** **

**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C. 20549**

 

**FORM 10-Q**

 

**(Mark One)**

 

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

 

**For the quarterly period ended April 30, 2010**

 

**or**

 

**o****  ****TRANSITION REPORT PURSUANTTO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

** **

**For the transition period from                                  to                                  **

 

**Commission File Number:  1-4488**

 

**MESABI TRUST**

(Exact name of registrant as specified in itscharter)

 

| **New York**                    |       | **13-6022277**                       |
|---------------------------------|------------|--------------------------------------|
| (State or other jurisdiction of | ** ** | (I.R.S. Employer Identification No.) |
| incorporation or organization)  |       |                                 |

 

| **c/o Deutsche Bank Trust Company  Americas**        |       |       |
|------------------------------------------------------|------------|------------|
| **Trust & Securities  Services — GDS** |       |       |
| **60 Wall Street**                                   |       |       |
| **27th Floor**                                       |       |       |
| **New York, New York**                               |       | **10005**  |
| (Address of principal executive offices)             | ** ** | (Zip code) |

 

**(615)835-2749**

(Registrant’s telephone number, including area code)

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed 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 has submitted electronically and posted on its corporateWeb site, if any, every Interactive Data File required to be submitted andposted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)during the preceding 12 months (or for such shorter period that the Registrantwas required to submit and post such files).  Yes  o  No  o*

 

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

 

Indicate by check mark whetherthe registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, or a smaller reporting company. See definitions of “largeaccelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2of the Exchange Act:

 

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

 

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

 

As of June 2, 2010,there were 13,120,010 Units of Beneficial Interest in Mesabi Trust outstanding.

 

 

 

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**PART I - FINANCIAL INFORMATION**

 

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

 

Mesabi Trust

CondensedStatements of Income

Three MonthsEnded April 30, 2010 and 2009

 
| ** **                                                           | ** ** | **Three Months Ended** | ** ** |
|----------------------------------------------------------------------|------------|------------------------|------------|
| ** **                                                           | ** ** | **April 30,**     | ** ** |
| ** **                                                           | ** ** | **2010**               | ** ** | **2009** | ** ** |
| ** **                                                           | ** ** | **(unaudited)**        | ** ** | **(unaudited)** | ** ** |
| **A.****    ****Condensed Statements of Income** | ** ** | ** **             | ** ** | ** ** | ** ** |
|                                                                 |       |                   |       |   |   |
| Revenues                                                             |       |                   |       |   |   |
| Royalty income                                                       |       | $                      | 4,987,731  |   | $ | 1,021,712 |   |
| Interest income                                                      |       | 5,096                  |       | 3,169 |   |
|                                                                 |       | 4,992,827              |       | 1,024,881 |   |
|                                                                 |       |                   |       |   |   |
| Expenses                                                             |       | 207,862                |       | 223,835 |   |
|                                                                 |       |                   |       |   |   |
| Net income                                                           |       | $                      | 4,784,965  |   | $ | 801,046 |   |
|                                                                 |       |                   |       |   |   |
| Number of units outstanding                                          |       | 13,120,010             |       | 13,120,010 |   |
|                                                                 |       |                   |       |   |   |
| Net income per unit (Note 2)                                         |       | $                      | 0.3647     |   | $ | 0.0611 |   |
|                                                                 |       |                   |       |   |   |
| Distributions declared per unit (Note 3)                             |       | $                      | 0.1250     |   | $ | 0.3800 |   |

 

SeeNotes to Condensed Financial Statements.

 

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Mesabi Trust

CondensedBalance Sheets

April 30,2010 and January 31, 2010

 
| ** **                                                                 | ** ** | **April 30, 2010** | ** ** | **January 31, 2010** | ** ** |
|----------------------------------------------------------------------------|------------|-------------------------|------------|---------------------------|------------|
| ** **                                                                 | ** ** | **(unaudited)**         | ** ** | ** **                | ** ** |
| **B.****    ****Condensed Balance Sheets**             | ** ** | ** **              | ** ** | ** **                | ** ** |
|                                                                       |       |                    |       |                      |       |
| **Assets**                                                                 | ** ** | ** **              | ** ** | ** **                | ** ** |
|                                                                       |       |                    |       |                      |       |
| Cash and cash equivalents                                                  |       | $                       | 358,506    |                      | $          | 8,444,697 |   |
|                                                                       |       |                    |       |                      |       |
| U.S. Government securities, at amortized  cost (which approximates market) |       | 2,850,222               |       | 1,850,515                 |       |
|                                                                       |       |                    |       |                      |       |
| Accrued income receivable                                                  |       | 3,726,547               |       | 873,938                   |       |
| Prepaid expenses                                                           |       | 39,821                  |       | 30,422                    |       |
|                                                                       |       | 6,975,096               |       | 11,199,572                |       |
|                                                                       |       |                    |       |                      |       |
| Fixed property, including intangibles,  at nominal values                  |       |                    |       |                      |       |
|                                                                       |       |                    |       |                      |       |
| Amended Assignment of Peters Lease                                         |       | 1                       |       | 1                         |       |
|                                                                       |       |                    |       |                      |       |
| Assignment of Cloquet Lease                                                |       | 1                       |       | 1                         |       |
|                                                                       |       |                    |       |                      |       |
| Certificate of beneficial interest for 13,120,010  units of land trust     |       | 1                       |       | 1                         |       |
|                                                                       |       | 3                       |       | 3                         |       |
|                                                                       |       |                    |       |                      |       |
|                                                                       |       | $                       | 6,975,099  |                      | $          | 11,199,575 |   |
|                                                                       |       |                    |       |                      |       |
| **Liabilities,  Unallocated Reserve and Trust Corpus**                     | ** ** | ** **              | ** ** | ** **                | ** ** |
|                                                                       |       |                    |       |                      |       |
| Liabilities                                                                |       |                    |       |                      |       |
| Distribution payable                                                       |       | $                       | 1,640,001  |                      | $          | 7,216,005 |   |
| Accrued expenses                                                           |       | 90,299                  |       | 85,735                    |       |
| Deferred royalty revenue (Note 4)                                          |       | 972,000                 |       | 2,770,000                 |       |
|                                                                       |       | 2,702,300               |       | 10,071,740                |       |
|                                                                       |       |                    |       |                      |       |
| Unallocated Reserve (Note 5)                                               |       | 4,272,796               |       | 1,127,832                 |       |
| Trust Corpus                                                               |       | 3                       |       | 3                         |       |
|                                                                       |       |                    |       |                      |       |
|                                                                       |       | $                       | 6,975,099  |                      | $          | 11,199,575 |   |

 

SeeNotes to Condensed Financial Statements.

