**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C. 20549**

** **

**FORM 10-Q**

** **

**(Mark One)**

 
| **x**      | ** ** | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE  ACT OF 1934**                                                                                                                                                                                                                                                                                                                                                             |
|------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** ** | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| ** ** | ** ** | **For  the quarterly period ended April 30, 2008**                                                                                                                                                                                                                                                                                                                                                                                                             |
| ** ** | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| ** ** | ** ** | **or**                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| ** ** | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| **o**      | ** ** | **TRANSITION  REPORT PURSUANT TO 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 itscharter)

 

| **New York**                                                                                          | ** ** | **13-6022277**                       |
|-------------------------------------------------------------------------------------------------------|------------|--------------------------------------|
| (State or other jurisdiction ofincorporation  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’stelephone 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 theSecurities Exchange Act of 1934 during the preceding 12 months (or for suchshorter period that the registrant was required to file such reports), and (2) hasbeen subject to such filing requirements for the past 90 days.      Yes x No o

 

Indicate bycheck mark whether the registrant is a large accelerated filer, an acceleratedfiler, a non-accelerated filer, or a smaller reporting company. See definitionsof “large accelerated filer,” “accelerated filer,” and “smaller reportingcompany” in Rule 12b-2 of the Exchange Act. (Check one):

 

| Large  accelerated filer o                     |   | Accelerated  filer x         |
|------------------------------------------------|--------|-----------------------------------|
|                                           |   |                              |
| Non-accelerated  filer o                       |   | Smaller  reporting company o |
| (Do not  check if a smaller reporting company) |   |                              |

 

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

 

**As ofJune 4, 2008, there were 13,120,010 Units of Beneficial Interest in Mesabi Trustoutstanding.**

** **

 

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**PART I - FINANCIALINFORMATION**

** **

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

 

**MesabiTrust**

**CondensedStatements of Income**

**ThreeMonths Ended April 30, 2008 and 2007**

 
| ** ** | ** **                                | ** ** | **Three Months Ended** | ** ** |
|------------|-------------------------------------------|------------|----------------------------------|------------|
| ** ** | ** **                                | ** ** | **April 30,**               | ** ** |
| ** ** | ** **                                | ** ** | **2008**                         | ** ** | **2007** | ** ** |
| ** ** | ** **                                | ** ** | **(unaudited)**                  | ** ** | **(unaudited)** | ** ** |
| **A.**     | **Condensed  Statements of Income**       | ** ** | ** **                       | ** ** | ** ** | ** ** |
|       |                                      |       |                             |       |   |   |
|       | Revenues                                  |       |                             |       |   |   |
|       | Royalty  income                           |       | $                                | 3,847,710  |   | $ | 1,779,141 |   |
|       | Interest  income                          |       | 14,097                           |       | 5,915 |   |
|       |                                      |       | 3,861,807                        |       | 1,785,056 |   |
|       |                                      |       |                             |       |   |   |
|       | Expenses                                  |       | 222,154                          |       | 85,439 |   |
|       |                                      |       |                             |       |   |   |
|       | Net  income                               |       | $                                | 3,639,653  |   | $ | 1,699,617 |   |
|       |                                      |       |                             |       |   |   |
|       | Number  of units outstanding              |       | 13,120,010                       |       | 13,120,010 |   |
|       |                                      |       |                             |       |   |   |
|       | Net  income per unit (Note 2)             |       | $                                | 0.2774     |   | $ | 0.1295 |   |
|       |                                      |       |                             |       |   |   |
|       | Distributions  declared per unit (Note 3) |       | $                                | 0.1200     |   | $ | 0.0450 |   |

 

See Notes to Condensed Financial Statements.

 

