** **

**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C. 20549**

** **

**FORM 10-Q**

 

**(Mark One)**

 

**ý****                                ****QUARTERLY REPORT PURSUANT TO SECTION 13OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**For the quarterly period ended April 30, 2005**

 

**or**

 

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

 

**For thetransition period from                                 to                                 **

 

**Commission FileNumber:  1-4488**

 

**MESABITRUST**

(Exact name of registrant as specified in its charter)

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

 

**(615) 835-2749**

(Registrant’s telephone number, including area code)

 

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

 

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

 

As of June 6, 2005,there were 13,120,010 Units of Beneficial Interest in Mesabi Trust outstanding.

 

 

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**PART I - FINANCIAL INFORMATION**

** **

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

 
| ** **                                        | ** ** | **Three Months Ended  April 30,** | ** ** |
|---------------------------------------------------|------------|-----------------------------------|------------|
| ** **                                        | ** ** | **2005**                          | ** ** | **2004** | ** ** |
|                                              |       |                              |       |   |   |
| **A.  Condensed  Statements of Income** | ** ** | ** **                        |       |   |   |
|                                              |       |                              |       |   |   |
| Revenues                                          |       |                              |       |   |   |
| Royalty income                                    |       | $                                 | 2,343,447  |   | $ | 927,207 |   |
| Interest income                                   |       | 10,638                            |       | 10,502 |   |
|                                              |       | 2,354,085                         |       | 937,709 |   |
|                                              |       |                              |       |   |   |
| Expenses                                          |       | 218,922                           |       | 101,742 |   |
|                                              |       |                              |       |   |   |
| Net income                                        |       | $                                 | 2,135,163  |   | $ | 835,967 |   |
|                                              |       |                              |       |   |   |
| Number of units outstanding                       |       | 13,120,010                        |       | 13,120,010 |   |
|                                              |       |                              |       |   |   |
| Net income per unit (Note 2)                      |       | $                                 | 0.1627     |   | $ | 0.0637 |   |
|                                              |       |                              |       |   |   |
| Distributions declared per unit                   |       | $                                 | 0.33       |   | $ | 0.05 |   |

 

See Notes to FinancialStatements.

 

2

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| ** **                                                                 | ** ** | **April 30, 2005** | ** ** | **January 31, 2005** | ** ** |
|----------------------------------------------------------------------------|------------|--------------------|------------|----------------------|------------|
|                                                                       |       |               |       |                 |       |
| **B.  Condensed Balance Sheets**                                 | ** ** | ** **         |       |                 |       |
|                                                                       |       |               |       |                 |       |
| **Assets**                                                                 |       |               |       |                 |       |
|                                                                       |       |               |       |                 |       |
| Cash                                                                       |       | $                  | 4,519,978  |                 | $          | 3,970,870 |   |
|                                                                       |       |               |       |                 |       |
| U.S. Government securities, at amortized  cost (which approximates market) |       | 648,193            |       | 748,193              |       |
|                                                                       |       |               |       |                 |       |
| Accrued income receivable                                                  |       | 1,393,076          |       | 3,519,923            |       |
| Prepaid expenses                                                           |       | 32,837             |       | 13,346               |       |
|                                                                       |       | 6,594,084          |       | 8,252,332            |       |
|                                                                       |       |               |       |                 |       |
| Fixed property, including intangibles, at  nominal values                  |       |               |       |                 |       |
|                                                                       |       |               |       |                 |       |
| Amended Assignment of Peters Lease                                         |       | 1                  |       | 1                    |       |
|                                                                       |       |               |       |                 |       |
| Assignment of Cloquet Lease                                                |       | 1                  |       | 1                    |       |
|                                                                       |       |               |       |                 |       |
| Certificate of beneficial interest for 13,120,010  units of land trust     |       | 1                  |       | 1                    |       |
|                                                                       |       | 3                  |       | 3                    |       |
|                                                                       |       |               |       |                 |       |
|                                                                       |       | $                  | 6,594,087  |                 | $          | 8,252,335 |   |
|                                                                       |       |               |       |                 |       |
| **Liabilities, Unallocated Reserve and Trust  Corpus**                     |       |               |       |                 |       |
|                                                                       |       |               |       |                 |       |
| Liabilities                                                                |       |               |       |                 |       |
| Distribution payable                                                       |       | $                  | 4,329,603  |                 | $          | 3,870,403 |   |
| Accrued expenses                                                           |       | 135,159            |       | 58,166               |       |
|                                                                       |       | 4,464,762          |       | 3,928,569            |       |
|                                                                       |       |               |       |                 |       |
| Unallocated Reserve (Note 3)                                               |       | 2,129,322          |       | 4,323,763            |       |
| Trust Corpus                                                               |       | 3                  |       | 3                    |       |
|                                                                       |       |               |       |                 |       |
|                                                                       |       | $                  | 6,594,087  |                 | $          | 8,252,335 |   |

 

See Notes to Financial Statements.

