**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,D.C. 20549**

 

**FORM 10-Q**

 

**(MarkOne)**

 
| **ý** | ** ** | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE  ACT OF 1934**                                                                                                                                                                                                                                                                                              |
|------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                 |
| ** ** | ** ** | **For the quarterly period ended July 31,  2005**                                                                                                                                                                                                                                                                                                                                               |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                 |
| **or**     |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                 |
| **o**      | ** ** | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**                                                                                                                                                                                                                                                                                              |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                 |
| ** ** | ** ** | **For the transition period from                                to                              ** |

 

**CommissionFile Number:  1-4488**

 

**MESABI TRUST**

(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)

 

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

 

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

 

Indicateby check mark whether the registrant is a shell company (as defined in Rule 12b-2of the Exchange Act).  Yes  o No  ý

 

Asof September 7, 2005, there were 13,120,010 Units of Beneficial Interestin Mesabi Trust outstanding.

 

 

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**PART I- FINANCIAL INFORMATION**

 

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

 

**A.****           ****Condensed Statements ofIncome**

 
| ** **                       | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|----------------------------------|------------|------------------------|------------|----------------------|------------|
| ** **                       | ** ** | **July 31,**      | ** ** | **July 31,**    | ** ** |
| ** **                       | ** ** | **2005**               | ** ** | **2004**             | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                       | ** ** | ** **             | ** ** | ** **           | ** ** | ** ** | ** ** | ** ** | ** ** |
| Revenues                         |       |                   |       |                 |       |   |   |   |   |
| Royalty income                   |       | $                      | 5,541,043  |                 | $          | 2,673,989 |   | $ | 7,884,491 |   | $ | 3,601,195 |   |
| Interest income                  |       | 12,410                 |       | 9,806                |       | 23,047 |   | 20,309 |   |
|                             |       | 5,553,453              |       | 2,683,795            |       | 7,907,538 |   | 3,621,504 |   |
|                             |       |                   |       |                 |       |   |   |   |   |
| Expenses                         |       | 145,972                |       | 179,737              |       | 364,895 |   | 281,479 |   |
|                             |       |                   |       |                 |       |   |   |   |   |
| Net income                       |       | $                      | 5,407,481  |                 | $          | 2,504,058 |   | $ | 7,542,643 |   | $ | 3,340,025 |   |
|                             |       |                   |       |                 |       |   |   |   |   |
| Number of  units outstanding     |       | 13,120,010             |       | 13,120,010           |       | 13,120,010 |   | 13,120,010 |   |
|                             |       |                   |       |                 |       |   |   |   |   |
| Net income  per unit (Note 2)    |       | $                      | 0.412155   |                 | $          | 0.190858 |   | $ | 0.574896 |   | $ | 0.254575 |   |
|                             |       |                   |       |                 |       |   |   |   |   |
| Distributions  declared per unit |       | $                      | 0.370      |                 | $          | 0.175 |   | $ | 0.700 |   | $ | 0.225 |   |

 

See Notes to Financial Statements.

 

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**B.****           ****Condensed Balance Sheets**

 
| ** **                                                                | ** ** | **July 31, 2005** | ** ** | **January 31, 2005** | ** ** |
|---------------------------------------------------------------------------|------------|------------------------|------------|---------------------------|------------|
|                                                                      |       |                   |       |                      |       |
| **Assets**                                                                |       |                   |       |                      |       |
|                                                                      |       |                   |       |                      |       |
| Cash                                                                      |       | $                      | 5,139,998  |                      | $          | 3,970,870 |   |
|                                                                      |       |                   |       |                      |       |
| U.S. Government securities, at amortized cost (which approximates market) |       | 648,193                |       | 748,193                   |       |
|                                                                      |       |                   |       |                      |       |
| Accrued income receivable                                                 |       | 1,801,553              |       | 3,519,923                 |       |
| Prepaid expenses                                                          |       | 18,108                 |       | 13,346                    |       |
|                                                                      |       | 7,607,852              |       | 8,252,332                 |       |
|                                                                      |       |                   |       |                      |       |
| 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                         |       |
|                                                                      |       |                   |       |                      |       |
|                                                                      |       | $                      | 7,607,855  |                      | $          | 8,252,335 |   |
|                                                                      |       |                   |       |                      |       |
| **Liabilities,  Unallocated Reserve and Trust Corpus**                    |       |                   |       |                      |       |
|                                                                      |       |                   |       |                      |       |
| Liabilities                                                               |       |                   |       |                      |       |
| Distribution payable                                                      |       | $                      | 4,854,404  |                      | $          | 3,870,403 |   |
| Accrued expenses                                                          |       | 71,049                 |       | 58,166                    |       |
|                                                                      |       | 4,925,453              |       | 3,928,569                 |       |
|                                                                      |       |                   |       |                      |       |
| Unallocated Reserve (Note 3)                                              |       | 2,682,399              |       | 4,323,763                 |       |
| Trust Corpus                                                              |       | 3                      |       | 3                         |       |
|                                                                      |       |                   |       |                      |       |
|                                                                      |       | $                      | 7,607,855  |                      | $          | 8,252,335 |   |

 

See Notes to Financial Statements.

