**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C. 20549**

 

**FORM 10-Q**

 

**(Mark One)**

 
| **ý** | ** ** | **QUARTERLY REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF  1934**                                                                                                                                              |
|------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |       |                                                                                                                                                                                                                                                 |
| ** ** | ** ** | **For the quarterly period ended  October 31, 2005**                                                                                                                                                                                            |
|       |       |                                                                                                                                                                                                                                                 |
| ** ** | ** ** | **or**                                                                                                                                                                                                                                               |
|       |       |                                                                                                                                                                                                                                                 |
| **o**      | ** ** | **TRANSITION REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF  1934**                                                                                                                                             |
|       |       |                                                                                                                                                                                                                                                 |
| ** ** | ** ** | **For the transition period from                                      to** |

 

**Commission File Number: 1-4488**

 

**MESABI TRUST**

(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’stelephone number, including area code)

 

Indicate by check mark whether the registrant (1) hasfiled all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or for suchshorter period that the registrant was required to file such reports), and (2) hasbeen subject to such filing requirements for the past 90 days.  Yes ý  No o

 

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

 

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

 

As of December 9, 2005, there were 13,120,010Units of Beneficial Interest in Mesabi Trust outstanding.

 

 

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**PART I - FINANCIALINFORMATION**

 

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

 

**A.    Condensed Statements of Income**

 
| ** **                      | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|---------------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                      | ** ** | **October 31,**   | ** ** | **October 31,**  | ** ** |
| ** **                      | ** ** | **2005**               | ** ** | **2004**              | ** ** | **2005** | ** ** | **2004** | ** ** |
|                            |       |                   |       |                  |       |   |   |   |   |
| Revenues                        |       |                   |       |                  |       |   |   |   |   |
| Royalty income                  |       | $                      | 5,564,066  |                  | $          | 3,295,828 |   | $ | 13,448,556 |   | $ | 6,897,024 |   |
| Interest income                 |       | 14,707                 |       | 10,942                |       | 37,755 |   | 31,250 |   |
|                            |       | 5,578,773              |       | 3,306,770             |       | 13,486,311 |   | 6,928,274 |   |
|                            |       |                   |       |                  |       |   |   |   |   |
| Expenses                        |       | 124,590                |       | 130,822               |       | 489,484 |   | 412,301 |   |
|                            |       |                   |       |                  |       |   |   |   |   |
| Net income                      |       | $                      | 5,454,183  |                  | $          | 3,175,948 |   | $ | 12,996,827 |   | $ | 6,515,973 |   |
|                            |       |                   |       |                  |       |   |   |   |   |
| Number of units outstanding     |       | 13,120,010             |       | 13,120,010            |       | 13,120,010 |   | 13,120,010 |   |
|                            |       |                   |       |                  |       |   |   |   |   |
| Net income per unit (Note 2)    |       | $                      | 0.415715   |                  | $          | 0.242069 |   | $ | 0.990611 |   | $ | 0.496644 |   |
|                            |       |                   |       |                  |       |   |   |   |   |
| Distributions declared per unit |       | $                      | 0.36       |                  | $          | 0.25 |   | $ | 1.06 |   | $ | 0.475 |   |

 

See Notes to FinancialStatements.

 

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**B.    Condensed Balance Sheets**

 
| ** **                                                                 | ** ** | **October 31, 2005** | ** ** | **January 31, 2005** | ** ** |
|----------------------------------------------------------------------------|------------|---------------------------|------------|---------------------------|------------|
| ** **                                                                 | ** ** | ** **                | ** ** | ** **                | ** ** |
| **Assets**                                                                 |       |                      |       |                      |       |
|                                                                       |       |                      |       |                      |       |
| Cash                                                                       |       | $                         | 4,949,448  |                      | $          | 3,970,870 |   |
|                                                                       |       |                      |       |                      |       |
| U.S. Government securities, at amortized  cost (which approximates market) |       | 718,072                   |       | 748,193                   |       |
|                                                                       |       |                      |       |                      |       |
| Accrued income receivable                                                  |       | 2,460,025                 |       | 3,519,923                 |       |
| Prepaid expenses                                                           |       | 45,288                    |       | 13,346                    |       |
|                                                                       |       | 8,172,833                 |       | 8,252,332                 |       |
|                                                                       |       |                      |       |                      |       |
| 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                         |       |
|                                                                       |       |                      |       |                      |       |
|                                                                       |       | $                         | 8,172,836  |                      | $          | 8,252,335 |   |
|                                                                       |       |                      |       |                      |       |
| **Liabilities, Unallocated Reserve and Trust  Corpus**                     |       |                      |       |                      |       |
|                                                                       |       |                      |       |                      |       |
| Liabilities                                                                |       |                      |       |                      |       |
| Distribution payable                                                       |       | $                         | 4,723,204  |                      | $          | 3,870,403 |   |
| Accrued expenses                                                           |       | 36,250                    |       | 58,166                    |       |
|                                                                       |       | 4,759,454                 |       | 3,928,569                 |       |
|                                                                       |       |                      |       |                      |       |
| Unallocated Reserve (Note 3)                                               |       | 3,413,379                 |       | 4,323,763                 |       |
| Trust Corpus                                                               |       | 3                         |       | 3                         |       |
|                                                                       |       |                      |       |                      |       |
|                                                                       |       | $                         | 8,172,836  |                      | $          | 8,252,335 |   |

 

See Notes to FinancialStatements.

