**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,D.C. 20549**

**FORM10-Q**

**(Mark One)**

**x**                              QUARTERLYREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

**                For the quarterly period endedApril 30, 2007**

**                or**

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

**                For the transition periodfrom                                         to**

**CommissionFile Number:  1-4488**

**MESABI TRUST**

(Exact name of registrant as specified in its charter)

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

**(615)835-2749**

(Registrant’s telephonenumber, including area code)

Indicate by check mark whether the registrant (1) hasfiled all reports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorter periodthat the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days.              Yes x   No  o

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

| Large accelerated filer o |   | Accelerated  filer x |   | Non-accelerated  filero |
|---------------------------|--------|----------------------|--------|-------------------------|

 

Indicate by check mark whether the registrant is ashell company (as defined in Rule 12b-2 of the Exchange Act).          Yes o  No  x

As of June 7, 2007, there were 13,120,010 Units ofBeneficial Interest in Mesabi Trust outstanding.

 

 

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**PART I - FINANCIAL INFORMATION**

**Item 1.****                    ****Financial Statements.  (Note 1)**
| ** **                                | ** ** | **Three Months Ended** | ** ** |
|-------------------------------------------|------------|----------------------------------|------------|
| ** **                                | ** ** | **April 30,**               | ** ** |
| ** **                                | ** ** | **2007**                         | ** ** | **2006** | ** ** |
| ** **                                | ** ** | **(unaudited)**                  | ** ** | **(unaudited)** | ** ** |
|                                      |       |                             |       |   |   |
| **A. Condensed Statements of  Income**    |       |                             |       |   |   |
|                                      |       |                             |       |   |   |
| Revenues                                  |       |                             |       |   |   |
| Royalty income                            |       | $                                | 1,779,141  |   | $ | 1,636,998 |   |
| Interest income                           |       | 5,915                            |       | 7,972 |   |
|                                      |       | 1,785,056                        |       | 1,644,970 |   |
|                                      |       |                             |       |   |   |
| Expenses                                  |       | 85,439                           |       | 171,117 |   |
|                                      |       |                             |       |   |   |
| Net income                                |       | $                                | 1,699,617  |   | $ | 1,473,853 |   |
|                                      |       |                             |       |   |   |
| Number of units  outstanding              |       | 13,120,010                       |       | 13,120,010 |   |
|                                      |       |                             |       |   |   |
| Net income per  unit (Note 2)             |       | $                                | 0.130      |   | $ | 0.112 |   |
|                                      |       |                             |       |   |   |
| Distributions declared  per unit (Note 3) |       | $                                | 0.045      |   | $ | 0.300 |   |

 

SeeNotes to Condensed Financial Statements.

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| ** **                                                                 | ** ** | **April 30, 2007** | ** ** | **January 31, 2007** | ** ** |
|----------------------------------------------------------------------------|------------|------------------------------|------------|--------------------------------|------------|
| ** **                                                                 | ** ** | **(unaudited)**              | ** ** | ** **                     | ** ** |
| **B. Condensed Balance Sheets**                                            |       |                         |       |                           |       |
| ** **                                                                 |       |                         |       |                           |       |
| **Assets**                                                                 |       |                         |       |                           |       |
| ** **                                                                 |       |                         |       |                           |       |
| Cash                                                                       |       | $                            | 697,895    |                           | $          | 4,258,201 |   |
|                                                                       |       |                         |       |                           |       |
| U.S. Government  securities, at amortized cost (which approximates market) |       | 642,672                      |       | 727,883                        |       |
|                                                                       |       |                         |       |                           |       |
| Accrued income  receivable                                                 |       | 1,539,883                    |       | 409,764                        |       |
| Prepaid expenses                                                           |       | 35,804                       |       | 18,701                         |       |
|                                                                       |       | 2,916,254                    |       | 5,414,549                      |       |
| 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                              |       |
|                                                                       |       |                         |       |                           |       |
|                                                                       |       | $                            | 2,916,257  |                           | $          | 5,414,552 |   |
|                                                                       |       |                         |       |                           |       |
| **Liabilities,  Unallocated Reserve and Trust Corpus**                     |       |                         |       |                           |       |
| ** **                                                                 |       |                         |       |                           |       |
| Liabilities                                                                |       |                         |       |                           |       |
| Distribution  payable                                                      |       | $                            | 590,400    |                           | $          | 4,132,803 |   |
| Accrued expenses                                                           |       | 76,963                       |       | 142,072                        |       |
|                                                                       |       | 667,363                      |       | 4,274,875                      |       |
|                                                                       |       |                         |       |                           |       |
| Unallocated  Reserve (Note 4)                                              |       | 2,248,891                    |       | 1,139,674                      |       |
| Trust Corpus                                                               |       | 3                            |       | 3                              |       |
|                                                                       |       |                         |       |                           |       |
|                                                                       |       | $                            | 2,916,257  |                           | $          | 5,414,552 |   |

 

SeeNotes to Condensed Financial Statements.

