the “Adjusted Threshold Price”). The Adjusted Threshold Price was $45.98 per ton for calendar year 2007and is $47.43 for calendar year 2008. The royalty bonus percentage ranges from 1/2 of 1% of the gross proceeds(on all tonnage shipped for sale at prices between the Adjusted Threshold Priceand $2.00 above the Adjusted Threshold Price) to 3% of the gross proceeds (onall tonnage shipped for sale at prices $10.00 or more above the AdjustedThreshold Price).  Royalty bonuses aresubject to price adjustments under the Cliffs Pellet Agreements and, asdescribed elsewhere in this report, such adjustments may be positive ornegative.

 

·                                          Fee royalties.  Feeroyalties have historically constituted a smaller component of the Trust’stotal royalty income.  Fee royalties arepayable to the Mesabi Land Trust, a Minnesota land trust, which holds a 20%interest as fee owner in the Amended Assignment of Peters Lease.  Mesabi Trust holds the entire beneficialinterest in the Mesabi Land Trust for which U.S. Bank N.A. acts as thecorporate trustee.  Mesabi Trust receivesthe net income of the Mesabi Land Trust, which is generated from royalties on theamount of crude ore mined after the payment of expenses to U.S. Bank N.A. forits services as corporate trustee.  Crudeore is the source of iron oxides used to make iron ore pellets and otherproducts.  The fee royalty on crude oreis based on an agreed price per ton, subject to certain indexing.

 

7

----

 

·                                          Minimum advance royalties. Northshore’s obligation to pay base overriding royalties and royaltybonuses with respect to the sale of iron ore products generally accrues uponthe shipment of those products from Silver Bay. However, regardless of whether any shipment has occurred, under theterms of the Amended Assignment Agreements, Northshore is obligated to pay toMesabi Trust a minimum advance royalty. Each year, the amount of the minimum advance royalty is adjusted (butnot below $500,000 per annum) for inflation and deflation in accordance withthe Amended Assignment Agreements.  Theminimum advance royalty was $766,510 for calendar year 2007 and is $790,721 forcalendar year 2008.  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 minimum advance royalties areessentially prepayments of base overriding royalties and royalty bonuses earnedeach year, any minimum advance royalties paid in a fiscal quarter are recoupedby credits against base overriding royalties and royalty bonuses earned inlater fiscal quarters during the year.

 

Under the relevantagreements, Northshore has the right to mine and ship iron ore products fromlands other than Mesabi Trust lands. Based on its current mining and engineering plan, Northshore alonedetermines whether to conduct mining operations on Trust and/or such otherlands.  The Trustees do not exert anyinfluence 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 fromSilver Bay, whether or not the iron ore products are from Mesabi Trustlands.  Mesabi Trust receives royaltiesat the greater of (i) the aggregate quantity of iron ore products shippedthat were mined from Mesabi Trust lands, and (ii) a portion of theaggregate quantity of all iron ore products shipped from Silver Bay that weremined from any lands, such portion being 90% of the first four million tonsshipped from Silver Bay during such year, 85% of the next two million tonsshipped during such year, and 25% of all tonnage shipped during such year inexcess of six million tons.

 

Northshore is obligated tomake royalty payments in January, April, July and October of eachyear based on shipments of iron ore products from Silver Bay during eachcalendar quarter.  The Trust accounts andreports accrued income receivable based on shipments during the last month ofthe Trust’s fiscal quarter (April, July, October and January) even thoughsuch accrued income receivable is not available for distribution to unitholdersuntil it is received by the Trust.  TheTrust declares distributions each year in April, July, October andJanuary.  Distributions are declaredafter receiving notification from Northshore Mining Company as to the amount ofroyalty income that is expected to be paid to the Trust based on shipmentsthrough the end of each calendar quarter. Accordingly, distributions declared by the Trust are not equivalent tothe Trust’s Net Income during the periods reported in this quarterly report on Form 10-Q.

 

Deutsche Bank Trust CompanyAmericas, the Corporate Trustee, performs certain administrative functions forMesabi Trust.  The Trust maintains awebsite at www.mesabi-trust.com. The Trust makes available (free of charge) itsannual, quarterly and current reports (and any amendments thereto) filed withthe Securities and Exchange Commission (the “SEC”) through its website as soonas reasonably practicable after electronically filing or furnishing such materialwith or to the SEC.

