**UNITED STATES**

**SECURITIES ANDEXCHANGE COMMISSION**

**WASHINGTON, D.C. 20549**

 

**FORM 10-Q**

 

**(MarkOne)**

 

| **x**                                                                                                                                                                                                                                                 | **QUARTERLY REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**  |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------|
| ** **                                                                                                                                                                                                                                            |
| **For the quarterly period ended  July 31, 2009**                                                                                                                                                                                                |
| ** **                                                                                                                                                                                                                                            |
| **or**                                                                                                                                                                                                                                                |
| ** **                                                                                                                                                                                                                                            |
| **o**                                                                                                                                                                                                                                                 | **TRANSITION REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
| ** **                                                                                                                                                                                                                                            |
| **For the transition period from                   to                    ** |

 

**CommissionFile Number:  1-4488**

 

**MESABI TRUST**

(Exact name of registrant as specified in itscharter)

 

| **New York**                                                                                                                                            | ** ** | **13-6022277**                       |
|---------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------|
| (State or other jurisdiction of                                                                                                                         | ** ** | (I.R.S. Employer Identification No.) |
| incorporation or organization)                                                                                                                          | ** ** |                                 |
|                                                                                                                                                    | ** ** |                                 |
| **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  x  No  o

 

Indicate by check mark whetherthe Registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and postedpursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) duringthe preceding 12 months (or for such shorter period that the Registrant wasrequired to submit and post such files). Yes  o  No  o*

 

* The registrant has not yetbeen phased into the interactive data requirements.

 

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, or a smaller reporting company. See definitions of “largeaccelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2of the Exchange Act:

 
| Large accelerated filer o | Accelerated filer x         |
|---------------------------|-----------------------------|
|                      |                        |
| Non-accelerated filer o   | Smaller reporting company o |

 

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act).  Yes  o  No  x

 

As of September 3,2009, there were 13,120,010 Units of Beneficial Interest in Mesabi Trustoutstanding.

 

 

 

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**PART I - FINANCIAL INFORMATION**

 

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

 

**Mesabi Trust**

**Condensed Statements of Income**

**Three and Six Months Ended July 31,2009 and 2008**

 
| ** **                                                                                                                       | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|----------------------|------------|
| ** **                                                                                                                       | ** ** | **July 31,**      | ** ** | **July 31,**    | ** ** |
| ** **                                                                                                                       | ** ** | **2009**               | ** ** | **2008**             | ** ** | **2009** | ** ** | **2008** | ** ** |
| ** **                                                                                                                       | ** ** | **(unaudited)**        | ** ** | **(unaudited)**      | ** ** | **(unaudited)** | ** ** | **(unaudited)** | ** ** |
| **A.****              ****Condensed Statements of Income** | ** ** | ** **             | ** ** | ** **           | ** ** | ** ** | ** ** | ** ** | ** ** |
|                                                                                                                             |       |                   |       |                 |       |   |   |   |   |
| Revenues                                                                                                                         |       |                   |       |                 |       |   |   |   |   |
| Royalty income                                                                                                                   |       | $                      | 419,135    |                 | $          | 16,766,563 |   | $ | 1,440,847 |   | $ | 20,614,273 |   |
| Interest income                                                                                                                  |       | 3,802                  |       | 5,240                |       | 6,971 |   | 19,337 |   |
|                                                                                                                             |       | 422,937                |       | 16,771,803           |       | 1,447,818 |   | 20,633,610 |   |
|                                                                                                                             |       |                   |       |                 |       |   |   |   |   |
| Expenses                                                                                                                         |       | 201,925                |       | 201,486              |       | 425,760 |   | 423,640 |   |
|                                                                                                                             |       |                   |       |                 |       |   |   |   |   |
| Net income                                                                                                                       |       | $                      | 221,012    |                 | $          | 16,570,317 |   | $ | 1,022,058 |   | $ | 20,209,970 |   |
|                                                                                                                             |       |                   |       |                 |       |   |   |   |   |
| Number of units outstanding                                                                                                      |       | 13,120,010             |       | 13,120,010           |       | 13,120,010 |   | 13,120,010 |   |
|                                                                                                                             |       |                   |       |                 |       |   |   |   |   |
| Net income per unit (Note 2)                                                                                                     |       | $                      | 0.0168     |                 | $          | 1.2630 |   | $ | 0.0779 |   | $ | 1.5404 |   |
|                                                                                                                             |       |                   |       |                 |       |   |   |   |   |
| Distributions declared per unit (Note 3)                                                                                         |       | $                      | —     |                 | $          | 1.0000 |   | $ | 0.3800 |   | $ | 1.1200 |   |

 

See Notes toCondensed Financial Statements.

 

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**MesabiTrust**

**CondensedBalance Sheets**

**July 31,2009 and January 31, 2009**

 
| ** **                                                                                                                 | ** ** | **July 31, 2009** | ** ** | **January 31, 2009** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|---------------------------|------------|
| ** **                                                                                                                 | ** ** | **(unaudited)**        | ** ** | ** **                | ** ** |
| **B.****              ****Condensed Balance Sheets** | ** ** | ** **             | ** ** | ** **                | ** ** |
|                                                                                                                       |       |                   |       |                      |       |
| **Assets**                                                                                                                 | ** ** | ** **             | ** ** | ** **                | ** ** |
|                                                                                                                       |       |                   |       |                      |       |
| Cash and cash equivalents                                                                                                  |       | $                      | 858,218    |                      | $          | 2,254,107 |   |
|                                                                                                                       |       |                   |       |                      |       |
| U.S. Government securities, at amortized  cost (which approximates market)                                                 |       | 1,057,341              |       | 340,421                   |       |
|                                                                                                                       |       |                   |       |                      |       |
| Accrued income receivable                                                                                                  |       | 554,101                |       | 2,721,978                 |       |
| Prepaid expenses                                                                                                           |       | 16,033                 |       | 30,423                    |       |
|                                                                                                                       |       | 2,485,693              |       | 5,346,929                 |       |
|                                                                                                                       |       |                   |       |                      |       |
| 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                         |       |
|                                                                                                                       |       |                   |       |                      |       |
|                                                                                                                       |       | $                      | 2,485,696  |                      | $          | 5,346,932 |   |
|                                                                                                                       |       |                   |       |                      |       |
| **Liabilities,  Unallocated Reserve and Trust Corpus**                                                                     | ** ** | ** **             | ** ** | ** **                | ** ** |
|                                                                                                                       |       |                   |       |                      |       |
| Liabilities                                                                                                                |       |                   |       |                      |       |
| Distribution payable                                                                                                       |       | $                      | —     |                      | $          | 1,443,201 |   |
| Accrued expenses                                                                                                           |       | 87,058                 |       | 111,547                   |       |
| Deferred royalty revenue (Note 4)                                                                                          |       | 2,570,000              |       | —                    |       |
|                                                                                                                       |       | 2,657,058              |       | 1,554,748                 |       |
|                                                                                                                       |       |                   |       |                      |       |
| Unallocated Reserve (Deficit) (Note 5)                                                                                     |       | (171,365               | )          | 3,792,181                 |       |
| Trust Corpus                                                                                                               |       | 3                      |       | 3                         |       |
|                                                                                                                       |       |                   |       |                      |       |
|                                                                                                                       |       | $                      | 2,485,696  |                      | $          | 5,346,932 |   |

 

See Notes to Condensed FinancialStatements.

