** **

**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**WASHINGTON,D.C. 20549

**FORM 10-Q**

(Mark One)

**x**                              QUARTERLYREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934

 

**                                                Forthe quarterly period ended April 30, 2006**

 

or

**o**                                 TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934

 

**       Forthe transition period from _________________ to _________________**

CommissionFile Number:  1-4488

 

**MESABI TRUST**

(Exact name ofregistrant as specified in its charter)

 
| **New York**(State or other jurisdiction of   incorporation or organization)                                                                                                           | **13-6022277**(I.R.S. Employer Identification No.) |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------|
| ** **                                                                                                                                                                             | ** **                                         |
| **c/o  Deutsche Bank Trust Company Americas  Trust & Securities Services — GDS  60 Wall Street  27th Floor  New York, New York**(Address of principal executive offices) | **10005**(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 by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements forthe past 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-accelerated filer  o

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

As of June 7, 2006, there were 13,120,010 Units of BeneficialInterest in Mesabi Trust outstanding.

 

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** **

**PART I - FINANCIAL INFORMATION**

**Item 1.****                    ****Financial Statements. (Note 1)**
| ** **                             | ** ** | **Three Months Ended  April 30,** | ** ** |
|----------------------------------------|------------|--------------------------------------------------|------------|
| ** **                             | ** ** | ** **                                       | ** ** | ** ** | ** ** |
| ** **                             | ** ** | **2006**                                         | ** ** | **2005** | ** ** |
| ** **                             | ** ** | ** **                                       | ** ** | ** ** | ** ** |
| **A. Condensed Statements of  Income** |       |                                             |       |   |   |
|                                   |       |                                             |       |   |   |
| Revenues                               |       |                                             |       |   |   |
| Royalty income                         |       | $                                                | 1,636,998  |   | $ | 2,343,447 |   |
| Interest income                        |       | 7,972                                            |       | 10,638 |   |
|                                   |       | 1,644,970                                        |       | 2,354,085 |   |
|                                   |       |                                             |       |   |   |
| Expenses                               |       | 171,117                                          |       | 218,922 |   |
|                                   |       |                                             |       |   |   |
| Net income                             |       | $                                                | 1,473,853  |   | $ | 2,135,163 |   |
|                                   |       |                                             |       |   |   |
| Number of units outstanding            |       | 13,120,010                                       |       | 13,120,010 |   |
|                                   |       |                                             |       |   |   |
| Net income per unit (Note 2)           |       | $                                                | 0.1123     |   | $ | 0.1627 |   |
|                                   |       |                                             |       |   |   |
| Distributions  declared per unit       |       | $                                                | 0.30       |   | $ | 0.33 |   |

 

 

 

 

 

 

 

 

 

See Notes to Financial Statements.

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| ** **                                                                 | ** ** | **April 30, 2006** | ** ** | **January 31, 2006** | ** ** |
|----------------------------------------------------------------------------|------------|------------------------------|------------|--------------------------------|------------|
| ** **                                                                 | ** ** | ** **                   | ** ** | ** **                     | ** ** |
| **B.     Condensed Balance Sheets**                    | ** ** | ** **                   | ** ** | ** **                     | ** ** |
|                                                                       |       |                         |       |                           |       |
| **Assets**                                                                 | ** ** | ** **                   | ** ** | ** **                     | ** ** |
|                                                                       |       |                         |       |                           |       |
| Cash                                                                       |       | $                            | 110,551    |                           | $          | 6,377,990 |   |
|                                                                       |       |                         |       |                           |       |
| U.S. Government securities, at amortized cost (which  approximates market) |       | 4,749,405                    |       | 648,193                        |       |
|                                                                       |       |                         |       |                           |       |
| Accrued income receivable                                                  |       | 1,700,192                    |       | 4,277,766                      |       |
| Prepaid expenses                                                           |       | 13,825                       |       | 25,007                         |       |
|                                                                       |       | 6,573,973                    |       | 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                              |       |
|                                                                       |       |                         |       |                           |       |
|                                                                       |       | $                            | 6,573,976  |                           | $          | 11,328,959 |   |
|                                                                       |       |                         |       |                           |       |
| **Liabilities,  Unallocated Reserve and Trust Corpus**                     | ** ** | ** **                   | ** ** | ** **                     | ** ** |
|                                                                       |       |                         |       |                           |       |
| Liabilities                                                                |       |                         |       |                           |       |
| Distribution payable                                                       |       | $                            | 3,936,003  |                           | $          | 6,166,405 |   |
| Accrued expenses                                                           |       | 115,095                      |       | 177,527                        |       |
|                                                                       |       | 4,051,098                    |       | 6,343,932                      |       |
|                                                                       |       |                         |       |                           |       |
| Unallocated Reserve (Note 3)                                               |       | 2,522,875                    |       | 4,985,024                      |       |
| Trust Corpus                                                               |       | 3                            |       | 3                              |       |
|                                                                       |       |                         |       |                           |       |
|                                                                       |       | $                            | 6,573,976  |                           | $          | 11,328,959 |   |

 

 

 

 

 

 

 

See Notes toFinancial Statements.