 

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**C.****           ****Condensed Statements of CashFlows**

 
| ** **                                                                     | ** ** | **Six Months Ended** | ** ** |
|--------------------------------------------------------------------------------|------------|----------------------|------------|
| ** **                                                                     | ** ** | **July 31,**    | ** ** |
| ** **                                                                     | ** ** | **2005**             | ** ** | **2004** | ** ** |
|                                                                           |       |                 |       |   |   |
| Cash flows  from operating activities                                          |       |                 |       |   |   |
| Royalties received                                                             |       | $                    | 9,599,253  |   | $ | 3,137,442 |   |
| Interest received                                                              |       | 26,655               |       | 24,190 |   |
| Expenses paid                                                                  |       | (356,774             | )          | (294,676 | ) |
|                                                                           |       |                 |       |   |   |
| Net cash provided by operating activities                                      |       | 9,269,134            |       | 2,866,956 |   |
|                                                                           |       |                 |       |   |   |
| Cash flows  from investing activities                                          |       |                 |       |   |   |
| Maturities of U.S. Government Securities                                       |       | 8,452,420            |       | 4,999,722 |   |
| Purchases of U.S. Government Securities                                        |       | (8,352,420           | )          | (3,274,640 | ) |
|                                                                           |       |                 |       |   |   |
| Net cash provided by (used for) investing activities                           |       | 100,000              |       | 1,725,082 |   |
|                                                                           |       |                 |       |   |   |
| Cash flow  from financing activities                                           |       |                 |       |   |   |
| Distributions to Unitholders                                                   |       | (8,200,006           | )          | (4,592,003 | ) |
|                                                                           |       |                 |       |   |   |
| Net change  in cash                                                            |       | 1,169,128            |       | 35 |   |
|                                                                           |       |                 |       |   |   |
| Cash,  beginning of year                                                       |       | 3,970,870            |       | 98,692 |   |
|                                                                           |       |                 |       |   |   |
| Cash, end of  quarter                                                          |       | $                    | 5,139,998  |   | $ | 98,727 |   |
|                                                                           |       |                 |       |   |   |
| **Reconciliation  of net income to net cash provided by operating activities** |       |                 |       |   |   |
|                                                                           |       |                 |       |   |   |
| Net income                                                                     |       | $                    | 7,542,643  |   | $ | 3,340,025 |   |
| (Increase)  Decrease in accrued income receivable                              |       | 1,718,370            |       | (459,871 | ) |
| (Increase)  Decrease in prepaid insurance                                      |       | (4,762               | )          | 889 |   |
| Increase  (Decrease) in accrued expenses                                       |       | 12,883               |       | (14,087 | ) |
|                                                                           |       |                 |       |   |   |
| Net cash provided by operating activities                                      |       | $                    | 9,269,134  |   | $ | 2,866,956 |   |

 

See Notes to Financial Statements.

 

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**MESABITRUST**

 

**NOTES TOFINANCIAL STATEMENTS**

 

Note1.         The accompanying interim condensed financial statements of MESABI TRUST(the “Trust”) have been prepared without audit (except for the balance sheet atJanuary 31, 2005) in accordance with the instructions to Form 10-Qpursuant to the rules and regulations of the Securities and ExchangeCommission.  Certain information andfootnote disclosures normally included in financial statements prepared inaccordance with generally accepted accounting principles have been condensed oromitted pursuant to such rules and regulations.  In the opinion of the Trustees, alladjustments have been made, consisting only of normal recurring adjustments,necessary for a fair presentation of the Trust’s financial position and the resultsof its operations for the periods presented. These unaudited interim financial statements should be read inconjunction with the audited financial statements included in the Trust’s Form 10-Kfor the period ended January 31, 2005.

 

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

 

Note3.         The Trustees have determined that the Unallocated Reserve should bemaintained at a prudent level, usually within the range of $500,000 to$1,000,000, to meet present or future liabilities of the Trust.  Accordingly, although the actual amount ofthe Unallocated Reserve will fluctuate from time to time, and may increase ordecrease from its current level, it is currently intended that futuredistributions will be highly dependent upon royalty income as it is receivedquarterly and the level of Trust expenses that the Trustees anticipateoccurring in subsequent quarters.  TheTrustees determine the level of distributions on a quarterly basis afterreceiving notification from Northshore Mining Company as to the amount ofroyalty income that will be received and after determination of any known oranticipated expenses, liabilities and obligations of the Trust.  At July 31, 2005, the UnallocatedReserve was represented by $880,846 in unallocated cash and U.S. Governmentsecurities, and $1,801,553 of accrued revenue primarily representing royaltiesnot yet received by the Trust but anticipated to be received in October 2005from Northshore Mining Company as part of the royalty due with respect to the secondfiscal quarter, based upon reported lessee shipping activity for the month of July 2005.

 

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

 

**Forward-LookingInformation**

 

Certainstatements contained in this document are forward-looking statements within themeaning of the Private Securities Litigation Reform Act of 1995, includingspecifically those statements estimating calendar year 2005 production orshipments and comments related to the commencement of construction and openingof additional plants in 2005 and beyond. All such forward-looking statements are based on input from NorthshoreMining Company (“Northshore”), which is the lessee/operator and a wholly-ownedsubsidiary of Cleveland-Cliffs Inc (“CCI”), and published announcements ofCCI.  The Trust has no control over theoperations or activities of Northshore, nor any influence on the decision ofwhether Northshore’s facilities would be used to supply CCI’s demonstration orcommercial nugget modules (presently in the planning stages), except within theframework of current agreements.  Actualresults could differ materially from those indicated in such statements.  Important factors that could cause actualresults to differ materially include those listed below under the heading “ImportantFactors Affecting Mesabi Trust”.