2

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**MesabiTrust**

**CondensedBalance Sheets**

**April30, 2008 and January 31, 2008**

 
| ** ** | ** **                                                                 | ** ** | **April 30, 2008** | ** ** | **January 31, 2008** | ** ** |
|------------|----------------------------------------------------------------------------|------------|------------------------------|------------|--------------------------------|------------|
| ** ** | ** **                                                                 | ** ** | **(unaudited)**              | ** ** | ** **                     | ** ** |
| **B.**     | **Condensed  Balance Sheets**                                              | ** ** | ** **                   | ** ** | ** **                     | ** ** |
|       |                                                                       |       |                         |       |                           |       |
| ** ** | **Assets**                                                                 | ** ** | ** **                   | ** ** | ** **                     | ** ** |
|       |                                                                       |       |                         |       |                           |       |
|       | Cash  and cash equivalents                                                 |       | $                            | 1,772,470  |                           | $          | 6,959,701 |   |
|       |                                                                       |       |                         |       |                           |       |
|       | U.S.  Government securities, at amortized cost (which approximates market) |       | 493,784                      |       | 544,193                        |       |
|       |                                                                       |       |                         |       |                           |       |
|       | Accrued  income receivable                                                 |       | 3,140,603                    |       | 959,925                        |       |
|       | Prepaid  expenses                                                          |       | 33,914                       |       | 24,687                         |       |
|       |                                                                       |       | 5,440,771                    |       | 8,488,506                      |       |
|       |                                                                       |       |                         |       |                           |       |
|       | 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                              |       |
|       |                                                                       |       |                         |       |                           |       |
|       |                                                                       |       | $                            | 5,440,774  |                           | $          | 8,488,509 |   |
|       |                                                                       |       |                         |       |                           |       |
| ** ** | **Liabilities,  Unallocated Reserve and Trust Corpus**                     | ** ** | ** **                   | ** ** | ** **                     | ** ** |
|       |                                                                       |       |                         |       |                           |       |
|       | Liabilities                                                                |       |                         |       |                           |       |
|       | Distribution  payable                                                      |       | $                            | 1,574,401  |                           | $          | 6,756,805 |   |
|       | Accrued  expenses                                                          |       | 141,271                      |       | 71,680                         |       |
|       |                                                                       |       | 1,715,672                    |       | 6,828,485                      |       |
|       |                                                                       |       |                         |       |                           |       |
|       | Unallocated  Reserve (Note 4)                                              |       | 3,725,099                    |       | 1,660,021                      |       |
|       | Trust  Corpus                                                              |       | 3                            |       | 3                              |       |
|       |                                                                       |       |                         |       |                           |       |
|       |                                                                       |       | $                            | 5,440,774  |                           | $          | 8,488,509 |   |

 

See Notes to Condensed Financial Statements.

 

3

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**MesabiTrust**

**CondensedStatements of Cash Flows**

**ThreeMonths Ended April 30, 2008 and 2007**

 
| ** ** | ** **                                                                     | ** ** | **Three Months Ended** | ** ** |
|------------|--------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** ** | ** **                                                                     | ** ** | **April 30,**               | ** ** |
| ** ** | ** **                                                                     | ** ** | **2008**                         | ** ** | **2007** | ** ** |
| ** ** | ** **                                                                     | ** ** | **(unaudited)**                  | ** ** | **(unaudited)** | ** ** |
| **C.**     | **Condensed  Statements of Cash Flows**                                        | ** ** | ** **                       | ** ** | ** ** | ** ** |
|       |                                                                           |       |                             |       |   |   |
|       | Cash  flows from operating activities                                          | ** ** | ** **                       | ** ** | ** ** | ** ** |
|       | Royalties  received                                                            |       | $                                | 1,665,665  |   | $ | 644,109 |   |
|       | Interest  received                                                             |       | 15,463                           |       | 10,828 |   |
|       | Expenses  paid                                                                 |       | (161,789                         | )          | (167,651 | ) |
|       |                                                                           |       |                             |       |   |   |
|       | Net  cash provided by operating activities                                     |       | 1,519,339                        |       | 487,286 |   |
|       |                                                                           |       |                             |       |   |   |
|       | Cash  flows from investing activities                                          |       |                             |       |   |   |
|       | Maturities  of U.S. Government Securities                                      |       | 100,000                          |       | 4,364,754 |   |
|       | Purchases  of U.S. Government Securities                                       |       | (49,765                          | )          | (4,279,543 | ) |
|       |                                                                           |       |                             |       |   |   |
|       | Net  cash provided by investing activities                                     |       | 50,235                           |       | 85,211 |   |
|       |                                                                           |       |                             |       |   |   |
|       | Cash  flow used for financing activity Distributions to Unitholders            |       | (6,756,805                       | )          | (4,132,803 | ) |
|       |                                                                           |       |                             |       |   |   |
|       | Net  change in cash and cash equivalents                                       |       | (5,187,231                       | )          | (3,560,306 | ) |
|       |                                                                           |       |                             |       |   |   |
|       | Cash  and cash equivalents, beginning of year                                  |       | 6,959,701                        |       | 4,258,201 |   |
|       |                                                                           |       |                             |       |   |   |
|       | Cash  and cash equivalents, end of quarter                                     |       | $                                | 1,772,470  |   | $ | 697,895 |   |
|       |                                                                           |       |                             |       |   |   |
| ** ** | **Reconciliation  of net income to net cash provided by operating activities** |       |                             |       |   |   |
|       |                                                                           |       |                             |       |   |   |
|       | Net  income                                                                    |       | $                                | 3,639,653  |   | $ | 1,699,617 |   |
|       | Increase  in accrued income receivable                                         |       | (2,180,678                       | )          | (1,130,119 | ) |
|       | Increase  in prepaid expenses                                                  |       | (9,227                           | )          | (17,103 | ) |
|       | Increase  (decrease) in accrued expenses                                       |       | 69,591                           |       | (65,109 | ) |
|       |                                                                           |       |                             |       |   |   |
|       | Net  cash provided by operating activities                                     |       | $                                | 1,519,339  |   | $ | 487,286 |   |

 

See Notes to Condensed Financial Statements.