 

 

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| ** **                                                                     | ** ** | **Three Months Ended  April 30,** | ** ** |
|--------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                                     | ** ** | **2006**                                         | ** ** | **2005** | ** ** |
|                                                                           |       |                                             |       |   |   |
| **C.   Condensed Statements of Cash Flows**                          | ** ** | ** **                                       | ** ** | ** ** | ** ** |
|                                                                           |       |                                             |       |   |   |
| Cash flows from  operating activities                                          |       |                                             |       |   |   |
| Royalties received                                                             |       | $                                                | 4,209,511  |   | $ | 4,462,976 |   |
| Interest received                                                              |       | 13,033                                           |       | 17,955 |   |
| Expenses paid                                                                  |       | (222,367                                         | )          | (161,419 | ) |
|                                                                           |       |                                             |       |   |   |
| Net cash provided by operating activities                                      |       | 4,000,177                                        |       | 4,319,512 |   |
|                                                                           |       |                                             |       |   |   |
| Cash flows from  investing activities                                          |       |                                             |       |   |   |
| Maturities of U.S. Government Securities                                       |       | 6,601,230                                        |       | 4,009,083 |   |
| Purchases of U.S. Government Securities                                        |       | (10,702,441                                      | )          | (3,909,083 | ) |
|                                                                           |       |                                             |       |   |   |
| Net cash provided by (used for) investing activities                           |       | (4,101,211                                       | )          | 100,000 |   |
|                                                                           |       |                                             |       |   |   |
| Cash flow used  for financing activity                                         |       |                                             |       |   |   |
| Distributions to Unitholders                                                   |       | (6,166,405                                       | )          | (3,870,404 | ) |
|                                                                           |       |                                             |       |   |   |
| Net change in cash                                                             |       | (6,267,439                                       | )          | 549,108 |   |
|                                                                           |       |                                             |       |   |   |
| Cash, beginning of year                                                        |       | 6,377,990                                        |       | 3,970,870 |   |
|                                                                           |       |                                             |       |   |   |
| Cash, end of quarter                                                           |       | $                                                | 110,551    |   | $ | 4,519,978 |   |
|                                                                           |       |                                             |       |   |   |
| **Reconciliation  of net income to net cash provided by operating activities** | ** ** | ** **                                       | ** ** | ** ** | ** ** |
|                                                                           |       |                                             |       |   |   |
| Net income                                                                     |       | $                                                | 1,473,853  |   | $ | 2,135,163 |   |
| Decrease in accrued income                                                     |       | 2,577,574                                        |       | 2,126,847 |   |
| (Increase) Decrease in prepaid insurance                                       |       | 11,182                                           |       | (19,491 | ) |
| Increase (Decrease) in accrued expenses                                        |       | (62,432                                          | )          | 76,993 |   |
|                                                                           |       |                                             |       |   |   |
| Net cash provided by operating activities                                      |       | $                                                | 4,000,177  |   | $ | 4,319,512 |   |

 

 

 

 

 

See Notes toFinancial Statements.                                                                                                     

 

 

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**MESABI TRUST**

**NOTES TO FINANCIAL STATEMENTS**

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 tothe rules and regulations of the Securities and Exchange Commission. Certaininformation and footnote disclosures normally included in financial statementsprepared in accordance with generally accepted accounting principles have beencondensed or omitted pursuant to such rules and regulations. In theopinion of the Trustees, all adjustments, consisting only of normal recurringadjustments, necessary for a fair statement of (a) the results ofoperations for the three months ended April 30, 2006 and 2005, (b) thefinancial positions at April 30, 2006 and January 31, 2006, and (c) thecash flows for the three months ended April 30, 2006 and 2005, have beenmade.

Note 2.                            Earnings per unit are 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 actual amount of the Unallocated Reserve willfluctuate from time to time, and may increase or decrease from its currentlevel, it is currently intended that future distributions will be highlydependent upon royalty income as it is received quarterly and the level of Trustexpenses that the Trustees anticipate occurring 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 April 30,2006, the Unallocated Reserve was represented by $822,683 in unallocated cashand U.S. Government securities, and $1,700,192 of accrued revenue primarilyrepresenting royalties not yet received by the Trust but anticipated to bereceived in July 2006 from Northshore Mining Company as part of theroyalty due with respect to the first fiscal quarter, based upon reportedlessee shipping activity for the month of April 2006.

