** **

**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, DC 20549**

** **

**FORM10-Q**

** **

**(MarkOne)**

 

| **ý** |   | **QUARTERLY REPORT UNDER SECTION 13  OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**                                                                                                                                                                                                                                     |
|------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |   |                                                                                                                                                                                                                                                                                                                       |
|       |   | **For the quarterly period ended  April 30, 2003, or**                                                                                                                                                                                                                                                                |
|       |   |                                                                                                                                                                                                                                                                                                                       |
| **o**      |   | **TRANSITION REPORT UNDER SECTION  13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**                                                                                                                                                                                                                                    |
|       |   |                                                                                                                                                                                                                                                                                                                       |
|       |   | **For  the transition period  from                       to                       ** |

 

**Commission File Number:  1-4488**

 

| **MESABI  TRUST**                                                                                                                               |
|-------------------------------------------------------------------------------------------------------------------------------------------------|
| (Exact name of  registrant as specified in its charter)                                                                                         |
|                                                                                                                                            |
| **New York**                                                                                                                                    |   | **13-6022277** |
| (State or other  jurisdiction of  incorporation or organization)                                                                                |   | (I.R.S. Employer  Identification No.) |
|                                                                                                                                            |   |   |
| **c/o Deutsche Bank Trust Company  Americas  Corporate Trust & Agency Services – GDS  60 Wall Street  27th Floor  New York, New York** |   | **10005**(Zip code) |
| (Address of  principal executive offices)                                                                                                       |   |   |
|                                                                                                                                            |   |   |
| **(615) 835-2749**                                                                                                                              |
| (Registrant’s  telephone number, including area code)                                                                                      |

 

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

 

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

 

As of May 31, 2003, there were 13,120,010 Unitsof Beneficial Interest in Mesabi Trust outstanding.

 

 

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**PART I - FINANCIAL INFORMATION**

** **

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

# ** **

|                                                   |   | **Three Months Ended  April 30,** | ** ** |
|--------------------------------------------------------|--------|----------------------------------------|------------|
|                                                   |   | **2003**                               |       | **2002** | ** ** |
|                                                   |   |                                   |       |   |   |
| **A.   Condensed Statements of Income** |   |                                   |       |   |   |
|                                                   |   |                                   |       |   |   |
| Revenues                                               |   |                                   |       |   |   |
| Royalty income                                         |   | $                                      | 366,092    |   | $ | 256,204 |   |
| Interest income                                        |   | 12,073                                 |       | 10,314 |   |
|                                                   |   | 378,165                                |       | 266,518 |   |
|                                                   |   |                                   |       |   |   |
| Expenses                                               |   | 128,162                                |       | 71,390 |   |
|                                                   |   |                                   |       |   |   |
| Net income                                             |   | $                                      | 250,003    |   | $ | 195,128 |   |
|                                                   |   |                                   |       |   |   |
| Number of units  outstanding                           |   | 13,120,010                             |       | 13,120,010 |   |
|                                                   |   |                                   |       |   |   |
| Net income per unit (Note  2)                          |   | $                                      | 0.0191     |   | $ | 0.0149 |   |
|                                                   |   |                                   |       |   |   |
| Distributions declared  per unit                       |   | $                                      | —     |   | $ | — |   |

** **

**See Notes to FinancialStatements.**

 

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|                                                                       |   | **April 30, 2003** |       | **January 31, 2003** |       |
|----------------------------------------------------------------------------|--------|-------------------------|------------|---------------------------|------------|
|                                                                       |   |                    | ** ** |                      | ** ** |
| **B.   ****Condensed Balance Sheets**                       |   |                    |       |                      |       |
|                                                                       |   |                    |       |                      |       |
| **Assets**                                                                 |   |                    |       |                      |       |
|                                                                       |   |                    |       |                      |       |
| Cash                                                                       |   | $                       | 91,371     |                      | $          | 2,515,457 |   |
|                                                                       |   |                    |       |                      |       |
| U.S. Government  securities, at amortized cost (which approximates market) |   | 1,006,725               |       | 891,243                   |       |
|                                                                       |   |                    |       |                      |       |
| Accrued income                                                             |   | 271,607                 |       | 175,978                   |       |
| Prepaid insurance                                                          |   | 5,659                   |       | 11,421                    |       |
|                                                                       |   | 1,375,362               |       | 3,594,099                 |       |
|                                                                       |   |                    |       |                      |       |
| 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                         |       |
|                                                                       |   |                    |       |                      |       |
|                                                                       |   | $                       | 1,375,365  |                      | $          | 3,594,102 |   |
|                                                                       |   |                    |       |                      |       |
| **Liabilities, Unallocated Reserve and Trust Corpus**                      |   |                    | ** ** |                      | ** ** |
|                                                                       |   |                    |       |                      |       |
| Liabilities                                                                |   |                    |       |                      |       |
| Distribution payable                                                       |   | —                  |       | $                         | 2,492,802  |   |
| Accrued expenses                                                           |   | 59,311                  |       | 35,249                    |       |
|                                                                       |   | 59,311                  |       | 2,528,051                 |       |
|                                                                       |   |                    |       |                      |       |
| Unallocated Reserve (Note  3)                                              |   | 1,316,051               |       | 1,066,048                 |       |
| Trust Corpus                                                               |   | 3                       |       | 3                         |       |
|                                                                       |   |                    |       |                      |       |
|                                                                       |   | $                       | 1,375,365  |                      | $          | 3,594,102 |   |