 

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Mesabi Trust

CondensedStatements of Cash Flows

**Three MonthsEnded April 30, 2010 and 2009**

 
| ** **                                                                     | ** ** | **Three Months Ended** | ** ** |
|--------------------------------------------------------------------------------|------------|------------------------|------------|
| ** **                                                                     | ** ** | **April 30,**     | ** ** |
| ** **                                                                     | ** ** | **2010**               | ** ** | **2009** | ** ** |
| ** **                                                                     | ** ** | **(unaudited)**        | ** ** | **(unaudited)** | ** ** |
| **C.****    ****Condensed Statements of Cash Flows**       | ** ** | ** **             | ** ** | ** ** | ** ** |
|                                                                           |       |                   |       |   |   |
| Cash flows from operating activities                                           | ** ** | ** **             | ** ** | ** ** | ** ** |
| Royalties received                                                             |       | $                      | 338,064    |   | $ | 5,320,949 |   |
| Interest received                                                              |       | 4,154                  |       | 3,100 |   |
| Expenses paid                                                                  |       | (212,697               | )          | (176,579 | ) |
|                                                                           |       |                   |       |   |   |
| Net cash provided by operating  activities                                     |       | 129,521                |       | 5,147,470 |   |
|                                                                           |       |                   |       |   |   |
| Cash flows from investing activities                                           |       |                   |       |   |   |
| Maturities of U.S. Government Securities                                       |       | —                 |       | — |   |
| Purchases of U.S. Government Securities                                        |       | (999,707               | )          | (717,785 | ) |
|                                                                           |       |                   |       |   |   |
| Net cash (used for) provided by  investing activities                          |       | (999,707               | )          | (717,785 | ) |
|                                                                           |       |                   |       |   |   |
| Cash flow used for financing activity                                          |       |                   |       |   |   |
| Distributions to Unitholders                                                   |       | (7,216,005             | )          | (1,443,201 | ) |
|                                                                           |       |                   |       |   |   |
| Net change in cash and cash equivalents                                        |       | (8,086,191             | )          | 2,986,484 |   |
|                                                                           |       |                   |       |   |   |
| Cash and cash equivalents, beginning of  year                                  |       | 8,444,697              |       | 2,254,107 |   |
|                                                                           |       |                   |       |   |   |
| Cash and cash equivalents, end of  quarter                                     |       | $                      | 358,506    |   | $ | 5,240,591 |   |
|                                                                           |       |                   |       |   |   |
| **Reconciliation of net  income to net cash provided by operating activities** |       |                   |       |   |   |
|                                                                           |       |                   |       |   |   |
| Net income                                                                     |       | $                      | 4,784,965  |   | $ | 801,046 |   |
| Decrease (increase) in accrued income  receivable                              |       | (2,852,609             | )          | 1,931,198 |   |
| Increase in prepaid expenses                                                   |       | (9,399                 | )          | (9,397 | ) |
| Increase in accrued expenses                                                   |       | 4,564                  |       | 54,623 |   |
| Increase (decrease) in deferred royalty  revenue                               |       | (1,798,000             | )          | 2,370,000 |   |
|                                                                           |       |                   |       |   |   |
| Net cash provided by operating activities                                      |       | $                      | 129,521    |   | $ | 5,147,470 |   |

 

See Notes to Condensed Financial Statements.

 

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**MESABI TRUST**

**NOTES TO CONDENSED FINANCIAL STATEMENTS**

**April 30,2010 (Unaudited)**

 

Note 1.         The financialstatements included herein have been prepared without audit (except for thebalance sheet at January 31, 2010) in accordance with the instructions to Form 10-Qpursuant to the rules and regulations of the Securities and ExchangeCommission.  Certain information andfootnote disclosures normally included in financial statements prepared inaccordance with accounting principles generally accepted in the United Stateshave been condensed or omitted pursuant to such rules andregulations.  In the opinion of theTrustees, all adjustments, consisting only of normal recurring adjustments,necessary for a fair statement of (a) the results of operations for thethree months ended April 30, 2010 and 2009, (b) the financialposition at April 30, 2010, and (c) the cash flows for the three monthsended April 30, 2010 and 2009, have been made.  For further information, refer to thefinancial statements and footnotes included in Mesabi Trust’s Annual Report on Form 10-Kfor the year ended January 31, 2010.

 

Note 2.         Net income perunit includes accrued income receivable. For the three months ended April 30, 2010, the Trust recorded$3,726,547 of accrued income receivable as reflected on the Condensed BalanceSheet as of April 30, 2010 (unaudited). Accrued income receivable is accounted for and reported for the Trust’sfirst fiscal quarter based on shipments during the month of April eventhough such accrued income receivable is not available for distribution toUnitholders until it is actually received by the Trust at the end of July 2010.  Net income per unit is based on 13,120,010units outstanding during the period.