 

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**MesabiTrust**

**CondensedStatements of Cash Flows**

**Six MonthsEnded July 31, 2009 and 2008**

 
| ** **                                                                                                                           | ** ** | **Six Months Ended** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------|------------|
| ** **                                                                                                                           | ** ** | **July 31,**    | ** ** |
| ** **                                                                                                                           | ** ** | **2009**             | ** ** | **2008** | ** ** |
| ** **                                                                                                                           | ** ** | **(unaudited)**      | ** ** | **(unaudited)** | ** ** |
| **C.****              ****Condensed Statements of Cash Flows** | ** ** | ** **           | ** ** | ** ** | ** ** |
|                                                                                                                                 |       |                 |       |   |   |
| Cash flows from operating activities                                                                                                 | ** ** | ** **           | ** ** | ** ** | ** ** |
| Royalties received                                                                                                                   |       | $                    | 6,173,965  |   | $ | 15,113,023 |   |
| Interest received                                                                                                                    |       | 8,205                |       | 23,996 |   |
| Expenses paid                                                                                                                        |       | (432,334             | )          | (398,676 | ) |
|                                                                                                                                 |       |                 |       |   |   |
| Net cash provided by operating  activities                                                                                           |       | 5,749,836            |       | 14,738,343 |   |
|                                                                                                                                 |       |                 |       |   |   |
| Cash flows from investing activities                                                                                                 |       |                 |       |   |   |
| Maturities of U.S. Government Securities                                                                                             |       | 53,000               |       | 209,643 |   |
| Purchases of U.S. Government Securities                                                                                              |       | (769,920             | )          | (103,649 | ) |
|                                                                                                                                 |       |                 |       |   |   |
| Net cash provided by (used for)  investing activities                                                                                |       | (716,920             | )          | 105,994 |   |
|                                                                                                                                 |       |                 |       |   |   |
| Cash flow from financing activities                                                                                                  |       |                 |       |   |   |
| Distributions to Unitholders                                                                                                         |       | (6,428,805           | )          | (8,331,206 | ) |
|                                                                                                                                 |       |                 |       |   |   |
| Net change in cash and cash equivalents                                                                                              |       | (1,395,889           | )          | 6,513,131 |   |
|                                                                                                                                 |       |                 |       |   |   |
| Cash and cash equivalents, beginning of  year                                                                                        |       | 2,254,107            |       | 6,959,701 |   |
|                                                                                                                                 |       |                 |       |   |   |
| Cash and cash equivalents, end of period                                                                                             |       | $                    | 858,218    |   | $ | 13,472,832 |   |
|                                                                                                                                 |       |                 |       |   |   |
| **Reconciliation of net  income to net cash provided by operating activities**                                                       |       |                 |       |   |   |
|                                                                                                                                 |       |                 |       |   |   |
| Net income                                                                                                                           |       | $                    | 1,022,058  |   | $ | 20,209,970 |   |
| Decrease (increase) in accrued income  receivable                                                                                    |       | 2,167,877            |       | (5,494,041 | ) |
| Decrease in prepaid expenses                                                                                                         |       | 14,390               |       | 8,758 |   |
| Increase (decrease) in accrued expenses                                                                                              |       | (24,489              | )          | 13,656 |   |
| Increase in deferred royalty revenue                                                                                                 |       | 2,570,000            |       | — |   |
|                                                                                                                                 |       |                 |       |   |   |
| Net cash provided by operating  activities                                                                                           |       | $                    | 5,749,836  |   | $ | 14,738,343 |   |

 

See Notes to Condensed FinancialStatements.

 

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**Mesabi Trust**

 

**Notes to Condensed FinancialStatements**

**July 31, 2009 (unaudited)**

 

Note 1.                            Thefinancial statements included herein have been prepared without audit (exceptfor the balance sheet at January 31, 2009) in accordance with theinstructions to Form 10-Q pursuant to the rules and regulations ofthe Securities and Exchange Commission. Certain information and footnote disclosures normally included infinancial statements prepared in accordance with accounting principlesgenerally accepted in the United States have been condensed or omitted pursuantto such rules and regulations.  Inthe opinion of the Trustees, all adjustments, consisting only of normal recurringadjustments, necessary for a fair statement of (a) the results ofoperations for the three months and six months ended July 31, 2009 and2008, (b) the financial position at July 31, 2009 and (c) thecash flows for the six months ended July 31, 2009 and 2008, have beenmade.  For further information, refer tothe financial statements and footnotes included in Mesabi Trust’s Annual Reporton Form 10-K for the year ended January 31, 2009.

 

The Trustevaluated the effects of all subsequent events through August 26, 2009,which represents the date of financial statement issuance.

 

Note 2.                            Netincome per unit includes accrued income receivable.  For the three months ended July 31, 2009the Trust recorded **$**554,101 ofaccrued income receivable as reflected on the Condensed Balance Sheet as of July 31,2009 (unaudited).  Accrued incomereceivable is accounted for and reported for the Trust’s second fiscal quarterbased on shipments during the month of July even though such accruedincome receivable is not available for distribution to Unitholders until it isactually received by the Trust at the end of October 2009.  Net income per unit is based on 13,120,010units outstanding during the period.

 

Note 3.                            TheTrust declares distributions each year in April, July, October andJanuary.  Distributions are declaredafter receiving notification from Northshore Mining Company (“Northshore”) asto the amount of royalty that is expected to be paid to the Trust based onshipments through the end of each calendar quarter.  The Trust’s financial statements are preparedon an accrual basis and present the Trust’s results of operations based on eachfiscal quarter which ends one month after the close of each calendarquarter.  Because distributions aredeclared based on the royalty payment that is payable as of the end of eachcalendar quarter and the Trust’s Net Income is calculated as of the end of eachfiscal quarter, the distributions declared by the Trust are not equivalent tothe Trust’s Net Income during the periods reported in this quarterly report on Form 10-Q.