 

SeeNotes to Financial Statements.

 

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|                                                                           |   | **Three Months Ended  April 30,** | ** ** |
|--------------------------------------------------------------------------------|--------|----------------------------------------|------------|
|                                                                           |   | **2003**                               |       | **2002** | ** ** |
|                                                                           |   |                                   |       |   |   |
| **C.   Condensed Statements of Cash  Flows**                    |   |                                   |       |   |   |
|                                                                           |   |                                   |       |   |   |
| Cash flows from operating  activities                                          |   |                                   | ** ** |   | ** ** |
| Royalties received                                                             |   | $                                      | 262,626    |   | $ | 235,248 |   |
| Interest received                                                              |   | 19,910                                 |       | 19,510 |   |
| Expenses paid                                                                  |   | (98,338                                | )          | (97,285 | ) |
|                                                                           |   |                                   |       |   |   |
| Net cash provided by  operating activities                                     |   | 184,198                                |       | 157,473 |   |
|                                                                           |   |                                   |       |   |   |
| Cash flows from investing  activities                                          |   |                                   |       |   |   |
| Maturities of U.S.  Government Securities                                      |   | 99,420                                 |       | 102,176 |   |
| Purchases of U.S.  Government Securities                                       |   | (214,902                               | )          | (100,503 | ) |
|                                                                           |   |                                   |       |   |   |
| Net cash provided by  (used for) investing activities                          |   | (115,482                               | )          | 1,673 |   |
|                                                                           |   |                                   |       |   |   |
| Cash flow from financing  activities                                           |   |                                   |       |   |   |
| Distributions to  Unitholders                                                  |   | (2,492,802                             | )          | (1,049,601 | ) |
|                                                                           |   |                                   |       |   |   |
| Net change in cash                                                             |   | (2,424,086                             | )          | (890,455 | ) |
|                                                                           |   |                                   |       |   |   |
| Cash, beginning of year                                                        |   | 2,515,457                              |       | 1,223,246 |   |
|                                                                           |   |                                   |       |   |   |
| Cash, end of quarter                                                           |   | $                                      | 91,371     |   | $ | 332,791 |   |
|                                                                           |   |                                   |       |   |   |
| **Reconciliation of net income to net cash provided by  operating activities** |   |                                   |       |   |   |
|                                                                           |   |                                   |       |   |   |
| Net income                                                                     |   | $                                      | 250,003    |   | $ | 195,128 |   |
| (Increase) in accrued  income                                                  |   | (95,629                                | )          | (11,759 | ) |
| Decrease in prepaid  insurance                                                 |   | 5,762                                  |       | 2,323 |   |
| Increase (Decrease) in  accrued expenses                                       |   | 24,062                                 |       | (28,239 | ) |
|                                                                           |   |                                   |       |   |   |
| Net cash provided by  operating activities                                     |   | $                                      | 184,198    |   | $ | 157,453 |   |

 

SeeNotes to Financial Statements.

 

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**MESABI TRUST**

** **

**NOTES TO FINANCIAL STATEMENTS**

** **

Note 1.                             Thefinancial statements included herein have been prepared without audit (exceptfor the balance sheet at January 31, 2003) in accordance with theinstructions to Form 10-Q pursuant to the rules and regulations of theSecurities and Exchange Commission. Certain information and footnote disclosures normally included infinancial statements prepared in accordance with generally accepted accountingprinciples have been condensed or omitted pursuant to such rules andregulations.  In the opinion of theTrustees, all adjustments, consisting only of normal recurring adjustments,necessary for a fair statement of (a) the results of operations for the threemonths ended April 30, 2003 and 2002, (b) the financial positions atApril 30, 2003 and January 31, 2003, and (c) the cash flows for thethree months ended April 30, 2003 and 2002, have been made.

 

Note 2.                             Earningsper unit are based on weighted average number of units outstanding during theperiod (13,120,010 units).