 

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| ** **                                                                      | ** ** | **Three Months Ended  April 30,** | ** ** |
|---------------------------------------------------------------------------------|------------|-----------------------------------|------------|
| ** **                                                                      | ** ** | **2005**                          | ** ** | **2004** | ** ** |
|                                                                            |       |                              |       |   |   |
| **C.  Condensed  Statements of Cash Flows**                           | ** ** | ** **                        |       |   |   |
|                                                                            |       |                              |       |   |   |
| Cash flows from operating activities                                            |       |                              |       |   |   |
| Royalties received                                                              |       | $                                 | 4,462,976  |   | $ | 693,349 |   |
| Interest received                                                               |       | 17,955                            |       | 19,989 |   |
| Expenses paid                                                                   |       | (161,419                          | )          | (139,417 | ) |
|                                                                            |       |                              |       |   |   |
| Net cash provided by operating activities                                       |       | 4,319,512                         |       | 573,921 |   |
|                                                                            |       |                              |       |   |   |
| Cash flows from investing activities                                            |       |                              |       |   |   |
| Maturities of U.S. Government Securities                                        |       | 4,009,083                         |       | 4,174,886 |   |
| Purchases of U.S. Government Securities                                         |       | (3,909,083                        | )          | (99,973 | ) |
|                                                                            |       |                              |       |   |   |
| Net cash provided by (used for) investing  activities                           |       | 100,000                           |       | 4,074,913 |   |
|                                                                            |       |                              |       |   |   |
| Cash flow from financing activity                                               |       |                              |       |   |   |
| Distributions to Unitholders                                                    |       | (3,870,404                        | )          | (3,936,003 | ) |
|                                                                            |       |                              |       |   |   |
| Net change in cash                                                              |       | 549,108                           |       | 712,831 |   |
|                                                                            |       |                              |       |   |   |
| Cash, beginning of year                                                         |       | 3,970,870                         |       | 98,692 |   |
|                                                                            |       |                              |       |   |   |
| Cash, end of quarter                                                            |       | $                                 | 4,519,978  |   | $ | 811,523 |   |
|                                                                            |       |                              |       |   |   |
| **Reconciliation of net income to**net**cash provided by operating activities** |       |                              |       |   |   |
|                                                                            |       |                              |       |   |   |
| Net income                                                                      |       | $                                 | 2,135,163  |   | $ | 835,967 |   |
| (Increase) Decrease in accrued income  receivable                               |       | 2,126,847                         |       | (224,370 | ) |
| (Increase) Decrease in prepaid insurance                                        |       | (19,491                           | )          | (18,494 | ) |
| Increase (Decrease) in accrued expenses                                         |       | 76,993                            |       | (19,182 | ) |
|                                                                            |       |                              |       |   |   |
| Net cash provided by operating activities                                       |       | $                                 | 4,319,512  |   | $ | 573,921 |   |

 

See Notes to Financial Statements.

 

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**MESABI TRUST**

** **

Note 1.                                  The accompanying condensed financialstatements have been prepared without audit (except for the balance sheet at January 31,2005) 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 such rules andregulations.  In the opinion of theTrustees, all adjustments, consisting only of normal recurring adjustments,necessary for a fair statement of the accompanying financial information, havebeen 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 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.  TheTrustees determine the level of distributions on a quarterly basis afterreceiving notification from Northshore Mining Company as to the amount ofroyalty income that will be received and after determination of any known oranticipated expenses, liabilities and obligations of the Trust.  At April 30, 2005, the UnallocatedReserve was represented by $736,246 in unallocated cash and U.S. Governmentsecurities, and $1,393,076 of accrued revenue primarily representing royaltiesnot yet received by the Trust but anticipated to be received in July 2005from Northshore Mining Company as part of the royalty due with respect to thefirst fiscal quarter, based upon reported lessee shipping activity for themonth of April 2005.