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| ** **                                                                     | ** ** | **Three Months Ended** | ** ** |
|--------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                     | ** ** | **April 30,**               | ** ** |
| ** **                                                                     | ** ** | **2007**                         | ** ** | **2006** | ** ** |
| ** **                                                                     | ** ** | **(unaudited)**                  | ** ** | **(unaudited)** | ** ** |
| **C.  Condensed Statements of Cash Flows**                                     |       |                             |       |   |   |
| ** **                                                                     |       |                             |       |   |   |
| Cash flows from operating activities                                           |       |                             |       |   |   |
| Royalties received                                                             |       | $                                | 644,109    |   | $ | 4,209,511 |   |
| Interest received                                                              |       | 10,828                           |       | 13,033 |   |
| Expenses paid                                                                  |       | (167,651                         | )          | (222,367 | ) |
|                                                                           |       |                             |       |   |   |
| Net cash provided by operating activities                                      |       | 487,286                          |       | 4,000,177 |   |
|                                                                           |       |                             |       |   |   |
| Cash flows from investing activities                                           |       |                             |       |   |   |
| Maturities of U.S. Government Securities                                       |       | 4,364,754                        |       | 6,601,230 |   |
| Purchases of U.S. Government Securities                                        |       | (4,279,543                       | )          | (10,702,441 | ) |
|                                                                           |       |                             |       |   |   |
| Net cash provided by (used for) investing activities                           |       | 85,211                           |       | (4,101,211 | ) |
|                                                                           |       |                             |       |   |   |
| Cash flows from financing activities                                           |       |                             |       |   |   |
| Distributions to Unitholders                                                   |       | (4,132,803                       | )          | (6,166,405 | ) |
|                                                                           |       |                             |       |   |   |
| Net change in cash                                                             |       | (3,560,306                       | )          | (6,267,439 | ) |
|                                                                           |       |                             |       |   |   |
| Cash, beginning of year                                                        |       | 4,258,201                        |       | 6,377,990 |   |
|                                                                           |       |                             |       |   |   |
| Cash, end of quarter                                                           |       | $                                | 697,895    |   | $ | 110,551 |   |
|                                                                           |       |                             |       |   |   |
| **Reconciliation of net income to net cash  provided by operating activities** |       |                             |       |   |   |
|                                                                           |       |                             |       |   |   |
| Net income                                                                     |       | $                                | 1,699,617  |   | $ | 1,473,853 |   |
| (Increase) Decrease in accrued income                                          |       | (1,130,119                       | )          | 2,577,574 |   |
| (Increase) Decrease in prepaid expenses                                        |       | (17,103                          | )          | 11,182 |   |
| Decrease in accrued expenses                                                   |       | (65,109                          | )          | (62,432 | ) |
|                                                                           |       |                             |       |   |   |
| Net cash  provided by operating activities                                     |       | $                                | 487,286    |   | $ | 4,000,177 |   |

 

SeeNotes to Condensed Financial Statements.

 

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**MESABI TRUST**

**NOTES TO CONDENSED FINANCIAL STATEMENTS**

Note 1.                            The financial statements included herein havebeen prepared without audit (except for the balance sheet at January 31, 2007)in accordance with the instructions to Form 10-Q pursuant to the rules andregulations of the Securities and Exchange Commission.  Certain information and footnote disclosuresnormally included in financial statements prepared in accordance with generallyaccepted accounting principles have been condensed or omitted pursuant to suchrules and regulations.  In the opinion ofthe Trustees, all adjustments, consisting only of normal recurring adjustments,necessary for a fair statement of (a) the results of operations for the threemonths ended April 30, 2007 and 2006, (b) the financial positions at April 30,2007 and (c) the cash flows for the three months ended April 30, 2007 and 2006,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.                            Distributions are required to be declaredeach year in April, July, October and January after receiving notification fromNorthshore Mining Company as to the amount of royalty income that is expectedto be received by the Trust.  The Trustreceives notification of the expected royalty amounts as of the close of eachcalendar quarter, while the financial statements included herein are preparedon an accrual basis and present the Trust’s results of operations for the threemonths ended April 30, 2007.  TheTrustees determine the amount of distributions to be made to Unitholders afterconsidering any known or anticipated expenses, liabilities and obligations ofthe Trust.  Accordingly, distributionsdeclared may not reflect the Trust’s current results of operations.

Note 4.                            The Trustees have determined that theUnallocated Reserve should be maintained at a prudent level, usually within therange of $500,000 to $1,000,000, to meet present or future liabilities of theTrust.  Accordingly, although the actualamount of the Unallocated Reserve will fluctuate from time to time, and mayincrease or decrease from its current level, it is currently intended thatfuture distributions will be highly dependent upon royalty income as it isreceived quarterly and the level of Trust expenses that the Trustees anticipateoccurring in subsequent quarters.  AtApril 30, 2007, the Unallocated Reserve was represented by $709,008 inunallocated cash and U.S. Government securities, and $1,539,883 of accrued revenueprimarily representing royalties not yet received by the Trust but anticipatedto be received in July 2007 from Northshore Mining Company as part of theroyalty due with respect to the second fiscal quarter, based upon reportedlessee shipping activity during the month of April 2007.

