**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

**FORM 10-Q/A**

**(Mark One)**

 
| **ý** | ** ** | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)  OF THE SECURITIES EXCHANGE ACT OF 1934**                                                 |
|------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------|
| ** ** | ** ** | ** **                                                                                                                                   |
| ** ** | ** ** | **For the quarterly period ended  July 31, 2004**                                                                                            |
| ** ** | ** ** | ** **                                                                                                                                   |
| **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 File Number:  1-4488**

 

**MESABITRUST**

(Exact name of registrant as specified in itscharter)

 
| **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****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, includingarea code)

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days.    Yes  ý   No  o

 

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

 

As of September 10, 2004,there were 13,120,010 Units of Beneficial Interest in Mesabi Trust outstanding.

 

 

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**EXPLANATORY NOTE**

 

This Amendment on Form10-Q/A (this “Amendment”) amends the Quarterly Report on Form 10-Q for MesabiTrust’s quarter ended July 31, 2004 which was previously filed with theSecurities and Exchange Commission on September 14, 2004.  This Amendment is made to reflect the independentreview by the Trust’s independent accountants, Gordon, Hughes and Banks, LLP,of the condensed balance sheet of Mesabi Trust (the “Trust”) as of July 31,2004, and the related condensed statements of income for the three andsix-month periods ended July 31, 2004, and the condensed statement of cashflows for the six-month period ended July 31, 2004.

 

All references to MesabiTrust’s independent accountants and Exhibit 99.1, the independent accountant’sreview report, are amended herein.  Noother changes are effected by this Amendment. This Amendment does not reflect events occurring after the originalfiling date of the Quarterly Report on September 14, 2004.

 

2

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**PART I - FINANCIAL INFORMATION**

 

# **Item1.**       Financial Statements.  (Note 1)

 
| ** **                                              | ** ** | **Three Months Ended  July 31,** | ** ** | **Six Months Ended  July 31,** | ** ** |
|---------------------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                              | ** ** | ** **                       | ** ** |
| ** **                                              | ** ** | **2004**                         | ** ** | **2003**                       | ** ** | **2004** | ** ** | **2003** | ** ** |
| ** **                                              | ** ** | ** **                       | ** ** | ** **                     | ** ** | ** ** | ** ** | ** ** | ** ** |
| **A.    Condensed Statements of Income** | ** ** | ** **                       | ** ** | ** **                     | ** ** | ** ** | ** ** | ** ** | ** ** |
|                                                    |       |                             |       |                           |       |   |   |   |   |
| Revenues                                                |       |                             |       |                           |       |   |   |   |   |
| Royalty income                                          |       | $                                | 2,673,989  |                           | $          | 1,095,964 |   | $ | 3,601,195 |   | $ | 1,462,055 |   |
| Interest income                                         |       | 9,806                            |       | 10,713                         |       | 20,309 |   | 22,786 |   |
|                                                    |       | 2,683,795                        |       | 1,106,677                      |       | 3,621,504 |   | 1,484,841 |   |
|                                                    |       |                             |       |                           |       |   |   |   |   |
| Expenses                                                |       | 179,737                          |       | 141,231                        |       | 281,479 |   | 269,393 |   |
|                                                    |       |                             |       |                           |       |   |   |   |   |
| Net income                                              |       | $                                | 2,504,058  |                           | $          | 965,446 |   | $ | 3,340,025 |   | $ | 1,215,448 |   |
|                                                    |       |                             |       |                           |       |   |   |   |   |
| Number of units outstanding                             |       | 13,120,010                       |       | 13,120,010                     |       | 13,120,010 |   | 13,120,010 |   |
|                                                    |       |                             |       |                           |       |   |   |   |   |
| Net income per unit (Note 2)                            |       | $                                | 0.190858   |                           | $          | 0.073586 |   | $ | 0.254575 |   | $ | 0.092641 |   |
|                                                    |       |                             |       |                           |       |   |   |   |   |
| Distributions declared per unit                         |       | $                                | 0.175      |                           | $          | 0.07 |   | $ | 0.225 |   | $ | 0.07 |   |

 

 

See Notes to Financial Statements.