 

**Background**

 

MesabiTrust (“Mesabi Trust” or the “Trust”), formed pursuant to an Agreement of Trustdated July 18, 1961 (the “Agreement of Trust”), is a trust organized underthe laws of the State of New York.  TheAgreement of Trust specifically prohibits the Trustees from entering into orengaging in any business.  Thisprohibition applies even to business activities the Trustees deem necessary orproper for the preservation and protection of the Trust Estate.  Accordingly, the Trustees’ activities inconnection with the administration of Trust assets are limited to collectingincome, paying expenses and liabilities, distributing net income to the holdersof Certificates of Beneficial Interest in the Trust (“Unitholders”) after thepayment of, or provision for, such expenses and liabilities, and protecting andconserving the assets held.  The Trusteesdo not intend to expand their responsibilities beyond those permitted orrequired by the Agreement of Trust, the Amendment to the Agreement of Trustdated October 25, 1982 (the “Amendment”), and those required underapplicable law.

 

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

 

•                                          Base overriding royalties, which historically constitute the majorityof Mesabi Trust’s royalty income, are determined by both the volume and sellingprice of iron ore products shipped. Northshore is obligated to pay Mesabi Trust base overriding royalties invarying amounts, based on the volume of iron ore products shipped.  Base overriding royalties are calculated as apercentage of the gross proceeds of iron ore products produced at Mesabi Trustlands (and to a limited extent other lands) and shipped from Silver Bay,Minnesota.  The percentage ranges from 2-1/2%of the gross proceeds for the first one million tons of iron ore products soshipped annually to 6% of the gross proceeds for all iron ore products inexcess of 4 million tons so shipped annually.

 

•                                          Royalty bonuses are earned when iron ore products shippedfrom Silver Bay are sold at prices above a threshold price.  The royalty bonus is a percentage of thegross proceeds of product shipped from Silver Bay and sold at prices above athreshold price.  The threshold price isadjusted (but not below $30.00) on an annual basis for inflation and deflation(the “Adjusted Threshold Price”).  TheAdjusted Threshold Price was $41.13 for calendar year 2003, $41.76 for calendaryear 2004, and is $42.89 for calendar year 2005.  The royalty bonus percentage ranges from 1/2of 1% of the gross proceeds (on all 

 

6

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tonnage shipped for sale atprices between the Adjusted Threshold Price and $2.00 above the AdjustedThreshold Price) to 3% of the gross proceeds (on all tonnage shipped for saleat prices $10.00 or more above the Adjusted Threshold Price).  Northshore paid a royalty bonus of $2,460,305to the Trust for royalty bonuses earned during the calendar quarter ended June 30,2005.  Prior to fiscal year 2005, theTrust had not received a royalty bonus for several years. (See the section entitled“Royalty Comparisons” below for more information.)

 

•                                          Fee royalties, which historically constitute a smallercomponent of the Trust’s royalty income, are payable to Mesabi Land Trust, aMinnesota land trust of which Mesabi Trust is the sole beneficiary and forwhich US Bank N.A. acts as trustee, and are based on the amount of crude oremined.  Currently, the fee royalty oncrude ore is based on an agreed price per ton, subject to certainindexing.  Crude ore is the source ofiron oxides used to make iron ore pellets and other products.

 

•                                          Minimum advance royalties: Generally, Northshore’s obligation to pay base overriding royalties androyalty bonuses with respect to the sale of iron ore products accrues upon theshipment of those products from Silver Bay. However, regardless of whether any shipment has occurred, Northshore isobligated to pay to Mesabi Trust a minimum advance royalty.  Each year, the amount of the minimum advanceroyalty is adjusted (but not below $500,000 per annum) for inflation anddeflation.  The advance royalty was$685,630 for calendar year 2003, $696,161 for calendar year 2004, and is $714,988for calendar year 2005.  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 royalties and royalty bonuses earnedeach year, any advance minimum royalties paid in a fiscal quarter are recoupedby credits against base overriding royalties and royalty bonuses earned inlater fiscal quarters during the year.  Overthe past two years, the base overriding royalties (and, where applicable,royalty bonuses) earned in each fiscal quarter have exceeded the applicableminimum advance royalty amount and thus no minimum advance royalties have beennecessary.

 

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

 

Underthe relevant documents, Northshore may mine and ship iron ore products fromlands other than Mesabi Trust lands. Northshore alone determines whether to mine off of Trust and/or suchother lands, based on its current mining and engineering plan.  The Trustees do not exert any influence overmining operational decisions.  Toencourage the use of iron ore products from Mesabi Trust lands, Mesabi Trustreceives royalties on stated percentages of iron ore shipped from Silver Bay,whether or not the iron ore products are from Mesabi Trust lands.  Mesabi Trust receives royalties at thegreater of (i) the aggregate quantity of iron ore products shipped thatwere from Mesabi Trust lands, and (ii) a portion of the aggregate quantityof all iron ore products shipped that were from any lands, such portion being90% of the first four million tons shipped during such year, 85% of the nexttwo million tons shipped during such year, and 25% of all tonnage shippedduring such year in excess of six million tons.