 

3

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**C.    Condensed Statements of Cash Flows**

 
| ** **                                                                     | ** ** | **Nine Months Ended** | ** ** |
|--------------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                     | ** ** | **October 31,**  | ** ** |
| ** **                                                                     | ** ** | ** **            | ** ** | ** ** | ** ** |
| ** **                                                                     | ** ** | **2005**              | ** ** | **2004** | ** ** |
|                                                                           |       |                  |       |   |   |
| Cash flows from operating activities                                           |       |                  |       |   |   |
| Royalties received                                                             |       | $                     | 14,501,367 |   | $ | 6,598,170 |   |
| Interest received                                                              |       | 44,841                |       | 40,444 |   |
| Expenses paid                                                                  |       | (543,341              | )          | (411,380 | ) |
|                                                                           |       |                  |       |   |   |
| Net cash provided by operating activities                                      |       | 14,002,867            |       | 6,227,234 |   |
|                                                                           |       |                  |       |   |   |
| Cash flows from investing activities                                           |       |                  |       |   |   |
| Maturities of U.S. Government Securities                                       |       | 13,705,521            |       | 7,489,505 |   |
| Purchases of U.S. Government Securities                                        |       | (13,675,400           | )          | (3,414,573 | ) |
|                                                                           |       |                  |       |   |   |
| Net cash provided by (used for) investing  activities                          |       | 30,121                |       | 4,074,932 |   |
| Cash flow from financing activities                                            |       |                  |       |   |   |
| Distributions to Unitholders                                                   |       | (13,054,410           | )          | (6,888,005 | ) |
|                                                                           |       |                  |       |   |   |
| Net change in cash                                                             |       | 978,578               |       | 3,414,161 |   |
|                                                                           |       |                  |       |   |   |
| Cash, beginning of year                                                        |       | 3,970,870             |       | 98,692 |   |
|                                                                           |       |                  |       |   |   |
| Cash, end of quarter                                                           |       | $                     | 4,949,448  |   | $ | 3,512,853 |   |
|                                                                           |       |                  |       |   |   |
| **Reconciliation of net income to net cash provided  by operating activities** |       |                  |       |   |   |
|                                                                           |       |                  |       |   |   |
| Net income                                                                     |       | $                     | 12,996,827 |   | $ | 6,515,973 |   |
| Decrease (Increase) in accrued income  receivable                              |       | 1,059,898             |       | (289,659 | ) |
| Decrease (Increase) in prepaid expenses                                        |       | (31,942               | )          | (10,420 | ) |
| Increase (Decrease) in accrued expenses                                        |       | (21,916               | )          | 11,340 |   |
|                                                                           |       |                  |       |   |   |
| Net cash provided by operating activities                                      |       | $                     | 14,002,867 |   | $ | 6,227,234 |   |

 

See Notes to FinancialStatements.

 

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**MESABI TRUST**

** **

**NOTES TO FINANCIAL STATEMENTS**

** **

Note 1                               The accompanying interim condensed financial statements of MESABI TRUST(the “Trust”) have been prepared without audit (except for the balance sheet atJanuary 31, 2005) 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 generally accepted accounting principles have been condensed oromitted pursuant to such rules and regulations.  In the opinion of the Trustees, alladjustments have been made, consisting only of normal recurring adjustments,necessary for a fair presentation of the Trust’s financial position and theresults of its operations for the periods presented.  These unaudited interim financial statementsshould be read in conjunction with the audited financial statements included inthe Trust’s Form 10-K for the period ended January 31, 2005.

 

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

 

Note 3                               The Trustees have determined that the Unallocated Reserve should bemaintained at a prudent level, usually within the range of $500,000 to$1,000,000, to meet present or future liabilities of the Trust.  Accordingly, although the actual amount ofthe Unallocated Reserve will fluctuate from time to time, and may increase ordecrease from its current level, it is currently intended that futuredistributions will be highly dependent upon royalty income as it is receivedquarterly 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, 2005, the UnallocatedReserve was represented by $953,354 in unallocated cash and U.S. Governmentsecurities, and $2,460,025 of accrued revenue primarily representing royaltiesnot yet received by the Trust but anticipated to be received in January 2006from Northshore Mining Company as part of the royalty due with respect to thethird fiscal quarter, based upon reported lessee shipping activity for themonth of October 2005.

 

5

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

** **

**Forward-LookingInformation**

 

Certain statements contained in this document areforward-looking statements within the meaning of the Private SecuritiesLitigation Reform Act of 1995, including specifically those statementsestimating calendar year 2005 production or shipments and comments related tothe commencement of construction and opening of additional plants in 2005 andbeyond.  All such forward-lookingstatements are based on input from Northshore Mining Company (“Northshore”),which is the lessee/operator and a wholly-owned subsidiary of Cleveland-CliffsInc (“CCI”), and published announcements of CCI.  The Trust has no control over the operationsor activities of Northshore, nor any influence on the decision of whetherNorthshore’s facilities would be used to supply CCI’s demonstration orcommercial nugget modules (presently in the planning stages), except within theframework of current agreements.  Actualresults could differ materially from those indicated in such statements.  Important factors that could cause actualresults to differ materially include those listed below under the heading “ImportantFactors Affecting Mesabi Trust”.

