** **

**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**Washington, DC 20549

**FORM 10-Q**

**(MarkOne)**

**ý****                                 QUARTERLYREPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

**For The Quarterly Period EndedOctober 31, 2002 or**

**o****                                 TRANSITIONREPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

**Forthe transition period from _________________ to _________________**

**CommissionFile Number:  1-4488**

 

| **MESABI TRUST**(Exact name of  registrant as specified in its charter)                                                                                                                           |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                              |
| **New York**(State or other  jurisdiction of  incorporation or organization)                                                                                                                      |   | **13-6022277**(I.R.S.  Employer Identification No.) |
|                                                                                                                                                                                              |   |   |
| **c/o Deutsche Bank Trust Company  Americas  Corporate Trust & Agency Services — GDS  P.O. Box 318  Church Street Station  New York, New York**(Address of  principal executive offices) |
|                                                                                                                                                                                              |
| **(615)  835-2749**(Registrant’s  telephone number, including area code)                                                                                                                     |

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed 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

As of November 29, 2002,there were 13,120,010 Units of Beneficial Interest in Mesabi Trust outstanding.

 

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**PARTI - FINANCIAL INFORMATION**

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

 
|                                     |   | **THREE  MONTHS ENDED  OCTOBER 31,** |      | **NINE  MONTHS ENDED  OCTOBER 31,** |   |
|------------------------------------------|--------|--------------------------------------|-----------|-------------------------------------|--------|
|                                     |   |                                 |      |
|                                     |   | **2002**                             |      | **2001**                            |   | **2002** |   | **2001** |   |
| A.  Condensed  Statements of Income |   |                                 |      |                                |   |   |   |   |   |
|                                     |   |                                 |      |                                |   |   |   |   |   |
| Revenues:                                |   |                                 |      |                                |   |   |   |   |   |
|                                     |   |                                 |      |                                |   |   |   |   |   |
| Royalty income                           |   | $                                    | 1,954,500 |                                | $      | 1,641,090 |   | $ | 2,949,492 |   | $ | 3,146,363 |   |
| Interest income                          |   | 10,272                               |      | 12,932                              |   | 35,188 |   | 37,475 |   |
|                                     |   | $                                    | 1,964,772 |                                | $      | 1,654,022 |   | $ | 2,984,680 |   | $ | 3,183,838 |   |
|                                     |   |                                 |      |                                |   |   |   |   |   |
| Expenses                                 |   | 95,995                               |      | 79,660                              |   | 294,077 |   | 207,207 |   |
|                                     |   |                                 |      |                                |   |   |   |   |   |
| Net income                               |   | $                                    | 1,868,777 |                                | $      | 1,574,362 |   | $ | 2,690,603 |   | $ | 2,976,631 |   |
|                                     |   |                                 |      |                                |   |   |   |   |   |
| Number of units outstanding              |   | 13,120,010                           |      | 13,120,010                          |   | 13,210,010 |   | 13,120,010 |   |
|                                     |   |                                 |      |                                |   |   |   |   |   |
| Net income per unit   (Note 2)      |   | $                                    | .141701   |                                | $      | .119997 |   | $ | .204340 |   | $ | .226877 |   |
|                                     |   |                                 |      |                                |   |   |   |   |   |
| Distributions declared per unit          |   | $                                    | .120      |                                | $      | .105 |   | $ | .170 |   | $ | .175 |   |
|                                     |   |                                 |      |                                |   |   |   |   |   |

 

See Notes to FinancialStatements.

 

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B.  Condensed Balance Sheets

