**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION****WASHINGTON,D.C. 20549**

**FORM 10-Q**

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

**For the quarterly periodended October 31, 2006**

**or**

**o****                                ****TRANSITION REPORT PURSUANT TO SECTION13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

**For the transition periodfrom                                to                                **

**Commission File Number:  1-4488**

**MESABITRUST**

(Exactname of registrant as specified in its charter)

 

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

 

**(615) 835-2749**

(Registrant’s telephone number, including area code)

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

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

Large accelerated filer  o              Acceleratedfiler  x              Non-acceleratedfiler o

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

As of December 7, 2006 therewere 13,120,010 Units of Beneficial Interest in Mesabi Trust outstanding.

 

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**PART I - FINANCIAL INFORMATION**

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

**Mesabi Trust**

**Condensed Statements of Income**

**Three andNine Months Ended October 31, 2006 and 2005 (unaudited)**
| ** **                                  | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|---------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                  | ** ** | **October 31,**             | ** ** | **October 31,**            | ** ** |
| ** **                                  | ** ** | **2006**                         | ** ** | **2005**                        | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                                  | ** ** | ** **                       | ** ** | ** **                      | ** ** | ** ** | ** ** | ** ** | ** ** |
| **A.  Condensed Statements of Income** | ** ** | ** **                       | ** ** | ** **                      | ** ** | ** ** | ** ** | ** ** | ** ** |
|                                        |       |                             |       |                            |       |   |   |   |   |
| Revenues                                    |       |                             |       |                            |       |   |   |   |   |
| Royalty income                              |       | $                                | 7,159,704  |                            | $          | 5,564,066 |   | $ | 15,106,855 |   | $ | 13,448,556 |   |
| Interest income                             |       | 20,388                           |       | 14,707                          |       | 45,322 |   | 37,755 |   |
|                                        |       | 7,180,092                        |       | 5,578,773                       |       | 15,152,177 |   | 13,486,311 |   |
|                                        |       |                             |       |                            |       |   |   |   |   |
| Expenses                                    |       | 134,465                          |       | 124,590                         |       | 443,341 |   | 489,484 |   |
|                                        |       |                             |       |                            |       |   |   |   |   |
| Net income                                  |       | $                                | 7,045,627  |                            | $          | 5,454,183 |   | $ | 14,708,836 |   | $ | 12,996,827 |   |
|                                        |       |                             |       |                            |       |   |   |   |   |
| Number of units  outstanding                |       | 13,120,010                       |       | 13,120,010                      |       | 13,120,010 |   | 13,120,010 |   |
|                                        |       |                             |       |                            |       |   |   |   |   |
| Net income per  unit (Note 2)               |       | $                                | 0.54       |                            | $          | 0.42 |   | $ | 1.12 |   | $ | 0.99 |   |
|                                        |       |                             |       |                            |       |   |   |   |   |
| Distributions  declared per unit            |       | $                                | 0.585      |                            | $          | 0.36 |   | $ | 1.29 |   | $ | 1.06 |   |

 

See Notes to CondensedFinancial Statements.

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**MesabiTrustCondensed Balance SheetsOctober 31, 2006 (unaudited) and January 31, 2006**

|                                                                            | ** ** | **October 31, 2006** | ** ** | **January 31, 2006** | ** ** |
|----------------------------------------------------------------------------|------------|--------------------------------|------------|--------------------------------|------------|
|                                                                       |       |                           |       |                           |       |
| **B.  Condensed Balance Sheets**                                      | ** ** | ** **                     | ** ** | ** **                     | ** ** |
|                                                                       |       |                           |       |                           |       |
| **Assets**                                                                 | ** ** | ** **                     | ** ** | ** **                     | ** ** |
|                                                                       |       |                           |       |                           |       |
| Cash                                                                       |       | $                              | 7,871,337  |                           | $          | 6,377,990 |   |
|                                                                       |       |                           |       |                           |       |
| U.S. Government securities, at amortized cost (which  approximates market) |       | 727,883                        |       | 648,193                        |       |
|                                                                       |       |                           |       |                           |       |
| Accrued income receivable                                                  |       | 1,933,788                      |       | 4,277,766                      |       |
| Prepaid expenses                                                           |       | 40,302                         |       | 25,007                         |       |
|                                                                       |       | 10,573,310                     |       | 11,328,956                     |       |
|                                                                       |       |                           |       |                           |       |
| 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                              |       |
|                                                                       |       |                           |       |                           |       |
|                                                                       |       | $                              | 10,573,313 |                           | $          | 11,328,959 |   |
|                                                                       |       |                           |       |                           |       |
| **Liabilities,  Unallocated Reserve and Trust Corpus**                     | ** ** | ** **                     | ** ** | ** **                     | ** ** |
|                                                                       |       |                           |       |                           |       |
| Liabilities                                                                |       |                           |       |                           |       |
| Distribution payable                                                       |       | $                              | 7,675,206  |                           | $          | 6,166,405 |   |
| Accrued expenses                                                           |       | 63,457                         |       | 177,527                        |       |
|                                                                       |       | 7,738,663                      |       | 6,343,932                      |       |
|                                                                       |       |                           |       |                           |       |
| Unallocated Reserve (Note 3)                                               |       | 2,834,647                      |       | 4,985,024                      |       |
| Trust Corpus                                                               |       | 3                              |       | 3                              |       |
|                                                                       |       |                           |       |                           |       |
|                                                                       |       | $                              | 10,573,313 |                           | $          | 11,328,959 |   |

 

SeeNotes to CondensedFinancial Statements.

