**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C. 20549**

 

**FORM 10-Q**

 

**(Mark One)**

 

**x****      QUARTERLY REPORT PURSUANT TOSECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**For the quarterly period ended July 31, 2010**

 

**or**

 

**o****         TRANSITION REPORTPURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934**

 

**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**

**Trust & Securities Services — GDS**

**60 Wall Street**

**27th Floor**

**New York, New York** | ** ** | **10005**  |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------|
| (Address of principal executive offices)                                                                                                                      | ** ** | (Zip code) |

 

**(615) 835-2749**

(Registrant’s telephonenumber, including area code)

 

Indicateby check mark whether the registrant (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days. Yes  x  No  o

 

Indicateby check mark whether the Registrant has submitted electronically and posted onits corporate Web site, if any, every Interactive Data File required to besubmitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 ofthis chapter) during the preceding 12 months (or for such shorter period thatthe Registrant was required to submit and post such files).  Yes  o  No  o*

 

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

 

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, a non-accelerated filer, or a smaller reporting company. Seedefinitions of “large accelerated filer,” “accelerated filer” and “smallerreporting company” in Rule 12b-2 of the Exchange Act:

 

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

 

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

 

Asof September 1, 2010, there were 13,120,010 Units of Beneficial Interestin Mesabi Trust outstanding.

 

 

 

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**PART I - FINANCIAL INFORMATION**

 

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

 

**Mesabi Trust**

**Condensed Statements of Income**

**Three and Six Months Ended July 31, 2010 and 2009**

 
| ** **                                               | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|----------------------------------------------------------|------------|------------------------|------------|----------------------|------------|
| ** **                                               | ** ** | **July 31,**      | ** ** | **July 31,**    | ** ** |
| ** **                                               | ** ** | **2010**               | ** ** | **2009**             | ** ** | **2010** | ** ** | **2009** | ** ** |
| ** **                                               | ** ** | **(unaudited)**        | ** ** | **(unaudited)**      | ** ** | **(unaudited)** | ** ** | **(unaudited)** | ** ** |
| **A.    Condensed  Statements of Income** | ** ** | ** **             | ** ** | ** **           | ** ** | ** ** | ** ** | ** ** | ** ** |
|                                                     |       |                   |       |                 |       |   |   |   |   |
| Revenues                                                 |       |                   |       |                 |       |   |   |   |   |
| Royalty income                                           |       | $                      | 11,228,415 |                 | $          | 419,135 |   | $ | 16,216,146 |   | $ | 1,440,847 |   |
| Interest income                                          |       | 5,565                  |       | 3,802                |       | 10,661 |   | 6,971 |   |
|                                                     |       | 11,233,980             |       | 422,937              |       | 16,226,807 |   | 1,447,818 |   |
|                                                     |       |                   |       |                 |       |   |   |   |   |
| Expenses                                                 |       | 224,686                |       | 201,925              |       | 432,548 |   | 425,760 |   |
|                                                     |       |                   |       |                 |       |   |   |   |   |
| Net income                                               |       | $                      | 11,009,294 |                 | $          | 221,012 |   | $ | 15,794,259 |   | $ | 1,022,058 |   |
|                                                     |       |                   |       |                 |       |   |   |   |   |
| Number of units outstanding                              |       | 13,120,010             |       | 13,120,010           |       | 13,120,010 |   | 13,120,010 |   |
|                                                     |       |                   |       |                 |       |   |   |   |   |
| Net income per unit (Note 2)                             |       | $                      | 0.8391     |                 | $          | 0.0168 |   | $ | 1.2038 |   | $ | 0.0779 |   |
|                                                     |       |                   |       |                 |       |   |   |   |   |
| Distributions declared per unit (Note 3)                 |       | $                      | 0.8000     |                 | $          | — |   | $ | 0.9250 |   | $ | 0.3800 |   |

 

See Notes to Condensed Financial Statements.

 

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**Mesabi Trust**

**Condensed Balance Sheets**

**July 31, 2010 and January 31, 2010**

 
| ** **                                                                 | ** ** | **July 31, 2010** | ** ** | **January 31, 2010** | ** ** |
|----------------------------------------------------------------------------|------------|------------------------|------------|---------------------------|------------|
| ** **                                                                 | ** ** | **(unaudited)**        | ** ** | ** **                | ** ** |
| **B.    Condensed  Balance Sheets**                         | ** ** | ** **             | ** ** | ** **                | ** ** |
|                                                                       |       |                   |       |                      |       |
| **Assets**                                                                 | ** ** | ** **             | ** ** | ** **                | ** ** |
|                                                                       |       |                   |       |                      |       |
| Cash and cash equivalents                                                  |       | $                      | 10,074,143 |                      | $          | 8,444,697 |   |
|                                                                       |       |                   |       |                      |       |
| U.S. Government securities, at amortized cost  (which approximates market) |       | 1,309,376              |       | 1,850,515                 |       |
|                                                                       |       |                   |       |                      |       |
| Accrued income receivable                                                  |       | 3,958,383              |       | 873,938                   |       |
| Prepaid expenses                                                           |       | 16,033                 |       | 30,422                    |       |
|                                                                       |       | 15,357,935             |       | 11,199,572                |       |
|                                                                       |       |                   |       |                      |       |
| 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                         |       |
|                                                                       |       |                   |       |                      |       |
|                                                                       |       | $                      | 15,357,938 |                      | $          | 11,199,575 |   |
|                                                                       |       |                   |       |                      |       |
| **Liabilities, Unallocated Reserve  and Trust Corpus**                     | ** ** | ** **             | ** ** | ** **                | ** ** |
|                                                                       |       |                   |       |                      |       |
| Liabilities                                                                |       |                   |       |                      |       |
| Distribution payable                                                       |       | $                      | 10,496,008 |                      | $          | 7,216,005 |   |
| Accrued expenses                                                           |       | 75,846                 |       | 85,735                    |       |
| Deferred royalty revenue (Note 4)                                          |       | —                 |       | 2,770,000                 |       |
|                                                                       |       | 10,571,854             |       | 10,071,740                |       |
|                                                                       |       |                   |       |                      |       |
| Unallocated Reserve (Note 5)                                               |       | 4,786,081              |       | 1,127,832                 |       |
| Trust Corpus                                                               |       | 3                      |       | 3                         |       |
|                                                                       |       |                   |       |                      |       |
|                                                                       |       | $                      | 15,357,938 |                      | $          | 11,199,575 |   |

 

See Notes to Condensed Financial Statements.