 

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

 

**Forward-Looking Information**

 

Certain statements containedin this document are forward-looking statements within the meaning of thePrivate Securities Litigation Reform Act of 1995, including specifically thosestatements estimating calendar year 2005 production or shipments and commentsrelated to the commencement of construction and opening of additional plants in2005 and beyond.  All suchforward-looking statements are based on input from Northshore Mining Company (“Northshore”),which is the lessee/operator and a wholly-owned subsidiary of Cleveland-CliffsInc (“CCI”), and published announcements of CCI.  The Trust has no control over the operationsor activities of Northshore, nor any influence on the decision of whetherNorthshore’s facilities would be used to supply CCI’s demonstration orcommercial nugget modules (presently in the planning stages), except within theframework of current agreements.  Actualresults could differ materially from those indicated in such statements.  Important factors that could cause actualresults to differ materially include those listed below under the heading “ImportantFactors Affecting Mesabi Trust”.

 

**Background**

 

Mesabi Trust (“Mesabi Trust”or the “Trust”), formed pursuant to an Agreement of Trust dated July 18,1961 (the “Agreement of Trust”), is a trust organized under the laws of theState of New York.  The Agreement ofTrust specifically prohibits the Trustees from entering into or engaging in anybusiness.  This prohibition applies evento business activities the Trustees 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 the Trust (“Unitholders”) after thepayment of, or provision for, such expenses and liabilities, and protecting andconserving the assets held.  The Trusteesdo not intend to expand their responsibilities beyond those permitted orrequired by the Agreement of Trust, the Amendment to the Agreement of Trustdated October 25, 1982 (the “Amendment”), and those required underapplicable law.

 

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

 

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

 

6

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2005.  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). During the calendar quarter ended March 31, 2005, Northshore paid aroyalty bonus of $842,730 to the Trust. The Trust also received $1,829,170 of royalty bonuses during the firstquarter of fiscal year 2006 that were earned during fiscal year 2005.  Prior to fiscal year 2005, the Trust had notreceived a royalty bonus for several years. (See the section entitled “RoyaltyComparisons” below for more information.)

 

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

 

•                                          Minimum advance royalties: Generally, Northshore’s obligation to pay base overriding royalties androyalty bonuses with respect to the sale of iron ore products accrues upon theshipment of those products from Silver Bay. However, regardless of whether any shipment has occurred, Northshore isobligated to pay to Mesabi Trust a minimum advance royalty.  Each year, the amount of the minimum advanceroyalty is adjusted (but not below $500,000 per annum) for inflation anddeflation.  The advance royalty was$685,630 for calendar year 2003, $696,161 for calendar year 2004, and is$714,988 for calendar year 2005.  Untiloverriding royalties (and royalty bonuses, if any) for a particular year equalor exceed the minimum advance royalty for the year, Northshore must makequarterly payments of up to 25% of the minimum advance royalty for theyear.  Because advance minimum royaltiesare essentially prepayments of base overriding royalties and royalty bonusesearned each year, any advance minimum royalties paid in a fiscal quarter arerecouped by credits against base overriding royalties and royalty bonusesearned in later fiscal quarters during the year.  Over the past two years, the base overridingroyalties (and, where applicable, royalty bonuses) earned in each fiscalquarter have exceeded the applicable minimum advance royalty amount and thus nominimum advance royalties have been necessary.

 

Northshore is obligated tomake quarterly royalty payments in January, April, July and October ofeach year.  In the case of baseoverriding royalties and royalty bonuses, these quarterly royalty payments areto be made whether or not the related proceeds of sale have been received byNorthshore by the 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 of 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 products fromMesabi Trust lands, Mesabi Trust receives royalties on stated percentages ofiron ore shipped from Silver Bay, whether or not the iron ore products are fromMesabi Trust lands.  Mesabi Trustreceives royalties at the greater of (i) the aggregate quantity of ironore products shipped that were from Mesabi Trust lands, and (ii) a portionof the aggregate quantity of all iron ore products shipped that were from anylands, such portion being 90% of the first four million tons shipped duringsuch year, 85% of the next two million tons shipped during such year, and 25%of all tonnage shipped during such year in excess of six million tons.

 

7

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Mesabi Trust has noemployees, but it engages independent consultants to assist the Trustees inmonitoring, among other things, the amount and sales prices of iron oreproducts shipped by Northshore from Silver Bay. 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 Bank TrustCompany Americas, the Corporate Trustee, also performs certain administrativefunctions for Mesabi Trust.