3

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**MesabiTrustCondensed Statements of Cash FlowsNine Months Ended October 31, 2006 and 2005 (unaudited)**
| ** **                                                                     | ** ** | **Nine Months Ended** | ** ** |
|--------------------------------------------------------------------------------|------------|---------------------------------|------------|
| ** **                                                                     | ** ** | **October 31,**            | ** ** |
| ** **                                                                     | ** ** | **2006**                        | ** ** | **2005** | ** ** |
|                                                                           |       |                            |       |   |   |
| **C.  Condensed Statements of Cash Flows**                                | ** ** | ** **                      | ** ** | ** ** | ** ** |
|                                                                           |       |                            |       |   |   |
| Cash flows from  operating activities                                          |       |                            |       |   |   |
| Royalties received                                                             |       | $                               | 17,448,612 |   | $ | 14,501,367 |   |
| Interest received                                                              |       | 47,544                          |       | 44,841 |   |
| Expenses paid                                                                  |       | (572,707                        | )          | (543,341 | ) |
|                                                                           |       |                            |       |   |   |
| Net cash provided by operating activities                                      |       | 16,923,449                      |       | 14,002,867 |   |
|                                                                           |       |                            |       |   |   |
| Cash flows from  investing activities                                          |       |                            |       |   |   |
| Maturities of U.S. Government Securities                                       |       | 16,110,338                      |       | 13,705,521 |   |
| Purchases of U.S. Government Securities                                        |       | (16,190,028                     | )          | (13,675,400 | ) |
|                                                                           |       |                            |       |   |   |
| Net cash provided by (used for) investing activities                           |       | (79,690                         | )          | 30,121 |   |
|                                                                           |       |                            |       |   |   |
| Cash flow from  financing activities                                           |       |                            |       |   |   |
| Distributions to Unitholders                                                   |       | (15,350,412                     | )          | (13,054,410 | ) |
|                                                                           |       |                            |       |   |   |
| Net increase in  cash                                                          |       | 1,493,347                       |       | 978,578 |   |
|                                                                           |       |                            |       |   |   |
| Cash, beginning  of year                                                       |       | 6,377,990                       |       | 3,970,870 |   |
|                                                                           |       |                            |       |   |   |
| Cash, end of  quarter                                                          |       | $                               | 7,871,337  |   | $ | 4,949,448 |   |
|                                                                           |       |                            |       |   |   |
| **Reconciliation  of net income to net cash provided by operating activities** | ** ** | ** **                      | ** ** | ** ** | ** ** |
|                                                                           |       |                            |       |   |   |
| Net income                                                                     |       | $                               | 14,708,836 |   | $ | 12,996,827 |   |
| Decrease in  accrued income receivable                                         |       | 2,343,978                       |       | 1,059,898 |   |
| Increase in  prepaid expenses                                                  |       | (15,295                         | )          | (31,942 | ) |
| Decrease in  accrued expenses                                                  |       | (114,070                        | )          | (21,916 | ) |
|                                                                           |       |                            |       |   |   |
| Net cash  provided by operating activities                                     |       | $                               | 16,923,449 |   | $ | 14,002,867 |   |

 

See Notes to CondensedFinancial Statements.

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**MESABI TRUST**

**NOTES TO CONDENSED FINANCIAL STATEMENTS**

**October 31, 2006 (Unaudited)**

Note 1.                            The financial statements included herein havebeen prepared without audit (except for the balance sheet at January 31, 2006)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 suchrules and regulations.  In the opinion ofthe Trustees, all adjustments, consisting only of normal recurring adjustments,necessary for a fair statement of (a) the results of operations for the threemonths and nine months ended October 31, 2006 and 2005, (b) the financialpositions at October 31, 2006 and January 31, 2006, and (c) the cash flows forthe nine months ended October 31, 2006 and 2005, have been made.

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

Note 3.                            The Trustees have determined that 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 income as it isreceived quarterly and the level of Trust expenses that the Trustees anticipateoccurring in subsequent quarters.  TheTrustees determine the level of distributions on a quarterly basis afterreceiving notification from Northshore Mining Company as to the amount ofroyalty income that will be received and after determination of any known oranticipated expenses, liabilities and obligations of the Trust.  At October 31, 2006, the Unallocated Reservewas represented by $900,859 in unallocated cash and U.S. Government securities,and $1,933,788 of accrued revenue primarily representing royalties not yetreceived by the Trust but anticipated to be received in January 2007 fromNorthshore Mining Company as part of the royalty due with respect to the thirdfiscal quarter, based upon reported lessee shipping activity for the month ofOctober 2006.