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

**Background**

Mesabi Trust (“Mesabi Trust”or the “Trust”), formed pursuant to an Agreement of Trust dated July 18,1961 (the “Agreement of Trust”), is a trust organized under the laws of theState of New York. The Agreement of Trust specifically prohibits the Trusteesfrom entering into or engaging in any business. This prohibition applies evento business activities the Trustees deem necessary or proper for thepreservation and protection of the Trust Estate. Accordingly, the Trustees’activities in connection with the administration of Trust assets are limited tocollecting income, paying expenses and liabilities, distributing net income tothe holders of Certificates of Beneficial Interest in the Trust (“Unitholders”)after the payment of, or provision for, such expenses and liabilities, andprotecting and conserving the assets held. Deutsche Bank Trust CompanyAmericas, the Corporate trustee, performs certain administrative services forthe Trust.

The Trustees do not intendto expand their responsibilities beyond those permitted or required by theAgreement of Trust, the Amendment to the Agreement of Trust dated October 25,1982 (the “Amendment”), and those required under applicable law. TheTrust has no employees, but it engages independent consultants to assist theTrustees in, among other things, monitoring the amount and sales prices of ironore products shipped from Silver Bay, Minnesota, based on information suppliedto the Trustees by Northshore Mining Company (“Northshore”), thelessee/operator of the Mesabi Trust lands, and its parent company Cleveland-Cliffs Inc (“CCI”). References toNorthshore in this quarterly report, unless the context requires otherwise, areapplicable to CCI as well.

Leasehold royalty incomeconstitutes the principal source of the Trust’s revenue. Royalty rates aredetermined in accordance with the terms of Mesabi Trust’s leases andassignments of leases.

Three types of royalties, aswell as royalty bonuses, comprise the Trust’s leasehold royalty income:

o                                    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 Trustbase overriding royalties in varying amounts, based on the volume of iron oreproducts shipped. Base overriding royalties are calculated as a percentage ofthe gross proceeds of iron ore products produced at Mesabi Trust lands (and toa limited extent other lands) and shipped from Silver Bay, Minnesota. Thepercentage ranges from 2-1/2% of the gross proceeds for the first onemillion tons of iron ore products so shipped annually to 6% of the grossproceeds for all iron ore products in excess of 4 million tons so shippedannually. Base overriding royalties are subject to price adjustments under theCCI Pellet Agreements (described elsewhere in this Report); such adjustments maybe positive or negative. (See the section entitled “Royalty Comparisons” belowfor more information.)

o                                    Royalty bonuses are earned when iron ore products shippedfrom Silver Bay are sold at prices above a threshold price. The royalty bonusis a percentage of the gross proceeds of product shipped from Silver Bay andsold at prices above a threshold price. The threshold price is adjusted (butnot below $30.00) on an annual basis for inflation and deflation (the “AdjustedThreshold Price”). The Adjusted Threshold Price was $41.76 for calendar year2004, $42.89 for calendar year 2005 and is $44.60 for calendar year 2006. Theroyalty bonus percentage ranges from 1/2 of 1% of the gross proceeds (on alltonnage shipped for sale at prices between the Adjusted Threshold Price and$2.00 above 

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the Adjusted ThresholdPrice) to 3% of the gross proceeds (on all tonnage shipped for sale at prices$10.00 or more above the Adjusted Threshold Price). Royalty bonuses are subjectto price adjustments under the CCI Pellet Agreements (as described elsewhere inthis Report); such adjustments may be positive or negative. (See the sectionentitled “Royalty Comparisons” below for more information.)

o                                    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 on crude ore is based on an agreed price perton, subject to certain indexing. Crude ore is the source of iron oxides usedto make iron ore pellets and other products.

o                                    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 anyshipment has occurred, Northshore is obligated to pay to Mesabi Trust a minimumadvance royalty. Each year, the amount of the minimum advance royalty isadjusted (but not below $500,000 per annum) for inflation and deflation. Theminimum advance royalty was $696,161 for calendar year 2004, $714,988 forcalendar year 2005 and is $743,420 for calendar year 2006. Until overridingroyalties (and royalty bonuses, if any) for a particular year equal or exceedthe minimum advance royalty for the year, Northshore must make quarterlypayments of up to 25% of the minimum advance royalty for the year. Becauseminimum advance royalties are essentially prepayments of base overridingroyalties and royalty bonuses earned each year, any minimum advance royaltiespaid in a fiscal quarter are recouped by credits against base overridingroyalties and royalty bonuses earned in later fiscal quarters during the year.

Northshore is obligated tomake quarterly royalty payments in January, April, July and October ofeach year. In the case of base overriding royalties and royalty bonuses, thesequarterly royalty payments are to be made whether or not the related proceedsof sale have been received by Northshore by the time such payments become due.