 
| Assets:                                                                    |   | **October  31, 2002** |      | **January  31, 2002** |   |
|----------------------------------------------------------------------------|--------|-----------------------|-----------|-----------------------|--------|
|                                                                       |   |                  |      |                  |   |
| Cash                                                                       |   | $                     | 182,142   |                  | $      | 1,223,246 |   |
|                                                                       |   |                  |      |                  |   |
| U.S. Government securities, at amortized cost (which  approximates market) |   | 2,421,529             |      | 892,916               |   |
|                                                                       |   |                  |      |                  |   |
| Accrued income                                                             |   | 562,813               |      | 98,224                |   |
| Prepaid insurance                                                          |   | 8,029                 |      | 4,347                 |   |
|                                                                       |   | $                     | 3,174,513 |                  | $      | 2,218,733 |   |
|                                                                       |   |                  |      |                  |   |
| Fixed property, including intangibles, at nominal  values:                 |   |                  |      |                  |   |
|                                                                       |   |                  |      |                  |   |
| Amended Assignment of Peters Lease                                         |   | $                     | 1         |                  | $      | 1 |   |
|                                                                       |   |                  |      |                  |   |
| Assignment of Cloquet Lease                                                |   | 1                     |      | 1                     |   |
|                                                                       |   |                  |      |                  |   |
| Certificate of beneficial interest for 13,120,010  Units of Land Trust     |   | 1                     |      | 1                     |   |
|                                                                       |   | $                     | 3         |                  | $      | 3 |   |
|                                                                       |   |                  |      |                  |   |
|                                                                       |   | $                     | 3,174,516 |                  | $      | 2,218,736 |   |
|                                                                       |   |                  |      |                  |   |
| Liabilities, Unallocated Reserve and Trust Corpus:                         |   |                  |      |                  |   |
|                                                                       |   |                  |      |                  |   |
| Liabilities:                                                               |   |                  |      |                  |   |
| Distribution payable                                                       |   | $                     | 1,574,401 |                  | $      | 1,049,601 |   |
| Accrued expenses                                                           |   | 45,190                |      | 74,411                |   |
|                                                                       |   | $                     | 1,619,591 |                  | $      | 1,124,012 |   |
|                                                                       |   |                  |      |                  |   |
| Unallocated reserve (Note 3)                                               |   | 1,554,922             |      | 1,094,721             |   |
| Trust Corpus                                                               |   | 3                     |      | 3                     |   |
|                                                                       |   | $                     | 3,174,516 |                  | $      | 2,218,736 |   |
|                                                                       |   |                  |      |                  |   |

See Notes to FinancialStatements.

 

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C.  Condensed Statements of Cash Flows

 
|                                                                        |   | **NINE  MONTHS ENDED OCTOBER 31,** |       |
|-----------------------------------------------------------------------------|--------|------------------------------------|------------|
|                                                                        |   |                               |
|                                                                        |   | **2002**                           |       | **2001** |   |
| Cash flows from operating Activities:                                       |   |                               |       |   |   |
| Royalties received                                                          |   | $                                  | 2,476,068  |   | $ | 2,758,672 |   |
| Interest received                                                           |   | 44,022                             |       | 42,491 |   |
| Expenses paid                                                               |   | (326,981                           | )          | (251,486 | ) |
| Net cash provided by Operating activities                                   |   | $                                  | 2,193,109  |   | $ | 2,549,677 |   |
|                                                                        |   |                               |       |   |   |
| Cash flows from investing activities:                                       |   |                               |       |   |   |
| Maturities of U.S. Government Securities                                    |   | $                                  | 534,337    |   | $ | 3,410,580 |   |
| Purchases of U.S. Government securities                                     |   | (2,062,949                         | )          | (3,625,955 | ) |
|                                                                        |   |                               |       |   |   |
| Net cash (used for) provided by investing activities                        |   | $                                  | (1,528,612 | ) | $ | (215,375 | ) |
|                                                                        |   |                               |       |   |   |
| Cash flows from financing activities:                                       |   |                               |       |   |   |
| Net cash (used in) financing activities,  distributions to Unitholders      |   | $                                  | (1,705,601 | ) | $ | (2,624,002 | ) |
|                                                                        |   |                               |       |   |   |
| Net (decrease) increase in cash                                             |   | $                                  | (1,041,104 | ) | $ | (289,700 | ) |
| Cash, beginning of year                                                     |   | 1,223,246                          |       | 1,947,696 |   |
| Cash, end of quarter                                                        |   | $                                  | 182,142    |   | $ | 1,657,996 |   |
|                                                                        |   |                               |       |   |   |
| Reconciliation of net income to net cash provided by  operating activities: |   |                               |       |   |   |
| Net income                                                                  |   | $                                  | 2,690,603  |   | $ | 2,970,106 |   |
| (Increase) in accrued income                                                |   | (464,590                           | )          | (382,675 | ) |
| Increase (Decrease) in prepaid insurance                                    |   | (3,683                             | )          | (2,394 | ) |
| (Decrease) in accrued expenses                                              |   | (29,221                            | )          | (35,360 | ) |
| Net cash provided by operating activities                                   |   | $                                  | 2,193,109  |   | $ | 2,549,677 |   |

 

See Notes to FinancialStatements.