 

Note 4.                            In April 2009,the Trust received its quarterly distribution payment from Northshore ofapproximately $5,200,000. In accordance with the Trust’s revenue recognitionpolicy, the Trust recognized revenue related to tons of iron ore that wereshipped by Northshore, but for which Northshore has indicated that finalpricing is not yet known.  As a result ofdecreases in estimated pellet pricing subsequent to January 31, 2009, thecash proceeds received by the Trust in April 2009 exceeded the royaltyrevenue recognized by the Trust for the six month period ended July 31,2009.  Accordingly, the Trust hasestimated a $2,570,000 liability in the form of deferred royalty revenue basedon current pricing estimates provided by Northshore. Deferred royalty revenuewill be adjusted through the Trust’s royalty revenue on a quarterly basis asupdated pricing information is received. It is possible that deferred royalty revenue may reduce future royaltypayments to be received from Northshore beginning in the first quarter of 2010when pricing related to these tons of iron ore that were previously shipped byNorthshore is expected to be finalized.

 

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Note 5.                            TheTrustees have determined that the unallocated cash and U.S. Governmentsecurities portion of the Unallocated Reserve should be maintained at a prudentlevel, usually within the range of $500,000 to $1,000,000, to meet present orfuture liabilities of the Trust. 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 payments received quarterly and the level of Trustexpenses that the Trustees anticipate occurring in subsequent quarters.

 

The UnallocatedReserve (Deficit) of ($171,365) consisted of $1,844,534 in unallocated cash andU.S. Government securities, **$**554,101 ofaccrued revenue primarily representing royalties not yet received by the Trustbut anticipated to be received in October 2009, less estimated deferredroyalty revenue of $2,570,000.  Pursuantto the Agreement of Trust, the Trust makes cash distributions to Unitholdersbased on the royalty payments it receives from Northshore when received, ratherthan as royalty income is recorded in accordance with the Trust’s revenuerecognition policy.  Refer to Note 4 forfurther information.

 

As of July 31, 2009 andJanuary 31, 2009, the Trust’s Unallocated Reserve (Deficit) was comprisedof the following components:

 
| ** **                          | ** ** | **July 31,  2009** | ** ** | **January 31,  2009** | ** ** |
|-------------------------------------|------------|-------------------------|------------|----------------------------|------------|
| ** **                          | ** ** | **(unaudited)**         | ** ** | ** **                 | ** ** |
| Cash and U.S. Government securities |       | $                       | 1,844,534  |                       | $          | 1,070,203 |   |
| Accrued income receivable           |       | 554,101                 |       | 2,721,978                  |       |
| Deferred royalty revenue            |       | (2,570,000              | )          | -0-                        |       |
|                                |       |                    |       |                       |       |
| Unallocated  Reserve (Deficit)      |       | $                       | (171,365   | )                          | $          | 3,792,181 |   |

 

A reconciliation of theTrust’s Unallocated Reserve (Deficit) from January 31, 2009 to July 31,2009 is as follows:

 
| Unallocated Reserve, January 31, 2009        |       | $          | 3,792,181  |   |
|---------------------------------------------------|------------|------------|------------|--------|
|                                              |       |       |       |
| Net income                                        |       | 1,022,058  |       |
| Distributions declared and paid                   |       | (4,985,604 | )          |
| ** **                                        | ** ** | ** ** | ** ** |
| Unallocated Reserve (Deficit),April 30, 2009 |       | $          | (171,365   | )      |

 

Note 6.                            EffectiveApril 1, 2009, the Trust adopted Statement of Financial AccountingStandards (“SFAS”) No. 165, “Subsequent Events” (“SFAS 165”), whichestablishes principles and requirements for disclosure of subsequentevents.  It establishes the period afterthe balance sheet date during which events or transactions are to be evaluatedfor potential disclosure.  It alsoestablishes the circumstances under which an entity shall recognize events ortransactions occurring after the balance sheet date. The adoption of SFAS 165did not have a material impact on the Trust’s disclosure of subsequent events.

 

In June 2009, theFinancial Accounting Standards Board (“FASB”) issued Statement of FinancialAccounting Standards (“SFAS”) No. 168 The FASB Accounting StandardsCodification and the Hierarchy of Generally Accepted Accounting Principles—areplacement of FASB Statement No. 162, (“the Codification”) as the singlesource of authoritative

 

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nongovernmental GAAP. Allexisting accounting standard documents, excluding guidance from the Securitiesand Exchange Commission (“SEC”), will be superseded by the Codification. Allother non-grandfathered, non-SEC accounting literature not included in theCodification will become nonauthoritative. The Codification does not changeGAAP, but instead introduces a new structure that will combine allauthoritative standards into a comprehensive, topically organized onlinedatabase. The Codification will be effective for interim or annual periodsending after September 15, 2009, and will impact the Trust’s financialstatement disclosures beginning with the quarter ending October 31, 2009as all future references to authoritative accounting literature will bereferenced in accordance with the Codification. As the Codification was notintended to change or alter existing GAAP, it will not have any impact theTrust’s financial statements.

 

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

 

**Forward-Looking Statements**

 

Certain information included in this QuarterlyReport on Form 10-Q contains “forward-looking statements” within themeaning of Section 21E of the Securities Exchange Act of 1934 and Section 27Aof the Securities Act of 1933.  All suchforward-looking statements, including those statements estimating iron orepellet production or shipments, are based on information from thelessee/operator (and its parent corporation) of the mine located on the landsowned and held in trust for the benefit of the holders of units of beneficialinterest of Mesabi Trust.  Thesestatements 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” andother similar words.  Such forward-lookingstatements are inherently subject to known and unknown risks anduncertainties.  Actual results and futuredevelopments could differ materially from the results or developments expressedin 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.  Further, substantialportions of royalties earned by Mesabi Trust are based on estimated prices thatare subject to interim and final adjustments which can be positive or negativeand are dependent in part on multiple price and inflation index factors underagreements to which Mesabi Trust is not a party and that are not known untilafter the end of a contract year.  It ispossible that future negative price adjustments could partially or evencompletely offset royalties or royalty income that would otherwise be payableto the Trust in any particular quarter, or at year-end, thereby potentiallyreducing cash available for distribution to the Trust’s Unitholders in futurequarters.  For a discussion of thefactors, including without limitation, those that could materially andadversely affect Mesabi Trust’s actual results and performance, see “RiskFactors” in Part I — Item 1A of Mesabi Trust’s Annual Report on Form 10-Kfor the year ended January 31, 2009, as updated by Part II — Item 1Aof Mesabi Trust’s Quarterly Report on Form 10-Q for the quarter ended April 30,2009.  Mesabi Trust undertakes noobligation, other than that imposed by law, to make any revisions to theforward-looking statements contained in this filing or to update them toreflect circumstances occurring after the date of this filing.

 

This discussion should be read in conjunction withthe condensed financial statements and notes presented in this Form 10-Qand the financial statements and notes in the last filed Annual Report on Form 10-Kfiled for the period ending January 31, 2009 for a full understanding ofMesabi Trust’s financial position and results of operations for the six monthperiod ended July 31, 2009.