Under the relevantdocuments, Northshore may mine and ship iron ore products from lands other thanMesabi Trust lands. Northshore alone determines whether to mine off Trustand/or such other lands, based on its current mining and engineering plan. TheTrustees do not exert any influence over mining operational decisions. Toencourage the use of iron ore products from Mesabi Trust lands, Mesabi Trustreceives royalties on stated percentages of iron ore shipped from Silver Bay,whether or not the iron ore products are from 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.

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. As describedelsewhere in this report, there are numerous factors that combine to influencethe sale price of shipped iron ore products, and the interim and final priceadjustments to the sale prices under the CCI Pellet Agreements. Accordingly,the Trustees cannot predict, nor do they attempt to forecast, the level ofproduction at Northshore, the volume of shipments from Silver Bay or the amountof royalties, of any kind, that may be paid or become payable to the Trust.

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**Resultsof Operations**

As shown in the table below,production of iron ore pellets at Northshore from Mesabi Trust lands during thefiscal quarter ended April 30, 2006 totaled approximately 1.2 milliontons, and actual shipments over the same period totaled approximately 0.5 milliontons. By comparison, actual pellet production for the comparable prior periodapproximated 1.2 million tons, and actual shipments approximated 0.5 milliontons.

| Fiscal Quarter Ended | ** ** | **Pellets Produced from  Trust Lands  (tons)** | ** ** | **Shipments from  Trust Lands  (tons)** |
|----------------------|------------|------------------------------------------------|------------|-----------------------------------------|
| April 30, 2006  |       | 1,218,586                                      |       | 537,059                                 |
| April 30, 2005  |       | 1,155,935                                      |       | 537,942                                 |

 

While production andshipments attributed to Trust lands during the fiscal quarter ended April 30,2006 are relatively unchanged from the comparable prior period, total royaltyincome for the quarter decreased by approximately 30% over the comparable priorperiod, due to a slight decrease in pellet prices combined with a larger netdecrease in the accrued income payable to the Trust as a result of thefinalization of contract pricing adjustments under the CCI Pellet Agreementsbetween calendar year 2004 and 2005. These contract pricing adjustments, whichare recognized by the Trust during the first quarter of its fiscal year, aredescribed in more detail below under the heading Iron Ore Pricing and ContractAdjustments and in the Trust’s Annual Report on Form 10-K for theyear-ended January 31, 2006 under the heading “Risk Factors” in Part I —Item 1A.

**Comparisonof Three Months Ended April 30, 2006 and April 30, 2005**

Net income for the quarter ended April 30, 2006 was $1,473,853, adecrease of approximately 31% compared to the quarter ended April 30, 2005.As with the decrease in total royalty income, the decrease in net income wascaused by a slight decrease in pellet prices, as compared to the comparableprior period, combined with a larger net decrease in the accrued income payableto the Trust as a result of the finalization of contract pricing adjustments asdescribed above. The decrease in total royalty income was partially offset by areduction in the Trust’s expenses, as compared to the first quarter 2005,primarily due to a decrease in legal and accounting fees. Following is asummary of results for the three months ended April 30, 2006 and April 30,2005, respectively.

|                       | ** ** | **Three Months Ended April 30,** | ** ** |
|-----------------------|------------|------------------------------------------------------|------------|
| ** **            | ** ** | **2006**                                             | ** ** | **2005** | ** ** |
| Total royalty  income |       | $                                                    | 1,636,998  |   | $ | 2,343,447 |   |
| Interest income       |       | 7,972                                                |       | 10,638 |   |
| Gross income          |       | $                                                    | 1,561,098  |   | $ | 2,354,085 |   |
|                  |       |                                                 |       |   |   |
| Expenses              |       | 171,117                                              |       | 218,922 |   |
| Net income            |       | $                                                    | 1,473,853  |   | $ | 2,135,163 |   |

 

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**RoyaltyComparisons**

Royaltiesreceived in April 2006 included a bonus royalty payment, reflecting pricesof pellets shipped that exceeded the current Adjusted Threshold Price of $44.60per ton. The following chart summarizes Mesabi Trust’s royalty income for thethree months ended April 30, 2006 and April 30, 2005, respectively:

|                                          | ** ** | **Three Months Ended April 30,** | ** ** |
|------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                               | ** ** | **2006**                                             | ** ** | **2005** | ** ** |
| Base overriding  royalties               |       | $                                                    | 539,699    |   | $ | 925,016 |   |
| Bonus royalties                          |       | 985,542                                              |       | 1,323,270 |   |
| Minimum advance  royalty paid (recouped) |       | 0                                                    |       | 0 |   |
| Fee royalties                            |       | 111,757                                              |       | 95,161 |   |
| Total royalty  income                    |       | $                                                    | 1,636,998  |   | $ | 2,343,447 |   |

 

Theabove comparison reflects a 26% decrease in bonus royalties received versus thecomparable prior period. This decrease is the result of slightly lower pelletprices, a small reduction in shipments and a higher Adjusted Threshold Price,each as compared to the prior period, all of which have the effect of reducingthe bonus royalty payment to the Trust.