 

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

**Forward-LookingStatements**

Certain information includedin this Quarterly Report on Form 10-Q contains “forward-looking statements”within the meaning of Section 21E of the Securities Exchange Act of 1934, andSection 27A of the Securities Act of 1933. All such forward-looking statements, including those statementsestimating iron ore pellet production or shipments, are based on informationfrom the lessee/operator (and its parent corporation) of the mine located onthe lands owned and held in trust for the benefit of the holders of units ofbeneficial interest of Mesabi Trust. These statements may be identified by the use of forward-looking words,such as “may,” “will,” “could,” “project,” “predict,” “intend,” “believe,” “anticipate,”“expect,” “estimate,” “continue,” “potential,” “plan,” “should,” “assume,” “forecast”and other similar words.  Suchforward-looking statements are inherently subject to known and unknown risksand uncertainties.  Actual results andfuture developments could differ materially from the results or developmentsexpressed in or implied by these forward-looking statements.  These risks and uncertainties includevolatility of iron ore and steel prices, product supply and demand,competition, regulation or government action, litigation and uncertaintiesabout estimates of reserves.  For adiscussion of the factors, including but not limited to, those that couldmaterially and adversely affect Mesabi Trust’s actual results and performance,see “Risk Factors” in Part I — Item 1A of Mesabi Trust’s Annual Report on Form10-K for the year-ended January 31, 2007. Mesabi Trust undertakes no obligation, other than that imposed by law,to make any revisions to the forward-looking statements contained in thisfiling or to update them to reflect circumstances occurring after the date ofthis filing.

**Background**

Mesabi Trust (“Mesabi Trust”or the “Trust”), formed pursuant to an Agreement of Trust dated July 18, 1961(the “Agreement of Trust”), is a trust organized under the laws of the State ofNew York.  Mesabi Trust holds all of theinterests formerly owned by Mesabi Iron Company (“MIC”), including all right,title and interest in the Amendment of Assignment, Assumption and FurtherAssignment of Peters Lease (the “Amended Assignment of Peters Lease”), theAmendment of Assignment, Assumption and Further Assignment of Cloquet Lease(the “Amended Assignment of Cloquet Lease” and together with the Amended Assignmentof Peters Lease, the “Amended Assignment Agreements”), the beneficial interestin the Mesabi Land Trust (as such term is defined below) and all other assetsand property identified in the Agreement of Trust. The Amended Assignment ofPeters Lease relates to an Indenture made as of April 30, 1915 among EastMesaba Iron Company (“East Mesaba”), Dunka River Iron Company (“Dunka River”)and Claude W. Peters (the “Peters Lease”) and the Amended Assignment of CloquetLease relates to an Indenture made May 1, 1916 between Cloquet Lumber Companyand Claude W. Peters (the “Cloquet Lease”).

The Agreement of Trustspecifically prohibits the Trustees from entering into or engaging in anybusiness.  This prohibition applies evento business activities the Trustees may deem necessary or proper for thepreservation 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 Mesabi Trust (“Unitholders”) afterthe payment of, or provision for, such expenses and liabilities, and protectingand conserving the assets held.

The Trustees do not intendto expand their responsibilities beyond those permitted or required by theAgreement of Trust, the Amendment to the Agreement of Trust dated October 25,1982 (the “Amendment”), and those required under applicable law.  Mesabi Trust has no employees, but it engagesindependent consultants to assist the Trustees in, among other things,monitoring the volume and sales

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pricesof iron ore products shipped from Silver Bay, Minnesota, based on informationsupplied to the Trustees by Northshore Mining Company (“Northshore”), thelessee/operator of the Mesabi Trust lands, and its parent companyCleveland-Cliffs Inc (“CCI”).  Referencesto Northshore in this quarterly report, unless the context requires otherwise,are applicable to CCI as well.

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, as well as royaltybonuses, comprise the Trust’s leasehold royalty income:

·                                          Base overriding royalties. Historically base overriding royalties have constituted the majority ofMesabi Trust’s royalty income.  Baseoverriding royalties are determined by both the volume and selling price ofiron ore products shipped.  Northshore isobligated to pay Mesabi Trust base overriding royalties in varying 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 from2-1/2% of the gross proceeds for the first one million tons of iron oreproducts so shipped annually to 6% of the gross proceeds for all iron oreproducts in excess of 4 million tons so shipped annually.  Baseoverriding royalties are subject to price adjustments under the CCI PelletAgreements and, as described elsewhere in this report, such adjustments may bepositive or negative.  See the sectionentitled “Royalty Comparisons” below for more information.