 

Note 3.                             TheTrustees have determined to maintain an Unallocated Reserve of at least$1,000,000 in liquid assets.  The amountof the Unallocated Reserve has been increased over approximately the pasttwenty-four (24) months reflecting concern over the uncertainties in the steeland iron ore industry.  The actualamount of such Unallocated Reserve may vary from quarter to quarter dependingupon conditions in the industry and the judgment of the Trustees.  At April 30, 2003, the Unallocated Reservewas represented by $1,044,444 in unallocated cash and U.S. Governmentsecurities, and $271,607 of accrued revenue primarily representing royaltiesnot yet received by the Trust but anticipated to be received in July 2003from Northshore Mining Company as part of the royalty due with respect to thefirst fiscal quarter, based upon reported lessee shipping activity for themonth of April 2003.

 

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**Item2.****           Trustees’ Discussionand Analysis of Financial Condition and Results of Operations.**

 

**Forward-LookingInformation**

** **

Certain statements contained in this document areforward-looking, including specifically those statements estimating calendaryear 2003 production or shipments and comments related to the commencement ofconstruction and opening of additional plants in 2003 and beyond.  All such forward-looking statements arebased on input from Northshore Mining Company (“Northshore”), which is thelessee/operator and a wholly owned subsidiary of Cleveland-Cliffs Inc(“CCI”).  The Trust has no control overthe operations or activities of Northshore except within the framework ofcurrent agreements.  This document alsocontains forward-looking statements based on the general political climate asit currently exists concerning the possible current and future effects ofUnited States government tariffs. Actual results could differ materially from those indicated in suchstatements.  Important factors thatcould cause actual results to differ materially include those listed belowunder the heading “Important Factors Affecting Mesabi Trust”.

 

**Background**

** **

Leasehold royalty income constitutes the principalsource of the Trust’s revenue.  Royaltyrates are determined in accordance with the terms of Mesabi Trust’s leases andassignments of leases.  Three types ofroyalties comprise the Trust’s leasehold royalty income:

 

•                  Overriding royalties, whichhistorically constitute the majority of Mesabi Trust’s royalty income, aredetermined by both the volume and selling price of iron ore products shipped.

 

•                  Fee royalties, which historicallyconstitute a smaller component of the Trust’s royalty income, are payable toMesabi Land Trust, a Minnesota land trust of which Mesabi Trust is the solebeneficiary and for which US Bank N.A. acts as trustee (the “Mesabi LandTrust”), 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 used to produce iron orepellets and other products.

 

•                  Minimum advance royalties, the thirdtype of royalty, are discussed below.

 

With respect to the volume component of royaltycalculation, Northshore is obligated to pay Mesabi Trust base overridingroyalties in varying amounts.  Thevolume component of overriding royalties constitutes a percentage of the grossproceeds of iron ore products produced at Mesabi Trust lands (and to a limitedextent other lands) and shipped from Silver Bay, Minnesota.  The percentage ranges from 2-1/2% of thegross proceeds for the first one million tons of iron ore products so shippedannually to 6% of the gross proceeds for all iron ore products in excess of 4million tons so shipped annually.

 

With respect to the selling price component of theoverriding royalty calculation, Northshore is obligated to pay to Mesabi Trustroyalty bonuses.  The royalty bonus is apercentage of the gross proceeds of product shipped from Silver Bay and sold atprices above a threshold price.  Thethreshold price is adjusted on an annual basis for inflation and deflation (butnot below $30) (the “Adjusted Threshold Price”).  The Adjusted Threshold Price was $39.82 per ton for calendar year2001, $40.61 per ton for calendar year 2002, and is $41.13 for calendar year2003.  The royalty bonus percentageranges from 1/2 of 1% of the gross proceeds (on all tonnage shipped for sale atprices between the Adjusted Threshold Price and $2.00 above the AdjustedThreshold Price) to 3% of the gross proceeds on all tonnage shipped 

 

6

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for sale at prices $10.00or more above the Adjusted Threshold Price. No royalty bonus has been paid to the Trust for several years.

 

Generally, Northshore’s obligation to pay baseoverriding royalties and royalty bonuses with respect to the sale of iron oreproducts accrues upon the shipment of those products from Silver Bay.   However, regardless of whether any shipmenthas occurred, Northshore is obligated to pay to Mesabi Trust a minimum advanceroyalty.  Each year, the amount of theminimum advance royalty is adjusted for inflation and deflation (but not below$500,000 per annum).  Advance royaltiespayable were $663,682 for calendar year 2001, $676,814 for the calendar year 2002,and are $685,630 for calendar year 2003. Until overriding royalties (and royalty bonuses, if any) for aparticular year equal or exceed the minimum advance royalty for the year,Northshore must make quarterly payments of up to 25% of the minimum advanceroyalty for the year.  Because advanceminimum royalties are essentially prepayments of base overriding and bonusroyalties earned each year, any advance minimum royalties paid in a fiscalquarter are recouped by credits against base overriding and bonus royaltiesearned in later fiscal quarters during the year.  Historically, advance minimum royalties have been paid in thefirst fiscal quarter and recouped in the second fiscal quarter.