 

8

----

 

**Results of Operations**

** **

**Comparison of Iron Ore Pellet Production and Shipments for the Threeand Nine Months Ended October 31, 2008 and October 31, 2007**

** **

As shown in the table below,production of iron ore pellets at Northshore from Mesabi Trust lands during thefiscal quarter ended October 31, 2008 totaled approximately 1.0 milliontons and actual shipments over the same period totaled approximately 1.5million tons.  By comparison, actualpellet production during the same period in 2007 totaled approximately 1.33million tons, and actual shipments approximated 1.36 million tons.

 
| **Three Months Ended** | ** ** | **Pellets Produced from  Trust Lands  (Tons)** | ** ** | **Shipments of Pellets from  Trust Lands  (Tons)** | ** ** |
|----------------------------------|------------|---------------------------------------------------------------|------------|------------------------------------------------------------------------|------------|
| October 31, 2008            |       | 995,398                                                       |       | 1,503,256                                                              |       |
| October 31, 2007            |       | 1,330,789                                                     |       | 1,357,247                                                              |       |

 

The 25.2% decrease in production, as comparedto the prior comparable period, is partially attributable to a reduction inproduction due to scheduled maintenance and repairs at Northshore.  The 10.7% increase in shipments from Trustlands is attributable to the fact that Northshore shipped more iron oreproducts from lands owned by Mesabi Trust during the three months ended October 31,2008 as compared to the three months ended October 31, 2007.  See the discussion below under the heading “RecentDevelopments, Idling of Pellet Furnaces” and in Part II, Item 1A “RiskFactors,” for more information about Cliffs’ announcement of the idling of twopellet furnaces at Northshore and the potential impact on the Trust.

 

For the nine months ended October 31,2008, production of iron ore pellets at Northshore from Mesabi Trust landstotaled approximately 3.69 million tons, and actual shipments over the sameperiod totaled approximately 5.09 million tons. By comparison, actual pellet production during the same period in 2007totaled approximately 3.54 million tons, and actual shipments approximated 2.95million tons.

 
| **Nine Months Ended** | ** ** | **Pellets Produced from  Trust Lands  (Tons)** | ** ** | **Shipments of Pellets from  Trust Lands  (Tons)** | ** ** |
|---------------------------------|------------|---------------------------------------------------------------|------------|------------------------------------------------------------------------|------------|
| October 31, 2008           |       | 3,685,182                                                     |       | 5,092,258                                                              |       |
| October 31, 2007           |       | 3,539,856                                                     |       | 2,946,545                                                              |       |

 

Production for the ninemonths ended October 31, 2008 exceeded production during the same periodended October 31, 2007 by approximately 4.1%.  Shipments for the nine months ended October 31,2008 increased 72.8% compared to the nine months ended October 31, 2007.

 

9

----

 

**Comparison of Royalty Income for the Three and Nine Months Ended October 31,2008 and October 31, 2007**

** **

Total royalty income for thethree months ended October 31, 2008 was $11,778,367. This represents anincrease of approximately 76.1% as compared to the comparable priorperiod.  Base overriding royaltiesincreased 90.2% to $7,722,825 and bonus royalties increased 58.2% to $3,940,960.

 

The increase in baseoverriding royalties is the result of a significant increase in the average sales price per ton of iron orepellets, and a substantial increase in the volume of shipments of iron orepellets from Trust lands throughOctober 31, 2008.  The substantial increase in the volume ofshipments resulted in the shipment of additional tons at higher royalty rates,as compared to the three months ended October 31, 2007, therebycontributing to the higher base royalty payment.  Similarly, the increase in bonus royalties is primarily due to higher contractprices for shipped iron ore products resulting in an increased bonus royaltyamount, which is calculated by multiplying the applicable royalty rate by thedifference between the sales price per ton and the adjusted threshold price for2008 of $47.43 per ton.  Fee royaltiespaid to the Mesabi Land Trust decreased slightly for the three months ended October 31,2008, as compared to October 31, 2007. The following table summarizes the components of the total royaltyincome received by Mesabi Trust during the three months ended October 31,2008 and October 31, 2007.

 
| ** **                              | ** ** | **Three Months Ended October 31,** | ** ** |
|-----------------------------------------|------------|--------------------------------------------------------|------------|
| ** **                              | ** ** | **2008**                                               | ** ** | **2007** | ** ** |
| Base overriding royalties               |       | $                                                      | 7,722,825  |   | $ | 4,059,893 |   |
| Bonus royalties                         |       | 3,940,960                                              |       | 2,491,383 |   |
| Minimum advance royalty paid (recouped) |       | —                                                 |       | — |   |
| Fee royalties                           |       | 114,582                                                |       | 138,849 |   |
| Total royalty income                    |       | $                                                      | 11,778,367 |   | $ | 6,690,125 |   |

 