 

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**Mesabi Trust**

**Condensed Statements of Cash Flows**

**Six Months Ended July 31, 2010 and 2009**

 
| ** **                                                                     | ** ** | **Six Months Ended** | ** ** |
|--------------------------------------------------------------------------------|------------|----------------------|------------|
| ** **                                                                     | ** ** | **July 31,**    | ** ** |
| ** **                                                                     | ** ** | **2010**             | ** ** | **2009** | ** ** |
| ** **                                                                     | ** ** | **(unaudited)**      | ** ** | **(unaudited)** | ** ** |
| **C.    Condensed  Statements of Cash Flows**                   | ** ** | ** **           | ** ** | ** ** | ** ** |
|                                                                           |       |                 |       |   |   |
| Cash flows from operating activities                                           | ** ** | ** **           | ** ** | ** ** | ** ** |
| Royalties received                                                             |       | $                    | 10,361,187 |   | $ | 6,173,965 |   |
| Interest received                                                              |       | 11,175               |       | 8,205 |   |
| Expenses paid                                                                  |       | (428,048             | )          | (432,334 | ) |
|                                                                           |       |                 |       |   |   |
| Net cash provided by operating activities                                      |       | 9,944,314            |       | 5,749,836 |   |
|                                                                           |       |                 |       |   |   |
| Cash flows from investing activities                                           |       |                 |       |   |   |
| Maturities of U.S. Government Securities                                       |       | 1,540,000            |       | 53,000 |   |
| Purchases of U.S. Government Securities                                        |       | (998,861             | )          | (769,920 | ) |
|                                                                           |       |                 |       |   |   |
| Net cash provided by (used for) investing  activities                          |       | 541,139              |       | (716,920 | ) |
|                                                                           |       |                 |       |   |   |
| Cash flows from financing activities                                           |       |                 |       |   |   |
| Distributions to Unitholders                                                   |       | (8,856,007           | )          | (6,428,805 | ) |
|                                                                           |       |                 |       |   |   |
| Net change in cash and cash equivalents                                        |       | 1,629,446            |       | (1,395,889 | ) |
|                                                                           |       |                 |       |   |   |
| Cash and cash equivalents, beginning of year                                   |       | 8,444,697            |       | 2,254,107 |   |
|                                                                           |       |                 |       |   |   |
| Cash and cash equivalents, end of period                                       |       | $                    | 10,074,143 |   | $ | 858,218 |   |
|                                                                           |       |                 |       |   |   |
| **Reconciliation of net income to  net cash provided by operating activities** |       |                 |       |   |   |
|                                                                           |       |                 |       |   |   |
| Net income                                                                     |       | $                    | 15,794,259 |   | $ | 1,022,058 |   |
| Decrease (increase) in accrued income receivable                               |       | (3,084,445           | )          | 2,167,877 |   |
| Decrease in prepaid expenses                                                   |       | 14,389               |       | 14,390 |   |
| Decrease in accrued expenses                                                   |       | (9,889               | )          | (24,489 | ) |
| (Decrease) Increase in deferred royalty revenue                                |       | (2,770,000           | )          | 2,570,000 |   |
|                                                                           |       |                 |       |   |   |
| Net cash provided by operating activities                                      |       | $                    | 9,944,314  |   | $ | 5,749,836 |   |

 

See Notes to Condensed Financial Statements.

 

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**Mesabi Trust**

 

**Notes to Condensed Financial Statements**

**July 31, 2010 (unaudited)**

 

Note 1.                            The financial statementsincluded herein have been prepared without audit (except for the balance sheetat January 31, 2010) in accordance with the instructions to Form 10-Qpursuant to the rules and regulations of the Securities and ExchangeCommission.  Certain information andfootnote disclosures normally included in financial statements prepared inaccordance with accounting principles generally accepted in the United Stateshave 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 and six months ended July 31, 2010 and 2009, (b) thefinancial position at July 31, 2010 and (c) the cash flows for thesix months ended July 31, 2010 and 2009, have been made.  For further information, refer to thefinancial statements and footnotes included in Mesabi Trust’s Annual Report on Form 10-Kfor the year ended January 31, 2010.

 

Note 2.                            Net income per unit includesaccrued income receivable.  For the threemonths ended July 31, 2010 the Trust recorded $3,958,383  of accrued income receivable as reflected onthe Condensed Balance Sheet as of July 31, 2010 (unaudited).  Accrued income receivable includes accrualsfor anticipated positive pricing adjustments and shipments during the month ofJuly.   Accrued income receivable isaccounted for and reported for the Trust’s second fiscal quarter even thoughsuch accrued income receivable is not available for distribution to Unitholdersuntil it is actually received by the Trust. Net income per unit is based on 13,120,010 units outstanding during theperiod.

 

Note 3.                            The Trust declaresdistributions each year in April, July, October and January.  Distributions are declared after receivingnotification from Northshore Mining Company (“Northshore”) as to the amount ofroyalty that is expected to be paid to the Trust based on shipments through theend of each calendar quarter.  The Trust’sfinancial statements are prepared on an accrual basis and present the Trust’sresults of operations based on each fiscal quarter which ends one month afterthe close of each calendar quarter. Because distributions are declared based on the royalty payment that ispayable as of the end of each calendar quarter and the Trust’s Net Income iscalculated as of the end of each fiscal quarter, the distributions declared bythe Trust are not equivalent to the Trust’s Net Income during the periodsreported in this quarterly report on Form 10-Q.

 

Note 4.                            As previously reported, in April 2009,the Trust received its quarterly distribution payment from Northshore ofapproximately $5,200,000. In accordance with the Trust’s revenue recognitionpolicy, the Trust recognized revenue related to tons of iron ore that wereshipped by Northshore, but for which Northshore had indicated that finalpricing was not yet known.  As a result ofdecreases in estimated pellet pricing subsequent to January 31, 2009, thecash proceeds received by the Trust in April 2009 exceeded the royaltyrevenue recognized by the Trust in fiscal 2010. Accordingly, the Trust had estimated a $2,770,000 liability in the formof deferred royalty revenue based on pricing estimates provided by Northshoreas of January 31, 2010.