 

**Background**

 

Mesabi Trust (“Mesabi Trust” or the “Trust”), formedpursuant 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.  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 the Trust (“Unitholders”) after thepayment of, or provision for, such expenses and liabilities, and protecting andconserving the assets held.  The Trusteesdo not intend to expand their responsibilities beyond those permitted orrequired by the Agreement of Trust, the Amendment to the Agreement of Trustdated October 25, 1982 (the “Amendment”), and those required underapplicable law.

 

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

 

•                                          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 from 2-1/2%of the gross proceeds for the first one million tons of iron ore products soshipped annually to 6% of the gross proceeds for all iron ore products in excessof 4 million tons so shipped annually.

 

•                                          Royalty bonuses are earned when iron ore products shippedfrom Silver Bay are sold at prices above a threshold price.  The royalty bonus is a percentage of thegross proceeds of product shipped from Silver Bay and sold at prices above athreshold price.  The threshold price isadjusted (but not below $30.00) on an annual basis for inflation and deflation(the “Adjusted Threshold Price”).  TheAdjusted Threshold Price was $41.13 for calendar year 2003, $41.76 for calendaryear 2004, and is $42.89 for calendar year 2005.  The royalty bonus percentage ranges from 1/2of 1% of the gross proceeds (on all 

 

6

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tonnage shipped for sale atprices between the Adjusted Threshold Price and $2.00 above the AdjustedThreshold Price) to 3% of the gross proceeds (on all tonnage shipped for saleat prices $10.00 or more above the Adjusted Threshold Price).  Prior to fiscal year 2005, the Trust had notreceived a royalty bonus for several years. (See the section entitled “RoyaltyComparisons” below for more information.)

 

•                                          Fee royalties, which historically constitute a smallercomponent of the Trust’s royalty income, are payable to Mesabi Land Trust, aMinnesota land trust of which Mesabi Trust is the sole beneficiary and forwhich US Bank N.A. acts as trustee, and are based on the amount of crude oremined.  Currently, the fee royalty oncrude ore is based on an agreed price per ton, subject to certainindexing.  Crude ore is the source ofiron 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, Northshore isobligated to pay to Mesabi Trust a minimum advance royalty.  Each year, the amount of the minimum advanceroyalty is adjusted (but not below $500,000 per annum) for inflation anddeflation.  The advance royalty was$685,630 for calendar year 2003, $696,161 for calendar year 2004, and is$714,988 for calendar year 2005.  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 theyear.  Because advance minimum royaltiesare essentially prepayments of base overriding royalties and royalty bonusesearned each year, any advance minimum royalties paid in a fiscal quarter arerecouped by credits against base overriding royalties and royalty bonusesearned in later fiscal quarters during the year.  Over the past two years, the base overridingroyalties (and, where applicable, royalty bonuses) earned in each fiscalquarter have exceeded the applicable minimum advance royalty amount and thus nominimum advance royalties have been necessary.

 

Northshore is obligated to make quarterly royalty paymentsin January, April, July and October of each year.  In the case of base overriding royalties androyalty bonuses, these quarterly royalty payments are to be made whether or notthe related proceeds of sale have been received by Northshore by the time suchpayments become due.

 

Under the relevant documents, Northshore may mine andship iron ore products from lands other than Mesabi Trust lands.  Northshore alone determines whether to mineoff of Trust and/or such other lands, based on its current mining andengineering plan.  The Trustees do notexert any influence over mining operational decisions.  To encourage the use of iron ore productsfrom Mesabi Trust lands, Mesabi Trust receives royalties on stated percentagesof iron ore shipped from Silver Bay, whether or not the iron ore products arefrom Mesabi Trust lands.  Mesabi Trustreceives royalties at the greater of (i) the aggregate quantity of ironore products shipped that were from Mesabi Trust lands, and (ii) a portionof the aggregate quantity of all iron ore products shipped that were from anylands, such portion being 90% of the first four million tons shipped duringsuch year, 85% of the next two million tons shipped during such year, and 25%of all tonnage shipped during such year in excess of six million tons.

 

Mesabi Trust has no employees, but it engagesindependent consultants to assist the Trustees in monitoring, among otherthings, the amount and sales prices of iron ore products shipped by Northshorefrom Silver Bay.  As noted above, theinformation regarding amounts and sales prices of shipped iron ore products isused to compute the royalties payable to Mesabi Trust by Northshore.  Deutsche Bank Trust 

 

7

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Company Americas, the Corporate Trustee, also performscertain administrative functions for Mesabi Trust.