**UnallocatedReserve**

Unallocated Reserve as ofApril 30, 2006 was $2,522,875, an increase of 18.5% over the UnallocatedReserve as of April 30, 2005. The increase is primarily due to royaltyrevenue that was accrued on the Trust’s balance sheet at the end of the fiscalquarter, but not yet paid to the Trust (expected in late July 2006),resulting from an increase in tons shipped during the first quarter and anincrease in bonus royalties. The increased royalty revenue accrual is reflectedas accrued income receivable on the balance sheet at April 30, 2006, mostof which the Trustees anticipate will be distributed, after providing forexpenses and reserves, during the quarter in which it is received.

The Trustees have determinedthat the Unallocated Reserve should be maintained at a prudent level, usuallywithin the range of $500,000 to $1,000,000. 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 and the level of Trust expenses. The amount of future royalty incomeavailable for distribution will be subject to the volume of iron ore productshipments and the dollar level of sales by Northshore. Shipping activity isgreatly reduced during the winter months and economic conditions, particularlythose affecting the steel industry, may adversely affect the amount and timingof such future shipments and sales.

The Trustees will continueto monitor the economic circumstances of the Trust to strike a responsiblebalance between distributions to Unitholders and the need to maintain reservesat a prudent level, given the unpredictable nature of the iron ore industry,the Trust’s dependence on the actions of Northshore, and the fact that theTrust essentially has no other liquid assets.

|                      | ** ** | **As of April 30,** | ** ** |
|----------------------|------------|------------------------------------|------------|
| ** **           | ** ** | **2006**                           | ** ** | **2005** | ** ** |
| Unallocated  Reserve |       | $                                  | 2,522,875  |   | $ | 2,129,322 |   |
|                      |            |                                    |            |  |  |  |  |

 

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**Recent Developments**

***Production and Shipments.***In its Form 10-Qfiled April 27, 2006, CCI stated that production for the first threemonths of 2006 for Northshore was 1.3 million tons of iron ore pellets, whichrepresents an increase of 100,000 tons over the production through the firstthree months of 2005. CCI currently estimates Northshore production to beapproximately 4.9 million tons of iron ore pellets (using iron ore mined fromboth Mesabi Trust lands and from other than Mesabi Trust lands) for calendaryear 2006. Neither CCI nor Northshore has provided the Trust with an estimatefor total calendar year 2006 shipments. The Trustees are unable to determinehow CCI’s projections will impact shipments from Northshore specifically andthe resulting effect, if any, on Mesabi Trust royalties.

During calendar years 2005, 2004, 2003, 2002 and2001, the percentage of shipments of iron ore products from Mesabi Trust landswas approximately 90.1%, 92.0%, 95.5%, 97.5% and 99.2%, respectively, of totalshipments. Northshore has not advised the Trustees as to the percentage of ironore products from Mesabi Trust lands it anticipates shipping in calendar year2006. See the description of the uncertainty of market conditions in the ironore and steel industry under “Important Factors Affecting Mesabi Trust” below and the information under the heading “RiskFactors” in Part I — Item 1A of the Trust’s Annual Report on Form 10-Kfor the year-ended January 31, 2006

***Iron Ore Pricing and Contract 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 isnot a party to the CCI Pellet Agreements. These prices are subject to interimand final pricing adjustments, which can be positive or negative, and whichadjustments are dependent in part on multiple price and inflation index factorsthat are not known until after the end of a contract year. This can result insignificant and frequent variations in royalties received by Mesabi Trust (andin turn the resulting amount available for distribution to Unitholders by theTrust) from quarter to quarter and on a comparative historical basis, and thesevariations, which can be positive or negative, cannot be predicted by MesabiTrust.

CCI reported in its Form 10-Q filed April 27,2006 that it experienced slightly higher sales margins for the first quarter of2006 versus the same period in 2005, as a result of higher price realizationswhich were partially offset by lower sales volume and higher production costs. Accordingto CCI, the increase in sales prices of approximately fifteen percent for thefirst quarter of 2006 reflected the effect of lag year adjustments on CCI’ssales contract price adjustment factors along with higher steel prices andhigher increases in the Producers Price Index. According to CCI, there was no effect on firstquarter sales pricing from changes in the international benchmark pellet price but anychange in the international pellet price, which is subject to ongoingnegotiations, would have a retroactive effect on a portion of first quartersales. TheTrustees cannot predict whether iron ore prices will continue to increase orany potential impact on future royalties payable to the Trust.