 

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** **
| ** **                                                                 | ** ** | **July 31, 2004** | ** ** | **January 31, 2004** | ** ** |
|----------------------------------------------------------------------------|------------|-------------------|------------|----------------------|------------|
|                                                                       |       |              |       |                 |       |
| **B.     Condensed Balance Sheets**                         | ** ** | ** **        | ** ** | ** **           | ** ** |
|                                                                       |       |              |       |                 |       |
| **Assets**                                                                 | ** ** | ** **        | ** ** | ** **           | ** ** |
|                                                                       |       |              |       |                 |       |
| Cash                                                                       |       | $                 | 98,727     |                 | $          | 98,692 |   |
|                                                                       |       |              |       |                 |       |
| U.S. Government securities, at amortized  cost (which approximates market) |       | 3,100,964         |       | 4,826,046            |       |
|                                                                       |       |              |       |                 |       |
| Accrued income                                                             |       | 909,651           |       | 449,780              |       |
| Prepaid expenses                                                           |       | 14,671            |       | 15,560               |       |
|                                                                       |       | 4,124,013         |       | 5,390,078            |       |
|                                                                       |       |              |       |                 |       |
| 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                    |       |
|                                                                       |       |              |       |                 |       |
|                                                                       |       | $                 | 4,124,016  |                 | $          | 5,390,081 |   |
|                                                                       |       |              |       |                 |       |
| **Liabilities, Unallocated Reserve and Trust  Corpus**                     | ** ** | ** **        | ** ** | ** **           | ** ** |
|                                                                       |       |              |       |                 |       |
| Liabilities                                                                |       |              |       |                 |       |
| Distribution payable                                                       |       | $                 | 2,296,002  |                 | $          | 3,936,003 |   |
| Accrued expenses                                                           |       | 31,404            |       | 45,491               |       |
|                                                                       |       | 2,327,406         |       | 3,981,494            |       |
|                                                                       |       |              |       |                 |       |
| Unallocated Reserve (Note 3)                                               |       | 1,796,607         |       | 1,408,584            |       |
| Trust Corpus                                                               |       | 3                 |       | 3                    |       |
|                                                                       |       |              |       |                 |       |
|                                                                       |       | $                 | 4,124,016  |                 | $          | 5,390,081 |   |

 

 

See Notes to Financial Statements.

 

4

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| ** **                                                                     | ** ** | **Six Months Ended  July 31,** | ** ** |
|--------------------------------------------------------------------------------|------------|--------------------------------|------------|
| ** **                                                                     | ** ** | ** **                     |
| ** **                                                                     | ** ** | **2004**                       | ** ** | **2003** | ** ** |
|                                                                           |       |                           |       |   |   |
| **C.     Condensed Statements of Cash Flows**                   | ** ** | ** **                     | ** ** | ** ** | ** ** |
|                                                                           |       |                           |       |   |   |
| Cash flows from operating activities                                           | ** ** | ** **                     | ** ** | ** ** | ** ** |
| Royalties received                                                             |       | $                              | 3,137,442  |   | $ | 1,277,556 |   |
| Interest received                                                              |       | 24,190                         |       | 25,710 |   |
| Expenses paid                                                                  |       | (294,676                       | )          | (279,112 | ) |
|                                                                           |       |                           |       |   |   |
| Net cash provided by operating activities                                      |       | 2,866,956                      |       | 1,024,154 |   |
|                                                                           |       |                           |       |   |   |
| Cash flows from investing activities                                           |       |                           |       |   |   |
| Maturities of U.S. Government Securities                                       |       | 4,999,722                      |       | 964,124 |   |
| Purchases of U.S. Government Securities                                        |       | (3,274,640                     | )          | (864,704 | ) |
|                                                                           |       |                           |       |   |   |
| Net cash provided by (used for) investing  activities                          |       | 1,725,082                      |       | 99,420 |   |
|                                                                           |       |                           |       |   |   |
| Cash flow from financing activities Distributions  to Unitholders              |       | (4,592,003                     | )          | (2,492,802 | ) |
|                                                                           |       |                           |       |   |   |
| Net change in cash                                                             |       | 35                             |       | (1,369,228 | ) |
|                                                                           |       |                           |       |   |   |
| Cash, beginning of year                                                        |       | 98,692                         |       | 2,515,457 |   |
|                                                                           |       |                           |       |   |   |
| Cash, end of quarter                                                           |       | $                              | 98,727     |   | $ | 1,146,229 |   |
|                                                                           |       |                           |       |   |   |
| **Reconciliation of net income to net cash provided  by operating activities** |       |                           |       |   |   |
|                                                                           |       |                           |       |   |   |
| Net income                                                                     |       | $                              | 3,340,025  |   | $ | 1,215,448 |   |
| (Increase) in accrued income                                                   |       | (459,871                       | )          | (181,576 | ) |
| Decrease in prepaid insurance                                                  |       | 889                            |       | 11,421 |   |
| Increase (Decrease) in accrued expenses                                        |       | (14,087                        | )          | (21,139 | ) |
|                                                                           |       |                           |       |   |   |
| Net cash provided by operating activities                                      |       | $                              | 2,866,956  |   | $ | 1,024,154 |   |