 

InApril 2010, the Trust received customary quarterly payment notificationfrom Northshore, which indicated that the Trust was credited a royalty paymentof approximately $1.9 million.  However,because of declines in the price adjustment mechanisms under the Cliffs PelletAgreements, Northshore applied a $2.8 million negative price adjustment withrespect to shipments and sales by Northshore based on estimated pelletpricing.  These negative pricingadjustments, the corresponding offset against the quarterly royalty payment andan increase in

 

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estimatedpellet pricing subsequent to January 31, 2010, reduced the Trust’sdeferred royalty revenue liability from $2,770,000 as of January 31, 2010to $972,000 as of April 30, 2010.

 

InJuly 2010, the Trust received a quarterly royalty payment notificationfrom Northshore, which indicated that the Trust was credited a royalty paymentof approximately $10.024 million.  Theamount of the royalty payment was reduced by the application of $1.068 millionof negative price adjustments with respect to shipments and sales by Northshorebased on estimated pellet pricing.  Thesenegative pricing adjustments, the corresponding offset against the most recentquarterly royalty payment and an increase in estimated pellet pricingsubsequent to January 31, 2010, together reduced the Trust’s deferredroyalty revenue liability from $2,770,000 as of January 31, 2010 to $0 asof July 31, 2010.  Pricing estimatesare adjusted on a quarterly basis as updated pricing information is receivedfrom Northshore.  To the extent that theTrust has recorded a deferred royalty revenue liability, it is anticipated thatsuch amounts would be carried forward to subsequent quarters until there aresufficient positive royalty payments and/or future positive price adjustmentsto fully offset any negative price adjustments.

 

Note 5.                            The Trustees have determinedthat the unallocated cash and U.S. Government securities portion of theUnallocated Reserve should be maintained at a prudent level, usually within therange of $500,000 to $1,000,000, to meet present or future liabilities of theTrust.  Accordingly, although the actualamount of the Unallocated Reserve will fluctuate from time to time, and mayincrease or decrease from its current level, it is currently intended thatfuture distributions will be highly dependent upon royalty payments receivedquarterly and the level of Trust expenses that the Trustees anticipate theTrust will incur in subsequent quarters.

 

As of July 31, 2010, the Unallocated Reserveconsisted of $827,698 in unallocated cash and U.S. Government securities and$3,958,383 of accrued income receivable primarily representing royalties notyet received by the Trust but anticipated to be received in futureperiods.  Pursuant to the Agreement ofTrust, the Trust makes decisions on cash distributions to Unitholders primarilybased on the royalty payments it receives from Northshore when received, ratherthan as royalty income is recorded in accordance with the Trust’s revenuerecognition policy.  Refer to Note 4 forfurther information.

 

Asof July 31, 2010 and January 31, 2010, the Trust’s UnallocatedReserve was comprised of the following components:

 
| ** **                          | ** ** | **July 31, 2010** | ** ** | **January 31, 2010** | ** ** |
|-------------------------------------|------------|------------------------|------------|---------------------------|------------|
| ** **                          | ** ** | **(unaudited)**        | ** ** | **(audited)**             | ** ** |
| Cash and U.S. Government securities |       | $                      | 827,698    |                      | $          | 3,023,894 |   |
| Accrued income receivable           |       | 3,958,383              |       | 873,938                   |       |
| Deferred royalty revenue            |       | —                 |       | (2,770,000                | )          |
|                                |       |                   |       |                      |       |
| Unallocated Reserve                 |       | $                      | 4,786,081  |                      | $          | 1,127,832 |   |

 

A reconciliation of the Trust’s Unallocated Reservefrom January 31, 2010 to July 31, 2010 is as follows:

 
| Unallocated Reserve, January 31, 2010 |       | $           | 1,127,832  |   |
|--------------------------------------------|------------|-------------|------------|--------|
|                                       |       |        |       |
| Net income                                 |       | 15,794,259  |       |
| Distributions declared                     |       | (12,136,010 | )          |
| ** **                                 | ** ** | ** **  | ** ** |
| Unallocated Reserve, July 31, 2010    |       | $           | 4,786,081  |   |

 

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

 

**Forward-LookingStatements**

 

Certaininformation included in this Quarterly Report on Form 10-Q contains “forward-lookingstatements” within the meaning of Section 21E of the Securities ExchangeAct of 1934 and Section 27A of the Securities Act of 1933.  All such forward-looking statements,including those statements estimating iron ore pellet production, shipments orpricing, are based on information from the lessee/operator (and its parentcorporation) of the mine located on the lands owned and held in trust for thebenefit of the holders 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, environmental hazards, health andsafety conditions, regulation or government action, litigation anduncertainties about estimates of reserves. Further, substantial portions of royalties earned by Mesabi Trust arebased on estimated prices that are subject to interim and final adjustments,which can be positive or negative, and are dependent in part on multiple priceand inflation index factors under agreements to which Mesabi Trust is not aparty and that are not known until after the end of a contract year.  It is possible that future negative priceadjustments could partially or even completely offset royalties or royaltyincome that would otherwise be payable to the Trust in any particular quarter,or at year-end, thereby potentially reducing cash available for distribution tothe Trust’s Unitholders in future quarters. For a discussion of the factors, including without limitation, thosethat could materially and adversely affect Mesabi Trust’s actual results andperformance, see “Risk Factors” in Part I — Item 1A of Mesabi Trust’sAnnual Report on Form 10-K for the year ended January 31, 2010.  Mesabi Trust undertakes no obligation, otherthan that imposed by law, to make any revisions to the forward-lookingstatements contained in this filing or to update them to reflect circumstancesoccurring after the date of this filing.

 

Thisdiscussion should be read in conjunction with the condensed financialstatements and notes presented in this Form 10-Q and the financialstatements and notes in the last filed Annual Report on Form 10-K filedfor the period ending January 31, 2010 for a full understanding of MesabiTrust’s financial position and results of operations for the six month periodended July 31, 2010.

