**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-Q**

** **

**(MarkOne)**

 

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

 

**For the quarterly period ended April 30, 2004**

 

**or**

 

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

 

**Forthe transition period from                              to                               **

 

**CommissionFile Number:  1-4488**

 

**MESABITRUST**

(Exact name of registrant as specified in itscharter)

 

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

 

**(615) 835-2749**

(Registrant’s telephone number, including area code)

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days.    Yes  ý      No  o

 

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

 

As of May 31, 2004, therewere 13,120,010 Units of Beneficial Interest in Mesabi Trust outstanding.

 

 

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**PARTI - FINANCIAL INFORMATION**

** **

**Item1.****    FinancialStatements.  (Note 1)**

 
|   |                               |   | **Three  Months Ended  April 30,** |    |
|--------|------------------------------------|--------|------------------------------------|---------|
|   |                               |   | **2004**                           |    | **2003** |   |
|   |                               |   |                               |    |   |   |
| **A.** | **Condensed Statements of Income** |   |                               |    |   |   |
|   |                               |   |                               |    |   |   |
|   | Revenues                           |   |                               |    |   |   |
|   | Royalty income                     |   | $                                  | 927,207 |   | $ | 366,092 |   |
|   | Interest income                    |   | 10,502                             |    | 12,073 |   |
|   |                               |   | 937,709                            |    | 378,165 |   |
|   |                               |   |                               |    |   |   |
|   | Expenses                           |   | 101,742                            |    | 128,162 |   |
|   |                               |   |                               |    |   |   |
|   | Net income                         |   | $                                  | 835,967 |   | $ | 250,003 |   |
|   |                               |   |                               |    |   |   |
|   | Number of units outstanding        |   | 13,120,010                         |    | 13,120,010 |   |
|   |                               |   |                               |    |   |   |
|   | Net income per unit (Note 2)       |   | $                                  | 0.0637  |   | $ | 0.0191 |   |
|   |                               |   |                               |    |   |   |
|   | Distributions declared per unit    |   | $                                  | 0.05    |   | $ | — |   |

 

See Notes to Financial Statements.

 

2

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|   |                                                                       |   | **April 30,  2004** |       | **January  31, 2004** |       |
|--------|----------------------------------------------------------------------------|--------|---------------------|------------|-----------------------|------------|
|   |                                                                       |   |                |       |                  |       |
| **B.** | **Condensed Balance Sheets**                                               |   |                | ** ** |                  | ** ** |
|   |                                                                       |   |                |       |                  |       |
|   | **Assets**                                                                 |   |                |       |                  |       |
|   |                                                                       |   |                |       |                  |       |
|   | Cash                                                                       |   | $                   | 811,523    |                  | $          | 98,692 |   |
|   |                                                                       |   |                |       |                  |       |
|   | U.S. Government securities, at amortized  cost (which approximates market) |   | 751,133             |       | 4,826,046             |       |
|   |                                                                       |   |                |       |                  |       |
|   | Accrued income                                                             |   | 674,150             |       | 449,780               |       |
|   | Prepaid expenses                                                           |   | 34,054              |       | 15,560                |       |
|   |                                                                       |   | 2,270,860           |       | 5,390,078             |       |
|   |                                                                       |   |                |       |                  |       |
|   | 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                     |       |
|   |                                                                       |   |                |       |                  |       |
|   |                                                                       |   | $                   | 2,270,863  |                  | $          | 5,390,081 |   |
|   |                                                                       |   |                |       |                  |       |
|   | **Liabilities, Unallocated Reserve and Trust  Corpus**                     |   |                |       |                  |       |
|   |                                                                       |   |                |       |                  |       |
|   | Liabilities                                                                |   |                |       |                  |       |
|   | Distribution payable                                                       |   | $                   | 656,000    |                  | $          | 3,936,003 |   |
|   | Accrued expenses                                                           |   | 26,309              |       | 45,491                |       |
|   |                                                                       |   | 682,309             |       | 3,981,494             |       |
|   |                                                                       |   |                |       |                  |       |
|   | Unallocated Reserve (Note 3)                                               |   | 1,588,551           |       | 1,408,584             |       |
|   | Trust Corpus                                                               |   | 3                   |       | 3                     |       |
|   |                                                                       |   |                |       |                  |       |
|   |                                                                       |   | $                   | 2,270,863  |                  | $          | 5,390,081 |   |

 

See Notes to Financial Statements.