 

4

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**MESABI TRUST**

** **

**NOTES TO CONDENSED FINANCIAL STATEMENTS**

**April 30, 2008 (unaudited)**

** **

Note 1.                             The financial statements includedherein have been prepared without audit (except for the balance sheet at January 31,2008) in accordance with the instructions to Form 10-Q pursuant to the rules andregulations of the Securities and Exchange Commission.  Certain information and footnote disclosuresnormally included in financial statements prepared in accordance with generallyaccepted accounting principles have been condensed or omitted pursuant to such rules andregulations.  In the opinion of theTrustees, all adjustments, consisting only of normal recurring adjustments,necessary for a fair statement of (a) the results of operations for thethree months ended April 30, 2008 and 2007, (b) the financialpositions at April 30, 2008, and (c) the cash flows for the threemonths ended April 30, 2008 and 2007, have been made.

 

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

 

Note 3.                             Distributions are required to bedeclared each year in April, July, October and January afterreceiving notification from Northshore Mining Company as to the amount ofroyalty income that is expected to be received by the Trust.  The Trust receives notification of theexpected royalty amounts as of the close of each calendar quarter, while thefinancial statements included herein are prepared on an accrual basis andpresent the Trust’s results of operations for the three months ended April 30,2008.  The Trustees determine the amountof distributions to be made to Unitholders after considering any known oranticipated expenses, liabilities and obligations of the Trust.  Accordingly, distributions declared may notreflect the Trust’s current results of operations.

 

Note 4.                             The Trustees have determined thatthe Unallocated Reserve should be maintained at a prudent level, usually withinthe range of $500,000 to $1,000,000, to meet present or future liabilities ofthe Trust.  Accordingly, although theactual amount of the Unallocated Reserve will fluctuate from time to time, andmay increase or decrease from its current level, it is currently intended thatfuture distributions will be highly dependent upon royalty income as it isreceived quarterly and the level of Trust expenses that the Trustees anticipateoccurring in subsequent quarters.  At April 30,2008, the Unallocated Reserve was represented by $584,496 in unallocated cashand U.S. Government securities, and $3,140,603 of accrued revenue primarilyrepresenting royalties not yet received by the Trust but anticipated to bereceived in July 2008 from Northshore Mining Company as part of theroyalty due with respect to the second fiscal quarter, based upon reportedlessee shipping activity during the month of April 2008.

 

Note 5.                             In May 2008, the FASB issuedFAS No. 162 “The Hierarchy of Generally Accepted Accounting Principles” (“FAS162”).  FAS 162 identifies the sources ofgenerally accepted accounting principles in the United States.  FAS 162 is effective sixty days following theSEC’s approval of PCAOB amendments to AU Section 411, “The Meaning ofPresent Fairly in Conformity With Generally Accepted Accounting Principles.”The Trust is currently evaluating the potential impact, if any, of the adoptionof FAS 162 on its financial statements.

 

5

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

 

**Forward-Looking Statements**

 

Certain information includedin this Quarterly Report on Form 10-Q contains “forward-looking statements”within the meaning of Section 21E of the Securities Exchange Act of 1934,and Section 27A of the Securities Act of 1933.  All such forward-looking statements, includingthose statements estimating iron ore pellet production or shipments, are basedon information from the lessee/operator (and its parent corporation) of themine located on the lands owned and held in trust for the benefit of theholders of units of beneficial interest of Mesabi Trust.  These statements may be identified by the useof forward-looking words, such as “may,” “will,” “could,” “project,” “predict, ““intend,” “believe,” “anticipate,” “expect,” “estimate,” “continue,” “potential,”“plan,” “should,” “assume,” “forecast” and other similar words.  Such forward-looking statements areinherently subject to known and unknown risks and uncertainties.  Actual results and future developments coulddiffer materially from the results or developments expressed in or implied bythese forward-looking statements.  Theserisks and uncertainties include volatility of iron ore and steel prices,product supply and demand, competition, regulation or government action, litigationand uncertainties about estimates of reserves. Further, substantial portions of royalties earned byMesabi Trust are based on estimated prices that are subject to interim andfinal adjustments which can be positive or negative and are dependent in parton multiple price and inflation index factors under agreements to which MesabiTrust is not a party and that are not known until after the end of a contractyear.  For a discussionof the factors, including but not limited to, those that could materially andadversely affect Mesabi Trust’s actual results and performance, see “RiskFactors” in Part I – Item 1A of Mesabi Trust’s Annual Report on Form 10-Kfor the year-ended January 31, 2008. Mesabi Trust undertakes no obligation, other than that imposed by law,to make any revisions to the forward-looking statements contained in thisfiling or to update them to reflect circumstances occurring after the date ofthis filing.