 

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**MESABITRUST**

**NOTESTO FINANCIAL STATEMENTS**

Note 1.                             The financial statements included hereinhave been prepared without audit (except for the balance sheet at January 31,2002) in accordance with the instructions to Form 10-Q pursuant to the rulesand regulations of the Securities and Exchange Commission.  Certain information and footnote disclosuresnormally included in financial statements prepared in accordance with generallyaccepted accounting principles have been condensed or omitted pursuant to suchrules and regulations.  In the opinionof the Trustees, all adjustments, consisting only of normal recurringadjustments, necessary for a fair statement of (a) the results of operationsfor the nine months ended October 31, 2002 and 2001, (b) the financialpositions at October 31, 2002 and January 31, 2002, and (c) the cash flows forthe nine months ended October 31, 2002 and 2001, have been made.

Note 2.                             Earnings per unit are based on weightedaverage number of units outstanding during the period (13,120,010 units).

Note 3.                             The Trustees have determined to maintainan Unallocated Reserve of at least $1,000,000 in liquid assets.  The actual amount of such UnallocatedReserve may vary from quarter to quarter depending upon conditions in theindustry and the judgment of the Trustees. The Unallocated Reserve consists of these liquid assets and accruedrevenue (primarily royalties not yet received).  At October 31, 2002, the Unallocated Reserve was represented by$992,109 in unallocated cash and U.S. Government securities, and $562,813 ofaccrued revenue primarily representing royalties not yet received by the Trustbut anticipated to be received in January 2003 from Northshore as part of theroyalty due with respect to the third fiscal quarter, based upon reportedlessee shipping activity for the month of October 2002.

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

**Forward-LookingInformation**

Certain statementscontained in this document are forward-looking, including specifically those statementsestimating calendar year 2002 and 2003 production or shipments and commentsrelated to the construction and opening of additional plants in 2002 through2004.  All such forward-lookingstatements are based on input from the lessee/operator.  The Trust has no control over the operationsor activities of the lessee/operator except within the framework of currentagreements.  This document alsocontains  forward-looking statementsbased on the general political climate as it currently exists concerning thepossible current and future effects of United States government tariffs.  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 theTrust’s leasehold royalty income:

•                  Overriding royalties, which historically constitute the majority ofMesabi Trust’s royalty income, are determined by both the volume and sellingprice of iron ore products shipped.

•                  Fee royalties, which historically constitute a smaller component of theTrust’s royalty income, are payable to Mesabi Land Trust, a Minnesota landtrust of which Mesabi Trust is the sole beneficiary (“Mesabi Land Trust”), andare based on the amount of crude ore mined. Currently, the fee royalty on crude ore is based on an agreed price perton, subject to certain indexing.  Crudeore is used to produce iron ore pellets and other products.

•                  Minimum advance royalties, the third type of royalty, are discussedbelow.

With respect to thevolume component of royalty calculation, Northshore Mining Company(“Northshore”) is obligated to pay Mesabi Trust base overriding royalties invarying amounts.  The volume componentof overriding royalties constitutes a percentage of the gross proceeds of ironore products produced at Mesabi Trust lands (and to a limited extent otherlands) and shipped from Silver Bay, Minnesota. The percentage ranges from 2-1/2% of the gross proceeds for the firstone million tons of iron ore products so shipped annually to 6% of the grossproceeds for all iron ore products in excess of 4 million tons so shippedannually.

With respect to theselling price component of the overriding royalty calculation, Northshore isobligated to pay to Mesabi Trust royalty bonuses.  The royalty bonus is a percentage of the gross proceeds ofproduct shipped from Silver Bay and sold at prices above a thresholdprice.  The threshold price is adjustedon an annual basis for inflation and deflation (but not below $30) (the“Adjusted Threshold Price”).  TheAdjusted Threshold Price was $38.82 per ton for calendar year 2000, $39.82 perton for calendar year 2001, and is $40.61 per ton for calendar year 2002.  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 tonnage shipped for sale at prices $10.00 ormore above the Adjusted Threshold Price. No royalty bonus has been paid to the Trust for several years.