 

**Results of Operations**

 

As shown in the table below,production of iron ore pellets at Northshore from Mesabi Trust lands during thefiscal quarter ended April 30, 2005 totaled approximately 1.16 milliontons, and actual shipments over the same period totaled approximately .54million tons.  By comparison, actualpellet production for the comparable prior period approximated 1.21 milliontons, and actual shipments approximated .74 million tons.

 
| **Fiscal Quarter Ended** | ** ** | **Pellets Produced from   Trust Lands** | ** ** | **Shipments from Trust   Lands** | ** ** |
|--------------------------|------------|-----------------------------------------|------------|----------------------------------|------------|
| April 30, 2005      |       | 1,155,935                               |       | 537,942                          |       |
| April 30, 2004      |       | 1,208,405                               |       | 735,385                          |       |

 

The slight decreases inproduction and shipments from Trust lands are attributable to Northshore’smining activity on lands owned by parties other than the Trust during thefiscal quarter ended April 30, 2005. During the comparable prior period, all production and shipments wereattributed to Mesabi Trust lands.

 

Despite the decreasedproduction and shipments, total royalty income for the quarter increased byapproximately 153% over the comparable prior period, primarily due to royaltybonuses and increased pellet pricing.

 

**Comparison of Three Months Ended April 30, 2005 and April 30,2004**

 

Net income for the quarterended April 30, 2005 was $2,135,163, an increase of approximately 155%over the quarter ended April 30, 2004. This increase was primarily due to the receipt of royalty bonuses duringthe quarter and increases in pellet prices, as compared to the comparable priorperiod.  Expenses increased from thecomparable prior period, primarily due to increases in general andadministrative expenses.  Following is asummary of results for the three months ended April 30, 2005 and April 30,2004, respectively.

 
| ** **           | ** ** | **Three Months Ended April 30,** | ** ** |
|----------------------|------------|---------------------------------------|------------|
| ** **           | ** ** | **2005**                              | ** ** | **2004** | ** ** |
| Total royalty income |       | $                                     | 2,343,447  |   | $ | 927,207 |   |
| Interest income      |       | 10,638                                |       | 10,502 |   |
| Gross income         |       | $                                     | 2,354,085  |   | $ | 937,709 |   |
|                 |       |                                  |       |   |   |
| Expenses             |       | 218,922                               |       | 101,742 |   |
| Net income           |       | $                                     | 2,135,163  |   | $ | 835,967 |   |

 

8

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**Unallocated Reserve**

 

Unallocated Reserve as of April 30,2005 was $2,129,322, an increase of 34% over the Unallocated Reserve as of April 30,2004.  The increase is primarily due toroyalty revenue that was accrued for on the Trust’s balance sheet at the end ofthe fiscal quarter, but not yet paid to the Trust (expected in late July 2005).  The increased royalty revenue accrual isreflected as Accrued Income Receivable on the balance sheet at April 30,2005, which the Trustees anticipate will be distributed, after providing forexpenses and reserves, during the quarter in which it is received.

 

The Trustees have determinedthat the Unallocated Reserve should be maintained at a prudent level, usuallywithin the range of $500,000 to $1,000,000. Accordingly, although the actual amount of the Unallocated Reserve willfluctuate from time to time, and may increase or decrease from its currentlevel, it is currently intended that future distributions will be highlydependent upon royalty income as it is received and the level of Trustexpenses.  The amount of future royaltyincome available for distribution will be subject to the volume of iron oreproduct shipments and the dollar level of sales by Northshore.  Shipping activity is greatly reduced duringthe winter months and economic conditions, particularly those affecting thesteel industry, may adversely affect the amount and timing of such futureshipments and sales.