Total royalty income for thenine months ended October 31, 2008 increased 151% from the priorcomparable period to $32,392,640.  Baseoverriding royalties increased 178% to $19,635,564 and bonus royalties alsoincreased 126% to $12,350,997 for the nine months ended October 31,2008.  The increase in base overridingroyalties received by the Trust is the result of higher contract prices forshipped iron ore products and significantly higher volume of total shipments ofiron ore from Trust lands through October 31, 2008, each as compared to theprior comparable period.  The increase inbonus royalties received by the Trust is also due to higher contract prices forshipped iron ore resulting in a substantial increase in the bonus royaltyamount, which is calculated by multiplying the applicable royalty rate by thedifference between the sales price per ton and the adjusted threshold price for2008 of $47.43 per ton.  Fee royaltiespaid to the Mesabi Land Trust increased approximately 13.6% to $406,079 for thenine months ended October 31, 2008.  The following table summarizes the componentsof Mesabi Trust’s total royalty income for the nine months ended October 31,2008 and October 31, 2007.

 
| ** **                              | ** ** | **Nine Months Ended October 31,** | ** ** |
|-----------------------------------------|------------|-------------------------------------------------------|------------|
| ** **                              | ** ** | **2008**                                              | ** ** | **2007** | ** ** |
| Base overriding royalties               |       | $                                                     | 19,635,564 |   | $ | 7,063,974 |   |
| Bonus royalties                         |       | 12,350,997                                            |       | 5,474,730 |   |
| Minimum advance royalty paid (recouped) |       | —                                                |       | — |   |
| Fee royalties                           |       | 406,079                                               |       | 357,598 |   |
| Total royalty income                    |       | $                                                     | 32,392,640 |   | $ | 12,896,302 |   |

 

10

----

 

Based on information thathas been made publicly available by Cliffs and certain of Cliffs’ customersthat are party to the Cliffs Pellet Agreements, the Trustees understand thatworldwide demand for both steel and iron ore products has decreasedsignificantly during the fourth quarter of 2008.  While the Trustees are unable to predict theimpact this decrease in demand will have on prices of iron ore products, forthe reasons discussed below under the heading “Recent Developments, Idling ofPellet Furnaces” and in Part II, Item 1A “Risk Factors,” theTrustees believe that Mesabi Trust is likely to encounter a significantdecrease in total royalty income for the three months ending January 31,2009 which could extend into calendar year 2009.

 

**Comparison of Trust Income and Expenses for the Three and Nine MonthsEnded October 31, 2008 and October 31, 2007**

** **

Net income for the fiscalquarter ended October 31, 2008 was $11,657,311, an increase ofapproximately 76.8% as compared to the quarter ended October 31,2007.  The significant increase in netincome is the result of increased base overriding royalties and bonusroyalties.  Interest income received byMesabi Trust increased 37.3% as compared to the prior comparable periodprimarily due to an increase in the total investments held by MesabiTrust.  Expenses increased 26.3% from theprior comparable period to $138,805, primarily due to slightly higher legal andaccounting fees incurred in the administration of the Trust.  The following is a summary of Mesabi Trust’sincome and expenses for the three months ended October 31, 2008 and October 31,2007.

 
| ** **           | ** ** | **Three Months Ended October 31,** | ** ** |
|----------------------|------------|--------------------------------------------------------|------------|
| ** **           | ** ** | **2008**                                               | ** ** | **2007** | ** ** |
| Total royalty income |       | $                                                      | 11,778,367 |   | $ | 6,690,125 |   |
| Interest income      |       | 17,749                                                 |       | 12,930 |   |
| Gross income         |       | 11,796,116                                             |       | 6,703,055 |   |
|                 |       |                                                   |       |   |   |
| Expenses             |       | 138,805                                                |       | 109,924 |   |
| Net income           |       | $                                                      | 11,657,311 |   | $ | 6,593,131 |   |

 

Net income for the ninemonths ended October 31, 2008 was $31,867,280, an increase ofapproximately 156% as compared to the nine months ended October 31,2007.  This increase is primarilyattributable to significantly higher base overriding royalties and bonusroyalties, as compared to the nine months ended October 31, 2007.  Interest income received by Mesabi Trustincreased 35.9% from the prior comparable period due to an increase in thetotal investments held by Mesabi Trust. Expenses increased 23.2% from the prior comparable period to$562,446.  The following table summarizesMesabi Trust’s income and expenses for the nine months ended October 31,2008 and October 31, 2007.

 
| ** **           | ** ** | **Nine Months Ended October 31,** | ** ** |
|----------------------|------------|-------------------------------------------------------|------------|
| ** **           | ** ** | **2008**                                              | ** ** | **2007** | ** ** |
| Total royalty income |       | $                                                     | 32,392,640 |   | $ | 12,896,302 |   |
| Interest income      |       | 37,086                                                |       | 27,293 |   |
| Gross income         |       | 32,429,726                                            |       | 12,923,595 |   |
|                 |       |                                                  |       |   |   |
| Expenses             |       | 562,446                                               |       | 456,707 |   |
| Net income           |       | $                                                     | 31,867,280 |   | $ | 12,466,888 |   |