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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 for inflation anddeflation (but not below $500,000 per annum). Advance royalties payable were $647,282****for calendar year 2000, were$663,682 for calendar year 2001 and are $676,814 for calendar year 2002.  Until overriding royalties (and royaltybonuses, if any) for a particular year equal or exceed the minimum advanceroyalty for the year, Northshore must make quarterly payments of up to 25% ofthe minimum advance royalty for the year. Because advance minimum royalties are essentially prepayments of baseoverriding and bonus royalties earned each year, any advance minimum royaltiespaid in a fiscal quarter are recouped by credits against base overriding andbonus royalties earned in later fiscal quarters during the year.  Historically, advance minimum royalties havebeen paid in the first fiscal quarter and recouped in the second fiscalquarter.

Northshore is obligatedto make quarterly royalty payments in January, April, July and October of eachyear.  In the case of base overriding royaltiesand royalty bonuses, these quarterly royalty payments are to be made whether ornot the related proceeds of sale have been received by Northshore by the timesuch payments become due.

Under the relevantdocuments, Northshore may mine and ship iron ore products from lands other thanMesabi Trust lands.  To encourage theuse of iron ore products from Mesabi Trust lands, Mesabi Trust receivesroyalties on stated percentages of iron ore shipped from Silver Bay, whether ornot the iron ore products are from Mesabi Trust lands.  Mesabi Trust receives royalties at thegreater of (i) the aggregate quantity of iron ore products shipped that werefrom Mesabi Trust lands, and (ii) a portion of the aggregate quantity of alliron ore products shipped that were from any lands, such portion being 90% ofthe first four million tons shipped during such year, 90% of the next twomillion tons shipped during such year, and 25% of all tonnage shipped duringsuch year in excess of six million tons.

Mesabi Trust has no employees,but it engages independent consultants to assist the Trustees in monitoring,among other things, the amount and sales prices of iron ore products shipped byNorthshore from Silver Bay, Minnesota. As noted above, the information regarding amounts and sales prices ofshipped iron ore products is used to compute the royalties payable to MesabiTrust by Northshore.  Deutsche BankTrust Company Americas, the Corporate Trustee, also performs certainadministrative functions for Mesabi Trust.

**Current Developments**

***General***.  Totalcalendar year 2002 pellet production at Northshore will likelytotal approximately 4.1 million tons of iron ore pellets.  This represents an increase from the previouslyforecast amount of 3.5 to 4.0 million tons. During the third quarter of fiscal 2003, Northshore produced 1.1 milliontons of pellets compared to 900,000 tons in 2001.  This increased production is attributed to a projected increasein sales by Cleveland-Cliffs Inc (CCI) in the 2002 calendar year.

In press releasesdated October 7 and October 23, 2002, CCI announced that it was raising itsoverall 2002 pellet sales forecast from a range of 14 to 14.5 million tons to15 million tons, which compares to sales of 8.4 million tons in 2001.  In these same press releases, CCI reportedthat all of its facilities have been operating at capacity since August 1, 2002and that CCI’s projected sales volume for 2003 should allow it to operate atcapacity levels in the 2003 calendar year. CCI attributes this increase mainly to the sale of pellets to AlgomaSteel Inc. under a new sales agreement, with the balance being represented byadditional sales to other customers, including sales under a new 15-year supplycontract with International Sales Group (ISG). The amounts of such sales to be made to Algoma Steel and ISG

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from the Northshorefacility are not stated in either release. Although the Trustees are unable to predict the level of pellet salesfrom Northshore in 2002 and 2003, if these various customer contracts enableNorthshore to increase its production to capacity levels, such productionincreases could generate additional royalty income for the Trust and itsUnitholders.  While Northshore’sproduction capacity has historically remained at a level of approximately 4.3million tons of iron ore pellets per year, Northshore may increase itsproduction forecasts in 2003 to an annual production target level ofapproximately 4.8 million tons due to a shift from producing a portion of fluxpellets to producing only standard pellets. Such a shift in Northshore’s product mix could result in an increasedproduction of approximately 500,000 tons of iron ore pellets per year.

Northshore has notprovided the Trust with an estimate for total calendar year 2002shipments.  (See description of theuncertainty of market conditions in the iron ore and steel industry under“Important Factors Affecting Mesabi Trust” below.)  During calendar years 2001, 2000, 1999, 1998 and 1997, thepercentage of shipments of iron ore products from Mesabi Trust lands wasapproximately 99.2%, 99.8%, 98.9%, 99.3% and 98.3%, respectively, of totalshipments.  Northshore has not advisedthe Trustees as to the percentage of iron ore products it anticipates shippingfrom Mesabi Trust lands.