 

 

See Notes to Financial Statements.

 

5

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**MESABI TRUST**

 

**NOTES TO FINANCIAL STATEMENTS**

 

Note1.          The financial statements included herein have been preparedwithout audit (except for the balance sheet at January 31, 2004) in accordancewith the instructions to Form 10-Q pursuant to the rules and regulations of theSecurities and Exchange Commission. Certain information and footnote disclosures normally included infinancial statements prepared in accordance with generally accepted accountingprinciples have been condensed or omitted pursuant to such rules andregulations.  In the opinion of theTrustees, all adjustments, consisting only of normal recurring adjustments,necessary for a fair statement of (a) the results of operations for the sixmonths ended July 31, 2004 and 2003, (b) the financial positions at July 31,2004 and January 31, 2004, and (c) the cash flows for the six months ended July31, 2004 and 2003, have been made.

 

Note2.          Earnings per unit are based on weighted average number ofunits outstanding during the period (13,120,010 units).

 

Note3.          The Trustees have determined to maintain an UnallocatedReserve of at least $1,000,000 in liquid assets.  The actual amount of such Unallocated Reservemay vary from quarter to quarter depending upon conditions in the industry andthe judgment of the Trustees.  At July31, 2004, the Unallocated Reserve was represented by $886,956 in unallocatedcash and U.S. Government securities, and $909,651 of accrued revenue primarilyrepresenting royalties not yet received by the Trust but anticipated to bereceived in October 2004 from Northshore Mining Company as part of the royaltydue with respect to the third fiscal quarter, based upon reported lesseeshipping activity for the month of July 2004.

 

6

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

 

**Forward-Looking Information**

 

Certain statements containedin this document are forward-looking, including specifically those statementsestimating calendar year 2004 and 2005 production or shipments and commentsrelated to the commencement of construction and opening of additional plants in2004 and beyond.  All suchforward-looking statements are based on input from Northshore Mining Company (“Northshore”),which is the lessee/operator and a wholly-owned subsidiary of Cleveland-CliffsInc (“CCI”), and published announcements of CCI.  The Trust has no control over the operationsor activities of Northshore, nor any influence on the decision of whetherNorthshore’s facilities would be used to supply CCI’s demonstration  or commercial nugget modules (presently inthe planning stages), except within the framework of current agreements.  Actual results could differ materially fromthose indicated in such statements. Important factors that could cause actual results to differ materiallyinclude those listed below under the heading “Important Factors AffectingMesabi Trust”.

 

**Background**

 

Leasehold royalty incomeconstitutes 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 the Trust’sleasehold 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.

 

•      Feeroyalties, 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 is basedon 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.

 

•      Minimumadvance royalties, the third type of royalty, are discussed below.

 

With respect to the volumecomponent of royalty calculation, Northshore is obligated to pay Mesabi Trustbase overriding royalties in varying amounts. The volume component of overriding royalties constitutes a percentage ofthe gross proceeds of iron ore products produced at Mesabi Trust lands (and toa limited extent 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.