 

11

----

 

**Unallocated Reserve**

** **

The Unallocated Reserve as of October 31,2008 was $2,432,878, a decrease of 8.2% as compared to the $2,651,353 ofUnallocated Reserve as of October 31, 2007.  The decrease in the Unallocated Reserve isdue to a decrease in the accrued income receivable of the Trust at the end ofthe fiscal quarter ended October 31, 2008. As of October 31, 2008, $1,551,874, or 64% of the UnallocatedReserve was accrued income receivable, representing royalties not yet receivedby the Trust but anticipated to be received from Northshore in January 2009for shipments during the fourth calendar quarter.  By comparison, at October 31, 2007,$1,958,783, or approximately 74% of the Unallocated Reserve was accruedrevenue. The 20.8% decrease in accrued income receivable is based upon reportedlessee shipping activity for the month of October 2008.  Accrued income receivable is reflected on thebalance sheet at October 31, 2008. The Trustees anticipate that substantially all of the $1,551,874 inaccrued income receivable will be distributed to Unitholders in January 2009,after the Trustees provide for expenses and unexpected loss contingencies.

 

The Trustees have determined that a portionof the Unallocated Reserve, usually within the range of $500,000 to $1,000,000or such other amount as the Trustees may deem prudent, should be maintained forunexpected loss contingencies.  As of October 31,2008, $881,004, or 36% of the Unallocated Reserve, was represented byunallocated cash and U.S. Government securities, whereas, at October 31,2007, $692,570, or 26% of the Unallocated Reserve was unallocated cash and U.S.Government securities.

 

The Trust’s Unallocated Reserve as of October 31,2008 increased 47% or $772,857 as compared to the Unallocated Reserve at January 31,2008.  This increase in the UnallocatedReserve is primarily due to an increase in the accrued income receivable basedon shipments from Northshore during the month of October 2008.  At January 31, 2008, approximately 58%of the Unallocated Reserve or $959,925 was represented by accrued incomereceivable while 42% or $700,096 was represented by unallocated cash and U.S.Government securities.

 

Although the actual amount of the UnallocatedReserve will fluctuate from time to time, and may increase or decrease from itscurrent level, it is currently intended that future distributions will behighly dependent upon royalty income as it is received and the level of Trustexpenses.  The amount of future royaltyincome available for distribution will be subject to the volume of iron oreproduct shipments and the dollar level of sales by Northshore.  The Trustees will continue to monitor theeconomic circumstances of the Trust to strike a responsible balance betweendistributions to Unitholders and the need to maintain reserve for unexpectedloss contingencies at a prudent level, given the unpredictable nature of theiron ore industry, the Trust’s dependence on the actions of thelessee/operator, and the fact that the Trust essentially has no other liquidassets.

 

**Recent Developments**

** **

***Production and Shipments***.  Inits Form 10-Q filed October 31, 2008, Cliffs reported that productionat Northshore for the three months ended September 30, 2008 was 1.6 milliontons and total production for the nine months ended September 30, 2008 wasapproximately 4.4 million tons.   Comparatively, production of iron ore pellets at Northshore for thethree and nine months ended September 30, 2007 was 1.3 million tons and3.9 million tons, respectively.  In its Form 10-Qfiled October 31, 2008, Cliffs reported that it is estimating totalproduction of 5.5 million tons of iron ore pellets at Northshore duringcalendar year 2008, reflecting a downward adjustment from the 5.7 million tonsit previously estimated.  Northshore hasnot provided the Trustees with an estimate of total expected shipments of ironore pellets for calendar year 2008.

 

12

----

 

Even though Northshore hasnot provided the Trustees with an estimate of total expected shipments of ironore pellets for the remainder of calendar year 2008, the 20.8% decrease inaccrued income receivable, from $1,958,783 as of October 31, 2007 to $1,551,874as of October 31, 2008, represents a significant decline in shipments fromTrust lands during the month of October 2008.  Based on the current global economicenvironment and for the reasons discussed below under the heading “RecentDevelopments, Idling of Pellet Furnaces” and in Part II, Item 1A “RiskFactors,” the Trustees believe that Mesabi Trust is likely to encounter apotentially significant decrease in total royalty income for the three monthsending January 31, 2009 as compared to the three months ended January 31,2008.