 

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

 

Note 4.          As previouslyreported, in April 2009, the Trust received its quarterly distributionpayment from Northshore of approximately $5,200,000. In accordance with theTrust’s revenue recognition policy, the Trust recognized revenue related totons of iron ore that were shipped by Northshore, but for which Northshore hadindicated that final pricing was not yet known. As a result of decreases in estimated pellet pricing subsequent to January 31,2009, the cash proceeds received by the Trust in April 2009 exceeded theroyalty revenue recognized by the Trust in fiscal 2010.  Accordingly, the Trust had estimated a$2,770,000 liability in the form of deferred royalty revenue based on pricingestimates provided by Northshore as of January 31, 2010.

 

In April 2010,the Trust received customary quarterly payment notification from Northshore,which indicated that the Trust was credited a royalty payment of approximately$1.9 million.  However, because ofdeclines in the price adjustment mechanisms under the Cliffs Pellet Agreements,Northshore applied a $2.8 million negative price adjustment with respect toshipments and sales by Northshore based on estimated pellet pricing.  These negative pricing adjustments, thecorresponding offset against the quarterly royalty payment and an increase inestimated pellet pricing subsequent to January 31, 2010, reduced the Trust’sdeferred royalty revenue liability from $2,770,000 as of January 31, 2010to $972,000 as of April 30, 2010.  

 

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As of April 30,2010, the Trust’s deferred royalty revenue also reflected the receipt of$203,000 of minimum advance royalty that will be recouped by Northshore in theTrust’s next fiscal quarter.  Pricingestimates are adjusted on a quarterly basis as updated pricing information isreceived from Northshore.  To the extentthat the Trust has recorded a deferred royalty revenue liability, such amountswill be carried forward to subsequent quarters until there are sufficientpositive royalty payments and/or future positive price adjustments to fullyoffset any remaining negative price adjustments.

 

Note 5.         The Trusteeshave determined that the unallocated cash and U.S. Government securitiesportion of the Unallocated Reserve should be maintained at a prudent level,usually within the range of $500,000 to $1,000,000, to meet present or futureliabilities of the Trust.  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 royaltypayments received quarterly and the level of Trust expenses that the Trusteesanticipate occurring in subsequent quarters.

 

At April 30, 2010, theUnallocated Reserve of $4,272,796 consisted of $1,518,249 in unallocated cashand U.S. Government securities, $3,726,547 of accrued revenue primarilyrepresenting royalties not yet received by the Trust but anticipated to bereceived in July 2010, less estimated deferred royalty revenue of$972,000.  Pursuant to the Agreement ofTrust, the Trust makes cash distributions to Unitholders based on the royaltypayments it receives from Northshore when received, rather than as royaltyincome is recorded in accordance with the Trust’s revenue recognitionpolicy.  Refer to Note 4 for furtherinformation.

 

In summary, as of April 30,2010 and January 31, 2010, the Trust’s Unallocated Reserve was comprisedof the following components:

 
| ** **                          | ** ** | **April 30,  2010** | ** ** | **January 31,  2010** | ** ** |
|-------------------------------------|------------|--------------------------|------------|----------------------------|------------|
| ** **                          | ** ** | **(unaudited)**          | ** ** | ** **                 | ** ** |
| Cash and U.S. Government securities |       | $                        | 1,518,249  |                       | $          | 3,023,894 |   |
| Accrued Income Receivable           |       | 3,726,547                |       | 873,938                    |       |
| Deferred Royalty Revenue            |       | (972,000                 | )          | (2,770,000                 | )          |
|                                |       |                     |       |                       |       |
| Unallocated  Reserve                |       | $                        | 4,272,796  |                       | $          | 1,127,832 |   |

 

A reconciliation of theTrust’s Unallocated Reserve from January 31, 2010 to April 30, 2010is as follows:

 
| Unallocated Reserve, January 31, 2010 |   | $          | 1,127,832 |   |
|--------------------------------------------|--------|------------|-----------|--------|
|                                       |   |       |      |
| Net income                                 |   | 4,784,965  |      |
| Distributions declared                     |   | (1,640,001 | )         |
|                                       |   |       |      |
| Unallocated Reserve,April 30, 2010    |   | $          | 4,272,796 |   |

 

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

 

**Forward-LookingStatements**

 

Certain information included in this Quarterly Report on Form 10-Qcontains “forward-looking statements” within the meaning of Section 21E ofthe Securities Exchange Act of 1934.  Allsuch forward-looking statements, including those statements estimating iron orepellet production or shipments, are based on information from thelessee/operator (and its parent corporation) of the mine located on the landsowned and held in trust for the benefit of the holders of units of beneficialinterest of Mesabi Trust.  Thesestatements may be identified by the use of forward-looking words, such as “may,”“will,” “could,” “project,” “predict, “ “intend,” “believe,” “anticipate,” “expect,”“estimate,” “continue,” “potential,” “plan,” “should,” “assume,” “forecast” andother similar words.  Suchforward-looking statements are inherently subject to known and unknown risksand uncertainties.  Actual results and futuredevelopments could differ materially from the results or developments expressedin or implied by these forward-looking statements.  These risks and uncertainties include, butare not limited to, volatility of iron ore and steel prices, market supply anddemand, competition, regulation or government action, litigation anduncertainties about estimates of reserves. Further, substantial portions of royalties earned by Mesabi Trust arebased on estimated prices that are subject to interim and final adjustmentswhich can be positive or negative and are dependent in part on multiple priceand inflation index factors under agreements to which Mesabi Trust is not aparty and that are not known until after the end of a contract year.  It is possible that future negative priceadjustments could partially or even completely offset royalties or royaltyincome that would otherwise be payable to the Trust in any particular quarter,or at year end, thereby potentially reducing cash available for distribution tothe Trust’s Unitholders in future quarters.  For a discussion of thefactors, including without limitation, those that could materially andadversely affect Mesabi Trust’s actual results and performance, see “RiskFactors” in Part I — Item 1A of Mesabi Trust’s Annual Report on Form 10-Kfor the year-ended January 31, 2010. Mesabi Trust undertakes no obligation, other than that imposed by law,to make any revisions to the forward-looking statements contained in thisfiling or to update them to reflect circumstances occurring after the date ofthis filing.