 

**Background**

 

Mesabi Trust (“MesabiTrust” 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.  Mesabi Trust holdsall of the interests formerly owned by Mesabi Iron Company (“MIC”), includingall 

 

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right, title and interest in the Amendment of Assignment, Assumptionand Further Assignment of Peters Lease (the “Amended Assignment of Peters Lease”),the Amendment of Assignment, Assumption and Further Assignment of Cloquet Lease(the “Amended Assignment of Cloquet Lease” and together with the AmendedAssignment of Peters Lease, the “Amended Assignment Agreements”), thebeneficial interest in the Mesabi Land Trust (as such term is defined below)and all other assets and property identified in the Agreement of Trust. The AmendedAssignment of Peters Lease relates to an Indenture made as of April 30,1915 among East Mesaba Iron Company (“East Mesaba”), Dunka River Iron Company (“DunkaRiver”) and Claude W. Peters (the “Peters Lease”) and the Amended Assignment ofCloquet Lease relates to an Indenture made May 1, 1916 between CloquetLumber Company and Claude W. Peters (the “Cloquet Lease”).

 

The Agreement ofTrust specifically prohibits the Trustees from entering into or engaging in anybusiness.  This prohibition applies even tobusiness 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 donot intend to expand their responsibilities beyond those permitted or requiredby the Agreement 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 prices of iron ore products shipped from SilverBay, Minnesota, based on information supplied to the Trustees by NorthshoreMining Company (“Northshore”), the lessee/operator of the Mesabi Trust lands,and its parent company Cliffs Natural Resources Inc. (“Cliffs”).  References to Northshore in this quarterlyreport, unless the context requires otherwise, are applicable to Cliffs aswell.

 

Leaseholdroyalty income constitutes the principal source of the Trust’s revenue.  Royalty rates are determined in accordancewith the terms of Mesabi Trust’s leases and assignments of leases.

 

Three types ofroyalties, as well as royalty bonuses, comprise the Trust’s leasehold royaltyincome:

 

·                  Base overriding royalties.  Base overriding royalties have historicallyconstituted the majority of Mesabi Trust’s royalty income.  Base overriding royalties are determined byboth the volume and selling price of iron ore products shipped.  Northshore is obligated to pay Mesabi Trustbase overriding royalties in varying amounts, based on the volume of iron oreproducts shipped.  Base overridingroyalties are calculated as a percentage of the gross proceeds of iron oreproducts produced at Mesabi Trust lands (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 firstone million tons of iron ore products so shipped annually to 6% of the grossproceeds for all iron ore products in excess of 4 million tons so shippedannually.  Base overriding royalties aresubject to price adjustments under the Cliffs Pellet Agreements and, asdescribed elsewhere in this report, such adjustments may be positive ornegative.

 

·                  Royalty bonuses.  The Trust earns royalty bonuses when iron oreproducts shipped from Silver Bay are sold at prices above a threshold price perton.  The royalty bonus is based on apercentage of the gross proceeds of product shipped from Silver Bay and sold atprices above a threshold price.  Thethreshold price is adjusted (but not below $30.00 per ton) on an annual basisfor inflation and deflation (the “Adjusted Threshold Price”).  The Adjusted Threshold Price was $47.43 perton for calendar year 2008 and is $48.48 per ton for calendar year 2009.  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 

 

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(on all tonnageshipped for sale at prices $10.00 or more above the Adjusted ThresholdPrice).  Royalty bonuses are subject toprice adjustments under the Cliffs Pellet Agreements and, as describedelsewhere in this report, such adjustments may be positive or negative.

 

·                  Fee royalties.  Fee royalties have historically constituted asmaller component of the Trust’s total royalty income.  Fee royalties are payable to the Mesabi LandTrust, a Minnesota land trust, which holds a 20% interest as fee owner in theAmended Assignment of Peters Lease. Mesabi Trust holds the entire beneficial interest in the Mesabi LandTrust for which U.S. Bank N.A. acts as the corporate trustee.  Mesabi Trust receives the netincome of the Mesabi Land Trust, which is generated from royalties on theamount of crude ore mined after the payment of expenses to U.S. Bank N.A. forits services as corporate trustee.  Crudeore is the source of iron oxides used to make iron ore pellets and otherproducts.  The fee royalty on crude oreis based on an agreed price per ton, subject to certain indexing.

 

·                  Minimum advance royalties.  Northshore’s obligation to pay baseoverriding royalties and royalty bonuses with respect to the sale of iron oreproducts generally accrues upon the shipment of those products from SilverBay.  However, regardless of whether anyshipment has occurred, under the terms of the Amended Assignment Agreements,Northshore is obligated 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 in accordance with the Amended Assignment Agreements.  The minimum advance royalty was $790,721 forcalendar year 2008 and is $808,177 for calendar year 2009.  Until overriding royalties (and royaltybonuses, if any) for a particular year equal or exceed the minimum advanceroyalty for the year, Northshore must make quarterly payments of up to 25% ofthe minimum advance royalty for the year. Because minimum advance royalties are essentially prepayments of baseoverriding royalties and royalty bonuses earned each year, any minimum advanceroyalties paid in a fiscal quarter are recouped by credits against base overridingroyalties and royalty bonuses earned in later fiscal quarters during the year.

 

Under therelevant documents, Northshore may mine and ship iron ore products from landsother than Mesabi Trust lands. Northshore is obligated to make quarterly royalty payments in January,April, July and October of each year based on shipments of iron oreproducts from Silver Bay, Minnesota during each calendar quarter.  In the case of base overriding royalties androyalty bonuses, these quarterly royalty payments are to be made whether or notthe related proceeds of sale have been received by Northshore by the time suchpayments become due.  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 ironore products shipped that were from Mesabi Trust lands, and (ii) a portionof the aggregate quantity of all iron ore products shipped from Silver Bay thatwere mined from any lands, such portion being 90% of the first four milliontons shipped from Silver Bay during such year, 85% of the next two million tonsshipped during such year, and 25% of all tonnage shipped from Silver Bay duringsuch year in excess of six million tons.

 

Deutsche BankTrust Company Americas, the Corporate Trustee, performs certain administrativefunctions for Mesabi Trust.  The Trustmaintains a website at www.mesabi-trust.com. The Trust makes available (free ofcharge) its annual, quarterly and current reports (and any amendments thereto)filed with the Securities and Exchange Commission (the “SEC”) through itswebsite as soon as reasonably practicable after electronically filing orfurnishing such material with or to the SEC.