 

3

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|   |                                                                           |   | **Three  Months Ended  April 30,** |       |
|--------|--------------------------------------------------------------------------------|--------|------------------------------------|------------|
|   |                                                                           |   | **2004**                           |       | **2003** |   |
|   |                                                                           |   |                               |       |   |   |
| **C.** | **Condensed Statements of Cash Flows**                                         |   |                               | ** ** |   | ** ** |
|   |                                                                           |   |                               |       |   |   |
|   | Cash flows from operating activities                                           |   |                               |       |   |   |
|   | Royalties received                                                             |   | $                                  | 693,349    |   | $ | 262,626 |   |
|   | Interest received                                                              |   | 19,989                             |       | 19,910 |   |
|   | Expenses paid                                                                  |   | (139,417                           | )          | (98,338 | ) |
|   |                                                                           |   |                               |       |   |   |
|   | Net cash provided by operating activities                                      |   | 573,921                            |       | 184,198 |   |
|   |                                                                           |   |                               |       |   |   |
|   | Cash flows from investing activities                                           |   |                               |       |   |   |
|   | Maturities of U.S. Government Securities                                       |   | 4,174,886                          |       | 99,420 |   |
|   | Purchases of U.S. Government Securities                                        |   | (99,973                            | )          | (214,902 | ) |
|   |                                                                           |   |                               |       |   |   |
|   | Net cash provided by (used for) investing  activities                          |   | 4,074,913                          |       | (115,482 | ) |
|   |                                                                           |   |                               |       |   |   |
|   | Cash flow from financing activity                                              |   |                               |       |   |   |
|   | Distributions to Unitholders                                                   |   | (3,936,003                         | )          | (2,492,802 | ) |
|   |                                                                           |   |                               |       |   |   |
|   | Net change in cash                                                             |   | 712,831                            |       | (2,424,086 | ) |
|   |                                                                           |   |                               |       |   |   |
|   | Cash, beginning of year                                                        |   | 98,692                             |       | 2,515,457 |   |
|   |                                                                           |   |                               |       |   |   |
|   | Cash, end of quarter                                                           |   | $                                  | 811,523    |   | $ | 91,371 |   |
|   |                                                                           |   |                               |       |   |   |
|   | **Reconciliation of net income to net cash  provided by operating activities** |   |                               | ** ** |   | ** ** |
|   |                                                                           |   |                               |       |   |   |
|   | Net income                                                                     |   | $                                  | 835,967    |   | $ | 250,003 |   |
|   | (Increase) in accrued income                                                   |   | (224,370                           | )          | (95,629 | ) |
|   | (Increase) Decrease in prepaid insurance                                       |   | (18,494                            | )          | 5,762 |   |
|   | Increase (Decrease) in accrued expenses                                        |   | (19,182                            | )          | 24,062 |   |
|   |                                                                           |   |                               |       |   |   |
|   | Net cash provided by operating activities                                      |   | $                                  | 573,921    |   | $ | 184,198 |   |

 

See Notes to Financial Statements.

 

4

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**MESABITRUST**

** **

**NOTESTO FINANCIAL STATEMENTS**

** **

Note 1.                             The financial statements included hereinhave been prepared without audit (except for the balance sheet at January 31,2004) in accordance with the instructions to Form 10-Q pursuant to the rulesand regulations of the Securities and Exchange Commission.  Certain information and footnote disclosuresnormally included in financial statements prepared in accordance with generallyaccepted accounting principles have been condensed or omitted pursuant to suchrules and regulations.  In the opinionof the Trustees, all adjustments, consisting only of normal recurringadjustments, necessary for a fair statement of (a) the results of operationsfor the three months ended April 30, 2004 and 2003, (b) the financial positionsat April 30, 2004 and January 31, 2004, and (c) the cash flows for the threemonths ended April 30, 2004 and 2003, have been made.