 

**Background**

 

MesabiTrust (“Mesabi Trust” or the “Trust”), formed pursuant to an Agreement of Trustdated July 18, 1961 (the “Agreement of Trust”), is a trust organized underthe laws of the State of New York. Mesabi Trust holds all of the interests formerly owned by Mesabi IronCompany (“MIC”), including all right, title and interest in the Amendment ofAssignment, Assumption and Further Assignment of Peters Lease (the “AmendedAssignment of Peters Lease”), the Amendment of Assignment, Assumption andFurther Assignment of Cloquet Lease (the “Amended Assignment of Cloquet Lease”and together with the Amended Assignment of Peters Lease, the “AmendedAssignment Agreements”), the beneficial interest in the Mesabi Land Trust (assuch term is defined below) and all other assets and property identified in theAgreement of Trust. The Amended Assignment of Peters Lease relates to anIndenture made as of April 30, 1915 among East Mesaba Iron Company (“EastMesaba”), Dunka River Iron Company (“Dunka River”) and Claude W. Peters (the “PetersLease”) and the Amended Assignment of Cloquet Lease relates to an Indenturemade May 1, 1916 between Cloquet Lumber Company and Claude W. Peters (the “CloquetLease”).

 

TheAgreement of Trust specifically prohibits the Trustees from entering into orengaging in any business.  Thisprohibition applies even to business activities the Trustees may deem necessaryor proper for the preservation and protection of the Trust Estate.  Accordingly, the Trustees’ activities inconnection

 

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withthe administration of Trust assets are limited to collecting income, payingexpenses and liabilities, distributing net income to the holders ofCertificates of Beneficial Interest in Mesabi Trust (“Unitholders”) after thepayment of, or provision for, such expenses and liabilities, and protecting andconserving the assets held.

 

TheTrustees do not intend to expand their responsibilities beyond those permittedor required by the Agreement of Trust, the Amendment to the Agreement of Trustdated October 25, 1982 (the “Amendment”), and those required underapplicable law.  Mesabi Trust has noemployees, but it engages independent consultants to assist the Trustees in,among other things, monitoring the volume and sales prices of iron ore productsshipped from Silver Bay, Minnesota, based on information supplied to theTrustees by Northshore Mining Company (“Northshore”), the lessee/operator ofthe Mesabi Trust lands, and its parent company Cliffs Natural Resources Inc. (“Cliffs”).  References to Northshore in this quarterlyreport, unless the context requires otherwise, are applicable to Cliffs aswell.

 

Leaseholdroyalty income constitutes the principal source of the Trust’s revenue.  The income of the Trust is highly dependentupon the activities and operations of Northshore.  Royalty rates and the resulting royaltypayments received by the Trust are determined in accordance with the terms ofthe Trust’s leases and assignments of leases.

 

Threetypes of royalties, as well as royalty bonuses, comprise the Trust’s leaseholdroyalty income:

 

·                  Base overriding royalties.  Base overriding royalties have historicallyconstituted the majority of the Trust’s royalty income.  Base overriding royalties are determined byboth the volume and selling price of iron ore products shipped.  Northshore is obligated to pay the Trust baseoverriding royalties in varying amounts, based on the volume of iron oreproducts shipped.  Base overridingroyalties are calculated as a percentage of the gross proceeds of iron ore productsproduced at the Trust lands (and to a limited extent other lands) and shippedfrom Silver Bay, Minnesota.  Thepercentage ranges from 2-1/2% of the gross proceeds for the first one milliontons of iron ore products so shipped annually to 6% of the gross proceeds forall iron ore products in excess of 4 million tons so shipped annually.  Base overriding royalties are subject toprice adjustments under the Cliffs Pellet Agreements and, as describedelsewhere in this report, such adjustments may be positive or negative.

 

·                  Royalty bonuses.  The Trust earns royalty bonuses when iron oreproducts shipped from Silver Bay are sold at prices above a threshold price perton.  The royalty bonus is based on apercentage of the gross proceeds of product shipped from Silver Bay and sold atprices above a threshold price.  Thethreshold price is adjusted (but not below $30.00 per ton) on an annual basisfor inflation and deflation (the “Adjusted Threshold Price”).  The Adjusted Threshold Price was $48.48 perton for calendar year 2009 and is $48.81 per ton for calendar year 2010.  The royalty bonus percentage ranges from 1/2of 1% of the gross proceeds (on all tonnage shipped for sale at prices betweenthe Adjusted Threshold Price and $2.00 above the Adjusted Threshold Price) to3% of the gross proceeds (on all tonnage shipped for sale at prices $10.00 ormore above the Adjusted Threshold Price). Royalty bonuses are subject to price adjustments under the Cliffs PelletAgreements and, as described elsewhere in this report, such adjustments may bepositive or negative.

 

·                  Fee royalties.  Fee royalties have historically constituted asmaller component of the Trust’s total royalty income.  Fee royalties are payable to the Mesabi LandTrust, a Minnesota land trust, which holds a 20% interest as fee owner in the AmendedAssignment of Peters Lease.  Mesabi Trustholds the entire beneficial interest in the Mesabi Land Trust for which U.S.Bank N.A. acts as the corporate trustee. Mesabi Trust receives the net income of the Mesabi Land Trust, which isgenerated from royalties on the amount of crude ore mined after the payment ofexpenses to U.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.

 

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·                  Minimum advance royalties.  Northshore’s obligation to pay baseoverriding royalties and royalty bonuses with respect to the sale of iron ore productsgenerally accrues upon the shipment of those products from Silver Bay.  However, regardless of whether any shipmenthas occurred, under the terms of the Amended Assignment Agreements, Northshoreis obligated to pay to Mesabi Trust a minimum advance royalty.  Each year, the amount of the minimum advanceroyalty is adjusted (but not below $500,000 per annum) for inflation anddeflation in accordance with the Amended Assignment Agreements.  The minimum advance royalty was $808,177 forcalendar year 2009 and is $813,729 for calendar year 2010.  Until overriding royalties (and royaltybonuses, if any) for a particular year equal or exceed the minimum advanceroyalty for the year, Northshore must make quarterly payments of up to 25% ofthe minimum advance royalty for the year. Because minimum advance royalties are essentially prepayments of baseoverriding royalties and royalty bonuses earned each year, any minimum advanceroyalties paid in a fiscal quarter are recouped by credits against baseoverriding royalties and royalty bonuses earned in later fiscal quarters duringthe year.