 

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**Resultsof Operations**

 

**Comparisonof Iron Ore Pellet Production and Shipments for the Three and Six Months Ended July 31,2009 and July 31, 2008**

 

As shown in thetable below, production of iron ore pellets at Northshore from Mesabi Trustlands during the fiscal quarter ended July 31, 2009 totaled approximately279,000 tons, and actual shipments over the same period totaled approximately278,000 tons.  By comparison, actualpellet production and actual shipments for the comparable period in 2008 wereapproximately 1.47 million tons and 2.55 million tons, respectively. Thedecrease in production and shipments at Northshore is the result of an extended shutdown of the mining operations atNorthshore combined with a significant decline inorders from Cliffs’ customers and lower anticipated demand from Cliffs’customers.

 

| **Fiscal Quarter Ended** | ** ** | **Pellets Produced from  Trust Lands (tons)** | ** ** | **Pellets Shipped from  Trust Lands (tons)** | ** ** |
|--------------------------|------------|-----------------------------------------------|------------|----------------------------------------------|------------|
| July 31, 2009       |       | 278,887                                       |       | 278,444                                      |       |
| July 31, 2008       |       | 1,473,683                                     |       | 2,548,888                                    |       |

 

As shown in thetable below, during the six months ended July 31, 2009, production of ironore pellets at Northshore from Mesabi Trust lands totaled approximately 960,000tons, and actual shipments over the same period totaled approximately 516,000tons.  By comparison, actual pelletproduction and actual shipments for the comparable period in 2008 wereapproximately 2.69 million tons and 3.59 million tons, respectively.  The decrease in production at Northshore isprimarily the result of the mining operations at Northshore being shutdown fromApril 2009 through early July 2009.  In addition, the significant andprolonged decline in orders from Cliffs’ customers and lower anticipated demandfrom Cliffs’ customers as they continue to adjust their purchases based onanticipated demand from their customers has resulted in lower production andshipments during the six months ended July 31, 2009.

 

| **Six Months Ended** |   | **Pellets Produced from  Trust Lands (tons)** |   | **Pellets Shipped from  Trust Lands (tons)** |   |
|--------------------------------|--------|-------------------------------------------------------------------|--------|------------------------------------------------------------------|--------|
| July 31, 2009             |   | 960,065                                                           |   | 515,897                                                          |   |
| July 31, 2008             |   | 2,689,784                                                         |   | 3,589,002                                                        |   |

 

**Comparison of Royalty Income forthe Three and Six Months Ended July 31, 2009 and July 31, 2008**

 

Total royalty income for the quarter decreased approximately 97.5% overthe comparable period in 2008.  Thedecrease in royalty income is due to lower realized sales prices per ton ofiron ore pellets and a 89% decrease****in the totalvolume of iron ore pellets shipped during the****threemonths ended July 31, 2009 as compared to the three months ended July 31,2008.  The lower sales prices per ton andthe decrease in the volume of iron ore pellets shipped both contributed to adecrease in the base overriding royalty and the bonus royalty payments as aresult of reduced demand for iron ore pellets.

 

The table below shows that the base overriding royalties, the bonusroyalties, and the fee royalties each decreased by 99.4%, 94.7%, and 87.8%respectively, for the three months ended July 31, 2009.  The decreases in the base overridingroyalties and the bonus royalties are both attributable to the lower salesprices per ton of iron ore pellets and the decrease in the volume of tonsshipped during the three months ended July 31, 2009, each as compared tothe three months ended July 31, 2008.

 

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The table belowsummarizes the components of Mesabi Trust’s royalty income for the three monthsended July 31, 2009 and July 31, 2008:

 
| ** **                              | ** ** | **Three Months Ended July 31,** | ** ** |
|-----------------------------------------|------------|--------------------------------------|------------|
| ** **                              | ** ** | **2009**                             | ** ** | **2008** | ** ** |
| Base  overriding royalties              |       | $                                    | 58,791     |   | $ | 10,156,568 |   |
| Bonus  royalties                        |       | 340,910                              |       | 6,451,312 |   |
| Minimum  advance royalty paid(recouped) |       | —                               |       | — |   |
| Fee royalties                           |       | 19,434                               |       | 158,683 |   |
| **Total  royalty income**               |       | $                                    | 419,135    |   | $ | 16,766,563 |   |

 

Total royaltyincome for the six months ended July 31, 2009 decreased approximately 93%over the comparable period in 2008.  Thedecrease in royalty income is due to lower realized sales prices per ton ofiron ore pellets and a 86% decrease****in the totalvolume of iron ore pellets shipped during the****sixmonths ended July 31, 2009 as compared to the six months ended July 31,2008.  The lower sales prices per ton andthe decrease in the volume of iron ore pellets shipped both contributed to adecrease in the base overriding royalty and the bonus royalty payments.

 

The table belowshows that the base overriding royalties, the bonus royalties, and the feeroyalties each decreased by 94.7%, 91.4%, and 70.2% respectively, for the sixmonths ended July 31, 2009 from the comparable period in 2008.  The decreases in the base overridingroyalties and the bonus royalties are both attributable to the lower salesprices per ton of iron ore pellets and the decrease in the volume of tonsshipped during the six months ended July 31, 2009, each as compared to thesix months ended July 31, 2008.

 

The table below summarizesthe components of Mesabi Trust’s royalty income for the six months ended July 31,2009 and July 31, 2008:

 
| ** **                             | ** ** | **Six  Months Ended July 31,** | ** ** |
|----------------------------------------|------------|-------------------------------------|------------|
| ** **                             | ** ** | **2009**                            | ** ** | **2008** | ** ** |
| Base overriding royalties              |       | $                                   | 629,356    |   | $ | 11,912,740 |   |
| Bonus royalties                        |       | 724,671                             |       | 8,410,036 |   |
| Minimum advance royalty paid(recouped) |       | —                              |       | — |   |
| Fee royalties                          |       | 86,820                              |       | 291,497 |   |
| **Total royalty income**               |       | $                                   | 1,440,847  |   | $ | 20,614,273 |   |

 

**Comparison of TrustIncome, Expenses and Distributions for the Three and Six Months Ended July 31,2009 and July 31, 2008**

 

Net income for the three months ended July 31, 2009 was $221,012,a decrease of approximately 98.7% compared to the three months ended July 31, 2008.  As with the decrease in total royalty income,the decrease in net income for the quarter ended July 31, 2009 is theresult of lower sales prices per ton of iron ore pellets shipped and a decreasein the volume of tons shipped. The Trust’s expenses of $201,925****for the three months ended July 31, 2009 wasconsistent with the Trust’s expenses for the three month period ended July 31,2008.  The table below summarizes theTrust’s income and expenses for the three months ended July 31, 2009 and July 31,2008, respectively

 