·                                          Royalty bonuses.  TheTrust earns royalty bonuses when iron ore products shipped from Silver Bay aresold at prices above a threshold price per ton. The royalty bonus is based on a percentage of the gross proceeds ofproduct shipped from Silver Bay and sold at prices above a thresholdprice.  The threshold price is adjusted(but not below $30.00 per ton) on an annual basis for inflation and deflation(the “Adjusted Threshold Price”).  The AdjustedThreshold Price was $44.60 per ton for calendar year 2006 and is $45.98 per tonfor calendar year 2007.  The royaltybonus percentage ranges from 1/2 of 1% of the gross proceeds (on all tonnageshipped for sale at prices between the Adjusted Threshold Price and $2.00 abovethe Adjusted Threshold Price) to 3% of the gross proceeds (on all tonnageshipped for sale at prices $10.00 or more above the Adjusted ThresholdPrice).  Royalty bonuses are subject to price adjustments under the CCI PelletAgreements and, as described elsewhere in this report, such adjustments may bepositive or negative.  See the sectionentitled “Royalty Comparisons” below for more information.

·                                          Fee royalties. Historically fee royalties have constituted 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 and for which US Bank N.A.acts as trustee, and are based on the amount of crude ore mined.  Currently, the fee royalty on crude ore isbased on an agreed price per ton, subject to certain indexing.  Crude ore is the source of iron oxides usedto make iron ore pellets and other products.

·                                          Minimum 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 

7

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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 minimum advance royaltywas $743,420 for calendar year 2006 and is $766,510 for calendar year2007.  Until overriding royalties (androyalty bonuses, if any) for a particular year equal or exceed the minimumadvance royalty for the year, Northshore must make quarterly payments of up to25% of the minimum advance royalty for the year.  Because minimum advance royalties areessentially prepayments of base overriding royalties and royalty bonuses earnedeach year, any minimum advance royalties paid in a fiscal quarter are recoupedby credits against base overriding royalties and royalty bonuses earned inlater fiscal quarters during the year.

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

Under the relevantdocuments, Northshore may mine and ship iron ore products from lands other thanMesabi Trust lands.  Northshore alonedetermines whether to mine off Trust and/or such other lands, based on itscurrent mining and engineering plan.  TheTrustees do not exert any influence over mining operational decisions.  To encourage the use of iron ore productsfrom Mesabi Trust lands, Mesabi Trust receives royalties on stated percentagesof iron ore shipped from Silver Bay, whether or not the iron ore products arefrom Mesabi Trust lands.  Mesabi Trustreceives royalties at the greater of (i) the aggregate quantity of iron oreproducts shipped that were from Mesabi Trust lands, and (ii) a portion of theaggregate quantity of all iron ore products shipped that were from any lands,such portion being 90% of the first four million tons shipped during such year,85% of the next two million tons shipped during such year, and 25% of alltonnage shipped during such year in excess of six million tons.

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

**Resultsof Operations**

**Comparisonof Iron Ore Pellet Production and Shipments for the Three Months Ended April30, 2007 and April 30, 2006**

As shown in the table below,production of iron ore pellets at Northshore from Mesabi Trust lands during thefiscal quarter ended April 30, 2007 totaled 953,557 tons, and actual shipmentsover the same period totaled 469,470 tons. By comparison, actual pellet production and actual shipments for thecomparable prior period were 1,218,586 tons and 537,059 tons, respectively.
| **Fiscal  Quarter Ended** | ** ** | **Pellets Produced from  Trust Lands (tons)** | ** ** | **Pellets Shipped from  Trust Lands (tons)** |
|---------------------------|------------|-----------------------------------------------|------------|----------------------------------------------|
| April 30, 2007            |       | 953,557                                       |       | 469,470                                      |
| April 30, 2006            |       | 1,218,586                                     |       | 537,059                                      |

 

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** **

**Comparisonof Royalty Income for the Three Months Ended April 30, 2007 and April 30, 2006**

Total royalty income for thequarter increased approximately 9% over the comparable prior period.  The increase in total royalty income is dueto the Trust’s receipt of a minimum advance royalty with respect to the firstcalendar quarter of 2007.  As discussedelsewhere in this report, the Trust receives a minimum advance royalty paymentin any quarter in which the base overriding royalties are less than the minimumadvance royalty for the relevant calendar quarter.  Bonus royalties are paid as a result ofpellets shipped at prices above the current Adjusted Threshold Price of $45.98per ton.

The table below shows thatthe base overriding royalties and the bonus royalties each decreasedapproximately 2% for the three months ended April 30, 2007.  The decrease in the base overriding royaltiesis due to a slight decrease in shipments and a small reduction in the averagesales price per ton of iron ore pellets, each as compared to the three monthsended April 30, 2006.  Similarly, thedecrease in the bonus royalties is due to a slight decrease in shipments and asmall reduction in the average sales price per ton of iron ore pellets combinedwith an increase in the Adjusted Threshold Price for the three months endedApril 30, 2007, as compared to the three months ended April 30, 2006.