 

This discussion should beread in conjunction with the condensed financial statements and notes presentedin this Form 10-Q and the financial statements and notes in the last filedAnnual Report on Form 10-K filed for the period ending January 31,2010 for a full understanding of Mesabi Trust’s financial position and resultsof operations for the three month period ended April 30, 2010.

 

**Background**

 

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

 

The Agreement of Trustspecifically prohibits the Trustees from entering into or engaging in anybusiness.  This prohibition applies even tobusiness activities the Trustees may deem necessary or proper for thepreservation and protection of the Trust Estate.  Accordingly, the Trustees’ activities inconnection with the administration of Trust assets are limited to collectingincome, paying expenses and liabilities, 

 

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distributing netincome to the holders of Certificates of Beneficial Interest in Mesabi Trust (“Unitholders”)after the payment of, or provision for, such expenses and liabilities, andprotecting and conserving the assets held.

 

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

 

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

 

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

 

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

 

·              Fee royalties.  Fee royalties have historically constituted asmaller component of the Trust’s total royalty income.  Fee royalties are payable to the Mesabi LandTrust, a Minnesota land trust, which holds a 20% interest as fee owner in the AmendedAssignment of Peters Lease.  Mesabi Trustholds the entire beneficial interest in the Mesabi Land Trust for which U.S.Bank N.A. acts as the corporate trustee. Mesabi Trust receives the net income of the Mesabi Land Trust, which isgenerated from royalties on the amount of crude ore mined after the payment ofexpenses to U.S. Bank N.A. for its services as corporate trustee.  Crude ore is the source of iron oxides usedto make iron ore pellets and other products. The fee royalty on crude ore is based on an agreed price per ton,subject to certain indexing.

 

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

 

Under the relevantdocuments, Northshore may mine and ship iron ore products from lands other thanMesabi Trust lands.  Northshore isobligated to make quarterly royalty payments in January, April, July and October ofeach year based on shipments of iron ore products from Silver Bay, Minnesotaduring each calendar quarter.  In thecase of base overriding royalties and royalty bonuses, these quarterly royaltypayments are to be made whether or not the related proceeds of sale have beenreceived by Northshore by the time such payments become due.  Northshore alone determines whether to mineoff Trust and/or such other lands, based on its current mining and engineeringplan.  The Trustees do not exert anyinfluence over mining operational decisions. To encourage the use of iron ore products from Mesabi Trust lands,Mesabi Trust receives royalties on stated percentages of iron ore shipped fromSilver Bay, whether or not the iron ore products are from Mesabi Trustlands.  Mesabi Trust receives royaltiesat the greater of (i) the aggregate quantity of iron ore products shippedthat were from Mesabi Trust lands, and (ii) a portion of the aggregatequantity of all iron ore products shipped from Silver Bay that were mined fromany lands, such portion being 90% of the first four million tons shipped fromSilver Bay during such year, 85% of the next two million tons shipped duringsuch year, and 25% of all tonnage shipped from Silver Bay during such year inexcess of six million tons.

 

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

 

**Resultsof Operations**

 

**Comparisonof Iron Ore Pellet Production and Shipments for the Three Months Ended April 30,2010 and April 30, 2009**

 

As shown in the table below, production of iron ore pellets atNorthshore from Mesabi Trust lands during the fiscal quarter ended April 30,2010 totaled 1,321,406 tons, and actual shipments over the same period totaled1,081,930 tons.  By comparison, actualpellet production and actual shipments for the comparable prior period were681,178 tons and 237,453 tons, respectively. The increase in production and shipments at Northshore, as compared tothe prior comparable period, is the result of increases in anticipated demandand orders from Cliffs’ customers.

 
| **Fiscal Quarter Ended** | ** ** | **Pellets Produced from********Trust Lands (tons)** | ** ** | **Pellets Shipped from********Trust Lands (tons)** | ** ** |
|--------------------------|------------|-----------------------------------------------------|------------|----------------------------------------------------|------------|
| April 30, 2010      |       | 1,321,406                                           |       | 1,081,930                                          |       |
| April 30, 2009      |       | 681,178                                             |       | 237,453                                            |       |

 

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In its Form 10-Qfiled April 29, 2010, Cliffs reported that Northshore was operating threeof its four furnaces and is expecting that the fourth furnace will be restartedin July 2010.  Northshore has notprovided the Trustees with an estimate of total expected shipments of iron orepellets for calendar year 2010.

 

**Comparison of RoyaltyIncome for the Three Months Ended April 30, 2010 and April 30, 2009**

 

Total royalty income for thequarter increased $3,966,019 over the comparable prior period.  The increase in total royalty income is dueto higher sales prices per ton of iron ore pellets sold and an increase in thetotal volume of iron ore pellets shipped during the three months ended April 30,2010, each as compared to the three months ended April 30, 2009.  The higher sales prices per ton and theincrease in the volume of iron ore pellets shipped both contributed to anincrease in the base overriding royalty and the bonus royalty payments.

 

The table below shows thatthe base overriding royalties, the bonus royalties, and the fee royalties eachincreased by $1,705,726, $2,187,693, and $72,600 respectively, for the threemonths ended April 30, 2010.  Theincreases in the base overriding royalties and the bonus royalties are bothattributable to the higher sales prices per ton of iron ore pellets and theincrease in the volume of tons shipped during the three months ended April 30,2010, each as compared to the three months ended April 30, 2009.