 

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

 

Note 3.                             The Trustees have determined to maintainan Unallocated Reserve of at least $1,000,000 in liquid assets.  The actual amount of such UnallocatedReserve may vary from quarter to quarter depending upon conditions in theindustry and the judgment of the Trustees. At April 30, 2004, the Unallocated Reserve was represented by $914,401in unallocated cash and U.S. Government securities, and $674,150 of accruedrevenue primarily representing royalties not yet received by the Trust butanticipated to be received in July 2004 from Northshore Mining Company as partof the royalty due with respect to the first fiscal quarter, based uponreported lessee shipping activity for the month of April 2004.

 

5

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

 

**Forward-LookingInformation**

** **

Certain statementscontained in this document are forward-looking, including specifically thosestatements estimating calendar year 2004 production or shipments and commentsrelated to the commencement of construction and opening of additional plants in2004 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 ofCleveland-Cliffs Inc (“CCI”), and published announcements of CCI.  The Trust has no control over the operationsor activities of Northshore except within the framework of currentagreements.  Actual results could differmaterially from those indicated in such statements.  Important factors that could cause actual results to differmaterially include those listed below under the heading “Important FactorsAffecting Mesabi Trust”.

 

**Background**

** **

Leasehold royalty incomeconstitutes the principal source of the Trust’s revenue.  Royalty rates are determined in accordancewith the terms of Mesabi Trust’s leases and assignments of leases.  Three types of royalties comprise theTrust’s leasehold royalty income:

 

•                  Overridingroyalties, which historically constitute the majority of Mesabi Trust’s royaltyincome, are determined by both the volume and selling price of iron oreproducts shipped.

 

•                  Fee royalties,which historically constitute a smaller component of the Trust’s royaltyincome, are payable to Mesabi Land Trust, a Minnesota land trust of whichMesabi Trust is the sole beneficiary and for which US Bank N.A. acts astrustee, and are based on the amount of crude ore mined.  Currently, the fee royalty on crude ore isbased on an agreed price per ton, subject to certain indexing.  Crude ore is the source of iron oxides usedto make iron ore pellets and other products.

 

•                  Minimum advanceroyalties, the third type of royalty, are discussed below.

 

With respect to thevolume component of royalty calculation, Northshore is obligated to pay MesabiTrust base overriding royalties in varying amounts.  The volume component of overriding royalties constitutes apercentage of the gross proceeds of iron ore products produced at Mesabi Trustlands (and to a limited extent other lands) and shipped from Silver Bay,Minnesota.  The percentage ranges from2-1/2% of the gross proceeds for the first one million tons of iron oreproducts so shipped annually to 6% of the gross proceeds for all iron oreproducts in excess of 4 million tons so shipped annually.

 

With respect to theselling price component of the overriding royalty calculation, Northshore isobligated to pay to Mesabi Trust royalty bonuses.  The royalty bonus is a percentage of the gross proceeds ofproduct shipped from Silver Bay and sold at prices above a threshold price.  The threshold price is adjusted (but notbelow $30.00) on an annual basis for inflation and deflation (the “AdjustedThreshold Price”).  The AdjustedThreshold Price was $40.61 per ton for calendar year 2002, $41.13 per ton forcalendar year 2003, and is $41.76 per ton for calendar year 2004.  The royalty bonus percentage ranges from 1/2of 1% of the gross proceeds (on all tonnage shipped for sale at prices betweenthe Adjusted Threshold Price and $2.00 above the Adjusted Threshold Price) to3% of the gross proceeds on all tonnage shipped for sale at prices $10.00 ormore above the Adjusted Threshold Price. No royalty bonus has been paid to the Trust for several years.

