The Trustees of Mesabi Trust (NYSE: MSB) declared a distribution of sixty-five cents ($0.65) per Unit of Beneficial Interest payable on February 20, 2011 to Mesabi Trust unitholders of record at the close of business on January 30, 2011. This compares to a distribution of fifty-five cents ($0.55) per Unit for the same period last year.
The ten cents ($0.10) per Unit increase in the current distribution, as compared to the same quarter last year, is due to three factors. First, due to a significantly higher volume of shipments from Silver Bay, Minnesota, during calendar year 2010, as reported by Northshore Mining Company (“Northshore”), the lessee/operator of the mine on Mesabi Trust lands, all tons shipped during the fourth calendar quarter 2010 were paid at the Trust’s highest royalty rate of six percent (6.0%). Second, the average price per ton credited to the Trust on all shipments during the fourth calendar quarter of 2010 was higher than the average price per ton credited to the Trust during the fourth calendar quarter of 2009. Third, the combination of the increased volume of shipments and the higher average price per ton during calendar year 2010, as compared to calendar year 2009, resulted in the offset of all of the Trust’s deferred revenue royalty earlier during calendar year 2010. Therefore, in contrast to a year ago when the Trust received the royalty payment for the fourth calendar quarter of 2009, the Trust had no deferred royalty revenue on its unaudited balance sheet as of October 31, 2010 and does not believe it is necessary to retain a portion of the anticipated royalty payment to cover present and future potential liabilities.
Based on the shipments of iron ore reported by Northshore during the fourth calendar quarter of 2010, on January 31, 2011 Mesabi Trust is expecting to receive a base royalty of $4,981,766 (based on actual shipments of 1,092,152 tons of iron ore mined from Mesabi Trust lands). Mesabi Trust is also expecting to receive a bonus royalty in the amount of $2,472,327 based on the average sales price per ton of iron ore pellets and the volume of shipments during the fourth calendar quarter of 2010. In addition to the base and bonus royalty payments, Mesabi Trust is also expecting to receive $1,081,856 as a result of positive pricing adjustments to shipments and royalty payments made during the third calendar quarter of 2010. Accordingly, the total royalty payment expected to be received by Mesabi Trust from Northshore is $8,638,760 (including a royalty payment of $102,811 payable to the Mesabi Land Trust).
The royalties paid to Mesabi Trust are based on the volume of shipments of iron ore pellets for the quarter and the year to date, the pricing of the iron ore product sales, and the percentage of iron ore pellet shipments from Mesabi Trust lands rather than from other lands. The volume of shipments of iron ore pellets by Northshore varies from quarter to quarter and year to year based on a number of factors, including the requested delivery schedules of customers, general economic conditions in the iron ore industry, and weather conditions on the Great Lakes. Further, the prices under the term contracts between Northshore, Northshore’s parent Cliffs Natural Resources Inc. (“Cliffs”) and certain of their customers (the “Cliffs Pellet Agreements”) are subject to interim and final pricing adjustments, dependent in part on multiple price and inflation index factors that are not known until after the end of a contract year. This can result in significant variations in royalties received by Mesabi Trust (and in turn the resulting amount available for distribution to Unitholders by Mesabi Trust) from quarter to quarter and on a comparative historical basis. These variations, which can be positive or negative, cannot be predicted by the Trustees of Mesabi Trust. Royalty payments received in 2010 and prior years continue to reflect pricing estimates for shipments of iron ore products that may be subject to further adjustment (upward or downward) pursuant to the Cliffs Pellet Agreements. Based on all of the above factors and as indicated by the Trust’s historical distribution payments, the royalties received by the Trust, and the distributions paid to Unitholders, in any particular quarter are not necessarily indicative of royalties that will be received, or distributions that will be paid, in any subsequent quarter or for a full year.