 

Northshore is obligated to make quarterly royaltypayments in January, April, July and October of each year.  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.

 

Under the relevant documents, Northshore may mine andship iron ore products from lands other than Mesabi Trust lands.  To encourage the use of iron ore productsfrom Mesabi Trust lands, Mesabi Trust receives royalties on stated percentagesof iron ore shipped from Silver Bay, whether or not the iron ore products arefrom Mesabi Trust lands.  Mesabi Trustreceives royalties at the greater of (i) the aggregate quantity of iron oreproducts shipped that were from Mesabi Trust lands, and (ii) a portion of theaggregate quantity of all iron ore products shipped that were from any lands,such portion being 90% of the first four million tons shipped during such year,90% of the next two million tons shipped during such year, and 25% of alltonnage shipped during such year in excess of six million tons.

 

Mesabi Trust has no employees, but it engagesindependent consultants to assist the Trustees in monitoring, among otherthings, the amount and sales prices of iron ore products shipped by Northshorefrom Silver Bay, Minnesota.  As notedabove, the information regarding amounts and sales prices of shipped iron oreproducts is used to compute the royalties payable to Mesabi Trust byNorthshore.  Deutsche Bank Trust CompanyAmericas, the Corporate Trustee, also performs certain administrative functionsfor Mesabi Trust.

 

**Current Developments**

** **

***General***.  Northshore has advised the Trustees thattotal calendar year 2003 production from Mesabi Trust lands maybe approximately 4.5 million tons of iron ore pellets.  Although CCI previously announced in itsJanuary 29, 2003 press release that it had then expected to operate allfive of its mines (which are located in Eastern Canada and the United States)at capacity levels in calendar year 2003, CCI stated in its May 13, 2003press release that certain difficulties in the mineralization process at itsTilden mine are expected to cause a reduction in the pellet production at suchmine for calendar year 2003 to 7.2 million to 7.5 million tons, from a previousforecast amount of 8.0 million tons. CCI also announced in this May 13,2003 press release that its financial results will be adversely impacted by themineralization process difficulties, but does not expect such difficulties toaffect its ability to supply iron ore under its existing sales contracts.

 

7

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On May 20, 2003, CCI announced that flooding inthe Upper Peninsula of Michigan has forced Wisconsin Energy Corp. to shut downits power plant in Marquette, Michigan, which has caused the idling of CCI’s Empireand Tilden mines.  CCI stated in thesame press release that every week the Empire and Tilden mines remain idle willresult in a loss of production of approximately 250,000 tons of iron orepellets.  Wisconsin Energy Corp. hasstated that the power plant could remain idle for approximately one month.

 

CCI also announced in its May 20, 2003 pressrelease that its total pellet sales forecast of 20 million tons is currentlyexpected to decrease by approximately five percent as there has been areduction in its customers’ pellet sales requirements due to a decline in theoperating rates across the North American steel industry.  Separately, CCI stated in the same pressrelease that it was unable to determine whether the filing of Chapter 11protection by one of its largest pellet sales customers, Weirton SteelCorporation, would impact the sales contract that CCI has with Weirton Steel.

 

Northshore has not provided the Trust with an estimatefor total calendar year 2003 shipments. (See description of the uncertainty of market conditions in the iron oreand steel industry under “Important Factors Affecting Mesabi Trust”below.)  During calendar years 2002,2001, 2000, 1999, and 1998, the percentage of shipments of iron ore productsfrom Mesabi Trust lands was approximately 97.5%, 99.2%, 99.8%, 98.9%, and99.3%, respectively, of total shipments. Northshore has not advised the Trustees as to the percentage of iron oreproducts it anticipates shipping from Mesabi Trust lands in calendar year 2003.

 

***Mesabi NuggetProject***.  OnNovember 14, 2001, CCI announced that it entered into a Memorandum ofUnderstanding with Mesabi Nugget LLC and other parties to participate in theMesabi Nugget Project.  The project’sobjective is to develop a new iron making technology (Kobe Steel’s Itmk3process) for converting iron ore into nearly pure iron nugget form (the term“nugget” is apparently used to differentiate the product from lower-ironcontent pellets produced from current technology).  The project’s initial phase, Phase I, was completed in the earlypart of fiscal year 2002.  OnApril 4, 2002, IronUnits LLC, a subsidiary of CCI, signed an agreement tocommit itself through Phase II, which involves construction of a pilot plant atNorthshore to test the Kobe Steel Itmk3 process and its ability to convert ironore into nearly pure iron.  Furthermore,as reported by Skillings Mining Review on March 2, 2002, the Iron RangeResources and Rehabilitation Board and the Minnesota Department of Trade andEconomic Development have each approved loans of $8.0 million to assist in thefunding of Phase II of the Mesabi Nugget Project.