 

**Resultsof Operations**

 

As shown in the table below, production of iron orepellets at Northshore from Mesabi Trust lands during the fiscal quarter ended October 31,2005 totaled approximately 1.07 million tons, and actual shipments over thesame period totaled approximately 1.26 million tons.  By comparison, actual pellet production forthe comparable prior period approximated 0.94 million tons, and actualshipments approximated 1.11 million tons.

 
| **Three Months Ended** | ** ** | **Pellets Produced from  Trust Lands** | ** ** | **Shipments from Trust  Lands** | ** ** |
|------------------------|------------|----------------------------------------|------------|---------------------------------|------------|
| October 31, 2005  |       | 1,068,775                              |       | 1,263,365                       |       |
| October 31, 2004  |       | 941,300                                |       | 1,109,247                       |       |

 

Duringthe nine months ended October 31, 2005, production of iron ore pellets atNorthshore from Mesabi Trust lands totaled approximately 3.26 million tons, andactual shipments over the same period totaled approximately 3.15 milliontons.  By comparison, actual pelletproduction for the comparable prior period approximated 3.43 million tons, andactual shipments approximated 3.43 million tons.

 

 
| **Nine Months Ended** | ** ** | **Pellets Produced from  Trust Lands** | ** ** | **Shipments from Trust  Lands** | ** ** |
|-----------------------|------------|----------------------------------------|------------|---------------------------------|------------|
| October 31, 2005 |       | 3,260,662                              |       | 3,152,340                       |       |
| October 31, 2004 |       | 3,429,293                              |       | 3,432,140                       |       |

 

The decreases in production and shipments from Trustlands are attributable to Northshore’s mining activity on lands owned byparties other than the Trust during the nine months ended October 31,2005.  During the comparable priorperiod, higher percentages of production and shipments were attributed toMesabi Trust lands.

 

Despite the decreased production and shipments, totalroyalty income for the quarter increased by approximately 51% over thecomparable prior period, primarily due to royalty bonuses and increased pelletpricing.

 

**Comparisonof Three Months Ended October 31, 2005 and October 31, 2004**

 

Net income for the quarter ended October 31, 2005was $5,454,183, an increase of approximately 72% over the quarter ended October 31,2004.  This increase was primarily due tothe receipt of royalty bonuses during the quarter and increases in pelletprices, as compared to the comparable prior period.  Expenses decreased from the comparable priorperiod, primarily due to decreases in general and administrative expenses.  Following is a summary of results for thethree months ended October 31, 2005 and October 31, 2004,respectively.

 

8

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| ** **           | ** ** | **Three Months Ended October 31,** | ** ** |
|----------------------|------------|-----------------------------------------|------------|
| ** **           | ** ** | **2005**                                | ** ** | **2004** | ** ** |
| Total royalty income |       | $                                       | 5,564,066  |   | $ | 3,295,828 |   |
| Interest income      |       | 14,707                                  |       | 10,942 |   |
| Gross income         |       | $                                       | 5,578,773  |   | $ | 3,306,770 |   |
|                 |       |                                    |       |   |   |
| Expenses             |       | 124,590                                 |       | 130,822 |   |
| Net income           |       | $                                       | 5,454,183  |   | $ | 3,175,948 |   |

 

**Comparisonof Nine Months Ended October 31, 2005 and October 31, 2004**

 

Net income for the nine months ended October 31,2005 was $12,996,827, an increase of approximately 99% over the nine monthsended October 31, 2004.  Thisincrease was primarily due to the receipt of royalty bonuses during the quarterand increases in pellet prices, as compared to the comparable priorperiod.  Expenses increased from thecomparable prior period, primarily due to increases in general andadministrative expenses.  Following is asummary of results for the nine months ended October 31, 2005 and October 31,2004, respectively.

 
| ** **           | ** ** | **Nine Months Ended October 31,** | ** ** |
|----------------------|------------|----------------------------------------|------------|
| ** **           | ** ** | **2005**                               | ** ** | **2004** | ** ** |
| Total royalty income |       | $                                      | 13,448,556 |   | $ | 6,897,024 |   |
| Interest income      |       | 37,755                                 |       | 31,250 |   |
| Gross income         |       | $                                      | 13,486,311 |   | $ | 6,928,274 |   |
|                 |       |                                   |       |   |   |
| Expenses             |       | 489,484                                |       | 412,301 |   |
| Net income           |       | $                                      | 12,996,827 |   | $ | 6,515,973 |   |

 

**UnallocatedReserve**

 

Unallocated Reserve as of October 31, 2005 was$3,413,379, an increase of approximately 102% over the Unallocated Reserve asof October 31, 2004.  The increaseis primarily due to royalty revenue that was accrued for on the Trust’s balancesheet at the end of the fiscal quarter, but not yet paid to the Trust.  The increased royalty revenue accrual isreflected as Accrued Income Receivable on the balance sheet at October 31,2005, which the Trustees anticipate will be distributed, after providing forexpenses and reserves, during the quarter in which it is received.

 

The Trustees have determined that the UnallocatedReserve should be maintained at a prudent level, usually within the range of$500,000 to $1,000,000.  Accordingly,although the actual amount of the Unallocated Reserve will fluctuate from timeto time, and may increase or decrease from its current level, it is currentlyintended that future distributions will be highly dependent upon royalty incomeas it is received and the level of Trust expenses.  The amount of future royalty income availablefor distribution will be subject to the volume of iron ore product shipmentsand the dollar level of sales by Northshore. Shipping activity is greatly reduced during the winter months andeconomic conditions, particularly those affecting the steel industry, mayadversely affect the amount and timing of such future shipments and sales.