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

**Forward-Looking Statements**

Certainstatements contained in this document are considered “forward-lookingstatements” within the meaning of the Private Securities Litigation Reform Actof 1995.  All such forward-lookingstatements, including those statements estimating calendar year 2006 productionor shipments, 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,” “believe,”“anticipate,” “expect,” “estimate,” “continue,” “potential,” “plan,” “forecast”and other similar words.  Suchforward-looking statements are inherently subject to known and unknown risksand uncertainties.  Actual results andfuture developments could differ materially from the results or developmentsexpressed in or implied by these forward-looking statements.  For a discussion of the factors, includingbut not limited to, those that could adversely affect Mesabi Trust’s actualresults and performance, see “Risk Factors” in Part I — Item 1A of Mesabi Trust’sAnnual Report on Form 10-K for the year-ended January 31, 2006.  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.

**Background**

Mesabi Trust (“Mesabi Trust” or the “Trust”),formed pursuant to an Agreement of Trust dated July 18, 1961 (the “Agreement ofTrust”), is a trust organized under the laws of the State of New York.  Mesabi Trust holds all of the interestsformerly owned by Mesabi Iron Company (“MIC”), including all right, title andinterest in the Amendment of Assignment, Assumption and Further Assignment ofPeters Lease (the “Amended Assignment of Peters Lease”), the Amendment ofAssignment, Assumption and Further Assignment of Cloquet Lease (the “AmendedAssignment of Cloquet Lease” and together with the Amended Assignment of PetersLease, the “Amended Assignment Agreements”), the beneficial interest in theMesabi Land Trust (as such term is defined below) and all other assets andproperty identified in the Agreement of Trust. The Amended Assignment of PetersLease relates to an Indenture made as of April 30, 1915 among East Mesaba IronCompany (“East Mesaba”), Dunka River Iron Company (“Dunka River”) and Claude W.Peters (the “Peters Lease”) and the Amended Assignment of Cloquet Lease relatesto an Indenture made May 1, 1916 between Cloquet Lumber Company and Claude W.Peters (the “Cloquet Lease”).

The Agreement of Trust specifically prohibitsthe Trustees from entering into or engaging in any business.  This prohibition applies even to businessactivities the Trustees deem necessary or proper for the preservation andprotection of the Trust Estate. Accordingly, the Trustees’ activities in connection with theadministration of Trust assets are limited to collecting income, payingexpenses and liabilities, distributing net income to the 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.

The Trustees do not intend to expand theirresponsibilities beyond those permitted or required by the Agreement of Trust,the Amendment to the Agreement of Trust dated October 25, 1982 (the “Amendment”),and those required under applicable law. Mesabi Trust has no employees, but it engages independent consultants toassist the Trustees in, among other things, monitoring the amount and salesprices of iron ore products shipped from Silver Bay, Minnesota, based oninformation supplied to the Trustees by Northshore Mining Company (“Northshore”),the lessee/operator of the Mesabi Trust lands,

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and its parent companyCleveland-Cliffs Inc (“CCI”).  Referencesto Northshore in this quarterly report, unless the context requires otherwise,are applicable to CCI as well.

Leasehold royalty income constitutes theprincipal source of Mesabi Trust’s revenue. Royalty rates are determined in accordance with the terms of MesabiTrust’s leases and assignments of leases. Three types of royalties, as well as royalty bonuses, comprise the Trust’sleasehold royalty income:

·                                          Base overriding royalties, which historically constitute the majorityof Mesabi Trust’s royalty income, are determined by both the volume and sellingprice of iron ore products shipped. Northshore is obligated to pay Mesabi Trust base overriding royalties invarying 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 ore productsin excess of 4 million tons so shipped annually.  Base overriding royalties are subject toprice adjustments under the CCI Pellet Agreements and, as described elsewherein this report, such adjustments may be positive or negative.

·                                          Royalty bonuses are earned by Mesabi Trust when iron oreproducts shipped from Silver Bay are sold at prices above a thresholdprice.  The royalty bonus is a percentageof the gross proceeds of product shipped from Silver Bay and sold at pricesabove a threshold price.  The thresholdprice is adjusted (but not below $30.00) on an annual basis for inflation anddeflation (the “Adjusted Threshold Price”). The Adjusted Threshold Price is $44.60 per ton for calendar year2006.  Comparatively, the AdjustedThreshold Price was $42.89 for calendar year 2005.  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 CCI PelletAgreements and, as described elsewhere in this report, such adjustments may bepositive or negative.