 

MesabiTrust has no employees, but it engages independent consultants to assist theTrustees in monitoring, among other things, the amount and sales prices of ironore products shipped by Northshore 

 

7

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from Silver Bay.  As noted above,the information regarding amounts and sales prices of shipped iron ore productsis used to compute the royalties payable to Mesabi Trust by Northshore.  Deutsche Bank Trust Company Americas, theCorporate Trustee, also performs certain administrative functions for MesabiTrust.

 

**Results ofOperations**

 

Asshown in the table below, production of iron ore pellets at Northshore fromMesabi Trust lands during the fiscal quarter ended July 31, 2005 totaledapproximately 1.04 million tons, and actual shipments over the same periodtotaled approximately 1.35 million tons. By comparison, actual pellet production for the comparable prior periodapproximated 1.28 million tons, and actual shipments approximated 1.59 milliontons.

 
| **Three Months Ended** | ** ** | **Pellets Produced from  Trust Lands** | ** ** | **Shipments from Trust  Lands** | ** ** |
|------------------------|------------|----------------------------------------|------------|---------------------------------|------------|
| July 31,  2005    |       | 1,035,952                              |       | 1,351,033                       |       |
| July 31,  2004    |       | 1,279,588                              |       | 1,587,508                       |       |

 

During the six months ended July 31,2005, production of iron ore pellets at Northshore from Mesabi Trust landstotaled approximately 2.19 million tons, and actual shipments over the sameperiod totaled approximately 1.89 million tons. By comparison, actual pellet production for the comparable prior periodapproximated 2.49 million tons, and actual shipments approximated 2.32 milliontons.

 
| **Six Months Ended** | ** ** | **Pellets Produced from   Trust Lands** | ** ** | **Shipments from Trust  Lands** | ** ** |
|----------------------|------------|-----------------------------------------|------------|---------------------------------|------------|
| July 31,  2005  |       | 2,191,887                               |       | 1,888,975                       |       |
| July 31,  2004  |       | 2,487,993                               |       | 2,322,893                       |       |

 

Thedecreases in production and shipments from Trust lands are attributable toNorthshore’s mining activity on lands owned by parties other than the Trustduring the fiscal quarter ended July 31, 2005.  During the comparable prior period, higherpercentages of production and shipments were attributed to Mesabi Trust lands.

 

Despitethe decreased production and shipments, total royalty income for the quarterincreased by approximately 107% over the comparable prior period, primarily dueto royalty bonuses and increased pellet pricing.

 

**Comparisonof Three Months Ended July 31, 2005 and July 31, 2004**

 

Netincome for the quarter ended July 31, 2005 was $5,407,481, an increase ofapproximately 116% over the quarter ended July 31, 2004.  This increase was primarily due to thereceipt of royalty bonuses during the quarter and increases in pellet prices,as compared to the comparable prior period. Expenses decreased from the comparable prior period, primarily due to decreasesin general and 

 

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administrative expenses. Following is a summary of results for the three months ended July 31,2005 and July 31, 2004, respectively.

 
| ** **            | ** ** | **Three Months Ended July 31,** | ** ** |
|-----------------------|------------|--------------------------------------|------------|
| ** **            | ** ** | **2005**                             | ** ** | **2004** | ** ** |
| Total  royalty income |       | $                                    | 5,541,043  |   | $ | 2,673,989 |   |
| Interest  income      |       | 12,410                               |       | 9,806 |   |
| Gross income          |       | $                                    | 5,553,453  |   | $ | 2,683,795 |   |
|                  |       |                                 |       |   |   |
| Expenses              |       | 145,972                              |       | 179,737 |   |
| Net income            |       | $                                    | 5,407,481  |   | $ | 2,504,058 |   |

 

**Comparisonof Six Months Ended July 31, 2005 and July 31, 2004**

 

Netincome for the six months ended July 31, 2005 was $7,542,643, an increaseof approximately 126% over the six months ended July 31, 2004.  This increase was primarily due to thereceipt of royalty bonuses during the quarter and increases in pellet prices,as compared to the comparable prior period. Expenses increased from the comparable prior period, primarily due toincreases in general and administrative expenses.  Following is a summary of results for the sixmonths ended July 31, 2005 and July 31, 2004, respectively.

 
| ** **            | ** ** | **Six Months Ended July 31,** | ** ** |
|-----------------------|------------|------------------------------------|------------|
| ** **            | ** ** | **2005**                           | ** ** | **2004** | ** ** |
| Total  royalty income |       | $                                  | 7,884,491  |   | $ | 3,601,195 |   |
| Interest  income      |       | 23,047                             |       | 20,309 |   |
| Gross income          |       | $                                  | 7,907,538  |   | $ | 3,621,504 |   |
|                  |       |                               |       |   |   |
| Expenses              |       | 364,895                            |       | 281,479 |   |
| Net income            |       | $                                  | 7,542,643  |   | $ | 3,340,025 |   |

 

**UnallocatedReserve**

 

UnallocatedReserve as of July 31, 2005 was $2,682,399, an increase of approximately 49%over the Unallocated Reserve as of July 31, 2004.  The increase is primarily due to royaltyrevenue that was accrued for on the Trust’s balance sheet at the end of thefiscal quarter, but not yet paid to the Trust. The increased royalty revenue accrual is reflected as Accrued IncomeReceivable on the balance sheet at July 31, 2005, which the Trusteesanticipate will be distributed, after providing for expenses and reserves,during the quarter in which it is received.