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| ** **           | ** ** | **Three Months Ended  July 31,** | ** ** |
|----------------------|------------|---------------------------------------|------------|
| ** **           | ** ** | **2009**                              | ** ** | **2008** | ** ** |
| Total royalty income |       | $                                     | 419,135    |   | $ | 16,766,563 |   |
| Interest income      |       | 3,802                                 |       | 5,240 |   |
| Gross income         |       | 422,937                               |       | 16,771,803 |   |
|                 |       |                                  |       |   |   |
| Expenses             |       | 201,925                               |       | 201,486 |   |
| Net income           |       | $                                     | 221,012    |   | $ | 16,570,317 |   |

 

Net income for the six months ended July 31, 2009 was $1,022,058,a decrease of approximately 94.9% compared to the six months ended July 31, 2008.  As with the decrease in total royalty income,the decrease in net income for the six months ended July 31, 2009 is theresult of lower sales prices per ton of iron ore pellets shipped and a decreasein the volume of tons shipped. The Trust’s expenses of **$**425,760for the six months ended July 31, 2009 was consistent with the Trust’sexpenses for the six month period ended July 31, 2008.  The table below summarizes the Trust’s incomeand expenses for the six months ended July 31, 2009 and July 31,2008, respectively

 
| ** **           | ** ** | **Six Months Ended  July 31,** | ** ** |
|----------------------|------------|-------------------------------------|------------|
| ** **           | ** ** | **2009**                            | ** ** | **2008** | ** ** |
| Total royalty income |       | $                                   | 1,440,847  |   | $ | 20,614,273 |   |
| Interest income      |       | 6,971                               |       | 19,337 |   |
| Gross income         |       | 1,447,818                           |       | 20,633,610 |   |
|                 |       |                                |       |   |   |
| Expenses             |       | 425,760                             |       | 423,640 |   |
| Net income           |       | $                                   | 1,022,058  |   | $ | 20,209,970 |   |

 

As presented on the Trust’sCondensed Statements of Income on page 2 of this quarterly report, theTrust’s net income per unit decreased $1.2500 to $.0168 for the three monthsended July 31, 2009 and decreased $1.4625 to $.0779 for the six monthsended July 31, 2009 as compared to the three and six months ended July 31,2008, respectively. The Trust did not declare any distributions to Unitholdersfor the three months ended July 31, 2009.  Comparatively, the Trust declaredand paid a distribution of $1.00 per unit for the three months ended July 31,2008.  For the six months ended July 31,2009, and July 31, 2008, the Trust declared distributions of  $.38****and$1.12, respectively.

 

Distributions are declaredafter receiving notification from Northshore Mining Company as to the amount ofroyalty income that is expected to be paid to the Trust based on shipmentsthrough the end of each calendar quarter and such royalty payments may includepricing adjustments with respect to shipments during prior periods.  The Trust accounts for and reports accruedincome receivable based on shipments during the last month of the Trust’sfiscal quarter (April, July, October and January) and price adjustments underthe Cliffs Pellet Agreements (which can be positive or negative and can resultin significant variations in royalties received by Mesabi Trust and cashavailable for distribution to Unitholders). The Trust accounts for these amounts by using estimated prices andreports such amounts even though accrued income receivable is not available fordistribution to Unitholders until it is received by the Trust.  Accordingly, distributions declared by theTrust are not equivalent to the Trust’s Net Income during the periods reportedin this quarterly report on Form 10-Q

 

**Comparisonof Unallocated Reserve as of July 31, 2009, July 31, 2008 and January 31,2009**

 

The Unallocated Reserve (Deficit), which iscomprised of accrued income receivable, cash reserve for potential fixed orcontingent future liabilities, and, with respect to the six months ended July 

 

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31, 2009, deferred royalty revenue, decreasedfrom $7,175,579 as of July 31, 2008 to ($171,365) as of July 31,2009.   The significant positive balancein the Trust’s Unallocated Reserve as of July 31, 2008, was the result ofthe accrued income receivable portion of the Unallocated Reserve which was$6,453,966 as of July 31, 2008, compared to $554,101 as of July 31,2009.  The decrease in the accrued incomereceivable portion of the Unallocated Reserve is the result of significantlylower shipments during the month of July 2009, together with generallylower prices on pellets shipped by Northshore, both as compared to July 2008.

 

The deficit in the Trust’s Unallocated Reserve as ofJuly 31, 2009, is the result of an estimated $2,570,000 liability, whichis represented on the Trust’s balance sheet as deferred royalty revenue.  Because of declines in the estimated pricingof iron ore pellets subsequent to January 31, 2009, the royalty paymentreceived by the Trust in April 2009 includes approximately $2,570,000 ofcash proceeds that were received by the Trust, but has not been recognized asrevenue in accordance with the Trust’s revenue recognition policy.  Because of further decreases in currentpricing estimates provided to the Trust by Northshore,the deferred royalty revenue increased approximately 8% from $2,370,000 as of April 30,2009 to $2,570,000 as of July 31, 2009.  The Trust did not have any deferredroyalty revenue as of July 31, 2008. Depending on futureadjustments to iron ore pellet pricing, if any, the deferred royalty revenuecould cause a cumulative negative price adjustment related to shipments of pelletsduring prior periods, which could partially or even completely offset futureroyalty income to be received by the Trust.

 

Notwithstanding the deficit in the Trust’sUnallocated Reserve as described above, the Trust’s cash reserve for potentialfixed or contingent future liabilities, represented on the Trust’s balancesheet by unallocated cash and U.S. Government securities, increased 155.6% to$1,844,534 as of July 31, 2009  from$721,613 as of July 31, 2008.  Theincrease in the cash reserve for potential fixed or contingent futureliabilities is due to the Trustee’s decision to not declare distributionsduring the quarter ended July 31, 2009, because of the Trust’s deferredroyalty revenue liability and the uncertainty surrounding the volatile globaleconomic climate that continues to impact the iron ore and steel industries.

 

The accrued income receivable portion of theUnallocated Reserve decreased from $6,453,966 as of July 31, 2008 to$554,101 as of July 31, 2009.  TheTrust’s Unallocated Reserve (Deficit) as of July 31, 2009 decreasedfrom  $3,792,181****asof January 31, 2009, to ($171,365) as of July 31, 2009.  The decrease in the Unallocated Reserve(Deficit) is due to the Trust’s accrual of $2,570,000 in deferred royaltyrevenue combined with a lower accrued income receivable resulting from asubstantial reduction in shipments from Northshore during the month of July 2009.  Moreover, as a result of the price adjustmentmechanisms under the Cliffs Pellet Agreements, the Trust received positive adjustmentsto its royalty income which is reflected in the royalty income for the yearended January 31, 2009.  No suchpositive price adjustments were attributed to the Trust for the three or sixmonth period ending July 31, 2009. Those adjustments were attributable to shipments of iron ore pellets byNorthshore/Cliffs to its customers from Silver Bay, Minnesota during calendaryears 2006, 2007 and 2008.  In theaggregate, the pricing adjustments increased the accrued income receivablereflected on the Trust’s balance sheet as of January 31, 2009.  At January 31, 2009, approximately 72%of the Unallocated Reserve or $2,721,978 was represented by accrued incomereceivable while 28% or $1,070,203 was represented by unallocated cash and U.S.Government securities.