 

Construction of the pilot plant at the Northshorefacility was completed in May 2003. As reported by Skillings Mining Review on May 30, 2003, the firstbatch of iron nuggets was successfully completed in a one-hour test run onMay 24, 2003.  According to thisreport by Skillings Mining Review, Mesabi Nugget LLC plans to continueconducting test operations at the pilot plant over the next nine months usingiron ore concentrate from Northshore, and will then continue such testoperations for an additional three months using concentrate from other iron oresources.  According to earlier publishedreports of CCI, if this pilot plant is successful, construction of acommercial-sized facility capable of producing within a range of 300,000 to700,000 tons of iron nuggets could commence as early as 2004.  Although CCI has chosen to locate the pilotplant at Northshore, it is not certain that if CCI decides to build a fullyoperational facility, it will do so on Mesabi Trust lands.

 

Although Mesabi Trust is not a direct party to theMesabi Nugget Project and its involvement in this project was not solicited, itappears that in the event that the fully-operational plant is located at theNorthshore facility, the project may involve the use of iron ore from theMesabi Trust lands.  Nevertheless,because it is still uncertain as to whether the Mesabi Nugget Project willsuccessfully achieve commercialization (in addition to the uncertaintysurrounding whether CCI will elect to locate 

 

8

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any suchfully-operational plant at Northshore and use iron ore from the Mesabi Trustlands for the Project), the Trustees are unable to make projections as to anyfuture royalties that might be payable to the Trust.

 

CCI has indicated that if the Mesabi Nugget Projectsuccessfully achieves commercialization, iron nuggets from this new processwould be used as an alternative or supplement to pig iron in the steel makingprocess.

 

***Other Information***.  On March 20, 2002, a three-year tariffschedule adopted by President Bush took effect, imposing tariffs ranging fromeight percent to thirty percent on a significant number of imported steelproducts.  Although the quantity ofimported steel products initially fell, their levels have been rebuilding sinceJune 2002.  Moreover, some steelconsumers and steel industry analysts have commented that the tariffs did, atleast initially upon becoming effective, result in increases in the prices ofcertain domestic steel products.  TheTrustees are unable, however, to quantify the effect that such price increasesmay have had on royalties paid to the Trust. In addition, although the tariffs may have also had a favorable impacton the amount of the Trust’s income by providing an impetus to sales of ironore pellets by reason of increased domestic demand, the Trustees are unable toverify such an effect or quantify it.  TheTrustees do not transact business directly with steel producers and accordinglylack information as to the extent to which iron ore pellets may be in demand bysteel producers for the production of various steel products and the degree towhich production of such products (and the prices of such products) may beaffected by the tariffs and the various tariff exemptions that have beenadopted by the President to date.

 

On March 21, 2003, the administration announcedthat the President’s original three-year tariff schedule would be modified to lowerthe top tariff rate from thirty percent to twenty-four percent, and the lowertariff rate from eight percent to seven percent.  Furthermore, the President has previously warned the nation’ssteelmakers that he would cut short the three-year tariffs if he determinedthat the steel industry was not wisely using the tariffs to improve theircompetitive position in the world marketplace.

 

On May 2, 2003, the World Trade Organization(WTO) issued a final ruling that the steel tariffs imposed by President Bushare in violation of global trade rules. Because this ruling finalized the WTO’s March 26, 2003 preliminaryruling without substantial change, an unnamed U.S. trade official has indicatedthat the United States intends to appeal this final ruling and leave thetariffs in place in the meantime.  Thistrade official has also stated that a final ruling by a WTO appeals panel maynot be reached until the latter part of November 2003.  At this time, in view of the United States’intention to appeal this final ruling, the Trust is unable to determine theextent to which the final WTO ruling will affect the steel tariffs and theimpact, if any, it will have on royalties payable to the Trust during fiscalyear 2003.

 

The Trustees are therefore not in a position todetermine what, if any, reductions in tariffs may take place or the extent towhich the tariffs and modifications to, or elimination of, the tariff schedulemay impact the demand and pricing of iron ore pellets mined from the MesabiTrust lands.  In addition, in light ofthe Presidential exemptions and the uncertain future of the tariffs in light ofthe International Trade Commission’s ongoing reviews and the WTO ruling, theTrustees are unable to determine at this time whether the tariffs will ultimatelyhave any material impact on the demand for, and prices of, iron ore pelletsduring fiscal year 2003.