·                                          Fee royalties, which historically constitute a smallercomponent of the Trust’s royalty income, are payable to Mesabi Land Trust, aMinnesota 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 corporate trustee. Mesabi Trust is entitled to receive the net income of the Mesabi LandTrust, which is generated from royalties on the amount of crude ore mined afterthe payment of expenses.  Currently, thefee royalty on crude ore is based on an agreed price per ton, subject tocertain indexing.  Crude ore is thesource of iron oxides used to make iron ore pellets and other products.

·                                          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, under theterms of the Amended Assignment Agreements, Northshore is obligated to pay toMesabi Trust a minimum advance royalty. Each year, the amount of the minimum advance royalty is adjusted (butnot below $500,000 per annum) for inflation and deflation in accordance withthe Amended Assignment Agreements.  Theminimum advance royalty was 

7

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$714,988 for calendar year 2005 and is$743,420 for calendar year 2006.  Untiloverriding royalties (and royalty bonuses, if any) for a particular year equalor exceed the minimum advance royalty for the year, Northshore must makequarterly payments of up to 25% 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 to make quarterlyroyalty payments in January, April, July and October of each year.  In the case of base overriding royalties androyalty bonuses, these quarterly royalty payments are to be made whether or notthe related proceeds of sale have been received by Northshore by the time suchpayments become due.

Under the relevant agreements, Northshore maymine and ship iron ore products from lands other than Mesabi Trust lands.  Northshore alone determines whether to mineoff Trust and/or such other lands, based on its current mining and engineeringplan.  The Trustees do not exert anyinfluence over mining operational decisions. To encourage the use of iron ore products from Mesabi Trust lands,Mesabi Trust receives royalties on stated percentages of iron ore shipped fromSilver Bay, whether or not the iron ore products are from Mesabi Trustlands.  Mesabi Trust receives royaltiesat the greater of (i) the aggregate quantity of iron ore products shipped thatwere mined from Mesabi Trust lands, and (ii) a portion of the aggregatequantity of all iron ore products shipped that were mined from any lands, suchportion being 90% of the first four million tons shipped during such year, 85%of the next two million tons shipped during such year, and 25% of all tonnageshipped during such year in excess of six million tons.

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

**Resultsof Operations**

**Comparisonof Iron Ore Pellet Production and Shipments for the Three and Nine Months EndedOctober 31, 2006 and October 31, 2005**

As shown in the table below, production of ironore pellets at Northshore from Mesabi Trust lands during the fiscal quarterended October 31, 2006 totaled approximately 0.95 million tons and actualshipments over the same period totaled approximately 1.28 million tons.  By comparison, actual pellet productionduring the same period in 2005 totaled approximately 1.07 million tons, andactual shipments approximated 1.26 million tons.  

| Three Months Ended | ** ** | **Pellets Produced from  Trust Lands  (Tons)** | ** ** | **Shipments from Trust  Lands  (Tons)** | ** ** |
|------------------------------|------------|---------------------------------------------------------------|------------|---------------------------------------------------|------------|
| October 31, 2006             |       | 952,916                                                       |       | 1,275,436                                         |       |
| October 31, 2005             |       | 1,068,775                                                     |       | 1,263,365                                         |       |

 

The 11% decrease in production and 1% increase in shipments from Trustlands is attributable to Northshore’s mining activity on lands owned by partiesother than Mesabi Trust during the three months

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endedOctober 31, 2006.  During the comparableprior period, Northshore produced more pellets from iron ore mined off Trustlands.

For the nine months ended October 31, 2006, production of iron orepellets at Northshore from Mesabi Trust lands totaled approximately 3.42million tons, and actual shipments over the same period totaled approximately3.24 million tons.  By comparison, actualpellet production during the same period in 2005 totaled approximately 3.26million tons, and actual shipments approximated 3.15 million tons.

| Nine Months Ended | ** ** | **Pellets Produced from  Trust Lands  (Tons)** | ** ** | **Shipments from Trust  Lands  (Tons)** | ** ** |
|-----------------------------|------------|---------------------------------------------------------------|------------|---------------------------------------------------|------------|
| October 31, 2006            |       | 3,417,640                                                     |       | 3,239,764                                         |       |
| October 31, 2005            |       | 3,260,662                                                     |       | 3,152,340                                         |       |

Production for the ninemonths ended October 31, 2006 exceeded production during the same period endedOctober 31, 2005 by approximately 5% despite the 11% decrease in production forthe three months ended October 31, 2006. This is the result of higher production from Trust lands during the sixmonths ended July 31, 2006, as compared to production during the six monthsended July 31, 2005.  Shipments for thenine months ended October 31, 2006 remained relatively stable increasing just3% compared to the nine months ended October 31, 2005.