 

During calendar years 2007,2006, 2005, 2004 and 2003, the percentage of shipments of iron ore productsfrom Mesabi Trust lands was approximately 88.2%, 90.9%, 90.1%, 92.0% and 95.5%,respectively, of total shipments.  Northshorehas not advised the Trustees as to the percentage of iron ore products fromMesabi Trust lands it anticipates shipping in calendar year 2008.  See the description of the uncertainty ofmarket conditions in the iron ore and steel industry under “Important FactorsAffecting Mesabi Trust” below and the information under the heading “RiskFactors” in Part I – Item 1A of the Trust’s Annual Report on Form 10-Kfor the year-ended January 31, 2008, as updated by Part II, Item 1Aof this Quarterly Report on Form 10-Q.

 

***Idling ofPellet Furnaces***.*** ***In its Form 8-K filed October 28,2008, Cliffs announced that it was initiating production curtailments at two ofits six North American iron ore mines both of which are located inMinnesota.  Cliffs reported that it would“temporarily idle two small pellet furnaces at Northshore Mining and one smallpellet furnace at United Taconite.  On acombined basis, the three furnaces have monthly pellet production capacity ofapproximately 300,000 tons.”  Cliffs’also reported that it was initiating the curtailments to bring productionlevels in line with demand, that the idling of the furnaces was to take effectimmediately and is expected to result in workforce adjustments at bothlocations.

 

Cliff’s announcement that it is reducingproduction at Northshore to bring production capacity in line with demand islikely to result in reducedshipments from Trust lands for the remainder of calendar year 2008 and possiblycontinuing into 2009.  While the Trusteescannot predict the full impact of Cliffs’ announcement on the Trust’s totalroyalty income, the Trustees believe that production and shipments of iron oreproducts mined from Trust lands may decrease sharply and that such decreasecould continue into calendar year 2009.

 

***NorthshoreAdministrative Permit Amendment***.   As reported in the Trust’s Form 10-K filed April 11,2008, according to Cliffs’ Form 10-K filed February 29, 2008, on December 16,2006, Cliffs submitted an administrative permit amendment application to theMinnesota Pollution Control Agency (“MPCA”) with respect to Northshore’s TitleV operating permit.  Cliffs reported thatNorthshore requested an amendment to its permit to delete a 30 year old “controlcity” monitoring requirement but the MPCA denied Northshore’s application on February 23,2007.   In its Form 10-K, Cliffsfurther reported that it had appealed the denial of its application to theMinnesota Court of Appeals and that subsequent to the filing of the appeal, theMPCA advised Northshore that the MPCA considered Northshore to be in violationof the control city standard. Cliffs also reported that it was in discussionswith the MPCA with respect to the terms of a compliance schedule in which itwould agree to take certain actions in settlement of the allegedviolation.  According to Cliffs’ Form 10-K,the Minnesota Center for Environmental Advocacy had since filed a motion withthe Court of Appeals to intervene in Northshore’s appeal of the denial of anadministrative amendment to Northshore’s Title V operating permit.

 

On May 20, 2008, theMinnesota Court of Appeals issued a ruling on Northshore’s appeal and 

 

13

----

 

held that the MPCA did not err in concludingthat Northshore proceeded under the wrong permit modification procedures whenit applied to amend its permit to eliminate the “control city” standard fromits Title V operating permit.  TheMinnesota Court of Appeals ruled that Northshore’s administrative amendmentapplication should have been dealt with through the major permit amendmentprocess rather than through the administrative permit amendment process, whichis used to address insignificant amendments. In its Form 10-Q filed October 31, 2008, Cliffs reported thaton August 28, 2008 it filed a major permit amendment to remove the controlcity requirement from its permit and that this permit amendment is currentlypending.

 

Additionally, in its Form 10-Qfiled October 31, 2008, Cliffs reported that as part of Northshore’spermitting of the restart of Furnace 5, Northshore was required to certifycompliance with air emission standards within 180 days of operation.  In its Form 10-Q, Cliffs reported thatduring the scheduled compliance testing for Furnace 5, Northshore experiencedabnormal operating difficulties and was thereby unable to certify compliance.As reported above, Furnace 5 has been idled due to changes in market demand.Cliffs further reported that Northshore will take appropriate steps toestablish compliance with the MPCA, will perform retesting as soon as Furnace 5returns to normal operating conditions and anticipates meeting the requiredlimits.

 

The Trustees are unable topredict what impact the administrative proceedings discussed above will have onNorthshore’s compliance with its Title V operating permit or on futureroyalties payable to the Trust.