 

The Trustees will continue to monitor the economiccircumstances of the Trust to strike a responsible balance betweendistributions to Unitholders and the need to maintain adequate reserves at a 

 

9

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prudent level, given the unpredictable nature of theiron ore industry, the Trust’s dependence on the actions of thelessee/operator, and the fact that the Trust essentially has no other liquidassets.  Following is a comparison ofUnallocated Reserve over the past year.

 
| ** **           | ** ** | **As of October 31,** | ** ** |
|----------------------|------------|----------------------------|------------|
| ** **           | ** ** | **2005**                   | ** ** | **2004** | ** ** |
| Unallocated  Reserve |       | $                          | 3,413,379  |   | $ | 1,692,553 |   |
|                      |            |                            |            |  |  |  |  |

 

**RoyaltyComparisons**

 

Royalties received in October 2005 included aroyalty bonus payment, reflecting prices of pellets shipped that exceeded thecurrent Adjusted Threshold Price of $42.89 per ton.

 

The following summarizes Mesabi Trust’s royalty incomefor the three months ended October 31, 2005 and October 31, 2004,respectively:

 
| ** **                               | ** ** | **Three Months Ended October 31,** | ** ** |
|------------------------------------------|------------|-----------------------------------------|------------|
| ** **                               | ** ** | **2005**                                | ** ** | **2004** | ** ** |
| Base  overriding royalties               |       | $                                       | 3,848,393  |   | $ | 2,684,273 |   |
| Bonus  royalties                         |       | 1,628,320                               |       | 539,896 |   |
| Minimum  advance royalty paid (recouped) |       | 0                                       |       | 0 |   |
| Fee  royalties                           |       | 87,353                                  |       | 71,659 |   |
| Total royalty income                     |       | $                                       | 5,564,066  |   | $ | 3,295,828 |   |

 

Thefollowing summarizes Mesabi Trust’s royalty income for the nine months ended October 31,2005 and October 31, 2004, respectively:

 
| ** **                               | ** ** | **Nine Months Ended October 31,** | ** ** |
|------------------------------------------|------------|----------------------------------------|------------|
| ** **                               | ** ** | **2005**                               | ** ** | **2004** | ** ** |
| Base  overriding royalties               |       | $                                      | 7,785,072  |   | $ | 6,089,504 |   |
| Bonus  royalties                         |       | 5,396,954                              |       | 539,896 |   |
| Minimum  advance royalty paid (recouped) |       | 0                                      |       | 0 |   |
| Fee  royalties                           |       | 266,530                                |       | 267,624 |   |
| Total royalty income                     |       | $                                      | 13,448,556 |   | $ | 6,897,024 |   |

 

The above comparison reflects a substantial increasein bonus royalties over the comparable prior period, due in large part to thefact that the Trust had not received any bonus royalties prior to its fiscalquarter ended October 31, 2004, as well as an increase in pelletprices.  See the heading “ImportantFactors Affecting Mesabi Trust – Future Prices” below for further informationregarding pellet pricing.

 

**Current Developments**

 

***General***.  CCI indicated in its Form 10-Q filed October 27,2005 that production for the first nine months of 2005 for Northshore was 3.7million tons of iron ore pellets, equal to the production for the first ninemonths of 2004.  CCI continues toforecast Northshore production at 4.9 million tons of iron ore 

 

10

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pellets (using iron ore mined both from Mesabi Trustlands and from other than Mesabi Trust lands) for calendar year 2005, whichrepresents a decrease of 100,000 tons from 2004’s total production for thecalendar year.  (See the followingsection, “Capacity Expansions,” for further discussion of CCI’s revisedproduction estimate.)

 

Northshore has not provided the Trust with an estimatefor total calendar year 2005 shipments of iron ore pellets.  (See description of the uncertainty of marketconditions in the iron ore and steel industry under “Important FactorsAffecting Mesabi Trust” below.)  Duringcalendar years 2004, 2003, 2002, 2001, and 2000, the percentage of shipments ofiron ore products from Mesabi Trust lands was approximately 92.0%, 95.5%,97.5%, 99.2%, and 99.8%, 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 2005.

 

***Capacity Expansions***.  In its Form 10-Q filed October 27,2005, CCI stated that its plan to re-start an idle furnace at Northshore in mid-2005has been deferred.  As previouslyreported by CCI, the expansion would be expected to increase Northshore’sannual production capacity by approximately 800,000 tons.  CCI indicated in published reports on September 27,2005 that it does not currently need the additional capacity from the idledfurnace due to softening in the domestic steel market, resulting in CCIreducing its forecasted North American sales for 2005.  At this time the Trustees are unable to makeany projections as to the extent to which CCI’s planned capacity expansions andthe delay in such expansions may impact future royalties payable to the Trust.

 

***Mesabi NuggetProject***.  CCI isparticipating in the Mesabi Nugget Project with Kobe Steel, Ltd. (“Kobe Steel”),Steel Dynamics, Inc., Ferrometrics, Inc. and the State ofMinnesota.  The project’s objective is todevelop and apply a new iron making technology (Kobe Steel’s Itmk3 process) forconverting iron ore into nearly pure iron nugget form.  CCI has indicated that if the Mesabi NuggetProject successfully achieves commercialization, iron nuggets from this newprocess would be used as an alternative to steel scrap as a raw material forelectric steel furnaces and blast furnaces, basic oxygen furnaces of integratedsteel producers or as feed stock for the foundry industry.