***Mesabi Nugget Project***.  On November14, 2001, CCI announced that it entered into a Memorandum of Understanding withMesabi Nugget LLC and other parties to participate in the Mesabi NuggetProject.  The project’s objective is todevelop a new iron making technology (Kobe Steel’s Itmk3 process) forconverting iron ore into nearly pure iron nugget form.  The project’s initial phase, Phase I, wasrecently completed.  On April 4, 2002,IronUnits LLC, a subsidiary of CCI, signed an agreement to commit itselfthrough Phase II, which involves construction of a pilot plant at Northshore totest the Kobe Steel Itmk3 process and its ability to convert iron ore intonearly pure iron nugget form.  Furthermore,as reported by Skillings Mining Review on March 2, 2002, the Iron RangeResources and Rehabilitation Board (IRRRB) and the Minnesota Department ofTrade and Economic Development have each approved loans of $8.0 million toassist in the funding of Phase II of the Mesabi Nugget Project.

Construction ofthe pilot plant’s furnace at the Northshore facility commenced in September of2002.  According to published reports ofCCI, the pilot plant at Northshore is expected to become operational in thefirst half of 2003, and if successful, construction of a commercial-sizedfacility capable of producing 300,000 tons of nuggets could commence as earlyas 2004.  Although CCI has chosen tolocate the pilot plant at Northshore, it is not certain that if CCI builds a fullyoperational facility, it will do so on Mesabi Trust Lands.

Although MesabiTrust is not a direct party to this project and its involvement in this projectwas not solicited, it appears that because the pilot plant will be located atthe Northshore facility, the project will probably involve the use of iron orefrom the Mesabi Trust lands.  CCIindicated that iron nuggets from this new process would be used as analternative or supplement to pig iron in the steel making process.  Because the Trust has not received asufficient amount of information as to the agreements, shipment amounts androyalty payments that could result if the Mesabi Nugget Project successfullyachieves commercialization, the Trustees are unable to make any projections asto any future royalties that might be payable to the Trust.

***Other Information***.  On March 5,2002, President Bush released a three-year tariff schedule to be imposed on asignificant number of imported steel products. The tariffs, which range from eight to thirty percent, took effect onMarch 20, 2002.  Although these tariffmeasures may initially have had a favorable impact on the amount of the Trust’sroyalty income, it is uncertain how much, if at all, they and certainexemptions to such tariffs have affected or will affect the Trust during fiscalyear 2003.  Despite the fact that steelimports initially fell after the March announcement, their levels have beensteadily rebuilding since June of 2002, and, as a result, some industryanalysts expect prices to decline in the fourth quarter of 

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2002 and into 2003.  Furthermore,****President Bush has warnedthe nation’s steelmakers that he would cut short the three-year tariffs if hedetermined that the steel industry was not wisely using them to improve its competitiveposition in the world marketplace. Consequently, the Trustees are unable to determine at this time whetherthe tariffs will ultimately have any material impact on iron ore pellet pricesduring fiscal year 2003.

**Important FactorsAffecting Mesabi Trust**

The Agreement of Trustspecifically prohibits the Trustees from entering into or engaging in anybusiness.  This prohibition seeminglyapplies even to business activities the Trustees deem necessary or proper forthe preservation and protection of the Trust Estate.  Accordingly, the Trustees’ activities in connection with theadministration of Trust assets are limited to collecting income, payingexpenses and liabilities, distributing net income and protecting and conservingthe assets held.

Accordingly, the incomeof the Trust is highly dependent upon the activities and operations ofNorthshore, and the terms and conditions of the Amended AssignmentAgreements.  The Trust and the Trusteeshave no control over the operations and activities of Northshore, except withinthe framework of the Amended Assignment Agreements.

Due to winter weather,and the increasing royalty percentages based on tonnage shipped in a calendaryear, 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 the Trust in any quarteror 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 Trustare based on shipments made in a calendar quarter.  Because there typically is little or no shipping activity in thefirst calendar quarter, the Trust typically receives only the minimum royaltyfor 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 myriad offactors affect Northshore shipment volume. These factors include economic conditions in the iron ore industry,pricing by domestic and international competitors, long-term customer contractsor arrangements by Northshore or its competitors, availability of ore boats,production at Northshore’s mining operations, and production at thepelletizing/processing facility.  If anypelletizing line becomes idle for any reason, production and shipments (and,consequently, Trust income) could be adversely impacted.