 

**Important Factors AffectingMesabi Trust**

 

TheAgreement of Trust specifically prohibits the Trustees from entering into orengaging in any business.  Thisprohibition seemingly applies even to business activities the Trustees deemnecessary or proper for the preservation and protection of the Trust Estate (assuch term is defined below). Accordingly, the Trustees’ activities in connection with theadministration of Trust assets are limited to collecting income, payingexpenses and liabilities, distributing net income to Mesabi Trust’s Unitholdersafter the payment of, or provision for, such expenses and liabilities, andprotecting and conserving the assets held. Consequently, the income of Mesabi Trust is highly dependent upon theactivities and operations of Northshore, and the terms and conditions of theleases and assignments of leases between Mesabi Trust and Northshore.

 

Neither Mesabi Trust nor theTrustees have any control over the operations and activities of Northshore,except within the framework of the Amended Assignment Agreements.  Cliffs alone controls (i) historicaloperating data, including iron ore production volumes, marketing of iron oreproducts, operating and capital expenditures as they relate to Northshore,environmental and other liabilities and the effects of regulatory changes; (ii) plansfor Northshore’s future operating and capital expenditures; (iii) geologicaldata relating to ore reserves (iv) projected production of iron oreproducts; (v) contracts between Cliffs and Northshore with theircustomers; and (vi) the decision to mine off Mesabi Trust and/or statelands, based on Cliffs’ current mining and engineering plan.  The Trustees do not exert any influence overmining operational decisions at Northshore, nor do the Trustees provide anyinput regarding the ore reserve estimate at Northshore as reported byCliffs.  While the Trustees requestmaterial information for use in periodic reports as part of their evaluation ofMesabi Trust’s disclosure controls and procedures, the Trustees do not controlthis information and they rely on the information in Cliffs’ periodic andcurrent filings with the SEC to provide accurate and timely information inMesabi Trust’s reports filed with the SEC.

 

Inaccordance with the Agreement of Trust and the Amendment, the Trustees areentitled to, and in fact do rely, upon certain experts in good faith, including(i) the independent consultants with respect to 

 

14

----

 

monthly production and shipment reports, which include figures on crudeore production and iron ore pellet shipments, and discussions concerning thecondition and accuracy of the scales and plans regarding the development of MesabiTrust’s mining property; and (ii) the accounting firm they have contractedwith for non-audit services, including reviews of financial data related toshipping and sales reports provided by Northshore and a review of the scheduleof leasehold royalties payable to Mesabi Trust.

 

Fora discussion of additional factors, including but not limited to those thatcould adversely affect Mesabi Trust’s actual results and performance, see “RiskFactors” in Part I – Item 1A of Mesabi Trust’s Annual Report on Form 10-Kfor the year-ended January 31, 2008, as updated by Part II, Item 1Aof this Quarterly Report on Form 10-Q.

 

**Iron Ore Pricing andContract Adjustments**

 

During the course of its fiscal year some portion ofthe royalties paid to Mesabi Trust are based on estimated prices for iron oreproducts sold under term contracts between Cliffs and its subsidiaries andcertain of their customers (the “Cliffs Pellet Agreements”). Mesabi Trust isnot a party to any of the Cliffs Pellet Agreements.  These prices are subject to interim and finalpricing adjustments, which can be positive or negative, and which adjustmentsare dependent in part on a variety of price and inflation index factors,including but not limited to the international benchmark pellet price, hot bandsteel prices and various Producer Price Indexes. Although Northshore makesinterim adjustments to the royalty payments on a quarterly basis, these priceadjustments cannot be finalized until after the end of a contract year. Thismay result in significant and frequent variations in royalties received byMesabi Trust (and in turn the resulting amount of funds available fordistribution to Unitholders by the Trust) from quarter to quarter and on acomparative historical basis, and these variations, which can be positive ornegative, cannot be predicted by Mesabi Trust.

 

**Effectsof Securities Regulation**

 

The Trust is a publicly-traded trust listed on the New York StockExchange (“NYSE”) and is therefore subject to extensive regulation under, amongothers, the Securities Act of 1933, the Securities Exchange Act of 1934, theSarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”) and the rules andregulations of the NYSE.  Issuers failingto comply with such authorities risk serious consequences, including criminalas well as civil and administrative penalties. In most instances, these laws, rules and regulations do notspecifically address their applicability to publicly-traded trusts such asMesabi Trust.  In particular,Sarbanes-Oxley mandated the adoption by the Securities and Exchange Commission(the “SEC”) and NYSE of certain rules and regulations that are impossiblefor the Trust to literally satisfy because of its nature as a pass-throughtrust.  Pursuant to NYSE rules currentlyin effect, the Trust is exempt from many of the corporate governancerequirements that apply to publicly traded corporations.  The Trust does not have, nor does theAgreement of Trust provide for, a board of directors, an audit committee, acorporate governance committee or a compensation committee.  The Trustees intend to closely monitor theSEC’s and the NYSE’s rulemaking activity and will attempt to comply with such rules andregulations where applicable.