 

Underthe relevant documents, Northshore may mine and ship iron ore products fromlands other than Mesabi Trust lands. Northshore is obligated to make quarterly royalty payments in January,April, July and October of each year based on shipments of iron oreproducts from Silver Bay, Minnesota during each calendar quarter.  In the case of base overriding royalties androyalty bonuses, these quarterly royalty payments are to be made whether or notthe related proceeds of sale have been received by Northshore by the time suchpayments become due.  Northshore alonedetermines whether to mine off Trust and/or such other lands, based on itscurrent mining and engineering plan.  TheTrustees do not exert any influence over mining operational decisions.  To encourage the mining 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 thatare shipped are actually mined from Mesabi Trust lands.  Mesabi Trust receives royalties based on thegreater of following two methods of calculating royalty payments (i) theaggregate quantity of iron ore products shipped that were produced using ironore mined from Mesabi Trust lands, and (ii) a portion of the aggregatequantity of all iron ore products shipped from Silver Bay that were mined fromany lands, such portion being 90% of the first four million tons shipped fromSilver Bay during the calendar year, 85% of the next two million tons shippedduring the calendar year, and 25% of all tonnage shipped from Silver Bay duringsuch year in excess of six million tons.

 

DeutscheBank Trust Company Americas, the Corporate Trustee, performs certainadministrative functions for Mesabi Trust. The Trust maintains a website at www.mesabi-trust.com. The Trust makesavailable (free of charge) its annual, quarterly and current reports (and anyamendments thereto) filed with the Securities and Exchange Commission (the “SEC”)through its website as soon as reasonably practicable after electronicallyfiling or furnishing such material with or to the SEC.

 

**Resultsof Operations**

 

**Comparison of Iron Ore Pellet Production and Shipments forthe Three and Six Months Ended July 31, 2010 and July 31, 2009**

 

Asshown in the table below, production of iron ore pellets at Northshore fromMesabi Trust lands during the fiscal quarter ended July 31, 2010 totaledapproximately 930,000 tons, and actual shipments over the same period totaledapproximately 1,936,000 tons.  Bycomparison, actual pellet production and actual shipments for the comparableperiod in 2009 were approximately 279,000 tons and 278,000 tons, respectively.The increase in production and shipments at Northshore is the result of a significant increase in orders fromCliffs’ customers.

 

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| **Fiscal Quarter Ended** | ** ** | **Pellets Produced from  Trust Lands (tons)** | ** ** | **Pellets Shipped from  Trust Lands (tons)** | ** ** |
|------------------------------------|------------|-------------------------------------------------------------------|------------|------------------------------------------------------------------|------------|
| July 31, 2010                 |       | 929,634                                                           |       | 1,936,164                                                        |       |
| July 31, 2009                 |       | 278,887                                                           |       | 278,444                                                          |       |

 

Asshown in the table below, during the six months ended July 31, 2010,production of iron ore pellets at Northshore from Mesabi Trust lands totaledapproximately 2,251,000 tons, and actual shipments over the same period totaledapproximately 3,018,000 tons.  Bycomparison, actual pellet production and actual shipments for the comparableperiod in 2009 were approximately 960,000 tons and 516,000 tons, respectively.   The increase in production and shipments atNorthshore for the sixth months ended July 31, 2010 is the result of a significant increase in orders fromCliffs’ customers.

 
| **Six Months Ended** | ** ** | **Pellets Produced from  Trust Lands (tons)** | ** ** | **Pellets Shipped from  Trust Lands (tons)** | ** ** |
|--------------------------------|------------|-------------------------------------------------------------------|------------|------------------------------------------------------------------|------------|
| July 31, 2010             |       | 2,251,040                                                         |       | 3,018,094                                                        |       |
| July 31, 2009             |       | 960,065                                                           |       | 515,897                                                          |       |

 

**Comparisonof Royalty Income for the Three and Six Months Ended July 31, 2010 and July 31,2009**

 

Totalroyalty income for the quarter increased $10,809,280 over the comparable priorperiod.  The increase in total royaltyincome is due to higher sales prices per ton of iron ore pellets sold and anincrease in the total volume of iron ore pellets shipped during the threemonths ended July 31, 2010, each as compared to the three months ended July 31,2009.  The higher sales prices per tonand the increase in the volume of iron ore pellets shipped both contributed toan increase in the base overriding royalty and the bonus royalty payments.

 

Thetable below shows that the base overriding royalties, the bonus royalties, andthe fee royalties increased by $6,702,732, $4,022,906, and $83,642respectively, for the three months ended July 31, 2010.  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 July 31, 2010, each as compared tothe three months ended July 31, 2009.

 

Thetable below summarizes the components of Mesabi Trust’s royalty income for thethree months ended July 31, 2010 and July 31, 2009, respectively:

 
| ** **                              | ** ** | **Three Months Ended July 31,** | ** ** |
|-----------------------------------------|------------|--------------------------------------|------------|
| ** **                              | ** ** | **2010**                             | ** ** | **2009** | ** ** |
| Base overriding royalties               |       | $                                    | 6,761,523  |   | $ | 58,791 |   |
| Bonus royalties                         |       | 4,363,816                            |       | 340,910 |   |
| Minimum advance royalty paid (recouped) |       | —                               |       | — |   |
| Fee royalties                           |       | 103,076                              |       | 19,434 |   |
| Total royalty income                    |       | $                                    | 11,228,415 |   | $ | 419,135 |   |

 

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TheTrust’s total royalty income for the six months ended July 31, 2010 increased$14,775,299 as compared to the six months ended July 31, 2009.  The increase is the result of higher realizedsales prices per ton of iron ore pellets and a 485% increase****in the total volume of iron ore pellets shipped during the****six months ended July 31, 2010, each as compared to the sixmonths ended July 31, 2009.  The highersales prices per ton and the increase in the volume of iron ore pellets shippedboth contributed to an increase in the base overriding royalty and the bonusroyalty payments.

 

Thetable below shows that the base overriding royalties, the bonus royalties, andthe fee royalties increased $8,408,459, $6,210,598 and $156,242 respectively,for the six months ended July 31, 2010, from the comparable period in2009.  The increases in the baseoverriding royalties and the bonus royalties are both attributable to thehigher sales prices per ton of iron ore pellets and the increase in the volumeof tons shipped during the six months ended July 31, 2010, each as compared tothe six months ended July 31, 2009.