**Comparisonof Royalty Income for the Three and Nine Months Ended October 31, 2006 andOctober 31, 2005**

Total royalty income for the three months endedOctober 31, 2006 was $7,159,704. This represents an increase of approximately29% over the comparable prior period. Base overriding royalties increased 13% to $4,365,932 and bonusroyalties increased nearly 66% to $2,701,307. The substantial increase in the bonus royalties is the result of anincrease in the volume of pellets shipped at prices above $44.60 per ton, theAdjusted Threshold Price for 2006.  Feeroyalties paid to the Mesabi Land Trust increased approximately 6% to $92,465for the three months ended October 31, 2006. The following table summarizes the components of the total royaltyincome received by Mesabi Trust during the three months ended October 31, 2006and October 31, 2005.

|                                          | ** ** | **Three Months Ended October 31,** | ** ** |
|------------------------------------------|------------|--------------------------------------------------------|------------|
| ** **                               | ** ** | **2006**                                               | ** ** | **2005** | ** ** |
| Base overriding  royalties               |       | $                                                      | 4,365,932  |   | $ | 3,848,393 |   |
| Bonus royalties                          |       | 2,701,307                                              |       | 1,628,320 |   |
| Minimum advance  royalty paid (recouped) |       | 0                                                      |       | 0 |   |
| Fee royalties                            |       | 92,465                                                 |       | 87,353 |   |
| Total royalty  income                    |       | $                                                      | 7,159,704  |   | $ | 5,564,066 |   |

 

Totalroyalty income for the nine months ended October 31, 2006 increased 12% fromthe prior comparable period to $15,106,855.  Base overriding royalties increased 6% to $8,278,728 and bonus royaltiesincreased 21% to $6,510,521 for the nine months ended October 31, 2006.  Fee royalties paid to the Mesabi Land Trustincreased approximately 19% to $317,606 for the nine months ended October 31,2006.  The following table summarizes thecomponents of Mesabi Trust’s total royalty income for the nine months endedOctober 31, 2006 and October 31, 2005.

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|                                          | ** ** | **Nine Months Ended October 31,** | ** ** |
|------------------------------------------|------------|-------------------------------------------------------|------------|
| ** **                               | ** ** | **2006**                                              | ** ** | **2005** | ** ** |
| Base overriding  royalties               |       | $                                                     | 8,278,728  |   | $ | 7,785,072 |   |
| Bonus royalties                          |       | 6,510,521                                             |       | 5,396,954 |   |
| Minimum advance  royalty paid (recouped) |       | 0                                                     |       | 0 |   |
| Fee royalties                            |       | 317,606                                               |       | 266,530 |   |
| Total royalty  income                    |       | $                                                     | 15,106,855 |   | $ | 13,448,556 |   |

 

**Comparison of Trust Income andExpenses for the Three and Nine Months Ended October 31, 2006 and October 31,2005**

Net income for the fiscal quarter ended October31, 2006 was $7,045,627, an increase of approximately 29% over the quarterended October 31, 2005.  This increasecan be attributed to the small increase in shipments from Trust lands togetherwith the receipt of a larger bonus royalty during the quarter resulting fromhigher pellet prices, as compared to the comparable prior period.  Interest income received by Mesabi Trustincreased 39% as compared to the prior comparable period due to an increase inthe total investments held by Mesabi Trust, the maturity of lower-yieldingshort-term investments and the purchase of higher-yielding short-terminvestments.  Mesabi Trust expensesincreased 8% from the comparable prior period, primarily due to an increase inthe expenses incurred in connection with the administration of the Trust.  The following is a summary of Mesabi Trust’sincome and expenses for the three months ended October 31, 2006 and October 31,2005.

|                       | ** ** | **Three Months Ended October 31,** | ** ** |
|-----------------------|------------|--------------------------------------------------------|------------|
| ** **            | ** ** | **2006**                                               | ** ** | **2005** | ** ** |
| Total royalty  income |       | $                                                      | 7,159,704  |   | $ | 5,564,066 |   |
| Interest income       |       | 20,388                                                 |       | 14,707 |   |
| Gross income          |       | 7,180,092                                              |       | 5,578,773 |   |
|                  |       |                                                   |       |   |   |
| Expenses              |       | 134,465                                                |       | 124,590 |   |
| Net income            |       | $                                                      | 7,045,627  |   | $ | 5,454,183 |   |

 

Net income for the nine months ended October31, 2006 was $14,708,836, an increase of approximately 13% compared to the ninemonths ended October 31, 2005.  Thisincrease is attributable to the 5% increase in shipments from Trust landscoupled with the receipt of a larger bonus royalty resulting from higher pelletprices, as compared to the nine months ended October 31, 2005.  Interest income received by Mesabi Trustincreased 20% from the prior comparable period due to an increase in the totalinvestments held by Mesabi Trust, the maturity of lower-yielding short-terminvestments and the purchase of higher-yielding short-term investments.  Expenses incurred by Mesabi Trust decreased9% from the comparable prior period, primarily due to a decrease in legal andaccounting fees which was partially offset by an increase in the expensesincurred in connection with the administration of the Trust.   The following table summarizes Mesabi Trust’sincome and expenses for the nine months ended October 31, 2006 and October 31,2005.