 

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.  Following is a comparison of UnallocatedReserve over the past year.

 
| ** **          | ** ** | **As of April 30,** | ** ** |
|---------------------|------------|--------------------------|------------|
| ** **          | ** ** | **2005**                 | ** ** | **2004** | ** ** |
| Unallocated Reserve |       | $                        | 2,129,322  |   | $ | 1,588,551 |   |
|                     |            |                          |            |  |  |  |  |

 

**Royalty Comparisons**

 

Royalties received in April 2005included a royalty bonus payment, reflecting prices of pellets shipped thatexceeded the current Adjusted Threshold Price of $42.89 per ton.  No such royalty bonus payment was received inthe comparable prior period.**** The following chart summarizes Mesabi Trust’sroyalty income for the three months ended April 30, 2005 and April 30,2004, respectively:

 
| ** **                              | ** ** | **Three Months Ended April 30,** | ** ** |
|-----------------------------------------|------------|---------------------------------------|------------|
| ** **                              | ** ** | **2005**                              | ** ** | **2004** | ** ** |
| Base overriding royalties               |       | $                                     | 925,016    |   | $ | 829,941 |   |
| Bonus royalties                         |       | 1,323,270                             |       | 0 |   |
| Minimum advance royalty paid (recouped) |       | 0                                     |       | 0 |   |
| Fee royalties                           |       | 95,161                                |       | 97,266 |   |
| Total royalty income                    |       | $                                     | 2,343,447  |   | $ | 927,207 |   |

 

9

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**Current Developments**

 

***General***.  CCI indicated in its Form 10-Qfiled April 29, 2005 that production for the first three months of 2005for Northshore was 1.2 million tons of iron ore pellets, unchanged from thefirst three months of 2004.  CCIforecasts Northshore production at 4.9 million tons of iron ore pellets (usingiron ore mined both from Mesabi Trust lands and from other than Mesabi Trustlands) for calendar year 2005, which represents a decrease of the previouslyreported estimate of 5.2 million tons. (See the following section, “Capacity Expansions,” for furtherdiscussion of CCI’s revised production estimate.)

 

Northshore has not providedthe Trust with an estimate for total calendar year 2005 shipments of iron orepellets.  (See description of theuncertainty of market conditions in the iron ore and steel industry under “ImportantFactors Affecting Mesabi Trust” below.) During calendar years 2004, 2003, 2002, 2001, and 2000, the percentageof shipments of iron ore products from Mesabi Trust lands was approximately92.0%, 95.5%, 97.5%, 99.2%, and 99.8%, respectively, of total shipments.  Northshore has not advised the Trustees as tothe percentage of iron ore products from Mesabi Trust lands it anticipatesshipping in calendar year 2005.

 

***Capacity Expansions***.  In an April 27, 2005 pressrelease, CCI announced that the 800,000-ton capacity expansion at Northshorewill be finalized several months later than previously projected, due to delaysassociated with required permitting.  Theadditional capacity is now expected to be brought online near year-end.  While CCI has adjusted its productionforecast for Northshore downward by 300,000 tons to reflect this delay, the April 27,2005 press release stated that projected 2005 pellet sales have notchanged.  At this time the Trustees areunable to make any projections as to the extent to which CCI’s planned capacityexpansions and the delay in such expansions may impact future royalties payableto the Trust.

 

***Mesabi Nugget Project***.  CCI is participating in theMesabi Nugget Project with Kobe Steel, Ltd. (“Kobe Steel”), Steel Dynamics, Inc.,Ferrometrics, Inc. and the State of Minnesota.  The project’s objective is to develop andapply a new iron making technology (Kobe Steel’s Itmk3 process) for convertingiron ore into nearly pure iron nugget form. CCI has indicated that if the Mesabi Nugget Project successfullyachieves commercialization, iron nuggets from this new process would be used asan alternative to steel scrap as a raw material for electric steel furnaces andblast furnaces, basic oxygen furnaces of integrated steel producers or as feedstock for the foundry industry.

 

A pilot plant to test theItmk3 process was constructed at the Northshore facility and operated through August 3,2004.  CCI stated in its Form 10-Kfiled February 22, 2005 that the third operating phase of the pilot planttest confirmed the commercial viability of the Itmk3 technology, and that fourelectric furnace producers and one foundry had used the nugget product withfavorable results.

 

In its Form 10-Q filed April 29,2005, CCI stated that preliminary construction engineering and environmentalpermitting activities have been initiated for two potential commercial plantlocations (one in Butler, Indiana and the other at CCI’s Cliffs Erie facilityin Hoyt Lakes, Minnesota), and that earliest environmental approval wasexpected in the first half of 2005.  CCIfurther stated in its Form 10-Q that a non-binding term sheet for acommercial plant was executed in March 2005 and a decision to proceed withconstruction engineering was made in April. CCI added that it would be the supplier of iron ore and have a minorityinterest in the first commercial plant.