 

The table below summarizesthe components of Mesabi Trust’s royalty income for the three months ended April 30,2010 and April 30, 2009, respectively:

 
| ** **                              | ** ** | **Three Months Ended April 30,** | ** ** |
|-----------------------------------------|------------|---------------------------------------|------------|
| ** **                              | ** ** | **2010**                              | ** ** | **2009** | ** ** |
| Base  overriding royalties              |       | $                                     | 2,276,291  |   | $ | 570,565 |   |
| Bonus  royalties                        |       | 2,571,454                             |       | 383,761 |   |
| Minimum  advance royalty paid(recouped) |       | —                                |       | — |   |
| Fee royalties                           |       | 139,986                               |       | 67,386 |   |
| Total royalty  income                   |       | $                                     | 4,987,731  |   | $ | 1,021,712 |   |

 

**Comparison of Income, Expenses and Distributionsfor the Three Months Ended April 30, 2010 and April 30, 2009**

 

Net income for the threemonths ended April 30, 2010 was $4,784,965, an increase of $3,983,919compared to the three months ended April 30, 2009.  As with the increase in total royalty income,the increase in net income for the quarter ended April 30, 2010 is theresult of higher sales prices per ton of iron ore pellets shipped and anincrease in the volume of tons shipped. The Trust’s expenses of $207,862 for the three months ended April 30,2010 was lower than the Trust’s expenses for the three month period ended April 30,2009 due to lower legal, accounting and other expenses related to theadministration of the Trust.  The tablebelow summarizes the Trust’s income and expenses for the three months ended April 30,2010 and April 30, 2009, respectively.

 

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| ** **           | ** ** | **Three Months Ended April 30,** | ** ** |
|----------------------|------------|---------------------------------------|------------|
| ** **           | ** ** | **2010**                              | ** ** | **2009** | ** ** |
| Total Royalty Income |       | $                                     | 4,987,731  |   | $ | 1,021,712 |   |
| Interest Income      |       | 5,096                                 |       | 3,169 |   |
| Gross Income         |       | 4,992,827                             |       | 1,024,881 |   |
| Expenses             |       | 207,862                               |       | 223,835 |   |
| Net income           |       | $                                     | 4,784,965  |   | $ | 801,046 |   |

 

As presented on the Trust’sCondensed Statements of Income on page 2 of this quarterly report, theTrust’s net income per unit increased $0.3037 to $0.3647 for the three monthsended April 30, 2010, as compared to the three months ended April 30,2009.  At the same time, distributionsdeclared per unit decreased $0.2550 from $0.3800 for the three months ended April 30,2009 to $0.1250 for the three months ended April 30, 2010.  The decrease in distributions declareddespite the significant increase in net income per unit is the result of twofactors.  First, with respect to theroyalty payment payable to the Trust for the three months ended March 31,2010, $1.77 million that would have been paid to the Trust as a royalty paymentwas offset by Northshore against $2.8 million of negative pricing adjustmentsfor shipments of iron ore pellets by Northshore during prior years.  This offset against royalty paymentsdecreased the cash available for distribution by the Trust in the three monthsended April 30, 2010.  Second, approximately$3.73 million or $0.284 per unit of the Trust’s net income for the three monthsended April 30, 2010, was recorded as accrued income receivable.  This amount relates to shipping activity for April 2010and was not included in the royalty payment received by the Trust in the threemonths ended April 30, 2010. Therefore, such amounts will not available for distribution until July,2010.  See the paragraph below and Notes2 and 3 to the Trust’s Condensed Financial Statements in Item 1 of this Form 10-Qfor the three months ended April 30, 2010 for additional information.

 

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

 

**Comparisonof Unallocated Reserve as of April 30, 2010, April 30, 2009 and January 31,2010**

 

As set forth in the tablebelow, Unallocated Reserve (Deficit), which is comprised of accrued incomereceivable, cash reserve for potential fixed or contingent future liabilitiesand deferred royalty revenue, increased from ($392,377) as of April 30,2009 to $4,272,796 as of April 30, 2010.  The increase in the Unallocated Reserve is the result of increases inthe Trust’s accrued income receivable and cash reserve, combined with adecrease in the Trust’s deferred royalty revenue.

 
| ** **                | ** ** | **Three Months Ended  April 30,** | ** ** |
|---------------------------|------------|----------------------------------------|------------|
| ** **                | ** ** | **2010**                               | ** ** | **2009** | ** ** |
| Accrued Income Receivable |       | $                                      | 3,726,547  |   | $ | 790,780 |   |
| Deferred Royalty Revenue  |       | (972,000                               | )          | (2,370,000 | ) |
| Cash Reserve              |       | 1,518,249                              |       | 1,186,843 |   |
| Unallocated Reserve       |       | $                                      | 4,272,796  |   | $ | (392,377 | ) |

 

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For the three months ended April 30,2009, Mesabi Trust received a payment of approximately $4.6 millionrepresenting positive price adjustments for 2008 shipments and sales byNorthshore that were based on estimated 2008 pricing, which was subject toadjustments in the future.  Because ofdeclines in the estimated pricing of iron ore pellets subsequent to January 31,2009, and the application of the price adjustment mechanisms under the CliffsPellet Agreements, the royalty payment received by the Trust in April 2009included approximately $2,370,000 of cash proceeds that were received by theTrust but not recognized as revenue in accordance with the Trust’s revenuerecognition policy which is described in Note 2 to the Trust’s Annual Report onForm 10-K for the fiscal year ended January 31, 2010.