 

6

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Generally, Northshore’sobligation to pay base overriding royalties and royalty bonuses with respect tothe sale of iron ore products accrues upon the shipment of those products fromSilver Bay.  However, regardless ofwhether any shipment has occurred, Northshore is obligated to pay to MesabiTrust a minimum advance royalty.  Eachyear, the amount of the minimum advance royalty is adjusted (but not below$500,000 per annum) for inflation and deflation.  Advance royalties payable were $676,814 for calendar year 2002,$685,630 for calendar year 2003, and are $696,161 for calendar year 2004.  Until overriding royalties (and royaltybonuses, if any) for a particular year equal or exceed the minimum advanceroyalty for the year, Northshore must make quarterly payments of up to 25% ofthe minimum advance royalty for the year. Because advance minimum royalties are essentially prepayments of baseoverriding and bonus royalties earned each year, any advance minimum royaltiespaid in a fiscal quarter are recouped by credits against base overriding andbonus royalties earned in later fiscal quarters during the year.  Historically, advance minimum royalties havebeen paid in the first fiscal quarter and recouped in the second fiscalquarter.

 

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

 

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

 

Mesabi Trust has 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, Minnesota.  As noted above, the information regardingamounts and sales prices of shipped iron ore products is used to compute theroyalties payable to Mesabi Trust by Northshore.  Deutsche Bank Trust Company Americas, the Corporate Trustee, alsoperforms certain administrative functions for Mesabi Trust.

 

**Current Developments**

 

***General***.  CCIindicated in its Form 10-Q filed April 29, 2004 that 2004 production forNorthshore is currently forecast at 5.0 million tons of iron ore pellets, anincrease of 100,000 tons from the forecast in CCI’s annual report filedFebruary 13, 2004.

 

Northshore has notprovided the Trust with an estimate for total calendar year 2004shipments.  (See description of theuncertainty of market conditions in the iron ore and steel industry under “ImportantFactors Affecting Mesabi Trust” below.) During calendar years 2003, 2002, 2001, 2000, and 1999, the percentageof shipments of iron ore products from Mesabi Trust lands was approximately95.5%, 97.5%, 99.2%, 99.8%, and 98.9%, respectively, of total shipments.  Northshore has not advised the Trustees asto the percentage of iron ore products it anticipates shipping from MesabiTrust lands in calendar year 2004.

 

***Mesabi Nugget Project***.  CCI isparticipating in the Mesabi Nugget Project with Kobe Steel, Ltd. (“Kobe”),Steel Dynamics, Inc. (“SDI”), Ferrometrics, Inc. (“Ferrometrics”) and the Stateof Minnesota.

 

7

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The project’sobjective is to develop and apply a new iron making technology (Kobe Steel’s Itmk3process) for converting iron ore into nearly pure iron nugget form.  CCI has indicated that if the Mesabi NuggetProject successfully achieves commercialization, iron nuggets from this newprocess would be used as an alternative to steel scrap as a raw material forelectric steel furnaces and blast furnaces or basic oxygen furnaces ofintegrated steel producers.

 

Construction ofthe pilot plant at the Northshore facility to test the Itmk 3 process wascompleted in May 2003.  CCI stated inits Form 10-Q filed April 29, 2004 that the pilot plant is in a third operatingphase, intended to confirm the commercial viability of the Itmk 3technology.  This third phase isscheduled to be completed in June 2004. In a published interview, CCI’s chairman and chief executive officerstated that Mesabi Nugget LLC (which is owned by CCI (through its wholly-ownedsubsidiary Iron Units LLC), Kobe, SDI and Ferrometrics) is consideringconstruction of the first commercial plant, probably a $100 million, 500,000tons-per-year facility (the location of which is still undetermined) that couldbegin production in early 2006.  CCI’schairman and chief executive officer stated in the same interview that CCIintends to seek permits to build two additional nugget plants at Silver Bay,each with capacity for about 750,000 tons of nuggets annually, sometime in thefuture.  In a later published report,the president of Mesabi Nugget LLC stated that Mesabi Nugget LLC intends tobuild a full-scale nugget plant in Silver Bay sometime in the future.