 

TheTrustees have determined that the Unallocated Reserve should be maintained at aprudent level, usually within the range of $500,000 to $1,000,000.  Accordingly, although the actual amount ofthe Unallocated Reserve will fluctuate from time to time, and may increase ordecrease from its current level, it is currently intended that futuredistributions will be highly dependent upon royalty income as it is receivedand the level of Trust expenses.  Theamount of future royalty income available for distribution will be subject tothe volume of iron ore product shipments and the dollar level of sales byNorthshore.  Shipping activity is greatlyreduced during the winter months and economic conditions, particularly thoseaffecting the steel industry, may adversely affect the amount and timing ofsuch future shipments and sales.

 

9

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TheTrustees will continue to monitor the economic circumstances of the Trust tostrike a responsible balance between distributions to Unitholders and the needto maintain adequate reserves at a prudent level, given the unpredictablenature of the iron ore industry, the Trust’s dependence on the actions of thelessee/operator, and the fact that the Trust essentially has no other liquidassets.  Following is a comparison ofUnallocated Reserve over the past year.

 
| ** **           | ** ** | **As of July 31,** | ** ** |
|----------------------|------------|-------------------------|------------|
| ** **           | ** ** | **2005**                | ** ** | **2004** | ** ** |
| Unallocated  Reserve |       | $                       | 2,682,399  |   | $ | 1,796,607 |   |
|                      |            |                         |            |  |  |  |  |

 

**RoyaltyComparisons**

 

Royaltiesreceived in July 2005 included a royalty bonus payment, reflecting pricesof pellets shipped that exceeded the current Adjusted Threshold Price of $42.89per ton.  No such royalty bonus paymentwas received in the comparable prior period.

 

Thefollowing summarizes Mesabi Trust’s royalty income for the three months ended July 31,2005 and July 31, 2004, respectively:

 
| ** **                               | ** ** | **Three Months Ended July 31,** | ** ** |
|------------------------------------------|------------|--------------------------------------|------------|
| ** **                               | ** ** | **2005**                             | ** ** | **2004** | ** ** |
| Base  overriding royalties               |       | $                                    | 3,011,663  |   | $ | 2,575,290 |   |
| Bonus  royalties                         |       | 2,445,365                            |       | 0 |   |
| Minimum  advance royalty paid (recouped) |       | 0                                    |       | 0 |   |
| Fee  royalties                           |       | 84,015                               |       | 98,699 |   |
| Total royalty income                     |       | $                                    | 5,541,043  |   | $ | 2,673,989 |   |

 

The following summarizesMesabi Trust’s royalty income for the six months ended July 31, 2005 and July 31,2004, respectively:

 
| ** **                               | ** ** | **Six Months Ended July 31,** | ** ** |
|------------------------------------------|------------|------------------------------------|------------|
| ** **                               | ** ** | **2005**                           | ** ** | **2004** | ** ** |
| Base  overriding royalties               |       | $                                  | 3,936,680  |   | $ | 3,405,230 |   |
| Bonus  royalties                         |       | 3,768,634                          |       | 0 |   |
| Minimum  advance royalty paid (recouped) |       | 0                                  |       | 0 |   |
| Fee  royalties                           |       | 179,177                            |       | 195,965 |   |
| Total royalty income                     |       | $                                  | 7,884,491  |   | $ | 3,601,195 |   |

 

**CurrentDevelopments**

 

***General***.  CCIindicated in its Form 10-Q filed July 28, 2005 that production forthe first six months of 2005 for Northshore was 2.4 million tons of iron orepellets, representing a decrease of 100,000 tons from the first six months of2004.  CCI continues to forecastNorthshore production at 4.9 million tons of iron ore pellets (using iron oremined both from Mesabi Trust lands and from other than 

 

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Mesabi Trust lands) for calendar year 2005, which represents a decreaseof 100,000 tons from 2004’s total production for the calendar year.  (See the following section, “CapacityExpansions,” for further discussion of CCI’s revised production estimate.)

 

Northshorehas not provided the Trust with an estimate for total calendar year 2005shipments of iron ore pellets.  (Seedescription of the uncertainty of market conditions in the iron ore and steelindustry under “Important Factors Affecting Mesabi Trust” below.)  During calendar years 2004, 2003, 2002, 2001,and 2000, the percentage of shipments of iron ore products from Mesabi Trustlands was approximately 92.0%, 95.5%, 97.5%, 99.2%, and 99.8%, respectively, oftotal shipments.  Northshore has notadvised the Trustees as to the percentage of iron ore products from MesabiTrust lands it anticipates shipping in calendar year 2005.

 

***Capacity Expansions***.  In itsForm 10-Q filed July 28, 2005, CCI stated that its plan to re-startan idle furnace at Northshore in mid-2005 has been deferred until 2006 due topermitting delays.  As previouslyreported by CCI, the expansion is expected to increase Northshore’s annualproduction capacity by approximately 800,000 tons.  At this time the Trustees are unable to makeany projections as to the extent to which CCI’s planned capacity expansions andthe delay in such expansions may impact future royalties payable to the Trust.