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|                       | ** ** | **Nine Months Ended October 31,** | ** ** |
|-----------------------|------------|-------------------------------------------------------|------------|
| ** **            | ** ** | **2006**                                              | ** ** | **2005** | ** ** |
| Total royalty  income |       | $                                                     | 15,106,855 |   | $ | 13,448,556 |   |
| Interest income       |       | 45,322                                                |       | 37,755 |   |
| Gross income          |       | 15,152,177                                            |       | 13,486,311 |   |
|                  |       |                                                  |       |   |   |
| Expenses              |       | 443,341                                               |       | 489,484 |   |
| Net income            |       | $                                                     | 14,708,836 |   | $ | 12,996,827 |   |

 

**UnallocatedReserve**

Unallocated Reserve as of October 31, 2006 was$2,834,647, a decrease of approximately 17% compared to the Unallocated Reserveas of October 31, 2005 and a decrease of approximately 43% as compared toJanuary 31, 2006.  Both decreases areprimarily due to a decrease in the royalty revenue that was accrued on MesabiTrust’s balance sheet but not paid to Mesabi Trust as of the fiscal quartersended January 31, 2006 and October 31, 2006. With respect to the January 31, 2006 comparison, the percent decrease ascompared to the October 31, 2006 unallocated reserve is higher because theroyalty revenue accrual is generally lower for the fourth fiscal quarter asshipments from Silver Bay, Minnesota are reduced during that time.  At October 31, 2006, approximately 68% of theUnallocated Reserve, or $1,933,788, was accrued revenue primarily representingroyalties not yet received by Mesabi Trust but anticipated to be received inJanuary 2007 from Northshore as part of the royalty due with respect to MesabiTrust’s third fiscal quarter.  Theincreased royalty revenue accrual, which is based upon reported lessee shippingactivity for the month of October 2006, is reflected as Accrued IncomeReceivable on the balance sheet at October 31, 2006, which the Trusteesanticipate will be distributed, after providing for expenses and reserves,during the quarter in which it is received.

The Trustees have determined that a portion ofthe Unallocated Reserve, usually within the range of $500,000 to $1,000,000 orsuch other amount as the Trustees may deem prudent, should be maintained as areserve for unexpected loss contingencies. At October 31, 2006, approximately 32% of the Unallocated Reserve, or$900,859, was represented by unallocated cash and U.S. Government securities.

The Trustees will continue to monitor theeconomic circumstances 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. Immediately below is a comparison showing the change in the UnallocatedReserve over the past year.

|                      | ** ** | **As of October 31,** | ** ** |
|----------------------|------------|--------------------------------------|------------|
| ** **           | ** ** | **2006**                             | ** ** | **2005** | ** ** |
| Unallocated  Reserve |       | $                                    | 2,834,647  |   | $ | 3,413,379 |   |
|                      |            |                                      |            |  |  |  |  |

 

Although the actual amountof the Unallocated Reserve will fluctuate from time to time, and may increaseor decrease 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 of suchfuture shipments and sales.

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**Recent Developments**

***MesabiNugget Project.***  In its Form 8-K filed November 20, 2006, CCIannounced that it and the other participants in Mesabi Nugget LLC, namely KobeSteel, Ltd. (“Kobe Steel”) and Steel Dynamics, Inc. suspended efforts tojointly construct and operate a commercial nugget plant that would have used anew iron making technology (Kobe Steel’s Itmk3 process) for converting iron oreinto nearly pure iron nugget form at CCI’s Erie site in Hoyt Lakes,Minnesota.  CCI reported that theparticipants decided to suspend the project because the parties were unable toreach agreeable economic and commercial terms, including the completion ofnon-recourse financing for the project.  Atthe same time, CCI also announced that it and Kobe Steel intend to proceed withthe development of a commercial-scale reduced iron plant at the Northshore sitewhich will convert taconite into nearly pure iron in nugget form utilizing KobeSteel’s ITmk3 technology.  Details of therevised plans and information concerning required environmental permits havenot been disclosed.  The Trustees areunable to make any projections regarding the extent to which CCI’s revisedplans may impact future royalties payable to Mesabi Trust.

***ProductionCapacity Expansions***.  In its Form8-K filed November 20, 2006, CCI announced that it is moving forward with itspreviously announced plans to restart an idled pellet furnace at Northshore’spellet facility.  CCI reported that ithas received all environmental permits from the State of Minnesota necessary torestart that furnace to provide the additional concentrate and pellet capacityat the facility.  CCI reported that itexpects an increase in its annual production of approximately 800,000 tons as aresult of the restart of the idle furnace at Northshore.  CCI announced that production from therestart of the idle furnace is scheduled to commence in early 2008.  The Trustees are unable to make anyprojections regarding the extent to which the restart of the idled furnace atNorthshore may impact future royalties payable to Mesabi Trust.