 

Although the pilotplant is located at Northshore, it is not certain that, if a fully operationalfacility is constructed, it will be on Mesabi Trust lands.  CCI reported in its Form 10-Q filed April29, 2004 that while the project participants are investigating environmentalrequirements timelines for various potential commercial sites in Minnesota andIndiana, a decision to proceed on construction has not been made.  Construction of a fully operational facilityin Minnesota, Indiana or in both states would be subject to Mesabi Nugget LLC’sobtaining the necessary governmental permits. However, in May 2004, the Minnesota state legislature enactedlegislation to shorten the environmental permitting timeline should thecommercial plant be developed at another site owned by CCI in Hoyt Lakes,Minnesota, while Minnesota state agencies may offer tax and financialincentives for construction at the Hoyt Lakes site.

 

Although MesabiTrust is not a direct party to the Mesabi Nugget Project and its involvement inthis project was not solicited, in the event that a fully-operational plantwere to be located at the Northshore facility, the project would expectedly useiron ore from the Mesabi Trust lands. In addition, iron ore from Trust lands could potentially still be used,were a fully-operational plant to be located in Indiana or at another locationother than Northshore.  It is stilluncertain as to whether the Mesabi Nugget Project will successfully achieve commercialization,or where a fully-operational plant would be located, or whether it would useiron ore from the Mesabi Trust lands. Therefore, the Trustees are unable to make projections as to whether anyprospective future royalties might be payable to the Trust.

 

***Securities Regulation***.  The Trust isa publicly-traded trust listed on the New York Stock Exchange (“NYSE”) and istherefore subject to extensive regulation under, among others, the SecuritiesAct of 1933, the Securities Exchange Act of 1934, NYSE rules and regulationsand the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”).  Issuers failing to comply with suchauthorities risk serious consequences, including criminal as well as civil andadministrative penalties.  In mostinstances, these laws, rules and regulations do not specifically address theirapplicability to publicly-traded trusts such as Mesabi Trust.  In particular, Sarbanes-Oxley provides forthe adoption by the Securities and Exchange Commission (the “SEC”) and NYSE ofcertain rules and regulations that may be impossible for the Trust to literallysatisfy because of its nature as a pass-through trust.  During fiscal 2004, the SEC and NYSE adoptedrules and regulations pursuant to Sarbanes-Oxley that require a publicly-tradedcompany’s board of directors, audit committee or executive directors (orsimilar body) to act with respect to certain corporate governance matters.  The Trust does not have, nor does theAgreement of Trust provide for, a board of directors, an audit committee or anyexecutive officers.  Moreover, the Trusthas no employees at

 

8

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all. Therefore, the Trust cannot literally comply with many of these rulesand regulations.  The Trustees intend tofollow the SEC’s and NYSE’s rulemaking closely and attempt to comply with suchrules and regulations where possible.

 

**Important FactorsAffecting Mesabi Trust**

** **

The Agreement of Trustdated July 18, 1961 (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. Accordingly, the Trustees’ activities in connection with the administrationof Trust assets are limited to collecting income, paying expenses andliabilities, distributing net income to the Trust’s Certificate Holders afterthe payment of, or provision for, such expenses and liabilities, and protectingand conserving the assets held.

 

Accordingly, the incomeof the Trust is highly dependent upon the activities and operations ofNorthshore, and the terms and conditions of the Amendment of Assignment,Assumption and Further Assignment of Peters Lease (the “Amended Assignment ofPeters Lease”), the Amendment of Assignment, Assumption and Further Assignmentof Cloquet Lease (the “Amended Assignment of Cloquet Lease”), and theAssumption and Assignment of Mesabi Lease (together with the Amended Assignmentof Peters Lease and the Amended Assignment of Cloquet Lease, the “AmendedAssignment Agreements”).  The Trust andthe Trustees have no control over the operations and activities of Northshore,except within the framework of the Amended Assignment Agreements.

 

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

 

1.                             Shipping Conditions in the Great Lakes. Shipping activity by Northshore is dependent upon when the Great Lakesshipping lanes freeze for the winter months (typically in January) and whenthey re-open in the spring (typically late-March or April).  Base overriding royalties to Mesabi 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 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 any reason, productionand shipments (and, consequently, Trust income) could be adversely impacted.