 

CCI previously announced ina September 9, 2004 press release that any future Minnesota constructionof commercial nugget modules would be at CCI’s Cliffs Erie facility, and addedthat Northshore would be capable of supplying iron concentrates to the initialiron nugget demonstration plant expected at Cliffs Erie, as well as subsequentcommercial modules.  CCI’s chiefexecutive officer stated

 

10

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in CCI’s October 28,2004 earnings conference call that no decision had been made as to which of thetwo locations would be used for the first nugget plant, but in either case thatplant would be supplied with concentrate from Northshore.

 

Although Mesabi Trust is nota party to the Mesabi Nugget Project and its involvement in this project wasnot solicited, iron ore from Mesabi Trust lands is likely to be used to supplyconcentrate to the iron nugget demonstration plant or commercial modules.  At this time, however, the Trustees areunable to make projections as to whether any possible future royalties might bepayable to the Trust with respect to any commercial nugget plants.

 

***Iron Ore Pricing Increases andAdjustments***. During the course of its fiscal year some portion of the royalties paidto Mesabi Trust will be based on estimated prices for iron ore products soldunder certain term contracts between Northshore, CCI and certain of theircustomers (the “CCI Pellet Agreements”). Mesabi Trust is not a party to the CCI Pellet Agreements.  These prices are subject to interim and finalpricing adjustments, which can be positive or negative, and which adjustmentsare dependent in part on multiple price and inflation index factors that arenot known until after the end of a contract year. This can result insignificant and frequent variations in royalties received by Mesabi Trust (andin turn the resulting amount available for distribution to Unitholders by theTrust) from quarter to quarter and on a comparative historical basis, and thesevariations, which can be positive or negative, cannot be predicted by MesabiTrust.

 

Under the CCI PelletAgreements, upward price adjustments were made during the first three months ofcalendar 2005 to iron ore shipped by Northshore to customers from Silver Bayduring 2003 and 2004 due to increased pricing. The pricing adjustments in turn resulted in increased royalty revenue tothe Mesabi Trust, which were reflected in the Accrued Income Receivable on theMesabi Trust balance sheet as of January 31, 2005.  The Mesabi Trustees are not able to predictwhether adjustments in the future, if any, will be upward or downward.

 

In a press release dated April 7,2005, CCI cited international iron ore pellet pricing increases and announcedthat the estimated effect of such increases will result in increased CCI salesrevenues.  CCI further stated that it willrealize an increase in pricing representing a combination of known contractualbase price increases, lag year adjustments, and capped pricing on one of itscontracts.  The increased demand for ironore is attributed primarily to economic growth in China, where iron ore importshave more than tripled since 2000, according to published reports.  CCI reported in its Form 10-Q filed April 29,2005 that it experienced increased sales prices, primarily due to the effect onCCI’s term sales contract price adjustment factors of an approximate 86%increase in international pellet pricing, higher steel pricing, higher priceindex factors and other known contractual increases.

 

Because the shipments ofiron ore products using iron ore mined from Mesabi Trust lands represent only afraction of CCI’s overall sales and because Mesabi Trust is not party to theCCI Pellet Agreements, while this news indicates that the trend of pricesrealized by CCI appears higher, the actual impact on royalties (and ultimatelydistributions by Mesabi Trust) cannot be estimated.

 

The Trustees cannot projectwhether iron ore prices will continue to increase or any potential impact onfuture royalties payable to the Trust.

 

***Securities Regulation***.  The Trust is a publicly-tradedtrust listed on the New York Stock Exchange (“NYSE”) and is therefore subjectto extensive regulation under, among others, the Securities Act of 1933, theSecurities Exchange Act of 1934, NYSE rules and regulations and theSarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”).  Issuers failing to comply with suchauthorities risk serious consequences, including criminal as well as civil andadministrative penalties.  In mostinstances, these

 

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laws, rules andregulations do not specifically address their applicability to publicly-tradedtrusts such as Mesabi Trust.  Inparticular, Sarbanes-Oxley provides for the adoption by the Securities andExchange Commission (the “SEC”) and NYSE of certain rules and regulationsthat may be impossible for the Trust to literally satisfy because of its natureas a pass-through trust.  During fiscal2004, the SEC and NYSE adopted rules and regulations pursuant toSarbanes-Oxley that require a publicly-traded company’s board of directors,audit committee or executive directors (or similar body) to act with respect tocertain corporate governance matters. The Trust does not have, nor does the Agreement of Trust provide for, aboard of directors, an audit committee or any executive officers.  Moreover, the Trust has no employees atall.  Therefore, the Trust cannotliterally comply with many of these rules and regulations.  The Trustees intend to follow the SEC’s andNYSE’s rulemaking closely and attempt to comply with such rules andregulations where possible.