 

Thetable below summarizes the components of Mesabi Trust’s royalty income for thesix months ended July 31, 2010 and July 31, 2009:

 
| ** **                              | ** ** | **Six Months Ended July 31,** | ** ** |
|-----------------------------------------|------------|-------------------------------|------------|
| ** **                              | ** ** | **2010**                      | ** ** | **2009** | ** ** |
| Base overriding royalties               |       | $                             | 9,037,815  |   | $ | 629,356 |   |
| Bonus royalties                         |       | 6,935,269                     |       | 724,671 |   |
| Minimum advance royalty paid (recouped) |       | —                        |       | — |   |
| Fee royalties                           |       | 243,062                       |       | 86,820 |   |
| Total royalty income                    |       | $                             | 16,216,146 |   | $ | 1,440,847 |   |

 

**Comparisonof Net Income, Expenses and Distributions for the Three and Six Months EndedJuly 31, 2010 and July 31, 2009**

 

Netincome for the three months ended July 31, 2010 was $11,009,294, an increase of$10,788,282****compared to the three monthsended July 31, 2009.  As with theincrease in total royalty income, the increase in net income for the quarterended July 31, 2010 was the result of higher sales prices per ton of iron orepellets shipped and an increase in the volume of tons shipped.  The Trust’s expenses increased $22,761 forthe three months ended July 31, 2010, as compared to the three month periodended July 31, 2009, as a result of slightly higher expenses related to theadministration of the Trust.  The tablebelow summarizes the Trust’s income and expenses for the three months endedJuly 31, 2010 and July 31, 2009, respectively.

 
| ** **           | ** ** | **Three Months Ended July 31,** | ** ** |
|----------------------|------------|---------------------------------|------------|
| ** **           | ** ** | **2010**                        | ** ** | **2009** | ** ** |
| Total Royalty Income |       | $                               | 11,228,415 |   | $ | 419,135 |   |
| Interest Income      |       | 5,565                           |       | 3,802 |   |
| Gross Income         |       | 11,233,980                      |       | 422,937 |   |
| Expenses             |       | 224,686                         |       | 201,925 |   |
| Net income           |       | $                               | 11,009,294 |   | $ | 221,012 |   |

 

Netincome for the six months ended July 31, 2010 was $15,794,259, an increase of$14,772,201  as compared to the sixmonths ended July 31, 2009.  As with theincrease in total royalty income, the increase in net income for the six monthsended July 31, 2010 was the result of higher sales prices per ton of iron orepellets shipped and an increase in the volume of tons shipped. The Trust’sexpenses of

 

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$432,548for the six months ended July 31, 2010 were consistent with the Trust’sexpenses for the six month period ended July 31, 2009.  The table below summarizes the Trust’s incomeand expenses for the six months ended July 31, 2010 and July 31, 2009, respectively

 
| ** **           | ** ** | **Six Months Ended July 31,** | ** ** |
|----------------------|------------|-------------------------------|------------|
| ** **           | ** ** | **2010**                      | ** ** | **2009** | ** ** |
| Total royalty income |       | $                             | 16,216,146 |   | $ | 1,440,847 |   |
| Interest income      |       | 10,661                        |       | 6,971 |   |
| Gross income         |       | 16,226,807                    |       | 1,447,818 |   |
|                 |       |                          |       |   |   |
| Expenses             |       | 432,548                       |       | 425,760 |   |
| Net income           |       | $                             | 15,794,259 |   | $ | 1,022,058 |   |

 

As presented on the Trust’s Condensed Statements ofIncome on page 2 of this quarterly report, the Trust’s net income per unitincreased $0.8223 per unit to $0.8391 per unit for the three months ended July31, 2010.  For the six months ended July31, 2010, the Trust’s net income per unit increased $1.1259 per unit to $1.2038per unit, as compared to the prior year period. On July 15, 2010, the Trustdeclared a distribution of $0.80 per unit payable to Unitholders of record onJuly 30, 2010.  Comparatively, the Trustdid not declare any distributions to Unitholders in July 2009.  During the six months ended July 31, 2010 andJuly 31, 2009, the Trust had declared total distributions per unit of $0.925****and $0.38, respectively.

 

Distributions, if any, are declared after receivingnotification from Northshore Mining Company as to the amount of royalty incomethat is expected to be paid to the Trust based on shipments through the end ofeach calendar quarter and such royalty payments may include pricing adjustmentswith respect to shipments during prior periods. The Trust accounts for and reports accrued income receivable based onshipments during the last month of the Trust’s fiscal quarter (April, July,October and January) and price adjustments under the Cliffs Pellet Agreements(which can be positive or negative and can result in significant variations inroyalties received by Mesabi Trust and cash available for distribution toUnitholders).  The Trust accounts forthese amounts by using estimated prices and reports such amounts even thoughaccrued income receivable is not available for distribution to Unitholdersuntil it is received by the Trust. Accordingly, distributions declared by the Trust are not equivalent tothe Trust’s Net Income during the periods reported in this quarterly report onForm 10-Q.

 

**Comparison of Unallocated Reserve (Deficit) as of July 31,2010, July 31, 2009 and January 31, 2010**

 

Asset forth in the table below, Unallocated Reserve (Deficit), which is comprisedof accrued income receivable, cash reserve for potential fixed or contingentfuture liabilities and deferred royalty revenue, increased from ($171,365) asof July 31, 2009 to $4,786,081 as of July 31, 2010.  The increase in Unallocated Reserve as ofJuly 31, 2010, as compared to July 31, 2009, is the result of an increase ofapproximately $3,400,000 of accrued income receivable, which resulted from anincrease in shipments during July 2010. Additionally, the Trust’s deferred royalty revenue liability, which was($2,570,000) as of July 31, 2009, has been eliminated due to Northshore’soffsetting of negative pricing adjustments against the Trust’s quarterlyroyalty payments received during 2010. The Trust’s cash reserve for potential fixed or contingent futureliabilities decreased from $1,844,534 as of July 31, 2009 to $827,698 as ofJuly 31, 2010.  The decrease in the cashreserve for potential fixed or contingent future liabilities is due to theTrustee’s decision to use a portion of the cash reserve to pay distributions toUnitholders during the six months ended July 31, 2010, as the Trust’s deferredroyalty revenue liability was reduced and then eliminated.

 

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| ** **                    | ** ** | **Three Months Ended July 31,** | ** ** |
|-------------------------------|------------|---------------------------------|------------|
| ** **                    | ** ** | **2010**                        | ** ** | **2009** | ** ** |
| Accrued Income Receivable     |       | $                               | 3,958,383  |   | $ | 554,101 |   |
| Deferred Royalty Revenue      |       | —                          |       | (2,570,000 | ) |
| Cash Reserve                  |       | 827,698                         |       | 1,844,534 |   |
| Unallocated Reserve (Deficit) |       | $                               | 4,786,081  |   | $ | (171,365 | ) |

 

Asstated in the preceding paragraph, the remaining balance of the Trust’sdeferred royalty revenue was eliminated during the most recent fiscal quarter,as Northshore offset $1,068,000 of royalty payments.  Although the Trust does not currently haveany deferred revenue liability, it is possible that future negative priceadjustments could offset, or even eliminate, royalties or royalty income thatwould otherwise be payable to the Trust in any particular quarter, or at yearend, thereby potentially reducing cash available for distribution to the Trust’sUnitholders in future quarters.  See thediscussion under the heading “Risk Factors” beginning on page 3 of the Trust’sAnnual Report on Form 10-K for the fiscal year ended January 31, 2010.