3.                             Increasing Royalties. As described elsewhere in this Report, the royalty percentage paid to theTrust increases as the aggregate tonnage of iron ore products shipped,attributable to the Trust, in any calendar year increases.  Assuming a consistent sales price per tonthroughout a calendar year, shipments of iron ore product attributable to theTrust later in the year generate a higher royalty to the Trust.

4.                             Percentage of Mesabi Trust Ore. As described elsewhere in this Report, Northshore has the ability toprocess and ship iron ore products from lands other than Mesabi Trustlands.  In certain circumstances, theTrust may be entitled to royalties on those other shipments, but not in allcases.  In general, the Trust willreceive higher royalties (assuming all other factors are equal) if a higher

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                                       percentage of shipments are from Mesabi Trust lands.  The percentages of shipments that came fromMesabi Trust lands were 99.2%, 99.8%, 98.9%, 99.3% and 98.3% in calendar years2001, 2000, 1999, 1998 and 1997, respectively.

5.                             Uncertainty of Market Conditions in theSteel and Iron Ore Industry.  Steelindustry fundamentals in the North American steel market continued todeteriorate in fiscal year 2001 and beyond. Weak steel demand, steel industry consolidation, price decreasesattributable to slowing economies in the United States and Canada and highvolumes of steel imports caused some level of uncertainty in the North Americansteel industry.  As reported by CCI inJuly 2002, the fundamentals in the United States steel industry have shownimprovement, largely due to reductions in steelmaking capacity and inventoryrestocking.  In addition, prices oncertain steel products have made significant gains and steel mills have beenrunning at near capacity levels since March of 2002.  Overall, there has been a modest increase in the demand for steelproducts, but it is uncertain whether this increase in demand will continue andto what extent it will impact royalties paid to the Trust in fiscal year 2003and beyond.

**Comparison of threemonths ended October 31, 2002 and October 31, 2001**

Mesabi Trust’s net incomeincreased to $1,868,777 for the three months ended October 31, 2002, ascompared to net income of $1,574,362 for the three months ended October 31,2001.  Mesabi Trust’s gross income forthe three months ended October 31, 2002 was $1,964,772, consisting of $0 inminimum advance royalty income, $1,877,596 in overriding royalty income,$76,904 in fee royalty income and $10,272 in interest income, as compared togross income of $1,654,022, consisting of $0 in minimum advance royalty income,$1,587,277 in overriding royalty income, $53,813 in fee royalty income and$12,932 in interest income, for the three months ended October 31, 2001.  The increase in royalty income was primarilydue to increased pellet shipments as compared to the comparable priorperiod.  Mesabi Trust’s expenses for thethree months ended October 31, 2002 were $95,995, compared to expenses of$79,660 for the three months ended October 31, 2001.

**Comparison of nine monthsended October 31, 2002 and October 31, 2001**

Mesabi Trust’s netincome decreased to $2,690,603 for the nine months ended October 31, 2002, ascompared to net income of $2,976,631 for the nine months ended October 31,2001.  Mesabi Trust’s gross income forthe nine months ended October 31, 2002 was $2,984,680, consisting of $0 inminimum advance royalty income, $2,714,448 in overriding royalty income,$235,044 in fee royalty income and $35,188 in interest income, as compared togross income of $3,183,838, consisting of $0 in minimum advance royalty income,$2,946,624 in overriding royalty income, $199,739 in fee royalty income and$37,475 in interest income, for the nine months ended October 31, 2001.  The decrease in royalty income was primarilydue to decreased pellet shipments as compared to the comparable priorperiod.  Mesabi Trust’s expenses for thenine months ended October 31, 2002 were $294,077, compared to expenses of$207,207 for the nine months ended October 31, 2001, which were primarily dueto increased legal fees.