 

With respect to the sellingprice component of the overriding royalty calculation, Northshore is obligatedto pay to Mesabi Trust royalty bonuses. The royalty bonus is a percentage of the gross proceeds of productshipped from Silver Bay and sold at prices above a threshold price.  The threshold price is adjusted (but notbelow $30.00) on an annual basis for inflation and deflation (the “AdjustedThreshold Price”).  The Adjusted ThresholdPrice was $40.61 per ton for calendar year 2002, $41.13 per ton for calendaryear 2003, and is $41.76 per ton for calendar year 2004.  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

 

7

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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’sobligation to pay base overriding royalties and royalty bonuses with respect tothe sale of iron ore products accrues upon the shipment of those products fromSilver Bay.  However, regardless ofwhether any shipment has occurred, Northshore is obligated to pay to MesabiTrust a minimum advance royalty.  Eachyear, the amount of the minimum advance royalty is adjusted (but not below$500,000 per annum) for inflation and deflation.  Advance royalties payable were $676,814 forcalendar year 2002, $685,630 for calendar year 2003, and are $696,161 forcalendar year 2004.  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 and recoupedin the second fiscal quarter.

 

Northshore is obligated tomake quarterly royalty payments in January, April, July and October of eachyear.  In the case of base overridingroyalties and royalty bonuses, these quarterly royalty payments are to be madewhether or not the related proceeds of sale have been received by Northshore bythe time such payments become due.

 

Under the relevantdocuments, Northshore may mine and ship iron ore products from lands other thanMesabi Trust lands.  To encourage the useof iron ore products from Mesabi Trust lands, Mesabi Trust receives royaltieson stated percentages of iron ore shipped from Silver Bay, whether or not theiron ore products are from Mesabi Trust lands. Mesabi Trust receives royalties at the greater of (i) the aggregatequantity of iron ore products shipped that were from Mesabi Trust lands, and(ii) a portion of the aggregate quantity of all iron ore products shipped thatwere from any lands, such portion being 90% of the first four million tonsshipped during such year, 90% of the next two million tons shipped during suchyear, and 25% of all tonnage shipped during such year in excess of six milliontons.

 

Mesabi Trust has noemployees, but it engages independent consultants to assist the Trustees inmonitoring, among other things, the amount and sales prices of iron oreproducts shipped by Northshore from Silver Bay, Minnesota.  As noted above, the information regardingamounts and sales prices of shipped iron ore products is used to compute theroyalties payable to Mesabi Trust by Northshore.  Deutsche Bank Trust Company Americas, theCorporate Trustee, also performs certain administrative functions for MesabiTrust.

 

**Comparison of three monthsended July 31, 2004 and July 31, 2003**

 

Net income for the quarterended July 31, 2004 was $2,504,058 an increase of 159% over the quarter endedJuly 31, 2003.  This increase wasprimarily due to continued increases in pellet shipments and price, and ahigher applicable royalty rate, as compared to the comparable priorperiod.  Expenses increased from thecomparable prior period, primarily due to increases in general andadministrative expenses.** **Following is a summary of resultsfor the three months ended July 31, 2004 and July 31, 2003, respectively.

 

8

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| ** **           | ** ** | **Three Months Ended July 31,** | ** ** |
|----------------------|------------|---------------------------------|------------|
| ** **           | ** ** | **2004**                        | ** ** | **2003** | ** ** |
| Total royalty income |       | $                               | 2,673,989  |   | $ | 1,095,964 |   |
| Interest income      |       | 9,806                           |       | 10,713 |   |
| Gross income         |       | $                               | 2,683,795  |   | $ | 1,106,677 |   |
|                 |       |                            |       |   |   |
| Expenses             |       | 179,737                         |       | 141,231 |   |
| Net income           |       | $                               | 2,504,058  |   | $ | 965,446 |   |

 

**Comparison of six monthsended July 31, 2004 and July 31, 2003**

 

Net income for the sixmonths ended July 31, 2004 was $3,340,025 an increase of 175% over the sixmonths ended July 31, 2003.  Thisincrease was primarily due to increases in pellet shipments and price, and ahigher applicable royalty rate, as compared to the comparable priorperiod.  Following is a summary ofresults for the six months ended July 31, 2004 and July 31, 2003, respectively.