 

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

 

9

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4.                             Percentage of Mesabi Trust Ore. As described elsewhere in this Report, Northshore has the ability toprocess and ship iron ore products from lands other than Mesabi Trustlands.  In certain circumstances, theTrust may be entitled to royalties on those other shipments, but not in allcases.  In general, the Trust willreceive higher royalties (assuming all other factors are equal) if a higherpercentage of shipments are from Mesabi Trust lands.  The percentages of shipments that came from Mesabi Trust landswere 95.5%, 97.5%, 99.2%, 99.8%, and 98.9% in calendar years 2003, 2002, 2001,2000, and 1999, respectively.

 

5.                             Uncertainty of Market Conditions in theSteel and Iron Ore Industry.  Although CCIreported in its Form 10-Q for its quarterly period ending March 31, 2004 thatit experienced record first quarter iron ore pellet sales and is projecting anoverall increase in total 2004 pellet sales (as compared to 2003), CCIcautioned in such Form 10-Q that significant risks and uncertainties may impactits forecast, including, but not limited to, changes in customer demand, anincrease in certain steel imports, a decrease in iron ore production in NorthAmerica due to global overcapacity of steel, customer failure, and customer orpotential customer restructuring and financial difficulty (which could resultin reduced production capacity over time). Furthermore, there exists consolidation and intense competition in thedomestic 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 at thesecurrent relatively higher levels, and whether steel mills will be able tooperate at capacity levels in 2004 and beyond. Furthermore, although overall there appears to have been an increase inthe demand for domestic steel products over the last fiscal year, it isnevertheless uncertain whether this increase in demand will continue and theextent to which it will impact royalties paid to the Trust in fiscal year 2005and beyond.

 

**Comparison of threemonths ended April 30, 2004 and April 30, 2003**

 
|                 |   | **Three  Months Ended April 30,** |    |
|----------------------|--------|-----------------------------------|---------|
|                 |   | **2004**                          |    | **2003** |   |
| Total royalty income |   | $                                 | 927,207 |   | $ | 366,092 |   |
| Interest income      |   | 10,502                            |    | 12,073 |   |
| Gross income         |   | $                                 | 937,709 |   | $ | 378,165 |   |
|                 |   |                              |    |   |   |
| Expenses             |   | 101,742                           |    | 128,162 |   |
| Net income           |   | $                                 | 835,967 |   | $ | 250,003 |   |

 
|                |   | **As of  April 30,** | ** ** |
|---------------------|--------|----------------------|------------|
|                |   | **2004**             | ** ** | **2003** | ** ** |
| Unallocated reserve |   | $                    | 1,588,551  |   | $ | 1,316,051 |   |
|                     |        |                      |            |  |  |  |  |

 

**The increase in royalty income is due to increasesin pellet shipments and price, and a higher applicable royalty rate, ascompared to the comparable prior period. Expenses decreased from the comparable prior period, primarily due todecreases in general and administrative expenses.**

 

10

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The increase in UnallocatedReserve is primarily due to increased revenue for the quarter.  The Trustees anticipate that the amount of UnallocatedReserve will fluctuate from time to time, depending upon a number of factors,including but not limited to the income for a particular period, the amount andtiming of distributions, uncertainty about future royalty income and theuncertainty of future expenses.

 

**Royalty Comparisons**

** **

The following chartsummarizes Mesabi Trust’s royalty income for the three months ended April 30,2004 and April 30, 2003, respectively:

 
|                                    |   | **Three  Months Ended April 30,** |    |
|-----------------------------------------|--------|-----------------------------------|---------|
|                                    |   | **2004**                          |    | **2003** |   |
| Base overriding royalties               |   | $                                 | 829,941 |   | $ | 234,378 |   |
| Bonus royalties                         |   | 0                                 |    | 0 |   |
| Minimum advance royalty paid (recouped) |   | 0                                 |    | 45,089 |   |
| Fee royalties                           |   | 97,266                            |    | 86,625 |   |
| Total royalty income                    |   | $                                 | 927,207 |   | $ | 366,092 |   |

 

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

 

Notapplicable.