***CCI’sAnnouncement of Two New Long-Term Supply Contracts. ***In a Form 8-K filed November 15, 2006, CCI announced that it and itswholly-owned subsidiary, Cliffs Sales Company, entered into a multi-year ironore pellet supply agreement with AK Steel. CCI reported that the seven-year supply agreement with AK Steel,beginning January 1, 2007, runs through year-end 2013.  According to CCI, it will supply between 0.9million and 1.4 million tons of pellets annually.   CCI also announced that it entered into amulti-year iron ore pellet supply agreement with Republic Engineered Products,Inc.  CCI reported that the long-termsupply agreement with Republic is effective from October 1, 2006, throughDecember 31, 2011.  According to CCI, itwill supply a percentage of Republic’s total annual pellet requirement which isestimated to be between 0.4 million and 0.8 million tons annually.  CCI further reported that the new pelletsupply agreements with AK Steel and Republic Engineered Products, Inc. supplantprior spot sales between the companies. In its announcement, CCI’s Chief Financial Officer commented that “virtually100 percent of our current North American pellet production is now committedunder long-term sales agreements.”  The Trustees areunable to make any projections regarding the extent to which these newcontracts may impact future royalties payable to Mesabi Trust.

***Iron OrePricing and Contract Adjustments.***  During the course of its fiscal year someportion of the royalties paid to Mesabi Trust are based on estimated prices foriron ore products sold under term contracts between CCI and its subsidiariesand certain of their customers (the “CCI Pellet Agreements”).  Mesabi Trust is not a party to any of the CCIPellet Agreements.  These prices aresubject to interim and final pricing adjustments, which can be positive ornegative, and which adjustments are dependent in part on multiple price andinflation index factors that are not known until after the end of a contractyear. This can result in significant and frequent variations in royaltiesreceived by Mesabi Trust (and in turn the

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resulting amount availablefor distribution 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.

***Productionand Shipments***.  CCI reportedin its Form 10-Q filed October 26, 2006 that production at Northshore for thecalendar quarter ended September 30, 2006 was 1.3 million tons and totalproduction for the nine months ended September 30, 2006 was approximately 3.8million tons.  Comparatively, productionof iron ore pellets at Northshore for the three and nine months ended September30, 2005, was 1.3 million tons and 3.7 million tons, respectively.  Northshore has not provided the Trustees withan estimate of total expected shipments of iron ore pellets for calendar year2006.

During calendar years 2005, 2004, 2003, 2002 and 2001, the percentageof shipments of iron ore products from Mesabi Trust lands was approximately90.1%, 92.0%, 95.5%, 97.5% and 99.2%, respectively, of total shipments.  Northshore has not advised the Trustees as tothe percentage of iron ore products from Mesabi Trust lands it anticipatesshipping in calendar year 2006.  See thedescription of the uncertainty of market conditions in the iron ore and steelindustry under “Important Factors Affecting Mesabi Trust” below and the informationunder the heading “Risk Factors” in Part I — Item 1A of Mesabi Trust’s AnnualReport on Form 10-K for the year-ended January 31, 2006.

***SecuritiesRegulation***.  Mesabi Trustis a publicly-traded trust listed on the New York Stock Exchange (“NYSE”) andis 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 Mesabi Trust to literallysatisfy because of its nature as a pass-through trust.  Pursuant to NYSE rules Mesabi Trust is exemptfrom many of the corporate governance requirements that apply to publiclytraded corporations.   Mesabi Trust doesnot have, nor does the Agreement of Trust provide for, a separate board ofdirectors, audit committee, corporate governance committee or compensationcommittee.  The Trustees intend toclosely monitor the rulemaking activity of the SEC and the NYSE and will complywith such rules and regulations to the extent applicable.

**ImportantFactors Affecting Mesabi Trust**

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

Neither Mesabi Trust nor the Trustees have anycontrol over the operations and activities of Northshore, except within theframework of the Amended Assignment Agreements. CCI alone controls (i) historical operating data, including iron oreproduction volumes, marketing of iron ore products, operating and capitalexpenditures as they relate to Northshore, environmental and other liabilitiesand the effects of regulatory changes; (ii) plans for Northshore’s futureoperating and capital expenditures;

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(iii) geological datarelating to reserves (iv) projected production of iron ore products; and (v)the decision to mine off Mesabi Trust and/or state lands (which is based on itscurrent mining and engineering plan). The Trustees do not exert any influence over mining operationaldecisions, nor do the Trustees provide any input regarding the ore reserveestimate reported by CCI.  While theTrustees request material information for use in periodic reports as part oftheir evaluation of Mesabi Trust’s disclosure controls and procedures, theTrustees do not control this information and they rely on the information inCCI’s periodic and current filings with the SEC to provide accurate and timelyinformation in Mesabi Trust’s reports filed with the SEC.