 

TheTrust’s Unallocated Reserve as of July 31, 2010 increased $3,658,249 ascompared to the fiscal year ended January 31, 2010.  The increase in the Unallocated Reserve isdue to the decrease in deferred royalty revenue and an increase in accruedincome receivable due to the increased shipments from Northshore during themonth of July 2010, offset by a decrease in the cash reserve portion of theUnallocated Reserve.  At January 31,2010, the Unallocated Reserve consisted of $3,023,894 in unallocated cash andU.S. Government securities, $873,938 of accrued income receivable, primarilyrepresenting royalties not yet received by the Trust but anticipated to bereceived in fiscal 2011, less deferred royalty revenue of ($2,770,000).

 

TheTrustees have determined that the unallocated cash and U.S. Governmentsecurities portion of the Unallocated Reserve should be maintained at a prudentlevel, usually within the range of $500,000 to $1,000,000, to meet present orfuture liabilities of the Trust.  Theactual amount of the Unallocated Reserve will fluctuate from time to time andmay increase or decrease from its current level. Future distributions will behighly dependent upon royalty income as it is received, changes in estimatedpricing, potential for future price adjustments and the level of Trustexpenses.  The amount of future royaltyincome available for distribution will be subject to the volume of iron oreproduct shipments and the dollar level of sales by Northshore.  Shipping activity is greatly reduced duringthe winter months and economic conditions, particularly those affecting thesteel industry, may adversely affect the amount and timing of such futureshipments and sales.  The Trustees willcontinue to monitor the economic and other circumstances of the Trust to strikea responsible balance between distributions to Unitholders and the need tomaintain reserve for unexpected loss contingencies at a prudent level, giventhe unpredictable nature of the iron ore industry, the Trust’s dependence onthe actions of the lessee/operator, and the fact that the Trust essentially hasno other liquid assets.

 

**Recent Developments**

 

***Production and Shipments***.  In its Form 10-Q filed July 29, 2010, Cliffsreported that production at Northshore for the six months ended June 30, 2010was 2.1 million tons of iron ore pellets, and production for the three monthsended June 30, 2010 was 0.9 million tons of iron ore pellets.  Cliffs reported that Northshore was operatingthree of its four furnaces with the fourth expected to restart in October2010.  Comparatively, production of ironore pellets at Northshore for the six months ended June 30, 2009 was 1.0million tons, and there was no production for the three months ended June 30,2009, as Northshore was idled due to economic conditions.  Northshore has not provided the Trustees withan estimate of total expected shipments of iron ore pellets for calendar year2010.  See the description of theuncertainty of market conditions in the iron ore and steel industry under “ImportantFactors Affecting Mesabi Trust” below and the information under the heading “RiskFactors” in Part I — Item 1A of the Trust’s Annual Report on Form 10-K for theyear-ended January 31, 2010.

 

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***Arbitration between Cliffs and ArcelorMittal. ***In its Form 10-Q filed July29, 2010, Cliffs provided an update to the matters previously reportedregarding Cliffs’ arbitration with its customer ArcelorMittal.  As previously reported, Northshore, alongwith The Cleveland-Cliffs Iron Company, Cliffs Mining Company and Cliffs SalesCompany, filed two arbitration demands against ArcelorMittal USA Inc., ISGCleveland Inc., ISG Indiana Harbor Inc. and Mittal Steel USA Weirton Inc.(collectively, “ArcelorMittal”) related to attempts by ArcelorMittal to revisethe nomination of ArcelorMittal’s pellet requirements and a correspondingshipping schedule for 2009 and to reverse an election to defer certain tonnagefor 2009.  Cliffs reported that these twoarbitration demands were settled on April 14, 2010.  Under the settlement, Cliffs reached anagreement with ArcelorMittal as to the final nomination for 2009 and thebinding nomination for 2010. Cliffs also reported that on June 7, 2010,ArcelorMittal filed a complaint in the Circuit Court of Cook County, Illinoisseeking a declaratory judgment that Cliffs must permit it to change the amountsand types of pellets to be shipped to its Indiana Harbor East facility in 2010from the amounts and types set forth in the settlement agreement as part ofArcelorMittal’s 2010 nomination. Cliffs also reported that on June 25, 2010, itfiled a motion to stay the case and to compel arbitration and on July 9, 2010,Cliffs filed an amended demand seeking a declaration that Cliffs is entitled toa price reopener for 2010.

 

TheTrustees are unable to predict what impact, if any, the proceedings betweenCliffs and ArcelorMittal described above will have on shipments from Northshoreor future royalties payable to the Trust.

 

**ImportantFactors Affecting Mesabi Trust**

 

TheAgreement of Trust specifically prohibits the Trustees from entering into orengaging in any business.  Thisprohibition seemingly applies even to business activities the Trustees deemnecessary or proper for the preservation and protection of the Trust’s assets.  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.

 

NeitherMesabi Trust nor the Trustees have any control over the operations andactivities of Northshore, except within the framework of the Amended AssignmentAgreements.  Cliffs alone controls (i)historical operating data, including iron ore production volumes, marketing ofiron ore products, operating and capital expenditures as they relate toNorthshore, environmental and other liabilities and the effects of regulatorychanges; (ii) plans for Northshore’s future operating and capital expenditures;(iii) geological data relating to ore reserves (iv) projected production ofiron ore products; (v) contracts between Cliffs and Northshore with theircustomers; and (vi) the decision to mine off Mesabi Trust and/or state lands,based on Cliffs’ current mining and engineering plan.  The Trustees do not exert any influence overmining operational decisions at Northshore, nor do the Trustees provide anyinput regarding the ore reserve estimated at Northshore as reported by Cliffs.  While the Trustees request material informationfor use in periodic reports as part of their evaluation of Mesabi Trust’sdisclosure controls and procedures, the Trustees do not control thisinformation and they rely on the information in Cliffs’ periodic and currentfilings with the SEC to provide accurate and timely information in Mesabi Trust’sreports filed with the SEC.