 

**Background**

 

Mesabi Trust (“Mesabi Trust”or the “Trust”), formed pursuant to an Agreement of Trust dated July 18,1961 (the “Agreement of Trust”), is a trust organized under the laws of theState of New York.  Mesabi Trust holdsall of the interests formerly owned by Mesabi Iron Company (“MIC”), includingall right, title and interest in the Amendment of Assignment, Assumption andFurther Assignment of Peters Lease (the “Amended Assignment of Peters Lease”),the Amendment of Assignment, Assumption and Further Assignment of Cloquet Lease(the “Amended Assignment of Cloquet Lease” and together with the AmendedAssignment of Peters Lease, the “Amended Assignment Agreements”), thebeneficial interest in the Mesabi Land Trust (as such term is defined below)and all other assets and property identified in the Agreement of Trust. TheAmended Assignment of Peters Lease relates to an Indenture made as of April 30,1915 among East Mesaba Iron Company (“East Mesaba”), Dunka River Iron Company (“DunkaRiver”) and Claude W. Peters (the “Peters Lease”) and the Amended Assignment ofCloquet Lease relates to an Indenture made May 1, 1916 between CloquetLumber Company and Claude W. Peters (the “Cloquet Lease”).

 

The Agreement of Trustspecifically prohibits the Trustees from entering into or engaging in anybusiness.  This prohibition applies evento business activities the Trustees may deem necessary or proper for thepreservation and protection of the Trust Estate.  Accordingly, the Trustees’ activities inconnection with the administration of Trust assets are limited to collectingincome, paying expenses and liabilities, distributing net income to the holdersof Certificates of Beneficial Interest in Mesabi Trust (“Unitholders”) afterthe payment of, or provision for, such expenses and liabilities, and protectingand conserving the assets held.

 

6

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The Trustees do not intendto expand their responsibilities beyond those permitted or required by theAgreement of Trust, the Amendment to the Agreement of Trust dated October 25,1982 (the “Amendment”), and those required under applicable law.  Mesabi Trust has no employees, but it engagesindependent consultants to assist the Trustees in, among other things,monitoring the volume and sales prices of iron ore products shipped from SilverBay, Minnesota, based on information supplied to the Trustees by NorthshoreMining Company (“Northshore”), the lessee/operator of the Mesabi Trust lands,and its parent company Cleveland-Cliffs Inc (“CCI”).  References to Northshore in this quarterlyreport, unless the context requires otherwise, are applicable to CCI as well.

 

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

 

·                                          Base overriding royalties. Base overriding royalties have historically constituted the majority ofMesabi Trust’s royalty income.  Baseoverriding royalties are determined by both the volume and selling price ofiron ore products shipped.  Northshore isobligated to pay Mesabi Trust base overriding royalties in varying amounts,based on the volume of iron ore products shipped.  Base overriding royalties are calculated as apercentage of the gross proceeds of iron ore products produced at Mesabi Trustlands (and to a limited extent other lands) and shipped from Silver Bay,Minnesota.  The percentage ranges from2-1/2% of the gross proceeds for the first one million tons of iron oreproducts so shipped annually to 6% of the gross proceeds for all iron oreproducts in excess of 4 million tons so shipped annually.  Base overriding royalties are subject to price adjustments under theCCI Pellet Agreements and, as described elsewhere in this report, suchadjustments may be positive or negative. See the section entitled “Royalty Comparisons” below for moreinformation.

 

·                                          Royalty bonuses. The Trust earns royalty bonuses when iron ore products shipped fromSilver Bay are sold at prices above a threshold price per ton.  The royalty bonus is based on a percentage ofthe gross proceeds of product shipped from Silver Bay and sold at prices abovea threshold price.  The threshold priceis adjusted (but not below $30.00 per ton) on an annual basis for inflation anddeflation (the “Adjusted Threshold Price”). The Adjusted Threshold Price was $45.98 per ton for calendar year 2007and is $47.43 per ton for calendar year 2008. The royalty bonus percentage ranges from 1/2 of 1% of the gross proceeds(on all tonnage shipped for sale at prices between the Adjusted Threshold Priceand $2.00 above the Adjusted Threshold Price) to 3% of the gross proceeds (onall tonnage shipped for sale at prices $10.00 or more above the AdjustedThreshold Price).  Royalty bonuses are subject toprice adjustments under the CCI Pellet Agreements and, as described elsewherein this report, such adjustments may be positive or negative.  See the section entitled “Royalty Comparisons”below for more information.

 

·                                          Fee royalties. Fee royalties have historically constituted a smaller component of theTrust’s total royalty income.  Feeroyalties are payable to the Mesabi Land Trust, a Minnesota land trust, whichholds a 20% interest as fee owner in the Amended Assignment of PetersLease.  Mesabi Trust holds the entirebeneficial interest in the Mesabi Land Trust for which U.S. Bank N.A. acts asthe corporate trustee.  Mesabi Trustreceives the net income of the Mesabi Land Trust, which is generated fromroyalties on the amount of crude ore mined after the payment of expenses toU.S. Bank N.A. for its services as corporate trustee.  Crude ore is the source of iron oxides usedto make iron ore pellets and other products. The fee royalty on crude ore is based on an agreed price per ton,subject to certain indexing.