In accordance with the Agreement of Trust andthe Amendment, the Trustees are entitled to, and in fact do rely, upon certainexperts in good faith, including (i) the independent consultants with respectto monthly production and shipment reports, which include figures on crude oreproduction and iron ore pellet shipments, and discussions concerning thecondition and accuracy of the scales and plans regarding the development ofMesabi Trust’s mining property; and (ii) the accounting firm they havecontracted with for non-audit services, including reviews of financial datarelated to shipping and sales reports provided by Northshore and a review ofthe 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, 2006.

**CriticalAccounting Policies**

This “Trustees’ Discussion and Analysis ofFinancial Condition and Results of Operations” is based upon Mesabi Trust’sfinancial statements, which have been prepared in accordance with accountingprinciples 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 policies are those thathave meaningful impact on the reporting of Mesabi Trust’s financial conditionand results, and that require significant management judgment andestimates.  The Trustees have determinedthat there are no critical accounting policies.

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

Not applicable.

**Item 4.  Controls andProcedures.**

***Evaluationof Disclosure Controls and Procedures******. ***The Trustees maintain disclosure controls and procedures designed toensure that information required to be disclosed by Mesabi Trust in the reportsthat it files or submits under the Securities Exchange Act of 1934, as amended,is recorded, processed, summarized and reported within the time periodsspecified in the rules and regulations of the Securities and ExchangeCommission.  Disclosure controls andprocedures include controls and procedures designed to ensure that informationrequired to be disclosed by Mesabi Trust is accumulated

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and communicated byNorthshore and consultants to the Trustees as appropriate, to allow timelydecisions regarding required disclosure.

As part of their evaluation of Mesabi Trust’sdisclosure controls and procedures, the Trustees rely on quarterly shipment androyalty calculations provided by Northshore. Because Northshore has declined to support this information with awritten certification attesting to whether Northshore has establisheddisclosure controls and procedures and internal controls sufficient to enableit to verify that the information furnished to the Trustees is accurate andcomplete, the Trustees must rely on (a) a general certification from Northshoreand Northshore’s parent, CCI, certifying as to the accuracy of the royaltycalculations, and (b) CCI’s conclusions that its overall disclosure controlsand procedures are effective.  Inaddition, Mesabi Trust’s consultants review the schedule of leasehold royaltiespayable and shipping and sales reports provided by Northshore againstproduction and shipment reports prepared by the Eveleth Fee Office, Inc., anindependent consultant to Mesabi Trust (“Eveleth Fee Office”). Eveleth FeeOffice gathers production and shipping information from Northshore and preparesmonthly production and shipment reports for the Trustees. Furthermore, as partof its engagement by Mesabi Trust, 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 period covered by thisreport, the Trustees carried out an evaluation of Mesabi Trust’s disclosurecontrols and procedures.  The Trusteeshave concluded that such disclosure controls and procedures are effective.

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

**PART II - OTHER INFORMATION**

**Item 1.****                    ****Legal Proceedings.**

On September 25, 2006, Mesabi Trust filed a Demand in Arbitration withthe American Arbitration Association (“AAA”) naming CCI and Northshore asrespondents (the “Demand”).  The Demandseeks a declaratory award and injunctive relief in favor of Mesabi Trustconcerning access to contractual and related information upon which royaltycalculations are based.  Specifically,the Demand asserts that the Amendment of Assignment of Peters Lease providesthat the Trustees and their duly authorized representatives have the right toexamine and make copies of and abstracts from pellet supply agreements thatshould be regarded as records and books of account relating to the operationsof Northshore giving rise to its royalty obligations to Mesabi Trust.  Mesabi Trust intends to proceed with thearbitration demand in accordance with the rules of the AAA, and the proceedingis in its early stages.

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

There have been no material changes in Mesabi Trust’srisk factors as described in Part I Item 1A, “Risk Factors” in Mesabi Trust’sAnnual Report on Form 10-K for the year ended January 31, 2006.

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**Item 2.****                    ****Unregistered Sales of EquitySecurities and Use of Proceeds.**

None.

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

None.

**Item 4.****                    ****Submission of Matters to a Voteof Security Holders.**

None.

**Item 5.****                    ****Other Information.**

None.

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

31                        Certification of Corporate Trustee of MesabiTrust pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, asadopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32                        Certification of Corporate Trustee of MesabiTrust pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 ofthe Sarbanes-Oxley Act of 2002.

99.1               Report dated December 8, 2006 of Gordon,Hughes & Banks, LLP regarding its review of the unaudited interim financialstatements of Mesabi Trust for its quarter ended October 31, 2006.

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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 |
|                         |                                                              |
|                         |                                                              |
| Date:  December 8, 2006 | By:                                                               | /s/  Rodney Gaughan |   |
|                         |                                                              | Name:  Rodney Gaughan |   |
|                         |                                                              | Title:  Assistant Vice President |   |
|                         |                                                              |   |   |
|                         |                                                              |
|                              |                                                                   |  |  |  |

 

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*There are no principal executive officers or principal financial officers of theregistrant.

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