 
| ** **           | ** ** | **Six Months Ended July 31,** | ** ** |
|----------------------|------------|-------------------------------|------------|
| ** **           | ** ** | **2004**                      | ** ** | **2003** | ** ** |
| Total royalty income |       | $                             | 3,601,195  |   | $ | 1,462,055 |   |
| Interest income      |       | 20,309                        |       | 22,786 |   |
| Gross income         |       | $                             | 3,621,504  |   | $ | 1,484,841 |   |
|                 |       |                          |       |   |   |
| Expenses             |       | 281,479                       |       | 269,393 |   |
| Net income           |       | $                             | 3,340,025  |   | $ | 1,215,448 |   |

 

**Unallocated Reserve**

 

Unallocated Reserve as ofJuly 31, 2004 was $1,796,607, an increase of 32% over the prior year.  This increase is primarily due to increasesin pellet shipments and price.  The Trusteesanticipate that the amount of Unallocated Reserve will fluctuate from time totime, depending upon a number of factors, including but not limited to theincome for a particular period, the amount and timing of distributions,uncertainty about future royalty income and the uncertainty of future expenses.  Following is a comparison of UnallocatedReserve over the past year.

 
| ** **          | ** ** | **As of July 31,** | ** ** |
|---------------------|------------|--------------------|------------|
| ** **          | ** ** | **2004**           | ** ** | **2003** | ** ** |
| Unallocated reserve |       | $                  | 1,796,607  |   | $ | 1,363,096 |   |
|                     |            |                    |            |  |  |  |  |

 

**Royalty Comparisons**

 

The following chartsummarizes Mesabi Trust’s royalty income for the three months ended July 31,2004 and July 31, 2003, respectively:

 

9

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| ** **                              | ** ** | **Three Months Ended July 31,** | ** ** |
|-----------------------------------------|------------|---------------------------------|------------|
| ** **                              | ** ** | **2004**                        | ** ** | **2003** | ** ** |
| Base overriding royalties               |       | $                               | 2,575,290  |   | $ | 997,740 |   |
| Bonus royalties                         |       | 0                               |       | 0 |   |
| Minimum advance royalty paid (recouped) |       | 0                               |       | 0 |   |
| Fee royalties                           |       | 98,699                          |       | 98,224 |   |
| Total royalty income                    |       | $                               | 2,673,989  |   | $ | 1,095,964 |   |

 

The following chartsummarizes Mesabi Trust’s royalty income for the six months ended July 31, 2004and July 31, 2003, respectively:

 
| ** **                              | ** ** | **Six Months Ended July 31,** | ** ** |
|-----------------------------------------|------------|-------------------------------|------------|
| ** **                              | ** ** | **2004**                      | ** ** | **2003** | ** ** |
| Base overriding royalties               |       | $                             | 3,405,230  |   | $ | 1,322,296 |   |
| Bonus royalties                         |       | 0                             |       | 0 |   |
| Minimum advance royalty paid (recouped) |       | 0                             |       | (45,089 | ) |
| Fee royalties                           |       | 195,965                       |       | 184,848 |   |
| Total royalty income                    |       | $                             | 3,601,195  |   | $ | 1,462,055 |   |

 

**Current Developments**

 

***General***.  CCIindicated in its Form 10-Q filed July 29, 2004 that production for the firstsix months for Northshore was 2.5 million tons of iron ore pellets.  This represents an increase of 100,000 tonsover the first six months of 2003.  CCIhas not provided an update to its Northshore production forecast of 5.0 milliontons for calendar year 2004, reported in CCI’s previous Form 10-Q filed April29, 2004.

 

Northshore has not providedthe Trust with an estimate for total calendar year 2004 shipments.  (See description of the uncertainty of marketconditions in the iron ore and steel industry under “Important FactorsAffecting Mesabi Trust” below.)  Duringcalendar years 2003, 2002, 2001, 2000, and 1999, the percentage of shipments ofiron ore products from Mesabi Trust lands was approximately 95.5%, 97.5%,99.2%, 99.8%, and 98.9%, respectively, of total shipments.  Northshore has not advised the Trustees as tothe percentage of iron ore products it anticipates shipping from Mesabi Trustlands in calendar year 2004.