Thetable below summarizes the components of Mesabi Trust’s royalty income for thethree months ended April 30, 2007 and April 30, 2006, respectively:

|                                          | ** ** | **Three Months Ended April 30,** | ** ** |
|------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                               | ** ** | **2007**                                             | ** ** | **2006** | ** ** |
| Base overriding  royalties               |       | $                                                    | 524,776    |   | $ | 539,699 |   |
| Bonus royalties                          |       | 967,057                                              |       | 985,542 |   |
| Minimum advance  royalty paid (recouped) |       | 191,628                                              |       | — |   |
| Fee royalties                            |       | 95,680                                               |       | 111,757 |   |
| Total royalty  income                    |       | $                                                    | 1,779,141  |   | $ | 1,636,998 |   |

 

**Comparisonof Income, Expenses and Distributions for the Three Months Ended April 30, 2007and April 30, 2006**

Net income for the quarterended April 30, 2007 was $1,699,617, an increase of approximately 15% over thequarter ended April 30, 2006.  As withthe increase in total royalty income, the increase in net income for thequarter ended April 30, 2007 was due to the Trust’s receipt of the minimumadvance royalty combined with a 50% decrease in the Trust’s expenses.  The decrease in the Trust’s expenses for thefirst fiscal quarter of 2007 is primarily due to a decrease in legal andaccounting fees.  The table belowsummarizes the Trust’s income and expense items for the three months endedApril 30, 2007 and April 30, 2006, respectively.

|                       | ** ** | **Three Months Ended April 30,** | ** ** |
|-----------------------|------------|------------------------------------------------------|------------|
| ** **            | ** ** | **2007**                                             | ** ** | **2006** | ** ** |
| Total royalty  income |       | $                                                    | 1,779,141  |   | $ | 1,636,998 |   |
| Interest income       |       | 5,915                                                |       | 7,972 |   |
| Gross income          |       | 1,785,056                                            |       | 1,644,970 |   |
| Expenses              |       | 85,439                                               |       | 171,117 |   |
| Net income            |       | $                                                    | 1,699,617  |   | $ | 1,473,853 |   |

 

 

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Aspresented on the Trust’s Condensed Statements of Income on page 2 of thisquarterly report, the Trust’s net income per unit increased $0.018 to $0.130 forthe three months ended April 30, 2007. At the same time, distributions declared per unit decreased $0.255 to$0.045 for the three months ended April 30, 2007.  The increase in net income and decrease indistributions declared is due to the fact that the Trust receives notice ofthe royalty amounts as of the close of each calendar quarter, while the Trust’sfinancial statements are prepared on an accrual basis and present the Trust’sresults of operations for the three months ended April 30, 2007.  Distributions declared for the three monthsended April 30, 2007 do not reflect the Trust’scurrent results of operations but rather result from the royalty notificationreceived by the Trust as of March 31, 2007, which is the time the distributiondetermination is required to be made under the Agreement of Trust.

**Comparisonof Unallocated Reserve for the Three Months Ended April 30, 2007 and April 30,2006**

The Trust’s Unallocated Reserve, which is comprised ofaccrued income receivable and cash reserve for unexpected lossesdecreased 11% from $2,522,875 for the three months ended April 30,2006 to $2,248,891 for the three months ended April 30, 2007.  The accrued income receivable portion of theUnallocated Reserve decreased 9% from $1,700,192 for the three months endedApril 30, 2006 to $1,539,883 for the three months ended April 30, 2007. At the same time, the Trust’s reserve for unexpected losses, whichis represented by unallocated cash and U.S. Government securities,decreased 14% from $822,683 for the three months ended April 30, 2006 to$709,008 for the three months ended April 30, 2007.

The Trust’s Unallocated Reserve for the three monthsended April 30, 2007 increased 97% or $1,109,217 as compared to the fiscal yearended January 31, 2007.  The increase inthe Unallocated Reserve is primarily due to the accrual of royalty income forshipments from Northshore during the month of April 2007.  At January 31, 2007, approximately 36% of theUnallocated Reserve or $409,764 was represented by accrued income receivablewhile 64% or $729,910 was represented by unallocated cash and U.S.Government securities.  Comparatively, for the three months ended April30, 2007, approximately 68% of the Unallocated Reserve or $1,539,883 wasrepresented by accrued income receivable while 32% or $709,008 wasrepresented by unallocated cash and U.S. Government securities.