 

A pilot plant to test the Itmk3 process wasconstructed at the Northshore facility and operated through August 3,2004.  CCI stated in its Form 10-Kfiled February 22, 2005 that the third operating phase of the pilot planttest confirmed the commercial viability of the Itmk3 technology, and that fourelectric furnace producers and one foundry had used the nugget product withfavorable results.

 

In its Form 10-Q filed October 27, 2005, CCIstated that preliminary construction engineering and environmental permittingactivities have been initiated for two potential commercial plant locations(one in Butler, Indiana and the other at CCI’s Cliffs Erie facility in HoytLakes, Minnesota), and that the Minnesota Pollution Control Agency Citizens’Board unanimously approved environmental permitting for the Cliffs Erie site onJuly 26, 2005.  CCI further statedin its most recent Form 10-Q that a non-binding term sheet for acommercial plant was executed in March 2005 and a decision to proceed withconstruction engineering was made in April 2005.  CCI added that it would be the supplier ofiron ore and have a minority interest in the first commercial plant.  Further, CCI stated in its most recent Form 10-Qthat a decision to proceed on construction remains under evaluation.  However, Steel Dynamics, Inc. stated inpublished reports on November 23, 2005 that Minnesota seems to be thepreferred site for the commercial plant.

 

Although Mesabi Trust is not a party to the MesabiNugget Project and its involvement in this project was not solicited, iron orefrom Mesabi Trust lands may be used to supply concentrate to the iron nuggetplant.  At this time, however, theTrustees are unable to make projections as to whether any possible futureroyalties might be payable to the Trust with respect to any commercial nuggetplants.

 

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***IronOre Pricing Increases and Adjustments***.  During the course of its fiscal year someportion of the royalties paid to Mesabi Trust will be based on estimated pricesfor iron ore products sold under certain term contracts between Northshore, CCIand certain of their customers (the “CCI Pellet Agreements”).  Mesabi Trust is not a party to the CCI PelletAgreements.  These prices are subject tointerim and final pricing adjustments, which can be positive or negative, andwhich adjustments are dependent in part on multiple price and inflation indexfactors that are not known until after the end of a contract year.  This can result in significant and frequentvariations in royalties received by Mesabi Trust (and in turn the resultingamount available for distribution to Unitholders by the Trust) from quarter toquarter and on a comparative historical basis, and these variations, which canbe positive or negative, cannot be predicted by Mesabi Trust.

 

CCI reported in its Form 10-Q filed October 27,2005 that it experienced increased sales prices, primarily due to the effect onCCI’s term sales contract price adjustment factors of an approximate 86%increase in international pellet pricing, higher steel pricing, higher priceindex factors and other known contractual increases.

 

Because the shipments of iron ore products using ironore mined from Mesabi Trust lands represent only a fraction of CCI’s overallsales and because Mesabi Trust is not party to the CCI Pellet Agreements, whilethis news indicates that the trend of prices realized by CCI appears higher,the actual impact on royalties (and ultimately distributions by Mesabi Trust)cannot be estimated.

 

The Trustees cannot project whether iron ore priceswill continue to increase or any potential impact on future royalties payableto the Trust.

 

***Securities Regulation***.  The Trust is a publicly-traded trust listedon the New York Stock Exchange (“NYSE”) and is therefore subject to extensiveregulation under, among others, the Securities Act of 1933, the SecuritiesExchange Act of 1934, NYSE rules and regulations and the Sarbanes-OxleyAct of 2002 (“Sarbanes-Oxley”).  Issuersfailing to comply with such authorities risk serious consequences, includingcriminal as well as civil and administrative penalties.  In most instances, these laws, rules andregulations do not specifically address their applicability to publicly-tradedtrusts such as Mesabi Trust.  Inparticular, Sarbanes-Oxley provides for the adoption by the Securities andExchange Commission (the “SEC”) and NYSE of certain rules and regulationsthat may be impossible for the Trust to literally satisfy because of its natureas a pass-through trust.  During fiscal2004, the SEC and NYSE adopted rules and regulations pursuant toSarbanes-Oxley that require a publicly-traded company’s board of directors,audit committee or executive directors (or similar body) to act with respect tocertain corporate governance matters. The Trust does not have, nor does the Agreement of Trust provide for, aboard of directors, an audit committee or any executive officers.  Moreover, the Trust has no employees atall.  Therefore, the Trust cannotliterally comply with many of these rules and regulations.  The Trustees intend to follow the SEC’s andNYSE’s rulemaking closely and attempt to comply with such rules andregulations where possible.

 

**ImportantFactors Affecting Mesabi Trust**

 

The Agreement of Trust specifically prohibits theTrustees from entering into or engaging in any business.  This prohibition seemingly applies even tobusiness activities the Trustees deem necessary or 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 the Trust’sUnitholders after the payment of, or provision for, such expenses andliabilities, and protecting and conserving the assets held.