 

In May 2008, the Trust established a websitein response to the NYSE’s interpretation of Rule 203.01 of the NYSE ListedCompany Manual.  The Trust’s website is located atwww.mesabi-trust.com.

 

15

----

 

**Critical Accounting Policies**

 

This “Trustees’ Discussionand Analysis of Financial Condition and Results of Operations” is based uponMesabi Trust’s financial statements, which have been prepared in accordancewith accounting principles generally accepted in the United States.  The preparation of these financial statementsrequires the Trustees to make estimates and judgments that affect the reportedamounts of assets, liabilities, revenues and expenses, and related disclosureof contingent assets and liabilities. These estimates form the basis for making judgments about the carryingvalue of assets and liabilities that are not readily apparent from othersources.  The Trustees base theirestimates and judgments on historical experience and on various otherassumptions that the Trustees believe are reasonable under thecircumstances.  However, future eventsare subject to change and the best estimates and judgments may requireadjustment.

 

Critical accounting policiesare those that have meaningful impact on the reporting of Mesabi Trust’sfinancial condition and results, and that require significant managementjudgment and estimates.  The Trusteeshave determined that there are no critical accounting policies.

 

**Item 3.   Quantitative and Qualitative Disclosures AboutMarket Risk.**

 

Not applicable.

 

**Item 4.   Controls and Procedures.**

 

***Evaluation of Disclosure Controls andProcedures******. ***The Trustees maintain disclosure controls andprocedures designed to ensure that information required to be disclosed byMesabi Trust in the reports that it files or submits under the SecuritiesExchange Act of 1934, as amended, is recorded, processed, summarized andreported within the time periods specified in the rules and regulations ofthe Securities and Exchange Commission. Disclosure controls and procedures include controls and proceduresdesigned to ensure that information required to be disclosed by Mesabi Trust isaccumulated and communicated by Northshore and consultants to the Trustees asappropriate, to allow timely decisions regarding required disclosure.

 

As part of their evaluationof Mesabi Trust’s disclosure controls and procedures, the Trustees rely onquarterly shipment and royalty calculations provided by Northshore.  Because Northshore has declined to supportthis information with a written certification attesting to whether Northshorehas established disclosure controls and procedures and internal controlssufficient to enable it to verify that the information furnished to theTrustees is accurate and complete, the Trustees also rely on (a) an annualcertification from Northshore and Northshore’s parent, Cliffs, certifying as tothe accuracy of the royalty calculations, and (b) the related duediligence review performed by the Trust’s external accountants.  In addition, Mesabi Trust’s consultantsreview the schedule of leasehold royalties payable and shipping and salesreports provided by Northshore against production and shipment reports preparedby the Eveleth Fee Office, Inc., an independent consultant to Mesabi Trust(“Eveleth Fee Office”). The Eveleth Fee Office gathers production and shippinginformation from Northshore and prepares monthly production and shipmentreports for the Trustees. Furthermore, as part of its engagement by MesabiTrust, the Eveleth Fee Office also attends Northshore’s calibration and testingof its crude ore scales and boat loader scales which are conducted on aperiodic basis.

 

As of the end of the periodcovered by this report, the Trustees carried out an evaluation of Mesabi Trust’sdisclosure controls and procedures.  TheTrustees have concluded that such disclosure controls and procedures areeffective.

 

16

----

 

***Changes in Internal Control Over FinancialReporting***.  To the knowledge of the Trustees, there hasbeen no change in Mesabi Trust’s internal control over financial reporting thatoccurred during Mesabi Trust’s last fiscal quarter that has materiallyaffected, or is reasonably likely to materially affect, Mesabi 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 or Cliffs.

 

17

----

 

**PART II - OTHER INFORMATION**

 

**Item 1.****                ****Legal Proceedings.**

 

None.

 

**Item1A.****       ****Risk Factors**

 

The informationpresented below amends, updates and should be read in conjunction with the riskfactors and information disclosed here and in the Trust’s Annual Report on Form 10-Kfor the fiscal year ended January 31, 2008. The risk factors disclosedhere and in the Trust’s Annual Report on Form 10-K for the fiscal yearended January 31, 2008, in addition to the other information set forth inthis quarterly report, could have a material adverse effect on the royaltiesreceived by Mesabi Trust. You should carefully consider such risks in additionto other information contained in this report before engaging in anytransaction involving units of beneficial interest of Mesabi Trust. Additionalrisks and uncertainties not currently known to the Trust or that have beendeemed to be immaterial as of the filing of this Quarterly Report could alsomaterially adversely affect the Trust’s results of operations.