 

**Important Factors 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 tothe Trust’s Unitholders after the payment of, or provision for, such expensesand liabilities, and protecting and conserving the assets held.

 

Accordingly, the income ofthe Trust is highly dependent upon the activities and operations of Northshore,and the terms and conditions of the leases and assignments of leases betweenthe Trust and Northshore.  The Trust andthe Trustees have no control over the operations and activities of Northshore,except within the framework of these agreements.  Northshore alone controls (i) historicaloperating data, including iron ore production volumes, marketing of iron oreproducts, operating and capital expenditures as they relate to Northshore,environmental and other liabilities and the effects of regulatory changes; (ii) plansfor Northshore’s future operating and capital expenditures; (iii) geologicaldata relating to reserves and (iv) projected production of iron oreproducts.  Northshore alone determineswhether to mine off Trust and/or state lands, based on its current mining andengineering plan.  The Trustees do notexert any influence over mining operational decisions, nor do the Trusteesprovide any input regarding the ore reserve estimate reported by CCI.  While the Trustees request materialinformation for use in periodic reports as part of their evaluation of theTrust’s disclosure controls and procedures, the Trustees do not control thisinformation and they rely on Northshore to provide accurate and timelyinformation for use in the Trust’s reports filed with the SEC.

 

Additionally, as permittedby the terms of the Agreement of Trust and the Amendment, the Trustees areentitled to, and in fact do rely, upon certain experts in good faith, including(i) the independent consultants with respect to monthly production andshipment reports, which include figures on crude ore production and iron orepellet shipments, and discussions concerning the condition and accuracy of thescales and plans regarding the development of the 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 tothe Trust.

 

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

 

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

 

2.                                       Operations of Northshore. Because the primary portion of the Trust’s revenues derive from iron oreproduct shipped by Northshore from Silver Bay, Northshore’s processing andshipping activities directly impact the Trust’s revenues in each quarter andfor each year.  In turn, a number offactors affect Northshore’s shipment volume. These factors include, among others, the economic conditions in the ironore industry, pricing by domestic and international competitors, long-termcustomer contracts or arrangements by Northshore or its competitors,availability of ore boats, production at Northshore’s mining operations, andproduction at the pelletizing/processing facility.  If any pelletizing line becomes idle for anyreason, production and shipments (and, consequently, Trust income) could beadversely impacted.  In addition, asnoted in CCI’s Form 10-Q filed April 29, 2005, the plannedreactivation of a previously idled furnace at Northshore may be impacted bysuch factors as an inability of the planned expansions to achieve expectedadditional production, and increases in the cost and length of time required tocomplete the capacity expansions.

 

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

 

Royaltiesincreased in fiscal 2005 primarily due to increased royalty revenue recognizedat the end of fiscal 2005 resulting from contract pricing adjustments ofpellets shipped during 2003 and 2004 pursuant to the CCI Pellet Agreements.Mesabi Trust is not party to these agreements. The Trustees cannot predict withcertainty whether any pricing adjustments under these agreements will or willnot occur in the future, or if there are pricing adjustments, whether they willbe positive or negative. In either case, these price adjustments will impactfuture royalties received by the Trust that become available for distributionto Unitholders.

 

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

 

5.                                       Percentage of Mesabi Trust Ore.  Asdescribed elsewhere in this Report, Northshore has the ability to process andship iron ore products from lands other than Mesabi Trust lands.  In certain circumstances, the Trust may beentitled to royalties on those other shipments, but not in all cases.

 

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Ingeneral, the Trust will receive higher royalties (assuming all other factorsare equal) if a higher percentage of shipments are from Mesabi Trustlands.  The percentages of shipments thatcame from Mesabi Trust lands were 92.0%, 95.5%, 97.5%, 99.2%, and 99.8%, incalendar years 2004, 2003, 2002, 2001, and 2000, respectively.