***Mittal Steel USA Agreements.***Although Mesabi Trust is not a party to any iron ore supply contractwith any customer of Northshore/CCI, the royalties it receives under theAmended Assignment Agreements are basically dependent on the volume and priceof iron ore products that are shipped from Silver Bay. A substantial portion ofshipments of iron ore from Mesabi Trust lands are sold under one of the CCI PelletAgreements, the Pellet Sale and Purchase Agreement dated April 10, 2002between CCI (together with Northshore and other affiliates) and InternationalSteel Group, Inc. (together with its affiliates, “ISG”) (the “ISGAgreement”). According to the terms of the ISG Agreement, CCI is ISG’s solesupplier of iron ore through 2016 for its Cleveland and Indiana Harbor Works. Theterm of the ISG Agreement is through December 31, 2016, unless eitherparty gives the other written notice to terminate by December 31, 2014(two years prior to the end of the term). If no notice of termination is given,the

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agreement will continue on an annual basis, subject totermination with 2-years’ prior written notice. The ISG Agreement alsoprovides for upward or downward adjustments of iron ore prices, whichadjustments are dependent in part on multiple price and inflation index factorsthat are not known until after the end of a contract year. Many portions of theISG Agreement such as prices, price adjustments and price adjustment formulashave received confidential treatment in accordance with the rules of theSecurities and Exchange Commission and the Trustees have not been permitted toreview the entire agreement. The Trustees are not able to quantify the effectof the amendment to the ISG Agreement on future royalties payable to the Trust.

Additional shipments of iron ore from Mesabi Trustlands are sold under the Amended and Restated Pellet Sale and PurchaseAgreement dated May 17, 2004 between certain affiliates of CCI (includingNorthshore), ISG and ISG Weirton Inc. (the “Weirton Agreement”). According tothe terms of the Weirton Agreement, CCI is one of two suppliers of iron orepellets through 2018 to Weirton (now Mittal Steel-Weirton).

In its Form 10-K filed February 21,2006, CCI stated that Mittal Steel USA (“Mittal”) (which acquired ISG,including ISG Weirton, in April 2005) is claiming overpayments ofapproximately $49.6 million and $8.7 million, respectively, under supplementalsteel price sharing provisions of the ISG Agreement and the Weirton Agreement. Inaddition, Mittal permanently shut down the blast furnace at Weirton and hadtaken the position that it has no further obligation to purchase pellets underthe Weirton Agreement. In a Form 8-K filed April 13, 2006, CCIindicated that it had entered into a letter agreement with Mittal resolving theWeirton Agreement dispute and modifying the terms of the three iron ore supplyagreements between CCI and Mittal to aggregate minimum purchase requirementsand permit the reduction or deferral of Mittal’s annual tonnage purchaseobligation. Under the terms of the letter agreement, according to the Form 8-K,CCI agreed to cancel an invoice for approximately 325,000 tons of iron orepellets and Mittal agreed to waive its overpayment claims.  The terms of the letter agreement will bereflected in a definitive agreement amending the terms of the three iron oresupply agreements between CCI and Mittal.

The Trust is not a party to the ISG Agreement orthe Weirton Agreement and the Trustees are unable at this time to determinewhat, if any, impact CCI’s settlement with Mittal may have on royalties alreadypaid or payable in the future to the Trust.

***Mesabi Nugget Project.***Since 2002, CCIhas been participating in the Mesabi Nugget Project with Kobe Steel, Ltd. (“KobeSteel”), Steel Dynamics, Inc., Ferrometrics, Inc. and the State ofMinnesota. The project’s objective is to develop and apply a new iron makingtechnology (Kobe Steel’s Itmk3 process) for converting iron ore into nearlypure iron nugget form. CCI has indicated that if the Mesabi Nugget Projectsuccessfully achieves commercialization, iron nuggets from this new processwould be used as an alternative to steel scrap as a raw material for electricsteel furnaces and blast furnaces or basic oxygen furnaces of integrated steelproducers.

In its Form 10-Q filed April 27,2006, CCI affirmed its continued involvement in the Mesabi Nugget Project andcontinues to state that it will be the supplier of iron ore. CCI’s board ofdirectors has authorized $50 million in capital expenditures for the MesabiNugget Project, subject to the project obtaining non-recourse financing for itscapital requirements in excess of equity investments made by the projectparticipants and the project participants reaching mutually agreed upon terms. Theauthorized capital expenditures by CCI include $21 million for construction andoperation of the commercial nugget plant, $25 million to expand the Northshoreconcentrator to provide the iron ore concentrate, and $4.4 million for railroadimprovements to transport the concentrate. CCI stated further that its equityinterest in the venture is expected to be approximately 25 percent.

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Although Mesabi Trust is not a party to the MesabiNugget Project and its involvement in this project has not been solicited, ironore from Mesabi Trust lands may be used to supply concentrate to the commercialmodules. At this time, however, the Trustees are unable to make projections asto whether, and to what extent, any possible future royalties might be payableto the Trust with respect to any commercial nugget plants.