 

**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 

 

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proper for thepreservation and protection of the Trust Estate.  Accordingly, the Trustees’ activities in connection with theadministration of Trust assets are limited to collecting income, payingexpenses and liabilities, distributing net income to the Trust’s CertificateHolders after the payment of, or provision for, such expenses and liabilities,and protecting and conserving the assets held.

 

Accordingly, the income of the Trust is highlydependent upon the activities and operations of Northshore, and the terms andconditions of the Amendment of Assignment, Assumption and Further Assignment ofPeters Lease (the “Amended Assignment of Peters Lease”), the Amendment ofAssignment, Assumption and Further Assignment of Cloquet Lease (the “AmendedAssignment of Cloquet Lease”), and the Assumption and Assignment of MesabiLease (together with the Amended Assignment of Peters Lease and the AmendedAssignment of Cloquet Lease, the “Amended Assignment Agreements”).  The Trust and the Trustees have no controlover the operations and activities of Northshore, except within the frameworkof the Amended Assignment Agreements.

 

Due to winter weather, and the increasing royaltypercentages based on tonnage shipped in a calendar year, results for aparticular calendar quarter are typically not indicative of results for futurequarters or the year as a whole. Factors which can impact the results of the Trust in any quarter or yearinclude:

 

1.                             ShippingConditions 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 when theyre-open in the spring (typically late March or April).  Base overriding royalties to Mesabi Trustare based on shipments made in a calendar quarter.  Because there typically is little or no shipping activity in thefirst calendar quarter, the Trust typically only receives the minimum royalty(or slightly more than the minimum) for that period.

 

2.                             Operationsof Northshore.  Because the primaryportion of the Trust’s revenues derive from iron ore product shipped byNorthshore from Silver Bay, Northshore’s processing and shipping activitiesdirectly impact the Trust’s revenues in each quarter and for each year.  In turn, a number of factors affectNorthshore shipment volume.  Thesefactors include economic conditions in the iron ore industry, pricing by domesticand international competitors, long-term customer contracts or arrangements byNorthshore or its competitors, availability of ore boats, production atNorthshore’s mining operations, and production at the pelletizing/processingfacility.  If any pelletizing linebecomes idle for any reason, production and shipments (and, consequently, Trustincome) could be adversely impacted.

 

3.                             IncreasingRoyalties.  As described elsewherein this Report, the royalty percentage paid to the Trust increases as the aggregatetonnage of iron ore products shipped, attributable to the Trust, in anycalendar year increases.  Assuming aconsistent sales price per ton throughout a calendar year, shipments of ironore product attributable to the Trust later in the year generate a higherroyalty to the Trust.

 

4.                             Percentageof Mesabi Trust Ore.  As describedelsewhere in this Report, Northshore has the ability to process and ship ironore products from lands other than Mesabi Trust lands.  In certain circumstances, the Trust may beentitled to royalties on those other shipments, but not in all cases.  In general, the Trust will receive higherroyalties (assuming all other factors are equal) if a higher percentage ofshipments are from Mesabi Trust lands. The percentages of shipments that came from Mesabi Trust lands were97.5%, 99.2%, 99.8%, 98.9%, and 99.3% in calendar years 2002, 2001, 2000, 1999,and 1998, respectively.

 

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5.                             Uncertaintyof Market Conditions in the Steel and Iron Ore Industry.  Although CCI reported in its Form 10-K forits fiscal year ending December 31, 2002 that it experienced a record yearin iron ore pellet sales and is projecting a further increase of pellet salesfor its fiscal year 2003, CCI also stated in such Form 10-K that it continuesto face a significant number of business risks and other potentially adversefactors.  Such risks and factorsinclude, but are not limited to, lower customer demand, an increase in certainsteel imports and iron ore substitutes, a decrease in iron ore production inNorth America, customer failure, and customer or potential customerrestructuring and financial difficulty (which could result in reducedproduction capacity over time). Furthermore, despite the intended ameliorative effects of thePresidential tariffs on the price and demand for domestic steel products, therestill exists a high degree of uncertainty and significant consolidation andrestructuring in the domestic steel market. Moreover, as reported in CCI’s May 20, 2003 press release, itcurrently expects that its pellet sales forecast of 20 million tons willdecrease by approximately five percent as there has been a reduction in itscustomers’ pellet sales requirements due to a decline in the operating ratesacross the North American steel industry.

 

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 fiscal year 2003 and beyond.  Furthermore, although overall there appearsto have been an increase in the demand for domestic steel products over thelast fiscal year, it is nevertheless uncertain (in light of CCI’s May 20,2003 announcement of its reduction in its 2003 pellet sales forecast and giventhe other risks and factors referenced in this Report) whether this increase indemand will continue and the extent to which it will impact royalties paid tothe Trust in fiscal year 2003 and beyond.