 

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Accordingly, the income of the Trust is highlydependent upon the activities and operations of Northshore, and the terms andconditions of the leases and assignments of leases between the Trust and Northshore.  The Trust and the Trustees have no controlover the operations and activities of Northshore, except within the frameworkof these agreements.  Northshore alonecontrols (i) historical operating data, including iron ore productionvolumes, marketing of iron ore products, operating and capital expenditures asthey relate to Northshore, environmental and other liabilities and the effectsof regulatory changes; (ii) plans for Northshore’s future operating andcapital expenditures; (iii) geological data relating to reserves and (iv) projectedproduction of iron ore products. Northshore alone determines whether to mine off Trust and/or statelands, based on its current mining and engineering plan.  The Trustees do not exert any influence overmining operational decisions, nor do the Trustees provide any input regardingthe ore reserve estimate reported by CCI. While the Trustees request material information for use in periodicreports as part of their evaluation of the Trust’s disclosure controls andprocedures, the Trustees do not control this information and they rely onNorthshore to provide accurate and timely information for use in the Trust’sreports filed with the SEC.

 

Additionally, as permitted by the terms of theAgreement of Trust and the Amendment, the Trustees are entitled to, and in factdo rely, upon certain experts in good faith, including (i) the independentconsultants with respect to monthly production and shipment reports, whichinclude figures on crude ore production and iron ore pellet shipments, anddiscussions concerning the condition and accuracy of the scales and plansregarding the development of the Trust’s mining property; and (ii) theaccounting 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 tothe Trust.

 

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

 

1.                             Future Prices.  Asdescribed elsewhere in this Report, the Trust receives a royalty bonus equal toa percentage of the gross proceeds of iron ore products (mined from MesabiTrust lands) shipped from Silver Bay and sold at prices above the AdjustedThreshold Price ($42.89 per ton for calendar year 2005).  Although Northshore was able to sell someproduct at prices higher than the Adjusted Threshold Price during the firstnine months of 2005, resulting in substantial bonus royalties received for suchtime period, the Trustees are unable to make projections as to whetherNorthshore will continue to be able to sell pellets at prices above theAdjusted Threshold Price, entitling the Trust to any future royalty bonuspayments.  Furthermore, as noted above,there is no assurance that there will be any additional positive priceadjustments under the CCI Pellet Agreements in the future, and it is possiblethat negative adjustments under those agreements can also occur.

 

2.                             Future Royalties.  Asdescribed elsewhere in this Report, the royalty percentage paid to the Trustincreases as the aggregate tonnage of iron ore products shipped, attributableto the Trust, in any calendar year increases past each of the first fourone-million ton volume thresholds. Assuming a consistent sales price per ton throughout a calendar year,shipments of iron ore product attributable to the Trust later in the yeargenerate a higher royalty to the Trust, as total shipments for the year exceedincreasing levels of royalty percentages and pass each of the first fourone-million ton volume thresholds.

 

Royaltiesincreased in fiscal 2005 primarily due to increased royalty revenue recognizedat the end of fiscal 2005 resulting from contract pricing adjustments ofpellets shipped during 2003 and 2004 

 

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pursuantto the CCI Pellet Agreements.  MesabiTrust is not party to these agreements. The Trustees cannot predict with certainty whether any pricingadjustments under these agreements will or will not occur in the future, or ifthere are pricing adjustments, whether they will be positive or negative.  In either case, these price adjustments willimpact future royalties received by the Trust that become available fordistribution to Unitholders.

 

3.                             Uncertainty of Market Conditions in the Steeland Iron Ore Industry.** **CCIreported in its Form 10-Q filed October 27, 2005 that, while there isuncertainty regarding the pellet requirements of its customers, CCI isprojecting that 2005 North American pellet sales will be approximately 22.5million tons (as compared to sales of 22.6 million tons in 2004) and 2005 NorthAmerican pellet production will be approximately 22.6 million tons (as comparedto production of 21.7 tons in 2004). However, CCI cautioned in its Form 10-Q that significant risks anduncertainties may impact its forecast, including, but not limited to, adecrease in steel production caused by global overcapacity of steel, intensecompetition in the steel industry, an increase in steel imports into the UnitedStates, consolidation in the steel industry, cyclicality in the steel market,fluctuations in international pricing for iron ore, and customer or potentialcustomer restructuring and financial difficulty (which could result in reducedproduction capacity over time). Furthermore, there still exists uncertainty, consolidation andrestructuring in the domestic steel market.

 

4.                             Shipping Conditions in the Great Lakes. Shipping activity by Northshore is dependent upon when the Great Lakesshipping lanes freeze for the winter months (typically in January) and whenthey re-open in the spring (typically late-March or April).  Base overriding royalties to Mesabi Trust arebased on shipments made in a calendar quarter. Because there ordinarily is little or no shipping activity in the firstcalendar quarter, the Trust typically receives only the minimum royalty (orslightly more than the minimum) for that period.

 

5.                             Operations of Northshore. Because the primary portion of the Trust’s revenues derive from iron oreproduct shipped by Northshore from Silver Bay, Northshore’s processing andshipping activities directly impact the Trust’s revenues in each quarter andfor each year.  In turn, a number offactors affect Northshore’s shipment volume. These factors include, among others, the economic conditions in the ironore industry, pricing by domestic and international competitors, long-termcustomer contracts or arrangements by Northshore or its competitors,availability of ore boats, production at Northshore’s mining operations, andproduction at the pelletizing/processing facility.  If any pelletizing line becomes idle for anyreason, production and shipments (and, consequently, Trust income) could beadversely impacted.  In addition, asnoted in CCI’s Form 10-Q filed October 27, 2005, the previouslyplanned reactivation of an idled furnace at Northshore has been deferred due tosoftening in the domestic steel market.