Mesabi Trust’sUnallocated Reserve aggregated $1,554,922 at October 31, 2002, as compared withan Unallocated Reserve of $1,476,547 at October 31, 2001.  The increase of $78,375 was due to the neteffect of: (a) the decrease in net income of $286,028 during the nine monthsended October 31, 2002 as compared with the nine months ended October 31, 2001,(b) the January 31, 2002 unallocated reserve balance of $1,094,721 was $298,803higher than the January 31, 2001 unallocated reserve balance of $795,918, and (c)a decrease in the total declared distributions of $0.005 per Unit of BeneficialInterest which in total was $65,600 from the nine month period ended October31, 2002 to the nine month period ended October 31, 2001.  The Trustees anticipate that the amount ofUnallocated Reserve will fluctuate from time to time, depending upon a numberof factors, including but not limited to the income for a

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particular period,the amount and timing of distributions, uncertainty about future royalty incomeand the uncertainty of future expenses.

**RoyaltyComparisons**

The following chartsummarizes Mesabi Trust’s royalty income for the nine months ended October 31,2002 and October 31, 2001, respectively:
|                                    |   | **Nine  months Ended October 31,** |      |
|-----------------------------------------|--------|------------------------------------|-----------|
|                                    |   | **2002**                           |      | **2001** |   |
| Base overriding royalties               |   | $                                  | 2,714,448 |   | $ | 2,946,624 |   |
| Bonus royalties                         |   | 0                                  |      | 0 |   |
| Minimum advance royalty paid (recouped) |   | 0                                  |      | 0 |   |
| Fee royalties                           |   | 235,044                            |      | 199,739 |   |
| Total royalty income                    |   | $                                  | 2,949,492 |   | $ | 3,146,363 |   |

 

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

Not applicable.

**Item 4.  Disclosure Controls and Procedures**

 

***Evaluation of Disclosure Controls and Procedures***. The Trustees maintain disclosure controls and procedures designed toensure that information required to be disclosed by Mesabi Trust in the reportsthat it files or submits under the Exchange Act of 1934, as amended, isrecorded, processed, summarized and reported within the time periods specifiedin the SEC’s rules and regulations.  Disclosurecontrols and procedures include controls and procedures designed to ensure thatinformation required to be disclosed by Mesabi Trust is accumulated andcommunicated by Northshore Mining Company, a wholly owned subsidiary ofCleveland-Cliffs Inc, the lessee/operator of the Mesabi Trust Lands, and MesabiTrust’s independent auditors and consultants to the Trustees as appropriate toallow timely decisions regarding required disclosure.

 

Within 90 days of thedate of this report, the Trustees carried out an evaluation of the Trust’sdisclosure controls and procedures.  TheTrustees have concluded that the controls and procedures are effective, whilenoting certain limitations on disclosure controls and procedures as set forthbelow.

 

Due to the contractualarrangements of the Trust Agreement, there are certain potential weaknessesthat may limit the effectiveness of disclosure controls and proceduresestablished by the Trustees and their ability to verify the accuracy of certainfinancial information.  The contractuallimitations creating potential weaknesses in disclosure controls and proceduresmay be deemed to include:

 

•                    Northshore Mining Company alone controls (i)historical operating data, including iron ore production volumes, marketing ofiron ore products, operating and capital expenditures as they relate toNorthshore Mining Company, environmental and other liabilities and the effectsof regulatory changes; (ii) plans for Northshore Mining Company’s futureoperating and capital expenditures; (iii) geological data relating to reservesand (iv) projected production of iron ore products.  While the Trustees request material information for use inperiodic reports as part of their disclosure controls and procedures, theTrustees do not control this information, and they rely on Northshore MiningCompany to provide accurate and timely

 

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                          information for use in Mesabi Trust’s reports filedwith the SEC.  Moreover, while eachquarter Northshore Mining Company furnishes shipment and royalty calculationsto the Trustees, Northshore Mining Company has declined to support thisinformation with a written certification attesting to whether Northshore MiningCompany has established disclosure controls and procedures and internalcontrols sufficient to enable it to verify that the information furnished tothe Trustees is accurate and complete. Northshore Mining Company is not required either by contract or bygovernmental laws or regulations to provide such a certification.

 

•       Under theterms of the Trust Agreement, the Trustees are entitled to, and in fact dorely, upon certain experts in good faith, including (i) the independentconsultants with respect to monthly production and shipment reports, whichinclude figures on crude ore production and iron ore pellet shipments anddiscussions concerning the condition and accuracy of the scales and plansregarding the development of Mesabi Trust’s mining property, and (ii) theindependent auditors they have contracted with respect to reviews of financialdata related to shipping and sales reports provided by Northshore MiningCompany.