 

**Comparison ofthree months ended April 30, 2003 and April 30, 2002**

** **

Mesabi Trust’s net income increased to $250,003 forthe three months ended April 30, 2003, as compared to net income of$195,128 for the three months ended April 30, 2002.  Mesabi Trust’s gross income for the threemonths ended April 30, 2003 was $378,165, consisting of $45,089 in minimumadvance royalty income, $234,378 in overriding royalty income, $86,625 in feeroyalty income and $12,073 in interest income, as compared to gross income of$266,518, consisting of $112,802 in minimum advance royalty income, $73,835 inoverriding royalty income, $69,567 in fee royalty income and $10,314 ininterest income, for the three months ended April 30, 2002.  The increase in royalty income was primarilydue to an increase in pellet shipments and the quantity of iron ore mined ascompared to the comparable prior period. Mesabi Trust’s expenses for the three months ended April 30, 2003were $128,162, compared to expenses of $71,390 for the three months endedApril 30, 2002.  The increase inexpenses is primarily attributed to (i) differences in the timing of paymentsof legal and accounting fees and expenses, and (ii) increases in legal fees andexpenses associated with compliance with the Sarbanes-Oxley Act of 2002.

 

Mesabi Trust’s Unallocated Reserve aggregated$1,316,051 at April 30, 2003, as compared with an Unallocated Reserve of $1,289,849at April 30, 2002.  The increase of$26,202 was due to the increase in revenue as compared with the three monthsended April 30, 2002.  The Trusteesanticipate that the amount of Unallocated Reserve will fluctuate from time totime, depending upon a number of factors, including but not limited to theincome for a particular period, the amount and timing of distributions,uncertainty about future royalty income and the uncertainty of future expenses.

 

11

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**RoyaltyComparisons**

** **

The following chart summarizes Mesabi Trust’s royaltyincome for the three months ended April 30, 2003 and April 30, 2002,respectively:

 
|                                    |   | **Three  months ended April 30,** | ** ** |
|-----------------------------------------|--------|----------------------------------------|------------|
|                                    |   | **2003**                               |       | **2002** | ** ** |
|                                    |   |                                   |       |   |   |
| Base overriding royalties               |   | $                                      | 234,378    |   | $ | 73,835 |   |
| Bonus royalties                         |   | 0                                      |       | 0 |   |
| Minimum advance royalty paid (recouped) |   | 45,089                                 |       | 112,802 |   |
| Fee royalties                           |   | 86,625                                 |       | 69,567 |   |
| Total royalty income                    |   | $                                      | 366,092    |   | $ | 256,204 |   |

 

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

 

Not applicable.

 

**Item 4.  Controls and Procedures.**

 

***Evaluation ofDisclosure Controls and Procedures***.  The Trustees maintain disclosure controlsand procedures designed to ensure that information required to be disclosed bythe Trust in the reports that it files or submits under the Securities ExchangeAct of 1934, as amended, is recorded, processed, summarized and reported withinthe time periods specified in the rules and regulations of the Securities andExchange Commission.  Disclosurecontrols and procedures include controls and procedures designed to ensure thatinformation required to be disclosed by the Trust is accumulated andcommunicated by Northshore, and the Trust’s independent auditors andconsultants to the Trustees as appropriate to allow timely decisions regardingrequired disclosure.

 

Within ninety days of the date of this report, theTrustees carried out an evaluation of the Trust’s disclosure controls andprocedures.  The Trustees have concludedthat the controls and procedures are effective, while noting certainlimitations on disclosure controls and procedures as set forth below.

 

Due to the contractual arrangements of the Agreementof Trust dated July, 18, 1961 (the “Agreement of Trust”), and the Amendment tothe Agreement of Trust dated October 25, 1982 (the “Amendment”), there arecertain potential weaknesses that may limit the effectiveness of disclosurecontrols and procedures established by the Trustees and their ability to verifythe accuracy of certain financial information. The contractual limitations creating potential weaknesses in disclosurecontrols and procedures may be deemed to include:

 

•                    Northshorealone controls (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 and capitalexpenditures; (iii) geological data relating to reserves; and (iv) projectedproduction of iron ore products.  Whilethe Trustees request material information for use in periodic reports as partof their disclosure controls and procedures, the Trustees do not control thisinformation, and they rely on Northshore to provide accurate and timelyinformation for use in the Trust’s reports filed with the Securities andExchange Commission.  Moreover, whileeach quarter Northshore furnishes shipment and royalty calculations to theTrustees, Northshore has declined to support this information 

 

12

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with a written certification attesting to whetherNorthshore has established disclosure controls and procedures and internalcontrols sufficient to enable it to verify that the information furnished tothe Trustees is accurate and complete. Northshore is not required either by contract or by governmental laws orregulations 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, 2003, itis not aware of any material modifications that should be made to suchfinancial statements in order for such financial statements to be in conformitywith 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 not intend to expand theirresponsibilities beyond those permitted or required by the Agreement of Trust,the Amendment, and those required under applicable law.