The Trustees have determinedthat a portion of the Unallocated Reserve, usually within the range of $500,000to $1,000,000 or such other amount as the Trustees may deem prudent, should bemaintained as a reserve for unexpected losses. Although the actual amount of the Unallocated Reserve will fluctuatefrom time to time and may increase or decrease from its current level, it iscurrently intended that future distributions will be highly dependent uponroyalty income as it is received and the level of Trust expenses.  The amount of future royalty income availablefor distribution will be subject to the volume of iron ore product shipmentsand the dollar level of sales by Northshore. Shipping activity is greatly reduced during the winter months andeconomic conditions, particularly those affecting the steel industry, mayadversely affect the amount and timing of such future shipments and sales.  See discussion under the heading “RiskFactors” beginning on page 3 of the Trust’s Annual Report on Form 10-K for thefiscal year ended January 31, 2007.

The Trustees will continueto monitor the economic circumstances of the Trust to strike a responsiblebalance between distributions to Unitholders and the need to maintain adequatereserves at a prudent level, given the unpredictable nature of the iron oreindustry, the Trust’s dependence on the actions of the lessee/operator, and thefact that the Trust essentially has no other liquid assets.

**Recent Developments**

***Update toIron Ore Reserve Estimate***.  In CCI’s Form 10-K for theyear ended December 31, 2006, CCI estimated that there remains enough orereserve in the mine at Northshore to produce approximately 318 million tons ofpellets.  As previously reported, earlier this year the Trustees engagedan independent geological consulting firm, Scott Wilson Roscoe PostleAssociates, Inc. (“Scott Wilson RPA”), to confirm that the process used by CCIto estimate the ore reserve in the mine at Northshore is reasonable.  Inits report to the Trustees, Scott Wilson RPA reported to the Trustees that thereserve estimation process used by CCI is reasonable and complies with thereporting standards set forth in Securities Act Industry Guide 7.  Basedon the report of Scott Wilson RPA, the Trustees estimate that at least 90% ofthe ore reserve in the mine at Northshore, as reported by CCI, is attributableto the Trust Estate.  There are numerousuncertainties involved in the estimation of iron ore reserves.  See the Trust’s 

 

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AnnualReport on Form 10-K for the year ended January 31, 2007 under the heading “RiskFactors” in Part I — Item 1A for more information.

***Production and Shipments***.  During calendar years 2006, 2005, 2004, 2003and 2002, the percentage of shipments of iron ore products from Mesabi Trustlands was approximately 90.9%, 90.1%, 92.0%, 95.5%, and 97.5%, 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 2007.  See the description of the uncertainty ofmarket conditions in the iron ore and steel industry under “Important FactorsAffecting Mesabi Trust” below and the information under the heading “RiskFactors” in Part I — Item 1A of the Trust’s Annual Report on Form 10-K for theyear-ended January 31, 2007.

***Mesabi Nugget Project***.  In its Form 10-K filed May 25, 2007, CCI stated that itcontinues to evaluate opportunities to develop a commercial-scale reduced ironplant, which will convert taconite into nearly pure iron in nugget formutilizing Kobe Steel’s ITmk3 technology. CCI did not provide any information regarding the location or source ofraw materials for the commercial-scale reduced iron plant.  The Trustees are unable to make anyprojections regarding the extent to which CCI’s plans for developing acommercial-scale reduced iron plant may impact future royalties payable toMesabi Trust.

***Iron Ore Pricing and Contract Adjustments***.  During thecourse of its fiscal year some portion of the royalties paid to Mesabi Trustwill be based on estimated prices for iron ore products sold under certain termcontracts between Northshore, CCI and certain of their customers (the “CCIPellet Agreements”).  Mesabi Trust is nota 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 variations in royaltiesreceived by Mesabi Trust (and in turn the resulting amount available fordistribution to Unitholders by the Trust) from quarter to quarter, year toyear, and on a comparative historical basis, and these variations can bepositive or negative.  Mesabi Trust hasnot recently had full access to the CCI Pellet Agreements.  Moreover, because Mesabi Trust is not a partyto the CCI Pellet Agreements and has no control over the mining operations orshipping activities of Northshore, the Trustees cannot predict the significancesuch adjustments may have on the royalties payable to Mesabi Trust.

***CCI and Mittal Steel Supply Agreement***.  In itsForm 8-K filed March 19, 2007, CCI reported that it entered into a new supplyagreement with Mittal Steel USA Inc. (“Mittal”) that “covers significant priceand volume matters under three separate pre-existing iron ore pellet supplyagreements with [CCI] for Mittal’s Cleveland and Indiana Harbor West, IndianaHarbor East and Weirton facilities.”  CCI also reported that the newsupply agreement: (i) replaced the Letter of Agreement dated as of April 12,2006, between [CCI] and Mittal, (ii) consolidated provisions under otheragreements to aggregate Mittal’s purchases during the years 2006 through andincluding 2010, (iii) obligates Mittal to purchase specified minimum tonnagesof iron ore, on an aggregate basis, through 2010, and (iv) set the minimumannual tonnage requirements at Mittal’s approximately budgeted usage levelsthrough 2010 with pricing then in effect at the facility where the pellets aredelivered.  The Trustees are unable to predict the impact the new supplyagreement will have on the royalties payable to Mesabi Trust.