***USWA Written Notification.  ***In its Form 10-Q filed April 27, 2006, CCI stated thatit received a “Written Notification” from the United Steel Workers Associationindicating that, effective April 1, 2006, the USWA initiated an organizingcampaign at Northshore. CCI stated that, pursuant to its collective bargainingagreements with the USWA, it is required to remain neutral during theorganizing campaign. CCI noted that previous efforts to organize Northshoreemployees have been unsuccessful.

***EPA Notice of Violation.***On February 15,2006, the U.S. Environmental Protection Agency (“EPA”) issued a news releaseannouncing that it had cited Northshore for four alleged violations. Accordingto CCI’s Form 8-K filed February 15, 2006, the Notice ofViolation (the “Notice”) alleges: (1) that Northshore violated thePrevention of Significant Deterioration (“PSD”) requirements of the Clean AirAct in the 1990 restart of Furnaces 11 and 12; (2) that Northshoreviolated the PSD Regulations in the 1995 restart of Furnace 6; (3) Title Voperating permit violations for not including in the Title V permit allapplicable requirements (including a compliance schedule for PSD and Best AvailableControl Technology requirements associated with the furnace restarts); and (4) Northshore’sfailure to comply with calibration of monitoring equipment as required underNorthshore’s Title V permit. CCI stated in its Form 10-Q filed April 27,2006, that it was investigating the allegations in the Notice. The Trust wasnot named in the Notice and the Trustees have not received any informationregarding the Notice, other than that which has been publicly reported by CCI. TheTrustees cannot determine the impact, if any, of any proven violations on therevenues of 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, the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”) and therules and regulations of the NYSE. Issuers failing to comply with suchauthorities risk serious consequences, including criminal as well as civil andadministrative penalties. In most instances, these laws, rules andregulations do not specifically address their applicability to publicly-tradedtrusts such as Mesabi Trust. In particular, Sarbanes-Oxley mandated theadoption by the Securities and Exchange Commission (the “SEC”) and NYSE ofcertain rules and regulations that are impossible for the Trust toliterally satisfy because of its nature as a pass-through trust. Pursuant toNYSE rules the Trust is exempt from many of the corporate governancerequirements that apply to publicly traded corporations.  The Trust does not have, nor does theAgreement of Trust provide for, a board of directors, an audit committee, acorporate governance committee or a compensation committee. The Trustees intendto closely monitor the SEC’s and NYSE’s rulemaking activity and will complywith such rules and regulations where applicable.

**ImportantFactors Affecting Mesabi Trust**

The Agreement of Trustspecifically prohibits the Trustees from entering into or engaging in anybusiness. This prohibition seemingly applies even to business activities theTrustees deem necessary or proper for the preservation and protection of theTrust Estate (as such term is defined below). Accordingly, the Trustees’activities in connection with the administration of Trust assets are limited tocollecting income, paying expenses and liabilities, distributing net income tothe Trust’s Unitholders after the payment of, or provision for, such expensesand liabilities, and protecting and conserving the assets held. Consequently,the income of the Trust is highly dependent upon the activities and operationsof

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Northshore, and the terms and conditions of the leasesand assignments of leases between the Trust and Northshore.

Neither the Trust nor theTrustees have any control over the operations and activities of Northshore,except within the framework of the leases and assignments of leases between theTrust and Northshore. CCI alone controls (i) historical operating data,including iron ore production volumes, marketing of iron ore products,operating and capital expenditures as they relate to Northshore, environmentaland other liabilities and the effects of regulatory changes; (ii) plansfor Northshore’s future operating and capital expenditures; (iii) geologicaldata relating to reserves (iv) projected production of iron ore products;and (v) the decision to mine off Trust and/or state lands (which is basedon its current mining and engineering plan). The Trustees do not exert anyinfluence over mining operational decisions, nor do the Trustees provide anyinput regarding the ore reserve estimate reported by CCI. While the Trusteesrequest material information for use in periodic reports as part of theirevaluation of the Trust’s disclosure controls and procedures, the Trustees donot control this information and they rely on the information in CCI’s periodicand current filings with the SEC to provide accurate and timely information inthe Trust’s reports filed with the SEC.

In accordance with theAgreement of Trust and the Amendment, the Trustees are entitled to, and in factdo rely, upon certain experts in good faith, including (i) the independentconsultants with respect to monthly production and shipment reports, 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 to theTrust.