 

6.                             Percentage of Mesabi Trust Ore.  Asdescribed elsewhere in this Report, Northshore has the ability to process andship iron ore products from lands other than Mesabi Trust lands.  In certain circumstances, the Trust may beentitled to royalties on those other shipments, but not in all cases.  In general, the Trust will receive higherroyalties (assuming all other factors are equal) if a higher percentage ofshipments are from Mesabi Trust lands. The percentages of shipments that came from Mesabi Trust lands were92.0%, 95.5%, 97.5%, 99.2%, and 99.8%, in calendar years 2004, 2003, 2002, 2001,and 2000, respectively.

 

Inlight of the current steel industry environment, uncertainties arising from warand other global events, and the above-mentioned risks and factors, it isuncertain whether prices on domestic steel products will be maintained atcurrent levels, and whether steel mills will be able to operate at capacitylevels for the remainder of 2005 and beyond. Furthermore, it is uncertain whether the 

 

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demandfor domestic steel products will continue at current levels and the extent towhich it will impact royalties paid to the Trust in fiscal year 2006 andbeyond.

 

**CriticalAccounting Policies**

 

This “Trustees’ Discussion and Analysis of FinancialCondition and Results of Operations” is based upon the Trust’s financialstatements, which have been prepared in accordance with accounting principlesgenerally accepted in the United States. The preparation of these financial statements requires the Trustees tomake estimates and judgments that affect the reported amounts of assets,liabilities, revenues and expenses, and related disclosure of contingent assetsand liabilities.  These estimates formthe basis for making judgments about the carrying value of assets andliabilities that are not readily apparent from other sources.  The Trustees base their estimates andjudgments on historical experience and on various other assumptions that theTrustees believe are reasonable under the circumstances.  However, future events are subject to changeand the best estimates and judgments may require adjustment.

 

Critical accounting policies are those that havemeaningful impact on the reporting of the Trust’s financial condition andresults, and that require significant management judgment and estimates.  The Trustees have determined that there areno critical accounting policies.

 

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

 

Not applicable.

 

**Item 4.  Controls andProcedures.**

 

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

 

As part of their evaluation of the Trust’s disclosurecontrols and procedures, the Trustees rely on quarterly shipment and royaltycalculations 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 fromNorthshore and Northshore’s parent, CCI, certifying as to the accuracy of theroyalty calculations, and (b) CCI’s conclusions that its overalldisclosure controls and procedures are effective.  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 (“EvelethFee Office”).  Eveleth Fee Office gathersproduction and shipping information from Northshore and prepares monthlyproduction and shipment reports for the Trustees.  Furthermore, as part of its engagement by theTrust, Eveleth Fee Office also attends Northshore’s calibration and testing ofits crude ore scales and boat loader scales which are conducted on a periodicbasis.

 

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As of the end of the period covered by this report,the Trustees carried out an evaluation of the Trust’s disclosure controls andprocedures.  The Trustees have concludedthat such disclosure controls and procedures are effective.

 

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

 

**PART II - OTHER INFORMATION**

 
| **Item  1.** | ** ** | **Legal  Proceedings.**                                           |
|--------------|------------|-------------------------------------------------------------------|
|         |       |                                                              |
|         |       | None.                                                             |
|         |       |                                                              |
| **Item  2.** | ** ** | **Unregistered  Sales of Equity Securities and Use of Proceeds.** |
|         |       |                                                              |
|         |       | None.                                                             |
|         |       |                                                              |
| **Item  3.** | ** ** | **Defaults  Upon Senior Securities.**                             |
|         |       |                                                              |
|         |       | None.                                                             |
|         |       |                                                              |
| **Item  4.** | ** ** | **Submission  of Matters to a Vote of Security Holders.**         |
|         |       |                                                              |
|         |       | None.                                                             |
|         |       |                                                              |
| **Item  5.** | ** ** | **Other  Information.**                                           |
|         |       |                                                              |
|         |       | None.                                                             |
|         |       |                                                              |
| **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  dated December 7, 2005 of Gordon, Hughes & Banks, LLP regarding  its review of the unaudited interim financial statements of Mesabi Trust for  its quarter ended October 31, 2005. |
|         |       |                                                              |

 

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**SIGNATURES**

** **

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

 
|                         | MESABI TRUST                                          |                             |
|------------------------------|-------------------------------------------------------|----------------------------------|
|                         | (Registrant)                                          |                             |
|                         |                                                  |                             |
|                         | By:                                                   | DEUTSCHE  BANK TRUST COMPANY     |   |
|                         |                                                  | AMERICAS                         |   |
|                         |                                                  | Corporate  Trustee               |   |
|                         | Principal  Administrative Officer and duly authorized |                             |
|                         | signatory:*                                           |                             |
|                         |                                                  |                             |
| Date:  December 9, 2005 | By:                                                   | /s/ Rodney Gaughan               |   |   |
|                         |                                                  | Name:  Rodney Gaughan            |   |
|                         |                                                  | Title:  Assistant Vice President |   |
|                              |                                                       |                                  |  |  |  |

 

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

 

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