 

7

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·                                          Minimum advance royalties. Generally, Northshore’s obligation to pay base overriding royalties androyalty bonuses with respect to the sale of iron ore products accrues upon theshipment of those products from Silver Bay. However, regardless of whether any shipment has occurred, Northshore isobligated to pay to Mesabi Trust a minimum advance royalty.  Each year, the amount of the minimum advanceroyalty is adjusted (but not below $500,000 per annum) for inflation anddeflation.  The minimum advance royaltywas $766,510 for calendar year 2007 and is $790,721 for calendar year2008.  Until overriding royalties (androyalty bonuses, if any) for a particular year equal or exceed the minimumadvance royalty for the year, Northshore must make quarterly payments of up to25% of the minimum advance royalty for the year.  Because minimum advance royalties areessentially prepayments of base overriding royalties and royalty bonuses earnedeach year, any minimum advance royalties paid in a fiscal quarter are recoupedby credits against base overriding royalties and royalty bonuses earned inlater fiscal quarters during the year.

 

Northshore is obligated tomake quarterly royalty payments in January, April, July and October ofeach year based on shipments of iron ore products from Silver Bay, Minnesotaduring each calendar quarter.  In thecase of base overriding royalties and royalty bonuses, these quarterly royaltypayments are to be made whether or not the related proceeds of sale have beenreceived by Northshore by the time such payments become due.

 

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

 

Deutsche Bank Trust CompanyAmericas, the Corporate Trustee, performs certain administrative functions forMesabi Trust.  The Trust maintains awebsite at www.mesabi-trust.com. The Trust makes available (free of charge) itsannual, quarterly and current reports (and any amendments thereto) filed withthe Securities and Exchange Commission (the “SEC”) through its website as soonas reasonably practicable after electronically filing or furnishing suchmaterial with or to the SEC.

 

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**Results of Operations**

 

**Comparison of Iron Ore Pellet Production andShipments for the Three Months Ended April 30, 2008 and April 30,2007**

 

As shown in the table below, production of iron orepellets at Northshore from Mesabi Trust lands during the fiscal quarter ended April 30,2008 totaled 1,216,101 tons, and actual shipments over the same period totaled1,040,114 tons.  By comparison, actualpellet production and actual shipments for the comparable prior period were953,557 tons and 469,470 tons, respectively.

 
| **Fiscal Quarter Ended** | ** ** | **Pellets Produced from  Trust Lands (tons)** | ** ** | **Pellets Shipped from   Trust Lands (tons)** | ** ** |
|------------------------------------|------------|-------------------------------------------------------------------|------------|------------------------------------------------------------------------|------------|
| April 30, 2008                |       | 1,216,101                                                         |       | 1,040,114                                                              |       |
| April 30, 2007                |       | 953,557                                                           |       | 469,470                                                                |       |

 

**Comparison of Royalty Income for the Three MonthsEnded April 30, 2008 and April 30, 2007**

 

Total royalty income for thequarter increased approximately 116% over the comparable prior period.  The increase in total royalty income is dueto higher sales prices per ton of iron ore pellets sold and an increase in thetotal volume of iron ore pellets shipped during the three months ended April 30,2008, each as compared to the three months ended April 30, 2007.  The higher sales prices per ton and theincrease in the volume of iron ore pellets shipped both contributed to anincrease in the base overriding royalty and the bonus royalty payments.

 

The table below shows thatthe base overriding royalties and the bonus royalties increased by 235% and103%, respectively, for the three months ended April 30, 2008.  The increases in the base overridingroyalties and the bonus royalties are both attributable to the higher salesprices per ton of iron ore pellets and the increase in the volume of tonsshipped during the three months ended April 30, 2008, each as compared tothe three months ended April 30, 2007.

 

The table below summarizesthe components of Mesabi Trust’s royalty income for the three months ended April 30,2008 and April 30, 2007, respectively:

 
| ** **                              | ** ** | **Three Months Ended April 30,** | ** ** |
|-----------------------------------------|------------|------------------------------------------------------|------------|
| ** **                              | ** ** | **2008**                                             | ** ** | **2007** | ** ** |
| Base overriding royalties               |       | $                                                    | 1,756,171  |   | $ | 524,776 |   |
| Bonus royalties                         |       | 1,958,725                                            |       | 967,057 |   |
| Minimum advance royalty paid (recouped) |       | —                                               |       | 191,628 |   |
| Fee royalties                           |       | 132,814                                              |       | 95,680 |   |
| Total royalty income                    |       | $                                                    | 3,847,710  |   | $ | 1,779,141 |   |

 

**Comparison of Income, Expenses and Distributionsfor the Three Months Ended April 30, 2008 and April 30, 2007**

 

Net income for the threemonths ended April 30, 2008 was $3,639,653, an increase of approximately114% compared to the three months ended April 30, 2007.  As with the increase in total royalty income,the increase in net income for the quarter ended April 30, 2008 is theresult of higher sales prices per ton of iron ore pellets shipped and anincrease in the volume of tons shipped. Net income was partially offset by an increase in the Trust’s expensesof $136,715 which is attributable to an increase the Trust’s professionalservice fees that were accrued for during the three months ended April 30,2008.  The table below summarizes theTrust’s income and expense items for the three months ended April 30, 2008and April 30, 2007, respectively.