 

In April 2010, theTrust received customary quarterly payment notification from Northshore, whichindicated that the Trust was credited a royalty payment of approximately $1.9million.  However, the Trust receivedonly the minimum advance royalty payment of approximately $203,000 on April 30,2010, because Northshore applied negative pricing adjustments of approximately$2.8 million against the approximately $1.7 million of the $1.9 million royaltypayment credited to the Trust for shipments during the three months ended March 31,2010.  This negative pricing adjustmentand corresponding offset against royalties otherwise payable to the Trustresulted in a carry forward negative pricing adjustment of approximately $1.1million and also reduced the deferred royalty revenue component of theUnallocated Reserve.  The Trust wasadvised by Northshore that Northshore intends to offset the approximately $1.1million carry forward negative price adjustment against royalties payable tothe Trust in future periods, which would further reduce the deferred revenueportion of the Unallocated Reserve.  TheTrust’s deferred royalty revenue liability decreased from $2,370,000 as of April 30,2009 to $972,000 for the three months ended April 30, 2010 as a result ofNorthshore’s offset of approximately $1.7 million of negative pricingadjustments against royalties that were credited to the Trust in the firstquarter of 2010, increases in pellet prices subsequent to April 30, 2009,and the receipt of $203,000 of minimum advance royalty.

 

The Trust’s cash reserve forpotential fixed or contingent future liabilities, represented on the Trust’sbalance sheet by unallocated cash and U.S. Government securities, increased$331,406 to $1,518,249 as of April 30, 2010 from $1,186,843 as of April 30,2009.  The increase in the Trust’s cashreserve is due to the Trustees’ decision to add to the Trust’s cash reservebecause of the Trust’s deferred royalty revenue, the use of estimates regardingpricing that is potentially subject to negative adjustment in future periods,and as a result of the continuing uncertainty in the economic environment thataffects the royalties paid to the Trust by Northshore under Cliffs PelletAgreements.  At the same time, theaccrued income receivable portion of the Unallocated Reserve increased from$790,780 as of April 30, 2009 to $3,726,547 as of April 30,2010.  The increase in the accrued incomereceivable portion of the Unallocated Reserve is the result of increasedshipments during the month of April 2010, together with higher prices onpellets shipped by Northshore, both as compared to April 2009.

 

The Trust’s UnallocatedReserve as of April 30, 2010 increased by $3,144,964 as compared to thefiscal year ended January 31, 2010. The increase in the Unallocated Reserve is due to the decrease indeferred royalty revenue and an increase in accrued income receivable due tothe increased shipments from Northshore during the month of April 2010,partially offset by a decrease in the cash reserve portion of the UnallocatedReserve.  At January 31, 2010, theUnallocated Reserve consisted of $3,023,894 in unallocated cash and U.S.Government securities, $873,938 of accrued income receivable, primarilyrepresenting royalties not yet received by the Trust but anticipated to bereceived in fiscal 2011, less deferred royalty revenue of ($2,770,000).   It is possible that future negative priceadjustments could offset, or even eliminate, royalties or royalty income thatwould otherwise be payable to the Trust in any particular quarter, or at yearend, thereby potentially reducing cash available for distribution to the Trust’sUnitholders in future quarters.  Seediscussion under the heading “Risk Factors” beginning on page 3 of theTrust’s Annual Report on Form 10-K for the fiscal year ended January 31,2010.

 

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The Trustees have determinedthat the unallocated cash and U.S. Government securities portion of theUnallocated Reserve should be maintained at a prudent level, usually within therange of $500,000 to $1,000,000, to meet present or future liabilities of theTrust.  As a result of the deferredroyalty revenue recorded by the Trust as a liability, the Trustees determinedthat it was prudent to increase the unallocated cash and U.S. Governmentsecurities portion of the Unallocated Reserve above the range of $500,000 to$1,000,000.  Although the actual amountof the Unallocated Reserve will fluctuate from time to time and may increase ordecrease from its current level, it is currently intended that futuredistributions will be highly dependent upon royalty income as it is receivedand the level of Trust expenses.  Theamount of future royalty income available for distribution will be subject tothe volume of iron ore product shipments and the dollar level of sales byNorthshore.  Shipping activity is greatlyreduced during the winter months and economic conditions, particularly thoseaffecting the steel industry, may adversely affect the amount and timing ofsuch future shipments and sales.  TheTrustees will continue to monitor the economic circumstances of the Trust tostrike a responsible balance between distributions to Unitholders and the needto maintain adequate reserves at a prudent level, given the unpredictablenature of the iron ore industry, the Trust’s dependence on the actions of thelessee/operator, and the fact that the Trust essentially has no other liquidassets.

 

**RecentDevelopments**

 

***Productionand Shipments at Northshore***.  In its Form 10-Q filed April 29,2010, Cliffs reported that production at Northshore for the three months ended March 31,2010 was 1.2 million tons. Comparatively, production of iron ore pellets at Northshore for thethree months ended March 31, 2009 was 1.0 million tons.  The Trust’s consultants have advised theTrust that a four week shutdown of the Northshore plant to accommodatepreviously scheduled repairs began on May 30, 2010. During this time, themining operations at Northshore will cease crude ore production but willcontinue to strip ore.** **In its Form 10-Q Cliffs alsoreported that three of the four furnaces at Northshore were operatingduring the first calendar quarter with the fourth furnace expected to berestarted in July 2010.

 

Asdiscussed above under the heading “Comparison of Royalty Income for the ThreeMonths Ended April 30, 2010 and April 30, 2009,” the Trust’s total royaltyincome increased $3,966,019, from $1,021,712 for the three months ended April 30,2009 to $4,987,731 for the three months ended April 30, 2010 as a resultof increases in the volume of shipments and higher sales prices.  The Trust’s consultants advised the Trustthat 901,578 tons of pellets attributable to the Trust were shipped fromNorthshore in May 2010, though no pricing information as to theseshipments is available to the Trust at this time.  Northshore has not provided the Trustees withan estimate of total expected shipments of iron ore pellets for calendar year2010.  See the description of theuncertainty of market conditions in the iron ore and steel industry under“Important Factors Affecting Mesabi Trust” below and the information under theheading “Risk Factors” in Part I – Item 1A of the Trust’s Annual Report onForm 10-K for the year-ended January 31, 2010.