 

***Northshore Furnace Reactivation***.  In a September 9, 2004 press release, CCIannounced plans to reactivate an idled furnace at Northshore to meet increasedpellet demand.  According to CCI, thereactivated furnace is expected to begin production in 2005.  In addition to the furnace’s capacity toproduce approximately 800,000 tons of pellets annually, CCI stated thatadditional concentrating capacity will be brought on line to support thereactivated furnace.  CCI stated in itspress release that these plans are subject to the approval of its board ofdirectors.

 

***Mesabi Nugget Project***.  CCI is participating in the Mesabi NuggetProject with Kobe Steel, Ltd. (“Kobe”), Steel Dynamics, Inc. (“SDI”),Ferrometrics, Inc. (“Ferrometrics”) and the State of Minnesota.

 

10

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The project’s objective is to develop andapply a new iron making technology (Kobe Steel’s Itmk3 process) for convertingiron ore into nearly pure iron nugget form. CCI has indicated that if the Mesabi Nugget Project successfullyachieves commercialization, iron nuggets from this new process would be used asan alternative to steel scrap as a raw material for electric steel furnaces andblast furnaces or basic oxygen furnaces of integrated steel producers.

 

Apilot plant to test the Itmk3 process was constructed at the Northshorefacility and operated through August 2004. In published statements, Mesabi Nugget LLC concluded that the pilotplant  project was a success.  In May 2004, the Minnesota state legislatureenacted legislation to shorten the environmental permitting timeline for thedevelopment of a nugget plant at Cliffs Erie, another site owned by CCI in HoytLakes, Minnesota, and Minnesota state agencies may offer tax and financialincentives for construction at the Hoyt Lakes site.  CCI stated in a September 9, 2004 pressrelease that it was proceeding with plans to participate in the development ofa 500,000 ton nugget demonstration plant at its Cliffs Erie facility.  CCI reported in its Form 10-Q filed July 29,2004 that environmental permitting activities had been initiated for threepotential commercial plant locations, with the earliest approval expected inthe first quarter of 2005.  Whileenvironmental permitting activities are currently ongoing for the expectednugget demonstration plant at CCI’s Cliffs Erie site, CCI indicated in itsSeptember 9, 2004 press release that efforts to permit commercial nuggetmodules at the Northshore facility have been terminated.

 

CCIannounced in its September 9, 2004 press release that any future Minnesotaconstruction of commercial nugget modules would be at CCI’s Cliffs Eriefacility, and added that Northshore would be capable of supplying ironconcentrates to the initial iron nugget demonstration plant expected at CliffsErie, as well as subsequent commercial modules. Although Mesabi Trust is not a party to the Mesabi Nugget Project andits involvement in this project was not solicited, iron ore from Mesabi Trustlands could foreseeably be used to supply concentrate to the iron nuggetdemonstration plant or commercial modules. At this time, however, the Trustees are unable to make projections as towhether any prospective future royalties might be payable to the Trust withrespect to any new nugget demonstration plants or commercial modules.

 

***Securities Regulation***.  The Trust is a publicly-traded trust listedon the New York Stock Exchange (“NYSE”) and is therefore subject to extensiveregulation under, among others, the Securities Act of 1933, the SecuritiesExchange Act of 1934, NYSE rules and regulations and the Sarbanes-Oxley Act of2002 (“Sarbanes-Oxley”).  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 not specificallyaddress their applicability to publicly-traded trusts such as MesabiTrust.  In particular, Sarbanes-Oxleyprovides for the adoption by the Securities and Exchange Commission (the “SEC”)and NYSE of certain rules and regulations that may be impossible for the Trustto literally satisfy because of its nature as a pass-through trust.  During fiscal 2004, the SEC and NYSE adoptedrules and regulations pursuant to Sarbanes-Oxley that require a publicly-tradedcompany’s board of directors, audit committee or executive directors (orsimilar body) to act with respect to certain corporate governance matters.  The Trust does not have, nor does theAgreement of Trust provide for, a board of directors, an audit committee or anyexecutive officers.  Moreover, the Trusthas no employees at all.  Therefore, theTrust cannot literally comply with many of these rules and regulations.  The Trustees intend to follow the SEC’s andNYSE’s rulemaking closely and attempt to comply with such rules and regulationswhere possible.