***USW Organizing******Efforts at Northshore***.  In its Form 10-K filedMay 25, 2007, CCI reported that it is currently in a dispute with the UnitedSteel Workers Association (“USW”) regarding the USW’s organizing campaign atNorthshore.  In its Form 10-K, CCIreported that the USW advised the Company that they initiated an organizingcampaign at Northshore effective April 1, 2006. Under the terms of CCI’scollective bargaining agreements with the USW, it is required to remain neutralduring the organizing campaign. CCI reported that it engaged the USW in adiscussion regarding CCI’s neutrality commitment in the collective bargainingagreement with the USW but the issues were not resolved and 

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theUSW has filed suit in Federal District Court in Minnesota to compel arbitrationof the issues. CCI stated that it has filed a charge with the National LaborRelations Board seeking it to intervene in the matter to clarify itsrequirements and prohibit any unlawful actions by the USW. Although CCI hasstated that previous efforts to organize Northshore employees have not been successful,the Trustees are unable to predict whether a campaign may begin or the outcomeof the campaign, if it proceeds.

***EPA Notice of Violation atNorthshore***.  Inits Form 8-K filed February 15, 2006, CCI reported that the EPA notifiedNorthshore that it was being cited for four alleged environmental violationsrelating to the restarts of Furnaces 6, 11 and 12 at Northshore.  In its Form 10-K filed May 25,2007, CCI reported that in December 2006, the Minnesota Pollution ControlAgency (“MPCA”) advised Northshore that the U.S. Environmental ProtectionAgency (“EPA”) would not pursue any further action related to the allegedenvironmental violations at Northshore.

***NorthshoreAdministrative Permit Amendment***.   According to CCI’s Form 10-K, on December 16, 2006,CCI submitted an administrative permit amendment application to the MPCA withrespect to Northshore’s Title V operating permit.  CCI reported that the proposed amendment byNorthshore requested the deletion of a 30 year old “control city” monitoringrequirement but the MPCA denied Northshore’s application on February 23,2007.  CCI further reported that it hasappealed the denial of its application to the Minnesota Court of Appeals andthat subsequent to the filing of the appeal, the MPCA advised Northshore thatthe MPCA considered Northshore to be in violation of the control city standard.CCI’s also reported that it is currently in discussions with the MPCA withrespect to the terms of a compliance schedule in which it would agree to takecertain actions in settlement of the alleged violation. According to CCI’s Form10-K, the Minnesota Center for Environmental Advocacy has since filed a motionwith the Court of Appeals to intervene in Northshore’s appeal of the denial ofan administrative amendment to Northshore’s Title V operating permit. TheTrustees are unable to predict what impact an adverse decision with respect toNorthshore’s Title V operating permit would have on the royalties payable tothe Trust.

***Securities Regulation***.  The Trust is a publicly-traded trust listedon the New York Stock Exchange (“NYSE”) and is therefore subject to extensiveregulation under, among others, the Securities Act of 1933, the SecuritiesExchange Act of 1934, the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”) and therules and regulations of the NYSE. Issuers failing to comply with such authorities risk seriousconsequences, including criminal as well as civil and administrativepenalties.  In most instances, theselaws, rules and regulations do not specifically address their applicability topublicly-traded trusts such as Mesabi Trust. In particular, Sarbanes-Oxley mandated the adoption by the Securitiesand Exchange Commission (the “SEC”) and NYSE of certain rules and regulationsthat are impossible for the Trust to literally satisfy because of its nature asa pass-through trust.  Pursuant to NYSErules the Trust is exempt from many of the corporate governance requirementsthat apply to publicly traded corporations. The Trust does not have, nor does the Agreement of Trust provide for, aboard of directors, an audit committee, a corporate governance committee or acompensation committee.  The Trusteesintend to closely monitor the SEC’s and NYSE’s rulemaking activity and willattempt to comply with such rules and regulations where applicable.

**ImportantFactors Affecting 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 (as such term is definedbelow).  Accordingly, the Trustees’activities in connection with the administration of Trust assets are limited tocollecting income, paying expenses and liabilities, distributing net income toMesabi Trust’s Unitholders 

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afterthe payment of, or provision for, such expenses and liabilities, and protectingand conserving the assets held. Consequently, the income of Mesabi Trust is highly dependent upon the activitiesand operations of Northshore, and the terms and conditions of the leases andassignments of leases between Mesabi Trust and Northshore.