 

***Mesabi Nugget Project***.  CCIis participating in the Mesabi Nugget Project with Kobe Steel, Ltd. (“KobeSteel”), Steel Dynamics, Inc., Ferrometrics, Inc. and the State ofMinnesota.  The project’s objective is todevelop and apply a new iron making technology (Kobe Steel’s Itmk3 process) forconverting iron ore into nearly pure iron nugget form.  CCI has indicated that if the Mesabi NuggetProject successfully achieves commercialization, iron nuggets from this newprocess would be used as an alternative to steel scrap as a raw material forelectric steel furnaces and blast furnaces, basic oxygen furnaces of integratedsteel producers or as feed stock for the foundry industry.

 

Apilot plant to test the Itmk3 process was constructed at the Northshorefacility and operated through August 3, 2004.  CCI stated in its Form 10-K filed February 22,2005 that the third operating phase of the pilot plant test confirmed thecommercial viability of the Itmk3 technology, and that four electric furnaceproducers and one foundry had used the nugget product with favorable results.

 

Inits Form 10-Q filed July 28, 2005, CCI stated that preliminaryconstruction engineering and environmental permitting activities have beeninitiated for two potential commercial plant locations (one in Butler, Indianaand the other at CCI’s Cliffs Erie facility in Hoyt Lakes, Minnesota), and thatthe Minnesota Pollution Control Agency Citizens’ Board unanimously approvedenvironmental permitting for the Cliffs Erie site, subject to appeal, on July 26,2005.  The appeal right ended in late August 2005;according to published reports, no appeals had been filed with the federalEnvironmental Appeals Board as of the appeal deadline.  CCI further stated in its most recent Form 10-Qthat a non-binding term sheet for a commercial plant was executed in March 2005and a decision to proceed with construction engineering was made in April 2005.  CCI added that it would be the supplier ofiron ore and have a minority interest in the first commercial plant.

 

AlthoughMesabi Trust is not a party to the Mesabi Nugget Project and its involvement inthis project was not solicited, iron ore from Mesabi Trust lands may be used tosupply concentrate to the iron nugget plant. At this time, however, the Trustees are unable to make projections as towhether any possible future royalties might be payable to the Trust withrespect to any commercial nugget plants.

 

***Iron Ore Pricing Increases andAdjustments***.  During the course of its fiscal year someportion of the royalties paid to Mesabi Trust will be based on estimated pricesfor iron ore products sold under certain term contracts between Northshore, CCIand certain of their customers (the “CCI Pellet 

 

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Agreements”).  Mesabi Trust isnot a party to the CCI Pellet Agreements. These prices are subject to interim and final pricing adjustments, whichcan be positive or negative, and which adjustments are dependent in part onmultiple price and inflation index factors that are not known until after theend of a contract year. This can result in significant and frequent variationsin royalties received by Mesabi Trust (and in turn the resulting amountavailable for distribution to Unitholders by the Trust) from quarter to quarterand on a comparative historical basis, and these variations, which can bepositive or negative, cannot be predicted by Mesabi Trust.

 

CCIreported in its Form 10-Q filed July 28, 2005 that it experiencedincreased sales prices, primarily due to the effect on CCI’s term salescontract price adjustment factors of an approximate 86% increase ininternational pellet pricing, higher steel pricing, higher price index factorsand other known contractual increases.

 

Becausethe shipments of iron ore products using iron ore mined from Mesabi Trust landsrepresent only a fraction of CCI’s overall sales and because Mesabi Trust isnot party to the CCI Pellet Agreements, while this news indicates that thetrend of prices realized by CCI appears higher, the actual impact on royalties(and ultimately distributions by Mesabi Trust) cannot be estimated.

 

TheTrustees cannot project whether iron ore prices will continue to increase orany potential impact on future royalties payable to the Trust.

 

***Securities Regulation***.  TheTrust is a publicly-traded trust listed on the New York Stock Exchange (“NYSE”)and is therefore subject to extensive regulation under, among others, theSecurities Act of 1933, the Securities Exchange Act of 1934, NYSE rules andregulations and the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”).  Issuers failing to comply with suchauthorities risk serious consequences, including criminal as well as civil andadministrative penalties.  In mostinstances, these laws, rules and regulations do not specifically addresstheir applicability to publicly-traded trusts such as Mesabi Trust.  In particular, Sarbanes-Oxley provides forthe adoption by the Securities and Exchange Commission (the “SEC”) and NYSE ofcertain rules and regulations that may be impossible for the Trust toliterally satisfy because of its nature as a pass-through trust.  During fiscal 2004, the SEC and NYSE adopted rules andregulations pursuant to Sarbanes-Oxley that require a publicly-traded company’sboard of directors, audit committee or executive directors (or similar body) toact 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 andregulations.  The Trustees intend tofollow the SEC’s and NYSE’s rulemaking closely and attempt to comply with such rules andregulations where possible.

 

**ImportantFactors Affecting Mesabi 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 the Trust’s Unitholdersafter the payment of, or provision for, such expenses and liabilities, andprotecting and conserving the assets held.

 

Accordingly,the income of the Trust is highly dependent upon the activities and operationsof Northshore, and the terms and conditions of the leases and assignments ofleases between the Trust and Northshore. The Trust and the Trustees have no control over the operations andactivities of Northshore, 

 

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except within the framework of these agreements.  Northshore 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 reserves and (iv) projected production of iron oreproducts.  Northshore alone determineswhether to mine off Trust and/or state lands, based on its current mining andengineering plan.  The Trustees do notexert any influence over mining operational decisions, nor do the Trusteesprovide any input regarding the ore reserve estimate reported by CCI.  While the Trustees request materialinformation for use in periodic reports as part of their evaluation of theTrust’s 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 SEC.