 

9

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| ** **           | ** ** | **Three Months Ended April 30,** | ** ** |
|----------------------|------------|------------------------------------------------------|------------|
| ** **           | ** ** | **2008**                                             | ** ** | **2007** | ** ** |
| Total royalty income |       | $                                                    | 3,847,710  |   | $ | 1,779,141 |   |
| Interest income      |       | 14,097                                               |       | 5,915 |   |
| Gross income         |       | 3,861,807                                            |       | 1,785,056 |   |
| Expenses             |       | 222,154                                              |       | 85,439 |   |
| Net income           |       | $                                                    | 3,639,653  |   | $ | 1,699,617 |   |

 

As presented on the Trust’s CondensedStatements of Income on page 2 of this quarterly report, the Trust’s netincome per unit increased $0.1479 to $0.2774 for the three months ended April 30,2008, as compared to the three months ended April 30, 2007.  At the same time, distributions declared perunit increased $0.0750 to $0.1200 for the three months ended April 30,2008, as compared to the three months ended April 30, 2007.

 

**Comparison of Unallocated Reserve as of April 30,2008, April 30, 2007 and January 31, 2008**

 

The Unallocated Reserve,which is comprised of accrued income receivable and cash reserve for potentialfixed or contingent future liabilities increased 66% from $2,248,891 as ofApril 30, 2007 to $3,725,099 as of April 30, 2008.  The accrued income receivable portion of theUnallocated Reserve increased 104% from $1,539,883 as of April 30, 2007 to$3,140,603 as of April 30, 2008.  At the same time, the Trust’s cashreserve for potential fixed or contingent future liabilities, whichis represented by unallocated cash and U.S. Government securities,decreased 18% from $709,008 as of April 30, 2007 to $584,496 as of April 30,2008.

 

The Trust’s UnallocatedReserve as of April 30, 2008 increased 124% or $2,065,078 as compared tothe fiscal year ended January 31, 2008. The increase in the Unallocated Reserve is primarily due to the accrualof royalty income for shipments from Northshore during the month of April 2008.  At January 31, 2008, approximately 58% ofthe Unallocated Reserve or $959,925 was represented by accrued incomereceivable while 42% or $700,096 was represented by unallocated cash andU.S. Government securities.  Comparatively, as of April 30, 2008,approximately 84% of the Unallocated Reserve or $3,140,603 was represented byaccrued income receivable while 16% or $584,496 was represented byunallocated cash and U.S. Government securities.  The significant increase in the accruedincome receivable portion of the Unallocated Reserve is the result of anincrease in the volume of shipments from Northshore during the three monthsended April 30, 2008, as compared to the three months ended January 31,2008.

 

The Trustees have determinedthat a portion of the Unallocated Reserve, usually within the range of $500,000to $1,000,000 or such other amount as the Trustees may deem prudent, should bemaintained as a reserve for potential fixed or contingent futureliabilities.  Although the actual amountof the Unallocated Reserve will fluctuate from time to time and may increase ordecrease from its current level, it is currently intended that futuredistributions will be highly dependent upon royalty income as it is receivedand the level of Trust expenses.  Theamount of future royalty income available for distribution will be subject tothe volume of iron ore product shipments and the dollar level of sales byNorthshore.  Shipping activity is greatlyreduced during the winter months and economic conditions, particularly thoseaffecting the steel industry, may adversely affect the amount and timing ofsuch future shipments and sales.  Seediscussion under the heading “Risk Factors” beginning on page 3 of theTrust’s Annual Report on Form 10-K for the fiscal year ended January 31,2008.

 

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

 

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**RecentDevelopments**

 

***Production and Shipments***.  During calendar years 2007, 2006, 2005 and2004, the percentage of shipments of iron ore products from Mesabi Trust landswas approximately 88.2%, 90.9%, 90.1%, 92.0% and 95.5%, respectively, of totalshipments.  In its Form 10-Q filed May 6,2008, CCI reported that it is estimating total production of 5.7 million tonsof iron ore pellets at Northshore during calendar year 2008.   Northshore has not advised the Trustees asto the percentage of iron ore products from Mesabi Trust lands it anticipatesshipping in calendar year 2008.  See thedescription of the uncertainty of market conditions in the iron ore and steelindustry under “Important Factors Affecting Mesabi Trust” below and theinformation under the heading “Risk Factors” in Part I – Item 1A of theTrust’s Annual Report on Form 10-K for the year-ended January 31,2008.

 

***Restart of Idle Furnace atNorthshore***.  In its Form 10-Q filed May 6,2008, CCI reported that it restarted an idle furnace at Northshore to increasethe production of iron ore pellets at Northshore.  CCI also reported that it expects productionat Northshore to benefit from an incremental increase of 600,000 tons in 2008and up to 800,000 tons annually thereafter.  CCI has not informed the Trustees regardingthe extent to which the increase in production at Northshore will result in anincrease in shipments of iron ore products from Mesabi Trust lands. Therefore,the Trustees are unable to predict the extent to which the restart of thefurnace at Northshore may impact future royalties payable to Mesabi Trust.