Neither Mesabi Trust nor theTrustees have any control over the operations and activities of Northshore,except within the framework of the Amended Assignment Agreements.  CCI alone controls (i) historical operatingdata, including iron ore production volumes, marketing of iron ore products,operating and capital expenditures as they relate to Northshore, environmentaland other liabilities and the effects of regulatory changes; (ii) plans forNorthshore’s future operating and capital expenditures; (iii) geological datarelating to reserves (iv) projected production of iron ore products; and (v)the decision to mine off Mesabi Trust and/or state lands (which is based on itscurrent mining and engineering plan). The Trustees do not exert any influence over mining operationaldecisions, nor do the Trustees provide any input regarding the ore reserveestimate reported by CCI.  While theTrustees request material information for use in periodic reports as part oftheir evaluation of Mesabi Trust’s disclosure controls and procedures, theTrustees do not control this information and they rely on the information inCCI’s periodic and current filings with the SEC to provide accurate and timelyinformation in Mesabi Trust’s reports filed with the SEC.

In accordance with theAgreement of Trust and the Amendment, the Trustees are entitled to, and in factdo, rely 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) theaccounting firm they have contracted with for non-audit services, includingreviews of financial data related to shipping and sales reports provided byNorthshore and a review of the schedule of leasehold royalties payable toMesabi Trust.

For a discussion ofadditional factors, including but not limited to those that could adverselyaffect Mesabi Trust’s actual results and performance, see “Risk Factors” inPart I — Item 1A of Mesabi Trust’s Annual Report on Form 10-K for theyear-ended January 31, 2007.

**CriticalAccounting Policies**

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

Critical accounting policiesare those that have meaningful impact on the reporting of the Trust’s financialcondition and results, and that require significant management judgment andestimates.  The Trustees have determinedthat there are no critical accounting policies.

 

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**Item 3.  Quantitativeand Qualitative Disclosures About Market Risk.**

Not applicable.

**Item 4.  Controls andProcedures.**

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

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

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

***Changes in Internal Control Over Financial Reporting***.  To the knowledge of the Trustees, there hasbeen no change in the Trust’s internal control over financial reporting thatoccurred during the Trust’s last fiscal quarter that has materially affected,or is likely to materially affect, the Trust’s internal control over financialreporting.  The Trustees note for purposesof clarification that they have no authority over, and make no statementconcerning, the internal controls of Northshore or CCI.

**PART II -OTHER INFORMATION**

**Item 1.  Legal Proceedings.**

As previously reported, onSeptember 25, 2006, Mesabi Trust filed a Demand inArbitration with the American Arbitration Association (the “Demand”) namingCleveland-Cliffs Inc (“CCI”) and its wholly-owned subsidiary Northshore MiningCompany (“Northshore”) as respondents (the “Respondents”).  The Demand asserted that under the Amendment ofAssignment of Peters Lease, the Trustees and their duly authorizedrepresentatives have the right to examine and make copies of and abstracts fromcertain pellet supply agreements because they constitute records and books ofaccount relating to the operations of Northshore.  Mesabi Trust and the Respondents have negotiateda tentative 

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resolutionpursuant to which Mesabi Trust’s accountants will have access to and bepermitted to examine certain pellet supply agreements of CCI.  Under the terms of the tentative resolution,Mesabi Trust will voluntarily dismiss the Demand without prejudice, with eachparty bearing responsibility for its respective costs.

**Item 1A.****            RiskFactors**

There have been no material changes in the Trust’s risk factors asdescribed in Part I Item 1A, “Risk Factors” in the Trust’s Annual Report onForm 10-K for the year ended January 31, 2007.

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

None.

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

None.

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

None.

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

None.

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

| 31     |   | Certification of Corporate Trustee of Mesabi Trust  pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as adopted  pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.        |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                              |
| 32     |   | Certification of Corporate Trustee of Mesabi Trust  pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002.                                    |
|   |   |                                                                                                                                                                                              |
| 99.1   |   | Report of Gordon, Hughes and Banks, LLP, dated June  6, 2007 regarding its review of the un-audited interim financial statements  of Mesabi Trust as of and for the quarter ended April 30, 2007. |

 

 

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**SIGNATURES**

Pursuant to the requirementsof the Securities Exchange Act of 1934, the registrant has duly caused thisreport to be signed on its behalf by the undersigned thereunto duly authorized.
|                     |   |                                                              | MESABI TRUST                         |
|---------------------|--------|-------------------------------------------------------------------|--------------------------------------|
|                |   |                                                              | (Registrant)                         |
|                |   |                                                              |                                 |
|                |   | By:                                                               | DEUTSCHE BANK TRUST COMPANY AMERICAS |
|                |   |                                                              | Corporate Trustee                    |
|                |   | Principal Administrative Officer and duly authorized  signatory:* |
|                |   |                                                              |
|                |   | By:                                                               | Deutsche Bank National Trust Company |
|                |   |                                                              |                                 |
| Date: June 11, 2007 |   |                                                              | By:                                  | /s/ Rodney Gaughan |   |
|                |   |                                                              | Name: Rodney Gaughan                 |
|                |   |                                                              | Title: Vice President                |

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* There are no principal executive officers orprincipal financial officers of the registrant.

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