 

Additionally,as permitted by the terms of the Agreement of Trust and the Amendment, theTrustees are entitled to, and in fact do rely, upon certain experts in goodfaith, including (i) the independent consultants with respect to monthlyproduction and shipment reports, which include figures on crude ore productionand iron ore pellet shipments, and discussions concerning the condition andaccuracy of the scales and plans regarding the development of the Trust’smining property; and (ii) the accounting firm they have contracted withfor non-audit services, including reviews of financial data related to shippingand sales reports provided by Northshore and a review of the schedule ofleasehold royalties payable to the Trust.

 

Dueto winter weather, and the increasing royalty percentages based on tonnageshipped in a calendar year, results for a particular calendar quarter aretypically not indicative of results for future quarters or the year as a whole.  Factors which can impact the results of theTrust in any quarter or year include:

 

1.                             Shipping Conditions in the Great Lakes. Shipping activity by Northshore is dependent upon when the Great Lakesshipping lanes freeze for the winter months (typically in January) and whenthey re-open in the spring (typically late-March or April).  Base overriding royalties to Mesabi Trust arebased on shipments made in a calendar quarter. Because there ordinarily is little or no shipping activity in the first calendarquarter, the Trust typically receives only the minimum royalty (or slightlymore than the minimum) for that period.

 

2.                             Operations of Northshore. Because the primary portion of the Trust’s revenues derive from iron oreproduct shipped by Northshore from Silver Bay, Northshore’s processing andshipping activities directly impact the Trust’s revenues in each quarter andfor each year.  In turn, a number offactors affect Northshore’s shipment volume. These factors include, among others, the economic conditions in the ironore industry, pricing by domestic and international competitors, long-termcustomer contracts or arrangements by Northshore or its competitors,availability of ore boats, production at Northshore’s mining operations, andproduction at the pelletizing/processing facility.  If any pelletizing line becomes idle for anyreason, production and shipments (and, consequently, Trust income) could beadversely impacted.  In addition, asnoted in CCI’s Form 10-Q filed July 28, 2005, the previously plannedreactivation of an idled furnace at Northshore may be impacted by such factorsas an inability of the planned expansions to achieve expected additionalproduction, and increases in the cost and length of time required to completethe capacity expansions.

 

3.                             Future Royalties.  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 past each of the first fourone-million ton volume thresholds. Assuming a consistent sales price per ton throughout a calendar year,shipments of iron ore product attributable 

 

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to the Trust later in theyear generate a higher royalty to the Trust, as total shipments for the yearexceed increasing levels of royalty percentages and pass each of the first fourone-million ton volume thresholds.

 

Royalties increased infiscal 2005 primarily due to increased royalty revenue recognized at the end offiscal 2005 resulting from contract pricing adjustments of pellets shippedduring 2003 and 2004 pursuant to the CCI Pellet Agreements. Mesabi Trust is notparty to these agreements. The Trustees cannot predict with certainty whetherany pricing adjustments under these agreements will or will not occur in thefuture, or if there are pricing adjustments, whether they will be positive ornegative. In either case, these price adjustments will impact future royaltiesreceived by the Trust that become available for distribution to Unitholders.

 

4.                             Future Prices.  Asdescribed elsewhere in this Report, the Trust receives a royalty bonus equal toa percentage of the gross proceeds of iron ore products (mined from MesabiTrust lands) shipped from Silver Bay and sold at prices above the AdjustedThreshold Price ($42.89 per ton for calendar year 2005).  Although Northshore was able to sell someproduct at prices higher than the Adjusted Threshold Price during the first sixmonths of 2005, the Trustees are unable to make projections as to whetherNorthshore will continue to be able to sell pellets at prices above theAdjusted Threshold Price, entitling the Trust to any future royalty bonuspayments.  Furthermore, as noted above,there is no assurance that there will be any additional positive priceadjustments under the CCI Pellet Agreements in the future, and it is possiblethat negative adjustments under those agreements can also occur.

 

5.                             Percentage of Mesabi 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 circumstances, the Trust may beentitled to royalties on those other shipments, but not in all cases.  In general, the Trust will receive higherroyalties (assuming all other factors are equal) if a higher percentage ofshipments are from Mesabi Trust lands. The percentages of shipments that came from Mesabi Trust lands were92.0%, 95.5%, 97.5%, 99.2%, and 99.8%, in calendar years 2004, 2003, 2002,2001, and 2000, respectively.

 

6.                             Uncertainty of Market Conditions in the Steeland Iron Ore Industry.** **CCIreported in its Form 10-Q for its fiscal quarter ending June 30, 2005that, while there is uncertainty regarding the pellet requirements of itscustomers, CCI is projecting that 2005 North American pellet sales will beapproximately 22.5 million tons (as compared to sales of 22.6 million tons in2004) and 2005 North American pellet production will be approximately 22.9million tons (as compared to production of 21.7 tons in 2004).  However, CCI cautioned in its Form 10-Qthat significant risks and uncertainties may impact its forecast, including,but not limited to, a decrease in steel production caused by globalovercapacity of steel, an increase in steel imports into the United States, cyclicalityin the steel market, fluctuations in international pricing for iron ore, andcustomer or potential customer restructuring and financial difficulty (whichcould result in reduced production capacity over time).  Furthermore, there still exists uncertainty,consolidation and restructuring in the domestic steel market.