 

Inaccordance with the Agreement of Trust and the Amendment, the Trustees areentitled to, and in fact do, rely upon certain experts in good faith, including(i) the independent consultants with respect to monthly production and shipmentreports, which include figures on crude ore production and iron ore pelletshipments, and discussions concerning the condition and accuracy of the scalesand plans regarding the development of Mesabi Trust’s mining property; and (ii)the accounting firm they have contracted with for non-audit services, includingreviews of financial data related to shipping and sales reports provided byNorthshore and a review of the schedule of leasehold royalties payable toMesabi Trust.  For a discussion ofadditional factors, including but not limited to those that could adverselyaffect Mesabi

 

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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, 2010.

 

**Iron Ore Pricing and ContractAdjustments**

 

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

 

**Effectsof Securities Regulation**

 

TheTrust is a publicly-traded trust listed on the New York Stock Exchange (“NYSE”)and is therefore subject to extensive regulation under, among others, theSecurities Act of 1933, the Securities Exchange Act of 1934, the Sarbanes-OxleyAct of 2002 (“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 address theirapplicability 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 to literallysatisfy because of its nature as a pass-through trust.  Pursuant to NYSE rules currently in effect,the Trust is exempt from many of the corporate governance requirements thatapply to publicly traded corporations. The Trust does not have, nor does the Agreement of Trust provide for, aboard of directors, an audit committee, a corporate governance committee or acompensation committee.  The Trusteesintend to closely monitor the SEC’s and the NYSE’s rulemaking activity and willattempt to comply with such rules and regulations where applicable.

 

TheTrust’s website is located at www.mesabi-trust.com.

 

**CriticalAccounting Policies**

 

This“Trustees’ Discussion and Analysis of Financial Condition and Results ofOperations” is based upon the Trust’s financial statements, which have beenprepared in accordance with accounting principles generally accepted in theUnited States.  The preparation of thesefinancial statements requires the Trustees to make estimates and judgments thataffect the reported amounts of assets, liabilities, revenues and expenses, andrelated disclosure of contingent assets and liabilities.  Critical accounting policies are those thathave meaningful impact on the reporting of the Trust’s financial condition andresults, and that require significant judgment and estimates.  During the preparation of financial statements,the Trust makes estimates, assumptions and judgments that affect reportedamounts. These estimates, assumptions and judgments include those related torevenue recognition and accrued expenses. The Trust bases its estimates onvarious assumptions and historical experience, which are believed to bereasonable; however, due to the inherent nature of estimates, actual resultsmay differ significantly due to changed conditions or assumptions. On a regularbasis, the Trust reviews the accounting policies, assumptions, estimates andjudgments to ensure that the financial statements are fairly presented in

 

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accordancewith accounting principles generally accepted in the United States. However,because future events and their effects cannot be determined with certainty,actual results could differ from assumptions and estimates, and suchdifferences could be material.

 

TheTrust did not have any changes in critical accounting policies or insignificant accounting estimates during the three months ended July 31,2010.  For a complete description of theTrust’s significant accounting policies, please see Note 2 to the financialstatements included in the Trust’s Annual Report on Form 10-K for the yearended January 31, 2010.

 

**Item 3.  Quantitativeand Qualitative Disclosures About Market Risk.**

 

Notapplicable.

 

**Item 4.  Controls andProcedures.**

 

***Evaluation of Disclosure Controlsand 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 andcommunicated by Northshore, and consultants to the Trustees as appropriate, toallow timely decisions regarding required disclosure.

 

Aspart of their evaluation of the Trust’s disclosure controls and procedures, theTrustees rely on quarterly shipment and royalty calculations provided by Northshore.  Because Northshore has declined to supportthis information with a written certification attesting to whether Northshorehas established disclosure controls and procedures and internal controlssufficient to enable it to verify that the information furnished to theTrustees is accurate and complete, the Trustees also rely on (a) an annualcertification from Northshore and Northshore’s parent, Cliffs, certifying as tothe accuracy of the royalty calculations, and (b) the related due diligencereview performed by the Trust’s external accountants.  In addition, the Trust’s consultants reviewthe schedule of leasehold royalties payable and shipping and sales reportsprovided by Northshore against production and shipment reports prepared by theEveleth Fee Office, Inc., an independent consultant to the Trust (“Eveleth FeeOffice”). The Eveleth Fee Office gathers production and shipping informationfrom Northshore and prepares monthly production and shipment reports for theTrustees. Furthermore, as part of its engagement by the Trust, the Eveleth FeeOffice also attends Northshore’s calibration and testing of its crude orescales and boat loader scales which are conducted on a periodic basis.

 

Asof the end of the period covered by this report, the Trustees carried out anevaluation of the Trust’s disclosure controls and procedures.  The Trustees have concluded that suchdisclosure controls and procedures are effective.

 

***Changes in Internal Control OverFinancial Reporting******.***  To the knowledge of the Trustees, there hasbeen no change in the Trust’s internal control over financial reporting thatoccurred during the Trust’s last fiscal quarter that has materially affected,or is reasonably likely to materially affect, the Trust’s internal control overfinancial reporting.  The Trustees notefor purposes of clarification that they have no authority over, and make nostatement concerning, the internal control over financial reporting ofNorthshore or Cliffs.

 

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**PART II - OTHER INFORMATION**

 

**Item 1A.****   ****RiskFactors**

 

Therehave been no material changes in the Trust’s risk factors as described in PartI Item 1A, “Risk Factors” in the Trust’s Annual Report on Form 10-K for theyear ended January 31, 2010.

 

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

 
| 31     | Certification  of Corporate Trustee of Mesabi Trust pursuant to Rule 13a-14 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 Wipfli LLP, dated September 3, 2010 regarding its review of the unaudited  interim financial statements of Mesabi Trust as of and for the three and six  months ended July 31, 2010. |

 

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**SIGNATURES**

 

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly 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 |
|               |   |                                                              |   |
| September  3, 2010 |   |                                                              | By: | /s/  Kenneth R. Ring |
|               |   |                                                              | Name: | Kenneth  R. Ring |
|               |   |                                                              | Title: | Vice  President |

 

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* There are no principal executive officers or principalfinancial officers of the registrant.

 

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