 

***NorthshoreAdministrative Permit Amendment***.    In its Form 10-Q filed April 29,2010, Cliffs provided an update to the matters previouslyreported regarding air permit amendments submitted to the Minnesota PollutionControl Agency (the “MPCA”).  Aspreviously reported, Northshore submitted an administrative permit amendmentapplication on December 16, 2006 to the MPCA with respect to its Title Voperating permit requesting the deletion of a 30 year old “control city”monitoring requirement.  The MPCA deniedNorthshore’s application on February 23, 2007 and Cliffs appealed thedenial to the Minnesota Court of Appeals.

 

Cliffs reported that on August 28,2008 Northshore filed a major permit amendment to remove the control cityrequirement from its permit. Cliffs also reported that on November 25,2008, in response to the proposed amendment, the MPCA issued an order declaringthat Northshore’s request to remove the control city standard from its permitconstitutes a “project” for which an Environmental Assessment Worksheet, orEAW, must be completed.  According toCliffs’, the MPCA also stated that it was ceasing all other work on the permit,including its own efforts to create a replacement standard, until theenvironmental review process was complete. Northshore filed an action to challenge the MPCA’s requirement for anEAW in Minnesota State District Court.

 

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In its Form 10-Q filed April 29,2010, Cliffs reported that on January 13, 2010, the Minnesota DistrictCourt ruled that Northshore was entitled to judgment in its favor as a matterof law. Cliffs reported further that the District Court specifically ruled thatits request to remove the control city standard was not a project underMinnesota law and that the MPCA’s determination that Northshore’s applicationrequired an EAW was arbitrary and capricious, unsupported by substantialevidence and an error of law.  In March,2010, the MPCA appealed the District Court’s decision to the Minnesota Court ofAppeals.  Cliffs reported that the Courtof Appeals for the State of Minnesota dismissed the MPCA’s appeal on April 20,2010.

 

The Trustees are unable topredict what impact the proceedings discussed above will have on Northshore’scompliance with its Title V operating permit or on future royalties payable tothe Trust.

 

***ArcelorMittal Arbitration withCliffs. ***Inits Form 10-Q filed April 29, 2010, Cliffs provided an update to thematters previously reported regarding Cliffs’ arbitration with its customerArcelorMittal.  As previously reported,Northshore, along with The Cleveland-Cliffs Iron Company, Cliffs Mining Companyand Cliffs Sales Company, filed two arbitration demands against ArcelorMittalUSA Inc., ISG Cleveland Inc., ISG Indiana Harbor Inc. and Mittal Steel USA WeirtonInc. (collectively, “ArcelorMittal”) related to attempts by ArcelorMittal to revise the nomination of ArcelorMittal’spellet requirements and a corresponding shipping schedule for 2009 and toreverse an election to defer certain tonnage for 2009.  Cliffs reported that these two arbitrationdemands were settled on April 14, 2010.

 

The Trustees are unable topredict what impact, if any, the settlement of arbitration proceedings betweenCliffs and ArcelorMittal will have on shipments from Northshore or futureroyalties payable to the Trust.

 

**Important FactorsAffecting Mesabi Trust**

 

The Agreement ofTrust specifically prohibits the Trustees from entering into or engaging in anybusiness.  This prohibition seeminglyapplies even to business activities the Trustees deem necessary or proper forthe preservation and protection of the Trust Estate (as such term is definedbelow).  Accordingly, the Trustees’activities in connection with the administration of Trust assets are limited tocollecting income, paying expenses and liabilities, distributing net income toMesabi Trust’s Unitholders after the payment of, or provision for, suchexpenses and liabilities, and protecting and conserving the assets held.  Consequently, the income of Mesabi Trust ishighly dependent upon the activities and operations of Northshore, and theterms and conditions of the leases and assignments of leases between MesabiTrust and Northshore.

 

Neither Mesabi Trust nor theTrustees have any control over the operations and activities of Northshore,except within the framework of the Amended Assignment Agreements.  Cliffs alone controls (i) historicaloperating data, including iron ore production volumes, marketing of iron oreproducts, operating and capital expenditures as they relate to Northshore,environmental and other liabilities and the effects of regulatory changes; (ii) plansfor Northshore’s future operating and capital expenditures; (iii) geologicaldata relating to ore reserves (iv) projected production of iron oreproducts; (v) contracts between Cliffs and Northshore with theircustomers; and (vi) the decision to mine off Mesabi Trust and/or statelands based on Cliffs’ current mining and engineering plan.  The Trustees do not exert any influence overmining operational decisions at Northshore, nor do the Trustees provide anyinput regarding the ore reserve estimated at Northshore as reported byCliffs.  While the Trustees requestmaterial information for use in periodic reports as part of their evaluation ofMesabi Trust’s disclosure controls and procedures, the Trustees do not controlthis information and they rely on the information in Cliffs’ periodic andcurrent filings with the SEC to provide accurate and timely information inMesabi 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 

 

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monthlyproduction and shipment reports, which include figures on crude ore productionand iron ore pellet shipments, and discussions concerning the condition andaccuracy of the scales and plans regarding the development of Mesabi Trust’smining property; and (ii) the accounting firm they have contracted withfor non-audit services, including reviews of financial data related to shippingand sales reports provided by Northshore and a review of the schedule ofleasehold royalties payable to Mesabi Trust.  For a discussion of additional factors,including but not limited to those that could adversely affect Mesabi Trust’sactual results and performance, see “Risk Factors” in Part I — Item 1A ofMesabi Trust’s Annual Report on Form 10-K for the year-ended January 31,2010.