 

**Important Factors AffectingMesabi Trust**

 

The Agreement of Trust datedJuly 18, 1961 (the “Agreement of Trust”) specifically prohibits the Trusteesfrom entering into or engaging in any business. This prohibition seemingly applies even to

 

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business activities theTrustees deem necessary or proper for the preservation and protection of theTrust Estate.  Accordingly, the Trustees’activities in connection with the administration of Trust assets are limited tocollecting income, paying expenses and liabilities, distributing net income tothe Trust’s Certificate Holders after the payment of, or provision for, suchexpenses and liabilities, and protecting and conserving the assets held.

 

Accordingly, the income ofthe Trust is highly dependent upon the activities and operations of Northshore,and the terms and conditions of 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 the Assumption and Assignmentof Mesabi Lease (together with the Amended Assignment of Peters Lease and theAmended Assignment of Cloquet Lease, the “Amended Assignment Agreements”).  The Trust and the Trustees have no controlover the operations and activities of Northshore, except within the frameworkof the Amended Assignment Agreements.

 

Due to winter weather, andthe increasing royalty percentages based on tonnage shipped in a calendar year,results for a particular calendar quarter are typically not indicative ofresults for future quarters or the year as a whole.  Factors which can impact the results of theTrust in any quarter or year include:

 

1.          ShippingConditions in the Great Lakes.  Shipping activity by Northshore is dependentupon when the Great Lakes shipping lanes freeze for the winter months (typicallyin January) and when they re-open in the spring (typically late-March orApril).  Base overriding royalties toMesabi Trust are based on shipments made in a calendar quarter.  Because there ordinarily is little or noshipping activity in the first calendar quarter, the Trust typically receivesonly the minimum royalty (or slightly more than the minimum) for that period.

 

2.          Operations ofNorthshore.  Because theprimary portion 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.  In addition, as noted in CCI’s September 9,2004 press release, the planned reactivation of a previously idled furnace atNorthshore may be impacted by such factors as changes in laws and regulationsthat negatively affect the reactivation of the furnace and the relatedincreases in concentrate production, the failure to obtain requiredenvironmental permits in a timely manner, an inability to generate sufficientconcentrate to support the reactivated furnace, and increases in the cost andlength of time required for the reactivation.

 

3.          IncreasingRoyalties.  Asdescribed elsewhere in this Report, the royalty percentage paid to the Trustincreases as the aggregate tonnage of iron ore products shipped, attributableto the Trust, in any calendar year increases. Assuming a consistent sales price per ton throughout a calendar year,shipments of iron ore product attributable to the Trust later in the yeargenerate a higher royalty to the Trust, as total shipments for the year exceedincreasing levels of royalty percentages and pass each of the first fourone-million ton volume thresholds.

 

4.          Percentage ofMesabi Trust Ore.  Asdescribed elsewhere in this Report, Northshore has the ability to process andship iron ore products from lands other than Mesabi Trust lands.  In certain

 

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circumstances, the Trust may be entitled to royalties on those othershipments, but not in all cases.  Ingeneral, the Trust will receive higher royalties (assuming all other factorsare equal) if a higher percentage of shipments are from Mesabi Trust lands.  The percentages of shipments that came fromMesabi Trust lands were 95.5%, 97.5%, 99.2%, 99.8%, and 98.9% in calendar years2003, 2002, 2001, 2000, and 1999, respectively.

 

5.          Uncertainty ofMarket Conditions in the Steel and Iron Ore Industry.  Although CCI reported in its Form 10-Q forits quarterly period ending June 30, 2004 that it experienced record secondquarter iron ore pellet sales and is projecting an overall increase in total2004 pellet sales (as compared to 2003), CCI cautioned in such Form 10-Q thatsignificant risks and uncertainties may impact its forecast, including, but notlimited to, changes in customer demand, an increase in certain steel imports, adecrease in iron ore production in North America due to global overcapacity ofsteel and uncertainty relating to customer restructuring and financialdifficulty.  Furthermore, there existsconsolidation and intense competition in the domestic steel market.

 

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 bemaintained at these current relatively higher levels, and whether steel millswill be able to continue operating at capacity levels in 2004 and beyond.  Furthermore, although overall there appearsto have been an increase in the demand for domestic steel products over thelast fiscal year, it is nevertheless uncertain whether this increase in demandwill continue and the extent to which it will impact royalties paid to theTrust in fiscal year 2005 and beyond.