 

In light of the currentsteel industry environment, uncertainties arising from war and other globalevents, and the above-mentioned risks and factors, it is uncertain whetherprices on domestic steel products will be maintained at current levels, andwhether steel mills will be able to operate at capacity levels for theremainder of 2005 and beyond. Furthermore, it is uncertain whether the demand for domestic steelproducts will continue at current levels and the extent to which it will impactroyalties paid to the Trust in fiscal year 2006 and beyond.

 

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**CriticalAccounting Policies**

 

This“Trustees’ Discussion and Analysis of Financial Condition and Results ofOperations” is based upon the Trust’s financial statements, which have beenprepared in accordance with accounting principles generally accepted in theUnited States.  The preparation of thesefinancial statements requires the Trustees to make estimates and judgments thataffect the reported amounts of assets, liabilities, revenues and expenses, andrelated disclosure of contingent assets and liabilities.  These estimates form the basis for makingjudgments about the carrying value of assets and liabilities that are notreadily apparent from other sources.  TheTrustees base their estimates and judgments on historical experience and onvarious other assumptions that the Trustees believe are reasonable under thecircumstances.  However, future eventsare subject to change and the best estimates and judgments may requireadjustment.

 

Criticalaccounting policies are those that have meaningful impact on the reporting ofthe Trust’s financial condition and results, and that require significantmanagement judgment and estimates.  TheTrustees have determined that there are no critical accounting policies.

 

**Item3.  Quantitative and QualitativeDisclosures About Market Risk.**

 

Notapplicable.

 

**Item4.  Controls and Procedures.**

 

Evaluationof Disclosure Controls and Procedures. The Trustees maintain disclosure controls and procedures designed toensure that information required to be disclosed by the Trust in the reportsthat it files or submits under the Securities Exchange Act of 1934, as amended,is recorded, processed, summarized and reported within the time periodsspecified in the rules and regulations of the Securities and ExchangeCommission.  Disclosure controls andprocedures include controls and procedures designed to ensure that informationrequired to be disclosed by the Trust is accumulated and communicated byNorthshore, and consultants to the Trustees as appropriate, to allow timelydecisions regarding required disclosure.

 

Aspart of their evaluation of the Trust’s disclosure controls and procedures, theTrustees rely on quarterly shipment and royalty calculations provided byNorthshore.  Because Northshore hasdeclined to support this information with a written certification attesting towhether Northshore has established disclosure controls and procedures andinternal controls sufficient to enable it to verify that the informationfurnished to the Trustees is accurate and complete, the Trustees must rely on (a) ageneral certification from Northshore and Northshore’s parent, CCI, certifyingas to the accuracy of the royalty calculations, and (b) CCI’s conclusionsthat its overall disclosure controls and procedures are effective.  In addition, the Trust’s consultants reviewthe schedule of leasehold royalties payable and shipping and sales reportsprovided by Northshore against production and shipment reports prepared by theEveleth Fee Office, Inc., an independent consultant to the Trust (“EvelethFee Office”). Eveleth Fee Office gathers production and shipping informationfrom Northshore and prepares monthly production and shipment reports for theTrustees. Furthermore, as part of its engagement by the Trust, Eveleth FeeOffice also attends Northshore’s calibration and testing of its crude orescales and boat loader scales which are conducted on a periodic basis.

 

Asof the end of the period covered by this report, the Trustees carried out anevaluation of the Trust’s disclosure controls and procedures.  The Trustees have concluded that suchdisclosure controls and procedures are effective.

 

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Changesin Internal Control Over Financial Reporting. To the knowledge of the Trustees, there has been no significant changein the Trust’s internal control over financial reporting that occurred duringthe Trust’s last fiscal quarter that has materially affected, or is reasonablylikely to materially affect, the Trust’s internal control over financialreporting.  The Trustees note forpurposes of clarification that they have no authority over, and make nostatement concerning, the internal control over financial reporting ofNorthshore.

 

**PART II- OTHER INFORMATION**

 
| **Item 1.** | ** ** | **Legal  Proceedings.**                                           |
|-------------|------------|-------------------------------------------------------------------|
|        |       |                                                              |
|        |       | None.                                                             |
|        |       |                                                              |
| **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 dated September 7,  2005 of Gordon, Hughes & Banks, LLP regarding its review of the  unaudited interim financial statements of Mesabi Trust for its quarter ended July 31,  2005. |

 

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**SIGNATURES**

 

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

 
|                          | MESABI TRUST                                                        |
|-------------------------------|---------------------------------------------------------------------|
|                          | (Registrant)                                                        |
|                          |                                                                |
|                          | By:                                                                 | DEUTSCHE BANK TRUST  COMPANY   AMERICAS |
|                          |                                                                | Corporate Trustee |
|                          | Principal Administrative  Officer and duly authorized   signatory:* |
|                          |                                                                |
| Date: September 9,  2005 | By:                                                                 |  /s/ Rodney Gaughan |   |
|                          |                                                                | Name: Rodney Gaughan |
|                          |                                                                | Title:  Assistant Vice President |
|                               |                                                                     |  |  |  |

 

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*There are no principal executive officers or principal financial officers ofthe registrant.

 

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