 

***NorthshoreAdministrative Permit Amendment***.   As reported inthe Trust’s Form 10-K filed April 11, 2008, according to CCI’s Form 10-Kfiled February 29, 2008, on December 16, 2006, CCI submitted anadministrative permit amendment application to the MPCA with respect toNorthshore’s Title V operating permit. CCI reported that Northshore requested an amendment to its permit todelete a 30 year old “control city” monitoring requirement but the MPCA deniedNorthshore’s application on February 23, 2007.   In its Form 10-K, CCI further reportedthat it had appealed the denial of its application to the Minnesota Court ofAppeals and that subsequent to the filing of the appeal, the MPCA advisedNorthshore that the MPCA considered Northshore to be in violation of thecontrol city standard. CCI also reported that it was in discussions with theMPCA with respect to the terms of a compliance schedule in which it would agreeto take certain actions in settlement of the alleged violation.  According to CCI’s Form 10-K, theMinnesota Center for Environmental Advocacy had since filed a motion with theCourt of Appeals to intervene in Northshore’s appeal of the denial of anadministrative amendment to Northshore’s Title V operating permit.

 

On May 20, 2008, theMinnesota Court of Appeals issued a ruling on Northshore’s appeal and held thatthe MPCA did not err in concluding that Northshore proceeded under the wrongpermit modification procedures when it applied to amend its permit to eliminatethe “control city” standard from its Title V operating permit.  The Court ruled that Northshore’sadministrative amendment application should have been dealt with through themajor permit amendment process rather than through the administrative permitamendment process, which is used to address insignificant amendments.  Northshore has 30 days to appeal this rulingto the Minnesota Supreme Court.  TheTrustees are unable to predict what impact the decision of the Court of Appealsor an adverse decision by the Minnesota Supreme Court will have on Northshore’scompliance with its Title V operating permit or future royalties payable to theTrust.

 

**Important Factors Affecting Mesabi Trust**

 

The Agreement of Trustspecifically prohibits the Trustees from entering into or engaging in anybusiness.  This prohibition seeminglyapplies even to business activities the Trustees deem necessary or 

 

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proper for the preservationand protection of the Trust Estate (as such term is defined below).  Accordingly, the Trustees’ activities inconnection with the administration of Trust assets are limited to collectingincome, paying expenses and liabilities, distributing net income to MesabiTrust’s Unitholders after the payment of, or provision for, such expenses andliabilities, and protecting and conserving the assets held.  Consequently, the income of Mesabi Trust ishighly dependent upon the activities and operations of Northshore, and theterms and conditions of the leases and assignments of leases between MesabiTrust and Northshore.

 

Neither Mesabi Trust nor theTrustees have any control over the operations and activities of Northshore,except within the framework of the Amended Assignment Agreements.  CCI alone controls (i) historicaloperating data, including iron ore production volumes, marketing of iron oreproducts, operating and capital expenditures as they relate to Northshore,environmental and other liabilities and the effects of regulatory changes; (ii) plansfor Northshore’s future operating and capital expenditures; (iii) geologicaldata relating to reserves (iv) projected production of iron ore products;and (v) the decision to mine off Mesabi Trust and/or state lands (which isbased on its current mining and engineering plan).  The Trustees do not exert any influence overmining operational decisions, nor do the Trustees provide any input regardingthe ore reserve estimate reported by CCI. While the Trustees request material information for use in periodicreports as part of their evaluation of Mesabi Trust’s disclosure controls andprocedures, the Trustees do not control this information and they rely on theinformation in CCI’s periodic and current filings with the SEC to provideaccurate and timely information in Mesabi Trust’s reports filed with the SEC.

 

In accordance with theAgreement of Trust and the Amendment, the Trustees are entitled to, and in factdo, rely upon certain experts in good faith, including (i) the independentconsultants with respect to monthly production and shipment reports, which includefigures on crude ore production and iron ore pellet shipments, and discussionsconcerning the condition and accuracy of the scales and plans regarding thedevelopment of Mesabi Trust’s mining property; and (ii) the accountingfirm they have contracted with for non-audit services, including reviews offinancial data related to shipping and sales reports provided by Northshore anda review of the schedule of leasehold royalties payable to Mesabi Trust.  For a discussion of additional factors,including but not limited to those that could adversely affect Mesabi Trust’sactual results and performance, see “Risk Factors” in Part I – Item 1A ofMesabi Trust’s Annual Report on Form 10-K for the year-ended January 31,2008.