 

The Trust’s riskfactors are hereby updated as follows:

 

***The global economic climate andthe current disruption in the financial and credit markets have createduncertainty and could adversely affect the royalties payable to the Trust.***

 

The volatile global economic climate and the current global financial and credit crisiscould have a material adverse effect on the royalties payable to theTrust.  Cliffs has announced productioncurtailments and workforce reductions at Northshore and the potential forfurther workforce reductions at other mines comprising Cliffs’ North AmericanIron Ore operations.  According toCliffs, some of its customers have announced curtailments of production, whichcould adversely affect the demand for iron ore and therefore shipments fromlands owned by the Trust.  Continuationor worsening of the current economic conditions, a prolonged global, nationalor regional economic recession or other events could produce major changes indemand patterns and may have a material adverse effect on Cliffs’ sales of ironore products.  Moreover, such conditionscould impact the international benchmark pellet price, hot band steel pricesand various Producer Price Indexes all of which impact the royalties payable tothe Trust.  The Trustees are not able topredict the impact the volatile global economic climate and the current global financial and credit crisiswill have on future royalties payable to the Trust.

 

***Risk factors affectingCliffs and the operations of Northshore could have a material adverse effect onthe income of the Trust.***

 

Becausesubstantially all of the Trust’s revenue is derived from iron ore productsshipped by Northshore from Silver Bay, Northshore’s iron ore pellet processingand shipping activities directly impact the Trust’s revenues in each quarterand for each year.  A number of factorsaffect Cliffs’ operations, including Northshore’s production and shipmentvolume.  These factors which aredescribed in Cliffs’ Form 10-K filed February 29, 2008, as updated byCliffs’ Form 10-Q filed October 31, 2008 include, among others, theglobal economic climate and financial market conditions, economic conditions inthe iron ore industry, extensive governmental regulation relating toenvironmental matters and the costs and risks related thereto, availability ofsubstitute materials, pricing by domestic and international competitors,long-term customer contracts or arrangements by Northshore or its competitors,price adjustment provisions in Cliffs’ North American term supply agreements(which take into account various price indexes), availability of ore boats,production at Northshore’s mining operations, natural disasters, shippingconditions in the Great Lakes and production at Northshore’spelletizing/processing 

 

18

----

 

facility.  Specifically, if any portion of Northshore’spelletizing lines becomes idle for any reason, production, shipments and,consequently, the royalties paid to the Trust could be adversely affected.

 

**Item 2.****                ****Unregistered Sales of EquitySecurities and Use of Proceeds.**

 

None.

 

**Item 3.****                ****Defaults Upon Senior Securities.**

 

None.

 

**Item 4.****                ****Submission of Matters to a Voteof Security Holders.**

 

None.

 

**Item 5.****                ****Other Information.**

 

None.

 

**Item 6.****                ****Exhibits.**

 
| 31     |   | Certification of Corporate Trustee of Mesabi Trust pursuant to  Rule 13a-14 of the Securities Exchange Act of 1934, as adopted pursuant  to Section 302 of the Sarbanes-Oxley Act of 2002. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                 |
| 32     |   | Certification of Corporate Trustee of Mesabi Trust pursuant to 18  U.S.C. Section 1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002.                             |
|   |   |                                                                                                                                                                                                 |
| 99.1   |   | Report of Wipfli LLP, dated December 3, 2008 regarding its  review of the unaudited interim financial statements of Mesabi Trust for its  quarter ended October 31, 2008.                  |

 

19

----

 

**SIGNATURES**

** **

Pursuant to the requirementsof the Securities Exchange Act of 1934, the registrant has duly caused thisreport to be signed on its behalf by the undersigned thereunto duly authorized.

 
|                        | MESABI TRUST                                                      |
|-----------------------------|-------------------------------------------------------------------|
|                        | (Registrant)                                                      |
|                        |                                                              |
|                        | By:                                                               | DEUTSCHE BANK TRUST COMPANY  AMERICAS |
|                        |                                                              | Corporate Trustee |
|                        | Principal Administrative Officer and duly authorized  signatory:* |
|                        |                                                              |
|                        | By:                                                               | DEUTSCHE BANK NATIONAL TRUST  COMPANY |
|                        |                                                              |   |
|                        |                                                              |   |
| Date: December 5, 2008 | By:                                                               | /s/ Kenneth Ring |
|                        |                                                              | Name: Kenneth R. Ring |
|                        |                                                              | Title: Vice President |
|                        |                                                              | Deutsche Bank National Trust Company |
|                        |                                                              | For Deutsche Bank Trust  Company Americas |

 

----

* There are no principalexecutive officers or principal financial officers of the registrant.

 

20

----