 

**Iron Ore Pricing and Contract Adjustments**

 

During the course of its fiscal year someportion of the royalties paid to Mesabi Trust are based on estimated prices foriron ore products sold under term contracts between Cliffs and its subsidiariesand certain of their customers (the “Cliffs Pellet Agreements”). Mesabi Trustis not a party to any of the Cliffs Pellet Agreements. These prices are subjectto interim and final pricing adjustments, which can be positive or negative,and which adjustments are dependent in part on a variety of price and inflationindex factors, including but not limited to the international benchmark pelletprice, hot band steel prices and various Producer Price Indexes. AlthoughNorthshore makes interim adjustments to the royalty payments on a quarterlybasis, these price adjustments cannot be finalized until after the end of acontract year. This may result in significant and frequent variations inroyalties received by Mesabi Trust (and in turn the resulting amount of fundsavailable for distribution to Unitholders by the Trust) from quarter to quarterand on a comparative historical basis, and these variations, which can bepositive or negative, cannot be predicted by Mesabi Trust.  It is possible that future negative priceadjustments could partially or completely offset royalties or royalty incomethat would otherwise be payable to the Trust in any particular quarter, or atyear end, thereby potentially reducing cash available for distribution to theTrust’s Unitholders in future quarters.

 

**Effectsof Securities Regulation**

 

The Trust is apublicly-traded trust listed on the New York Stock Exchange (“NYSE”) and istherefore subject to extensive regulation under, among others, the SecuritiesAct of 1933, the Securities Exchange Act of 1934, the Sarbanes-Oxley Act of2002 (“Sarbanes-Oxley”) and the rules and regulations of the NYSE.  Issuers failing to comply with suchauthorities risk serious consequences, including criminal as well as civil andadministrative penalties.  In mostinstances, these laws, rules and regulations do not specifically addresstheir applicability to publicly-traded trusts such as Mesabi Trust.  In particular, Sarbanes-Oxley mandated theadoption by the Securities and Exchange Commission (the “SEC”) and NYSE ofcertain rules and regulations that are impossible for the Trust toliterally satisfy because of its nature as a pass-through trust.  Pursuant to NYSE rules currently ineffect the Trust is exempt from many of the corporate governance requirementsthat apply to publicly traded corporations. The Trust does not have, nor does the Agreement of Trust provide for, aboard of directors, an audit committee, a corporate governance committee or acompensation committee.  The Trusteesintend to closely monitor the SEC’s and the NYSE’s rulemaking activity and willattempt to comply with such rules and regulations where applicable.

 

In May 2008, the Trust established a websitein response to the NYSE’s interpretation of Rule 203.01 of the NYSE ListedCompany Manual.  TheTrust’s website is located at www.mesabi-trust.com.

 

**CriticalAccounting Policies and Estimates**

 

This “Trustees’ Discussion and Analysis of Financial Condition andResults of Operations” is based upon the Trust’s financial statements, whichhave been prepared in accordance with accounting principles generally acceptedin the United States.  The preparation ofthese 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.  Critical accounting 

 

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policies are those that have meaningful impact onthe reporting of the Trust’s financial condition and results, and that requiresignificant judgment and estimates. During the preparation of financial statements, the Trust makesestimates, assumptions and judgments that affect reported amounts. These estimates,assumptions and judgments include those related to revenue recognition andaccrued expenses. The Trust bases its estimates on various assumptions andhistorical experience, which are believed to be reasonable; however, due to theinherent nature of estimates, actual results may differ significantly due tochanged conditions or assumptions. On a regular basis, the Trust reviews theaccounting policies, assumptions, estimates and judgments to ensure that thefinancial statements are fairly presented in accordance with accountingprinciples generally accepted in the United States. However, because futureevents and their effects cannot be determined with certainty, actual resultscould differ from assumptions and estimates, and such differences could bematerial.

 

The Trust did not have anychanges in critical accounting policies or in significant accounting estimatesduring the three months ended April 30, 2010.  For a complete description of the Trust’ssignificant accounting policies, please see Note 2 to the financial statementsincluded in the Trust’s Annual Report on Form 10-K for the year ended January 31,2010.

 

**Item3.  Quantitative and QualitativeDisclosures About Market Risk.**

 

Not applicable.

 

**Item4.  Controls and Procedures.**

 

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

 

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

 

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

 

***Changes in Internal Control Over Financial Reporting***.  To the knowledge of the Trustees, there hasbeen no change in the Trust’s internal control over financial reporting thatoccurred during the Trust’s last fiscal quarter that has materially affected,or is reasonably likely to materially affect, the 

 

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Trust’s internalcontrol over financial reporting.  TheTrustees note for purposes of clarification that they have no authority over,and make no statement concerning, the internal control over financial reportingof Northshore or Cliffs.

 

**PART II- OTHER INFORMATION**

 

**Item1A.                 Risk Factors**

 

There have been no material changes in the Trust’s risk factors asdescribed in Part I Item 1A, “Risk Factors” in the Trust’s Annual Reporton Form 10-K for the year ended January 31, 2010.

 

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

 
| 31       |       | Certification of Corporate  Trustee of Mesabi Trust pursuant to Rule 13a-14(a) of the  Securities Exchange Act of 1934, as adopted pursuant to Section 302 of  the Sarbanes-Oxley Act of 2002. |
|----------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|     |       |                                                                                                                                                                                                          |
| 32       |       | Certification of Corporate Trustee of Mesabi Trust  pursuant to 18 U.S.C. Section 1350, as adopted pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002.                                      |
|     |       |                                                                                                                                                                                                          |
| **99.1** | ** ** | **Report of Wipfli LLP, dated June 4, 2010  regarding its review of the un-audited interim financial statements of Mesabi  Trust as of and for the quarter ended April 30, 2010.**                  |

 

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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 7, 2010 |   | By:                                  | /s/ Kenneth R. Ring |
|                    |   | Name: Kenneth R. Ring                |
|                    |   | Title: Vice President                |
|                    |   |
|                         |        |                                      |  |  |

 

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*              Thereare no principal executive officers or principal financial officers of theregistrant.

 

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