 

The Trustees have determined that a portion of theUnallocated Reserve, usually within the range of $500,000 to $1,000,000 or suchother amount as the Trustees may deem prudent, should be maintained as areserve for potential fixed or contingent future liabilities.  As a result of the $2,570,000 deferred royalty revenue recorded by theTrust, the unpredictable nature of the current economic conditions, and thepotential for future negative price adjustments under the long-term customercontracts between Northshore, CCI and certain customers (the “CCI PelletAgreements”), the Trustees have determined that it is prudent to increase theUnallocated Reserve above the range of $500,000 to$1,000,000.  The actual amount of theUnallocated Reserve will fluctuate from time to time and may increase ordecrease from its current level. Future distributions will be highly dependentupon royalty income as it is received, changes in estimated pricing, potentialfor future price adjustments and the level 

 

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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.  It is possible that future negative priceadjustments could offset, or even eliminate, royalties or royalty income thatwould otherwise be payable to the Trust in any particular quarter, or at yearend, thereby potentially reducing cash available for distribution to the Trust’sUnitholders in future quarters.  Seediscussion under the heading “Risk Factors” beginning on page 3 of theTrust’s Annual Report on Form 10-K for the fiscal year ended January 31,2009, as updated by Part II — Item 1A of Mesabi Trust’s Quarterly Reporton Form 10-Q for the quarter ended April 30, 2009.

 

The Trustees will continue to monitor the economiccircumstances of the Trust to strike a responsible balance betweendistributions to Unitholders and the need to maintain reserves at a prudentlevel, given the unpredictable nature of the iron ore industry, the Trust’sdependence on the actions of the lessee/operator, and the fact that the Trustessentially has no other liquid assets.

 

**Recent Developments**

 

***Production and Shipments***.  In its Form 10-Q filed July 30,2009, Cliffs reported that production at Northshore for the six months ended June 30,2009 was 1 million tons, but production for the three months ended June 30,2009 was zero.    Comparatively,production of iron ore pellets at Northshore for the six months ended June 30,2008 was 2.8 million tons while production for the three months ending June 30,2008 was 1.5 million tons.  Northshorehas not provided the Trustees with an estimate of total expected shipments ofiron ore pellets for calendar year 2009. During calendar years 2008, 2007, 2006, 2005 and 2004, the percentage ofshipments of iron ore products from Mesabi Trust lands was approximately90.2%,  88.2%, 90.9%, 90.1% and 92.0%,respectively, of total shipments.  In acurrent report on Form 8-K filed May 5, 2009, Cliffs reported that itis estimating total production of 3.2 million tons of iron ore pellets atNorthshore during calendar year 2009.  Northshore has not advised the Trustees as to the percentage of iron oreproducts from Mesabi Trust lands it anticipates shipping in calendar year2009.  See the description of theuncertainty of market conditions in the iron ore and steel industry under “ImportantFactors Affecting Mesabi Trust” below and the information under the heading “RiskFactors” in Part I — Item 1A of the Trust’s Annual Report on Form 10-Kfor the year-ended January 31, 2009, as updated by Part II — Item 1Aof Mesabi Trust’s Quarterly Report on Form 10-Q for the quarter ended April 30,2009.

 

***Production at Northshore***.  In its Form 10-Q filed July 30,2009, Cliffs reported that production at Northshore resumed at reduced levelsin early July.  Cliffs has not informedthe Trustees as to whether the decrease in production will result in a decreasein shipments of iron ore pellets from Silver Bay, Minnesota.  Accordingly, the Trustees are unable to makeany projections regarding the extent to which the temporary production shutdownat Northshore may impact future royalties payable to Mesabi Trust.

 

**Important FactorsAffecting Mesabi Trust**

 

The Agreement of Trust specifically prohibits theTrustees from entering into or engaging in any business.  This prohibition seemingly applies even tobusiness activities the Trustees deem necessary or proper for the preservationand protection of the Trust Estate (as such term is defined below).  Accordingly, the Trustees’ activities inconnection with the administration of Trust assets are limited to collectingincome, paying expenses and liabilities, distributing net income to MesabiTrust’s Unitholders after the payment of, or provision for, such expenses andliabilities, and protecting and conserving the assets held.  Consequently, the income of Mesabi Trust ishighly dependent upon the activities and operations of Northshore, and theterms and conditions of the leases and assignments of leases between MesabiTrust and Northshore.

 

Neither MesabiTrust nor the Trustees have any control over the operations and activities ofNorthshore, except within the framework of the Amended AssignmentAgreements.  Cliffs alone controls 

 

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(i) historical operating data, including iron ore productionvolumes, marketing of iron ore products, operating and capital expenditures asthey relate to Northshore, environmental and other liabilities and the effectsof regulatory changes; (ii) plans for Northshore’s future operating andcapital expenditures; (iii) geological data relating to ore reserves (iv) projectedproduction of iron ore products; (v) contracts between Cliffs andNorthshore with their customers; and (vi) the decision to mine off MesabiTrust and/or state lands, based on Cliffs’ current mining and engineeringplan.  The Trustees do not exert anyinfluence over mining operational decisions at Northshore, nor do the Trusteesprovide any input regarding the ore reserve estimated at Northshore as reportedby Cliffs.  While the Trustees requestmaterial information for use in periodic reports as part of their evaluation ofMesabi Trust’s disclosure controls and procedures, the Trustees do not controlthis information and they rely on the information in Cliffs’ periodic andcurrent filings with the SEC to provide accurate and timely information inMesabi Trust’s reports filed with the SEC.

 

In accordancewith the Agreement of Trust and the Amendment, the Trustees are entitled to,and in fact do, rely upon certain experts in good faith, including (i) theindependent consultants with respect to monthly production and shipmentreports, which include figures on crude ore production and iron ore pelletshipments, and discussions concerning the condition and accuracy of the scalesand plans regarding the development of 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” in Part I— Item 1A of Mesabi Trust’s Annual Report on Form 10-K for the year-ended January 31,2009 as updated by Part II — Item 1A of Mesabi Trust’s Quarterly Report onForm 10-Q for the quarter ended April 30, 2009.