 

**Critical Accounting Policies**

 

The preparation of financialstatements in conformity with generally accepted accounting principles requiresthe Trustees to make estimates and assumptions that affect the reported amountsof assets and liabilities and disclosure of contingent assets and liabilitiesat the date of the financial statements and the reported amounts of revenuesand expenses during the reporting period. Actual results could differ fromthose estimates.

 

**Item 3. Quantitative and Qualitative Disclosure About Market Risk.**

 

Not applicable.

 

**Item 4. Controls and Procedures.**

 

***Evaluation of Disclosure Controls and Procedures***.  The Trustees maintain disclosure controls andprocedures designed to ensure that information required to be disclosed by theTrust in the reports that it files or submits under the Securities Exchange Actof 1934, as amended, is recorded, processed, summarized and reported within thetime periods specified in the rules and regulations of the Securities andExchange Commission.  Disclosure controlsand procedures include controls and procedures designed to ensure thatinformation required to be disclosed by the Trust is accumulated and communicatedby Northshore, and the Trust’s independent auditors and consultants to theTrustees as appropriate to allow timely decisions regarding requireddisclosure.

 

As of the end of the periodcovered by this Report, the Trustees carried out an evaluation of the Trust’sdisclosure controls and procedures.  TheTrustees have concluded that the disclosure controls and procedures areeffective, while noting certain limitations on disclosure controls andprocedures as set forth below.

 

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Due to the contractualarrangements of the Agreement of Trust and the Amendment to the Agreement ofTrust dated October 25, 1982 (the “Amendment”), there are certain potentialweaknesses that may limit the effectiveness of disclosure controls andprocedures established by the Trustees and their ability to verify the accuracyof certain financial information.  Thecontractual limitations creating potential weaknesses in disclosure controlsand procedures may be deemed to include:

 

•      Northshorealone controls (i) historical operating data, including iron ore productionvolumes, marketing of iron ore products, operating and capital expenditures asthey relate to Northshore, environmental and other liabilities and the effectsof regulatory 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 by contractor by governmental laws or regulations to provide such a certification.

 

•      Gordon,Hughes and Banks, LLP, which serves as the Trust’s independent accountants, hasdelivered a report to the Trust concluding that based upon its review of thefinancial statements of the Trust for its quarter ended July 31, 2004 (the “FinancialStatements”), it is not aware of any material modifications that should be madeto the Financial Statements in order for the Financial Statements to be inconformity with generally accepted accounting principles.

 

•      Underthe terms of 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 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 Trustees do not intendto expand their responsibilities beyond those permitted or required by theAgreement of Trust, the Amendment, and those required under applicable law.

 

***Changes in Internal Control Over Financial Reporting***.  To the knowledge of the Trustees, there hasbeen no significant change in the Trust’s internal control over financialreporting that occurred during the Trust’s last fiscal quarter that hasmaterially affected, or is reasonably likely to materially affect, the Trust’sinternal control over financial reporting. The Trustees note for purposes of clarification that they have noauthority over, and make no statement concerning, the internal control overfinancial reporting of Northshore.

 

**PARTII - OTHER INFORMATION**

 
| **Item 1.** | **Legal Proceedings.** |
|-------------|------------------------|
|        |                   |
|        | None.                  |

 

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| **Item 2.** | **Unregistered Sales of Equity Securities and Use of Proceeds.** |
|-------------|------------------------------------------------------------------|
|        |                                                             |
|        | None.                                                            |
|        |                                                             |
| **Item 3.** | **Defaults Upon Senior Securities.**                             |
|        |                                                             |
|        | None.                                                            |
|        |                                                             |
| **Item 4.** | **Submission of Matters to a Vote of 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  Gordon, Hughes and Banks, LLP regarding its review of the un-audited interim  financial statements of Mesabi Trust for its quarter ending July 31, 2004.                         |

 

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**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:* |
|                   |                                                             |
|                   |                                                             |
| Date: January 21, 2005 | By:                                                              | /s/ Rodney Gaughan |
|                   |                                                             | Name: | Rodney Gaughan |
|                   |                                                             | Title: | Assistant Vice President |
|                        |                                                                  |  |  |  |  |  |

 

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

 

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