 

6.                                       Uncertainty of Market Conditions in the Steeland Iron Ore Industry. ** **CCIreported in its Form 10-Q for its fiscal quarter ending March 31,2005 that, while there is uncertainty regarding the pellet requirements of itscustomers, CCI is projecting that 2005 North American pellet sales andproduction will exceed that of 2004. However, CCI cautioned in its Form 10-Q that significant risks anduncertainties may impact its forecast, including, but not limited to, adecrease in steel production caused by global overcapacity of steel, anincrease in steel imports into the United States, cyclicality in the steelmarket, fluctuations in international pricing for iron ore, and customer or potentialcustomer restructuring and financial difficulty (which could result in reducedproduction capacity over time). Furthermore, there still exists uncertainty, consolidation andrestructuring in the domestic steel market.

 

Inlight of the current steel industry environment, uncertainties arising from warand other global events, and the above-mentioned risks and factors, it isuncertain whether prices on domestic steel products will be maintained atcurrent levels, and whether steel mills will be able to operate at capacitylevels in 2005 and beyond.  Furthermore,it is uncertain whether the demand for domestic steel products will continue atcurrent levels and the extent to which it will impact royalties paid to theTrust in fiscal year 2006 and beyond.

 

**Critical Accounting 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.

 

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

 

Not applicable.

 

**Item 4.****  Controls and Procedures.**

 

Evaluationof Disclosure Controls and Procedures.  TheTrustees maintain disclosure controls and procedures designed to ensure thatinformation required to be disclosed by the Trust in the reports that it filesor submits under the Securities Exchange Act of 1934, as amended, is recorded,processed, summarized and reported within the time periods specified in the rules andregulations of the Securities and Exchange Commission.  Disclosure controls and procedures includecontrols and procedures

 

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designedto ensure that information required to be disclosed by the Trust is accumulatedand communicated by Northshore, and consultants to the Trustees as appropriate,to allow 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 theTrustees is accurate and complete, the Trustees must rely on (a) a generalcertification from Northshore and Northshore’s parent, CCI, certifying as tothe accuracy of the royalty calculations, and (b) CCI’s conclusions thatits overall disclosure controls and procedures are effective.  In addition, the Trust’s consultants reviewthe schedule of leasehold royalties payable and shipping and sales reportsprovided by Northshore against production and shipment reports prepared by theEveleth Fee Office, Inc., an independent consultant to the Trust (“EvelethFee Office”). Eveleth Fee Office gathers production and shipping informationfrom Northshore and prepares monthly production and shipment reports for theTrustees. Furthermore, as part of its engagement by the Trust, Eveleth FeeOffice also attends Northshore’s calibration and testing of its crude orescales and boat loader scales which are conducted on a periodic basis.

 

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 has been no significant changein the Trust’s internal control over financial reporting that occurred duringthe Trust’s last fiscal quarter that has materially affected, or is reasonablylikely to materially affect, the Trust’s internal control over financial reporting.  The Trustees note for purposes ofclarification that they have no authority over, and make no statementconcerning, the internal control over financial reporting of Northshore.

 

**PART II - OTHER INFORMATION**

 

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

 

None.

 

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

 

None.

 

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

 

None.

 

**Item 4.****          ****Submission of Matters to aVote of Security Holders.**

 

None.

 

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

 

None.

 

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

 

31                               Certification of Corporate Trustee of MesabiTrust pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, asadopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

32                               Certification of Corporate Trustee of MesabiTrust pursuant to 18 U.S.C. Section 1350,  as adopted pursuant to Section 906 of theSarbanes-Oxley Act of 2002.

 

99.1                      Report dated May 23, 2005 of Gordon,Hughes and Banks, LLP regarding its review of the un-audited interim financialstatements of Mesabi Trust for its quarter ending April 30, 2005.

 

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**SIGNATURES**

** **

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

 
|                          | MESABI TRUST                                                       |                                   |
|-------------------------------|--------------------------------------------------------------------|----------------------------------------|
|                          | (Registrant)                                                       |                                   |
|                          |                                                               |
|                          | By:                                                                | DEUTSCHE  BANK TRUST COMPANY  AMERICAS |
|                          |                                                               | Corporate  Trustee                     |
|                          | Principal  Administrative Officer and duly authorized  signatory:* |
|                          |                                                               |
| Date:  June 7, 2005 | By:                                                                | /s/ Rodney Gaughan                     |   |
|                          |                                                               | Name:  Rodney Gaughan                  |   |
|                          |                                                               | Title:  Assistant Vice President  |   |
|                               |                                                                    |                                        |  |  |  |

 

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

 

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