 

**Item 4.  Controls and Procedures.**

 

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

 

As of the end of theperiod covered by this Report, the Trustees carried out an evaluation of theTrust’s disclosure controls and procedures. The Trustees have concluded that the disclosure controls and proceduresare effective, while noting certain limitations on disclosure controls andprocedures as set forth below.

 

Due to the contractualarrangements of the Agreement of Trust and the Amendment to the Agreement ofTrust dated October 25, 1982 (the “Amendment”), there are certain potentialweaknesses that may limit the effectiveness of disclosure controls andprocedures established by the Trustees and their ability to verify the accuracyof certain financial information.  Thecontractual limitations creating potential weaknesses in disclosure controlsand procedures may be deemed to include:

 

•                  Northshore alonecontrols (i) historical operating data, including iron ore production volumes,marketing of iron ore products, operating and capital expenditures as they relateto Northshore, environmental and other liabilities and the effects ofregulatory changes; (ii) plans for Northshore’s future operating and capitalexpenditures; (iii) geological data relating to reserves; and (iv) projectedproduction of iron ore products.  Whilethe Trustees request

 

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materialinformation for use in periodic reports as part of their disclosure controlsand procedures, the Trustees do not control this information, and they rely onNorthshore to provide accurate and timely information for use in the Trust’sreports filed with the Securities and Exchange Commission.  Moreover, while each quarter Northshorefurnishes shipment and royalty calculations to the Trustees, Northshore hasdeclined to support this information with a written certification attesting towhether Northshore has established disclosure controls and procedures andinternal controls sufficient to enable it to verify that the informationfurnished to the Trustees is accurate and complete.  Northshore is not required either by contract or by governmentallaws or regulations to provide such a certification.

 

•                  Eide Bailly LLP,which serves as the Trust’s independent accountants (“Eide Bailly”), hasdelivered a report to the Trust concluding that based upon its review of thefinancial statements of the Trust for its quarter ended April 30, 2004 (the“Financial Statements”), it is not aware of any material modifications thatshould be made to the Financial Statements in order for the FinancialStatements to be in conformity with generally accepted accounting principles.

 

•                  Under the termsof the Agreement of Trust and the Amendment, the Trustees are entitled to, andin 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 the Trust’s mining property; and (ii)the independent auditors they have contracted with respect to reviews offinancial data related to shipping and sales reports provided by Northshore.

 

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

 

***Changes in Internal Control Over FinancialReporting***.  To the knowledge of the Trustees, there hasbeen no significant change in the Trust’s internal control over financialreporting that occurred during the Trust’s last fiscal quarter that hasmaterially affected, or is reasonably likely to materially affect, the Trust’sinternal control over financial reporting. The Trustees note for purposes of clarification that they have noauthority over, and make no statement concerning, the internal control overfinancial reporting of Northshore.

 

**PART II - OTHERINFORMATION**

 

# **Item1.**                     Legal Proceedings.

# ** **

None.

 

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

# ** **

None.

 

# **Item3.**                     Defaults Upon Senior Securities.

# ** **

None.

 

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

# ** **

None.

 

# **Item5.**                     Other Information.

# ** **

None.

 

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

# ** **

(a)           Exhibits.

 

31                                    Certificationof Corporate Trustee of Mesabi Trust pursuant to Rule 13a-14 of the SecuritiesExchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-OxleyAct of 2002.

 

32                                    Certificationof Corporate Trustee of Mesabi Trust pursuant to 18 U.S.C. Section 1350, asadopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

99.1                           Reportof Eide Bailly LLP regarding its review of the un-audited interim financialstatements of Mesabi Trust for its quarter ending April 30, 2004.

 

(b)                                 Reportson Form 8-K.

 

None.

 

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**SIGNATURES**

** **

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

 
|                 | MESABI TRUST                                                     |
|----------------------|------------------------------------------------------------------|
|                 | (Registrant)                                                     |
|                 |
|                 | By:                                                              | DEUTSCHE BANK TRUST COMPANY AMERICAS |
|                 |                                                             | Corporate Trustee |
|                 | Principal Administrative Officer and duly authorized signatory:* |
|                 |                                                             |
|                 |                                                             |
| Date: June  14, 2004 | 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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