 

**Iron Ore Pricing and Contract Adjustments**

 

During the course of its fiscal year some portion ofthe royalties paid to Mesabi Trust are based on estimated prices for iron oreproducts sold under term contracts between CCI and its subsidiaries and certainof their customers (the “CCI Pellet Agreements”). Mesabi Trust is not a partyto any of the CCI Pellet Agreements. These prices are subject to interim andfinal pricing adjustments, which can be positive or negative, and whichadjustments are dependent in part on a variety of price and inflation indexfactors, including but not limited to the international benchmark pellet price,hot band steel prices and various Producer Price Indexes. Although Northshoremakes interim adjustments to the royalty payments on a quarterly basis, theseprice adjustments cannot be finalized until after the end of a contract year.This may result in significant and frequent variations in royalties received byMesabi Trust (and in turn the resulting amount of funds available fordistribution to Unitholders by the Trust) from quarter to quarter and on acomparative historical basis, and these variations, which can be positive ornegative, cannot be predicted by Mesabi Trust.

 

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**Effectsof Securities Regulation**

 

The Trust is apublicly-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, the Sarbanes-Oxley Act of2002 (“Sarbanes-Oxley”) and the rules and regulations of the NYSE.  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 addresstheir applicability to publicly-traded trusts such as Mesabi Trust.  In particular, Sarbanes-Oxley mandated theadoption by the Securities and Exchange Commission (the “SEC”) and NYSE ofcertain rules and regulations that are impossible for the Trust toliterally satisfy because of its nature as a pass-through trust.  Pursuant to NYSE rules the Trust isexempt from many of the corporate governance requirements that apply topublicly traded corporations.  The Trustdoes not have, nor does the Agreement of Trust provide for, a board ofdirectors, an audit committee, a corporate governance committee or acompensation committee.  The Trusteesintend to closely monitor the SEC’s and NYSE’s rulemaking activity and willattempt to comply with such rules and regulations where applicable.

 

InMay 2008, the Trust established a website in response to the NYSE’sinterpretation of Rule 203.01 of the NYSE Listed Company Manual.  The Trust’s website islocated at www.mesabi-trust.com.

 

**Critical Accounting Policies**

 

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

 

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

 

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| **Item 3.** | **Quantitative and Qualitative  Disclosures About Market Risk.** |
|-------------|------------------------------------------------------------------|
|        |                                                             |
|        | Not  applicable.                                                 |
|        |                                                             |
| **Item 4.** | **Controls and Procedures.**                                     |

 

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

 

As part of their evaluationof the Trust’s disclosure controls and procedures, the Trustees rely onquarterly shipment and royalty calculations provided by Northshore.  Because Northshore has declined to supportthis information with a written certification attesting to whether Northshorehas established disclosure controls and procedures and internal controlssufficient to enable it to verify that the information furnished to theTrustees is accurate and complete, the Trustees also rely on (a) an annualcertification from Northshore and Northshore’s parent, CCI, certifying as tothe accuracy of the royalty calculations, and (b) the related duediligence review performed by the Trust’s external accountants.** **In addition, theTrust’s consultants review the schedule of leasehold royalties payable andshipping and sales reports provided by Northshore against production andshipment reports prepared by the Eveleth Fee Office, Inc., an independentconsultant to the Trust (“Eveleth Fee Office”). The Eveleth Fee Office gathersproduction and shipping information from Northshore and prepares monthlyproduction and shipment reports for the Trustees. Furthermore, as part of itsengagement by the Trust, the Eveleth Fee Office also attends Northshore’scalibration and testing of its crude ore scales and boat loader scales whichare conducted on a periodic basis.

 

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

 

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

 

**PART II - OTHER INFORMATION**

 

**Item 1A.****                                                 ****Risk Factors**

 

There have beenno material changes in the Trust’s risk factors as described in Part IItem 1A, “Risk Factors” in the Trust’s Annual Report on Form 10-K for theyear ended January 31, 2008.

 

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| **Item 6.** | **Exhibits.** |
|-------------|---------------|
|        |          |
|        | 31            | Certification of Corporate Trustee of Mesabi Trust  pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934,  as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|        |          |   |
|        | 32            | Certification of Corporate Trustee of Mesabi Trust  pursuant to 18 U.S.C. Section 1350, as adopted pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002. |
|        |          |   |
|        | 99.1          | Report of Gordon, Hughes & Banks, LLP,  dated June 4, 2008 regarding its review of the un-audited interim  financial statements of Mesabi Trust as of and for the quarter ended  April 30, 2008. |

 

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**SIGNATURES**

 

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

 
|                    | MESABI TRUST                                                        |
|-------------------------|---------------------------------------------------------------------|
|                    | (Registrant)                                                        |
|                    |                                                                |
|                    | By:                                                                 | DEUTSCHE BANK TRUST COMPANY |
|                    |                                                                | AMERICAS |
|                    |                                                                | Corporate Trustee |
|                    | Principal Administrative Officer and duly  authorized   signatory:* |
|                    |
|                    | By:                                                                 | Deutsche Bank National Trust Company |
|                    |                                                                |   |
| Date: June 6, 2008 |                                                                | By: |  /s/ Rodney Gaughan |
|                    |                                                                | Name: Rodney Gaughan |
|                    |                                                                | Title: Vice President |
|                         |                                                                     |  |  |  |  |

 

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

 

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