 

**Iron Ore Pricing and Contract Adjustments**

 

During the course of itsfiscal year some portion of the royalties paid to Mesabi Trust are based onestimated prices for iron ore products sold under term contracts between Cliffsand its subsidiaries and certain of their customers (the “Cliffs PelletAgreements”). Mesabi Trust is not a party to any of the Cliffs PelletAgreements. These prices are subject to interim and final pricing adjustments,which can be positive or negative, and which adjustments are dependent in parton a variety of price and inflation index factors, including but not limited tothe international benchmark pellet price, hot band steel prices and variousProducer Price Indexes. Although Northshore makes interim adjustments to theroyalty payments on a quarterly basis, these price adjustments cannot befinalized until after the end of a contract year. This may result insignificant and frequent variations in royalties received by Mesabi Trust (andin turn the resulting amount of funds available for distribution to Unitholdersby the Trust) from quarter to quarter and on a comparative historical basis,and these variations, which can be positive or negative, cannot be predicted byMesabi Trust.  It is possible that futurenegative price adjustments could partially or even completely offset royaltiesor royalty income that would otherwise be payable to the Trust in anyparticular quarter, or at year-end, thereby potentially reducing cash availablefor distribution to the Trust’s Unitholders in future quarters.

 

**Effects of Securities Regulation**

 

The Trust is a publicly-traded trust listed on theNew 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 administrative penalties.  In most instances, these laws, rules andregulations do not specifically address their applicability to publicly-tradedtrusts such as Mesabi Trust.  Inparticular, Sarbanes-Oxley mandated the adoption by the Securities and ExchangeCommission (the “SEC”) and NYSE of certain rules and regulations that areimpossible for the Trust to literally satisfy because of its nature as apass-through trust.  Pursuant to NYSE rules currentlyin effect, the Trust is exempt from many 

 

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of the corporate governance requirements thatapply 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 the NYSE’s rulemaking activity and willattempt to comply with such rules and regulations where applicable.

 

In May 2008, the Trust established awebsite in response to the NYSE’s interpretation of Rule 203.01 of theNYSE Listed Company Manual.  TheTrust’s website is located at www.mesabi-trust.com.

 

**Critical Accounting Policies**

 

This “Trustees’Discussion and Analysis of Financial Condition and Results of Operations” is basedupon the Trust’s financial statements, which have been prepared in accordancewith accounting 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. Critical accounting policies are those that have meaningful impact onthe reporting of the Trust’s financial condition and results, and that requiresignificant judgment and estimates. During the preparation of financial statements, the Trust makesestimates, assumptions and judgments that affect reported amounts. Theseestimates, assumptions and judgments include those related to revenuerecognition and accrued expenses. The Trust bases its estimates on variousassumptions and historical experience, which are believed to be reasonable;however, due to the inherent nature of estimates, actual results may differsignificantly due to changed conditions or assumptions. On a regular basis, theTrust reviews the accounting policies, assumptions, estimates and judgments toensure that the financial statements are fairly presented in accordance withaccounting principles generally accepted in the United States. However, becausefuture events and their effects cannot be determined with certainty, actualresults could differ from assumptions and estimates, and such differences couldbe material.

 

The Trust didnot have any changes in critical accounting policies or in significantaccounting estimates during the three months ended July 31, 2009.  For a complete description of the Trust’ssignificant accounting policies, please see Note 2 to the financial statementsincluded in the Trust’s Annual Report on Form 10-K for the year ended January 31,2009.

 

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

 

Not applicable.

 

**Item 4.  Controls and Procedures.**

 

***Evaluation of Disclosure Controlsand Procedures******. ***The Trustees maintaindisclosure controls and procedures designed to ensure that information requiredto be disclosed by the Trust in the reports that it files or submits under theSecurities Exchange Act of 1934, as amended, is recorded, processed, summarizedand reported within the time periods specified in the rules andregulations of the Securities and Exchange Commission.  Disclosure controls and procedures includecontrols and procedures designed to ensure that information required to bedisclosed by the Trust is accumulated and communicated by Northshore, andconsultants to the Trustees as appropriate, to allow timely decisions regardingrequired disclosure.

 

As part of theirevaluation of the Trust’s disclosure controls and procedures, the Trustees relyon quarterly 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 also rely on (a) an annualcertification from Northshore and Northshore’s parent, Cliffs, certifying as tothe accuracy of the royalty 

 

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calculations, and (b) the related due diligence review performedby the Trust’s external accountants.  Inaddition, the Trust’s consultants review the schedule of leasehold royaltiespayable and shipping and sales reports provided by Northshore againstproduction and shipment reports prepared by the Eveleth Fee Office, Inc.,an independent consultant to the Trust (“Eveleth Fee Office”). The Eveleth FeeOffice gathers production and shipping information from Northshore and preparesmonthly production and shipment reports for the Trustees. Furthermore, as partof its engagement by the Trust, the Eveleth Fee Office also attends Northshore’scalibration and testing of its crude ore scales and boat loader scales whichare conducted on a periodic basis.

 

As of the end ofthe period covered by this report, the Trustees carried out an evaluation ofthe Trust’s disclosure controls and procedures. The Trustees have concluded that such disclosure controls and proceduresare effective.

 

***Changes in Internal Control OverFinancial 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 reasonably likely to materially affect, the Trust’s internal control overfinancial reporting.  The Trustees notefor purposes of clarification that they have no authority over, and make nostatement concerning, the internal control over financial reporting ofNorthshore or Cliffs.

 

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**PART II - OTHER INFORMATION**

 

**Item1A.****           ****Risk Factors**

 

There have beenno material changes in the Trust’s risk factors as described in Part IItem 1A, “Risk Factors” in the Trust’s Annual Report on Form 10-K for theyear ended January 31, 2009, as updated by Part II — Item 1A ofMesabi Trust’s Quarterly Report on Form 10-Q for the quarter ended April 30,2009.

 

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

 

31                        Certificationof Corporate Trustee of Mesabi Trust pursuant to Rule 13a-14 of theSecurities Exchange Act of 1934, as adopted pursuant to Section 302 of theSarbanes-Oxley Act of 2002.

 

32                        Certificationof 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 WipfliLLP, dated August 26, 2009 regarding its review of the unaudited interimfinancial statements of Mesabi Trust as of and for the three and six monthsended July 31, 2009.

 

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**SIGNATURES**

** **

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.

 
|                   | MESABI TRUST                                                      |
|------------------------|-------------------------------------------------------------------|
|                   | (Registrant)                                                      |
|                   |                                                              |
|                   | By:                                                               | DEUTSCHE BANK TRUST COMPANY AMERICAS |
|                   |                                                              | Corporate Trustee |
|                   | Principal  Administrative Officer and duly authorized signatory:* |
|                   |                                                              |   |
|                   | By:                                                               | DEUTSCHE BANK NATIONAL TRUST COMPANY |
|                   |                                                              |   |
| September 4, 2009 |                                                              | By: | /s/ Kenneth R. Ring |
|                   |                                                              | Name: | Kenneth R. Ring |
|                   |                                                              | Title: | Vice President |

 

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* There are noprincipal executive officers or principal financial officers of the registrant.

 

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