 

***Changes in InternalControls***.  To theknowledge of the Trustees, there have been no significant changes in the Trust’sinternal controls or in other factors that could significantly affect theTrust’s internal controls subsequent to the date the Trustees completed theirevaluation.  The Trustees note forpurposes of clarification that they have no authority over, and make nostatement concerning, the internal controls of Northshore.

 

**PART II - OTHER INFORMATION**

** **

# **Item 1.**                     Legal Proceedings.

# ** **

None.

 

# **Item 2.**                     Changes in Securities and Use ofProceeds.

# ** **

None.

 

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

# ** **

None.

 

# **Item 4.**                     Submission of Matters to a Vote ofSecurity Holders.

# ** **

None.

 

# **Item 5.**                     Other Information.

# ** **

None.

 

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# **Item 6.**                     Exhibits and Reports on Form 8-K.

# ** **

(a)                                  Exhibits.

 

99.1                           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.

 

99.2                           Reportfrom Eide Bailly LLP regarding its review of the unaudited interim financialstatements of Mesabi Trust for its quarter ending April 30, 2003.

 

(b)                                 Reportson Form 8-K.

 

None.

 

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**SIGNATURES**

** **

Pursuant to the requirements of the SecuritiesExchange Act of 1934, the registrant has duly caused this report to be signedon its behalf by the undersigned thereunto duly authorized.

 
|                           | MESABI TRUST                                                      |
|--------------------------------|-------------------------------------------------------------------|
|                           | (Registrant)                                                      |
|                           |                                                              |
|                           | By:                                                               | DEUTSCHE BANK  TRUST COMPANYAMERICAS |
|                           |                                                              | Corporate  Trustee |
|                           | Principal  Administrative Officer and duly authorized signatory:* |
|                           |                                                              |
|                           |                                                              |
| Date:  June 16, 2003 | By:                                                               | /s/ Rodney  Gaughan |
|                           |                                                              | Name: Rodney  Gaughan |
|                           |                                                              | Title:   Assistant Vice President |
|                                |                                                                   |  |  |

 

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* There are nodirectors or executive officers of the registrant.

 

15

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**CERTIFICATION**

 

I, Rodney Gaughan,certify that:

 

1.                                       Ihave reviewed this quarterly report on Form 10-Q of Mesabi Trust, for whichDeutsche Bank Trust Company Americas acts as Corporate Trustee;

 

2.                                       Basedon my knowledge, this quarterly report does not contain any untrue statement ofa material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements weremade, not misleading with respect to the period covered by this quarterlyreport;

 

3.                                       Basedon my knowledge, the financial statements, and other financial informationincluded in this quarterly report, fairly present in all material respects thefinancial condition, distributable income and changes in trust corpus of theregistrant as of, and for, the periods presented in this quarterly report;

 

4.                                       Iam responsible for establishing and maintaining disclosure controls andprocedures (as defined in Exchange Act Rules 13a-14 and 15d-14), or for causingsuch procedures to be established and maintained, for the registrant and have:

 

a)                                      designedsuch disclosure controls and procedures, or caused such controls and proceduresto be designed, to ensure that material information relating to the registrant,including its consolidated subsidiaries, is made known to me by others withinthose entities, particularly during the period in which this quarterly reportis being prepared;

 

b)                                     evaluatedthe effectiveness of the registrant’s disclosure controls and procedures as ofa date within 90 days prior to the filing date of this quarterly report (the“Evaluation Date”); and

 

c)                                      presentedin this quarterly report my conclusions about the effectiveness of thedisclosure controls and procedures based on my evaluation as of the EvaluationDate;

 

5.                                       Ihave disclosed, based on my most recent evaluation, to the registrant’sauditors:

 

a)                                      allsignificant deficiencies in the design or operation of internal controls whichcould adversely affect the registrant’s ability to record, process, summarizeand report financial data and have identified for the registrant’s auditors anymaterial weaknesses in internal controls; and

 

b)                                     anyfraud, whether or not material, that involves persons who have a significantrole in the registrant’s internal controls; and

 

6.                                       Ihave indicated in this quarterly report whether or not there were significantchanges in internal controls or in other factors that could significantlyaffect internal controls subsequent to the date of my most recent evaluation,including any corrective actions with regard to significant deficiencies andmaterial weaknesses.

 

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

 

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

 

 
| Date:  June 16, 2003 | By:    | /s/ Rodney  Gaughan                  |
|--------------------------------|--------|--------------------------------------|
|                           |   | Rodney Gaughan*                      |
|                           |   | Assistant Vice President             |
|                           |   | Deutsche Bank Trust Company Americas |

 

 

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

 

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