 

The Trustees do notintend to expand their responsibilities beyond those permitted or required bythe Trust Agreement and those required under applicable law.

 

***Changes in Internal Controls***. To the knowledge of the Trustees, there have been no significant changesin Mesabi Trust’s internal controls or in other factors that couldsignificantly affect Mesabi Trust’s internal controls subsequent to the datethe Trustees completed their evaluation. The Trustees note for purposes of clarification that they have noauthority over, and make no statement concerning, the internal controls ofNorthshore Mining Company.

 

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**PartII - OTHER INFORMATION**

# **Item1.**                     Legal Proceedings.

None.

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

None.

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

None.

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

None.

# **Item5.**                     Other Information.

None.

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

(a)                                  Exhibits.

None.

(b)                                 Reports on Form 8-K.

None.

 

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**SIGNATURES**

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.
|                          | MESABI TRUST |
|-------------------------------|--------------|
|                          | (Registrant) |
|                          |         |   |
|                          | By:          | DEUTSCHE BANK TRUST  COMPANY AMERICAS |
|                          |         | Corporate Trustee |
|                          |         | Principal  Administrative Officer and duly authorized signatory:* |
|                          |         |   |
| Date:  December 16, 2002 | By:          | /s/ Rodney Gaughan |
|                          |         | Name: Rodney Gaughan |
|                          |         | Title: Associate |

 

*Thewritten statements of the Trustees required pursuant to 18 U.S.C. Section 1350,as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,accompanied the filing of this report by correspondence to the Securities andExchange Commission.*

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**CERTIFICATION**

 

I, Rodney Gaughan,certify that:

1.                                       I have reviewed this quarterly report onForm 10-Q of Mesabi Trust, for which Deutsche Bank Trust Company Americas actsas Corporate Trustee;

2.                                       Based on my knowledge, this quarterlyreport does not contain any untrue statement of a material fact or omit tostate a material fact necessary to make the statements made, in light of thecircumstances under which such statements were made, not misleading withrespect to the period covered by this quarterly report;

3.                                       Based on my knowledge, the financialstatements, and other financial information included in this quarterly report,fairly present in all material respects the financial condition, distributableincome and changes in trust corpus of the registrant as of, and for, theperiods presented in this quarterly report;

4.                                       I am responsible for establishing andmaintaining disclosure controls and procedures (as defined in Exchange ActRules 13a-14 and 15d-14), or for causing such procedures to be established andmaintained, for the registrant and have:

a)                                      designed such disclosure controls andprocedures, or caused such controls and procedures to be designed, to ensurethat material information relating to the registrant, including itsconsolidated subsidiaries, is made known to me by others within those entities,particularly during the period in which this quarterly report is beingprepared;

b)                                     evaluated the effectiveness of theregistrant’s disclosure controls and procedures as of a date within 90 daysprior to the filing date of this quarterly report (the “Evaluation Date”); and

c)                                      presented in this quarterly report myconclusions about the effectiveness of the disclosure controls and proceduresbased on my evaluation as of the Evaluation Date;

5.                                       I have disclosed, based on my most recentevaluation, to the registrant’s auditors:

a)                                      all significant deficiencies in thedesign or operation of internal controls which could adversely affect theregistrant’s ability to record, process, summarize and report financial dataand have identified for the registrant’s auditors any material weaknesses ininternal controls; and

b)                                     any fraud, whether or not material, thatinvolves persons who have a significant role in the registrant’s internalcontrols; and

6.                                       I have indicated in this quarterly reportwhether or not there were significant changes in internal controls or in otherfactors that could significantly affect internal controls subsequent to thedate of my most recent evaluation, including any corrective actions with regardto significant deficiencies and material weaknesses.

In giving the foregoing certifications in paragraphs 4, 5 and 6, I haverelied to the extent I consider

 

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reasonable on information provided to me by Northshore Mining Companyand Eveleth Fee Office, Inc.

 

 
| Date:  December 16, 2002 | By:  | /s/ Rodney Gaughan                   |
|-------------------------------|-----------|--------------------------------------|
|                          |      | Rodney Gaughan*                      |
|                          |      | Associate                            |
|                          |      | Deutsche Bank Trust Company Americas |

 

 

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

 

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