**CriticalAccounting Policies**

This “Trustees’ Discussionand Analysis of Financial Condition and Results of Operations” is based uponthe Trust’s financial statements, which have been prepared in accordance withaccounting principles generally accepted in the United States. The preparationof these financial statements requires the Trustees to make estimates andjudgments that affect the reported amounts of assets, liabilities, revenues andexpenses, and related disclosure of contingent assets and liabilities. Theseestimates form the basis for making judgments about the carrying value ofassets and liabilities that are not readily apparent from other sources. TheTrustees base their estimates and judgments on historical experience and onvarious other assumptions that the Trustees believe are reasonable under thecircumstances. However, future events are subject to change and the bestestimates and judgments may require adjustment.

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

**Forward-Looking Statements**

Certain statementscontained in this document are considered “forward-looking statements” withinthe meaning of the Private Securities Litigation Reform Act of 1995. All suchforward-looking statements, including those statements estimating calendar year2006 production or shipments, are based on information from the lessee/operator(and its parent corporation) of the mine located on the lands owned and held intrust for the benefit of the holders of units of beneficial interest of MesabiTrust. These statementsmay be identified by the use of forward-looking words, such as “may,” “will,” “could,”“project,” “believe,” “anticipate,” “expect,” “estimate,” “continue,” “potential,”“plan,” “forecast” and

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other similar words. Such forward-looking statementsare inherently subject to known and unknown risks and uncertainties. Actualresults and future developments could differ materially from the results ordevelopments expressed in or implied by these forward-looking statements. For adiscussion of the factors, including but not limited to, those that couldadversely affect the Trust’s actual results and performance, see “Risk Factors”in Part I — Item 1A of the Trust’s Annual Report on Form 10-Kfor the year-ended January 31, 2006. Mesabi Trust undertakes noobligation, other than that imposed by law, to make any revisions to theforward-looking statements contained in this filing or to update them toreflect circumstances occurring after the date of this filing.

**Item 3. Quantitative and Qualitative Disclosures About MarketRisk.**

Not applicable.

**Item 4. Controls and Procedures.**

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

As part of their evaluationof the Trust’s disclosure controls and procedures, the Trustees rely onquarterly shipment and royalty calculations provided by Northshore. BecauseNorthshore has declined to support this information with a writtencertification attesting to whether Northshore has established disclosurecontrols and procedures and internal controls sufficient to enable it to verifythat the information furnished to the Trustees is accurate and complete, theTrustees must rely on (a) a general certification from Northshore andNorthshore’s parent, CCI, certifying as to the accuracy of the royaltycalculations, and (b) CCI’s conclusions that its overall disclosurecontrols and procedures are effective. In addition, the Trust’s consultantsreview the schedule of leasehold royalties payable and shipping and salesreports provided by Northshore against production and shipment reports preparedby the Eveleth Fee Office, Inc., an independent consultant to the Trust (“EvelethFee Office”). Eveleth Fee Office gathers production and shipping informationfrom Northshore and prepares monthly production and shipment reports for theTrustees. Furthermore, as part of its engagement by the Trust, Eveleth FeeOffice also attends Northshore’s calibration and testing of its crude orescales and boat loader scales which are conducted on a periodic basis.

As of the end of the periodcovered by this report, the Trustees carried out an evaluation of the Trust’sdisclosure controls and procedures. The Trustees have concluded that suchdisclosure controls and procedures are effective.

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

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**PART II- OTHER INFORMATION**

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

None.

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

There have been no materialchanges in the Trust’s risk factors as described in Part I Item 1A, “RiskFactors” in the Trust’s Annual Report on Form 10-K for the yearended January 31, 2006.

**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 Mesabi Trust pursuantto Rule 13a-14 of the                Securities Exchange Act of1934, as adopted pursuant to Section 302 of the                Sarbanes-Oxley Act of2002.

32                        Certification of Corporate Trustee of MesabiTrust 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 June 5, 2006 of Gordon,Hughes and Banks, LLP regarding itsreview of the un-audited interim financial statements of Mesabi Trust for itsquarter ending April 30, 2006.

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**SIGNATURES**

Pursuant to the requirementsof the Securities Exchange Act of 1934, the registrant has duly caused thisreport to be signed on its behalf by the undersigned thereunto duly authorized.
|                               | MESABI TRUST                                                      |
|-------------------------------|-------------------------------------------------------------------|
|                          | (Registrant)                                                      |
|                          |                                                              |   |
|                          | By:                                                               | DEUTSCHE BANK TRUST COMPANY AMERICAS |
|                          |                                                              | Corporate Trustee |
|                          | Principal Administrative Officer and duly authorized  signatory:* |
|                          |                                                              |   |
|                          | By:                                                               | Deutsche Bank National  Trust Company |
|                          |                                                              |   |
| Date:  June 9, 2006 | By:                                                               | /s/ Rodney Gaughan |
|                          |                                                              | Name: Rodney Gaughan |
|                          |                                                              | Title:  Assistant Vice President |

 

* There are no principalexecutive officers or principal financial officers of the registrant.

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