Mesabi Trust Declares Distribution
04/14/2011 - The Trustees of Mesabi Trust have declared a distribution of five cents per Unit of Beneficial Interest payable on May 20, 2011 to Mesabi Trust unitholders of record at the close of business on April 30, 2011.
The Trustees of Mesabi Trust have declared a distribution of five cents ($0.05) per Unit of Beneficial Interest payable on May 20, 2011 to Mesabi Trust unitholders of record at the close of business on April 30, 2011. This compares to a distribution of twelve and one-half cents ($0.125) per Unit for the same period last year.
The decrease in the current distribution is attributed to three factors, including a $0.6 million decrease in base and bonus royalties earned by Mesabi Trust (before the application of negative pricing adjustments by Northshore), as a result of a decrease in tons of iron ore pellets shipped. The second factor is a $576,625 negative price adjustment to royalties previously received by Mesabi Trust for shipments by Northshore in prior years. Finally, unlike the first calendar quarter of 2010, Mesabi Trust did not add to the current distribution by using funds from the Trust’s cash reserves because the Trust does not currently have excess funds available in the cash reserve for distribution to Unitholders.
Based on the shipments of iron ore pellets during the first calendar quarter of 2011 reported by Northshore, Mesabi Trust expects to be credited with a base royalty of $533,561 (based on actual shipments of 273,686 tons of iron ore mined from Mesabi Trust lands). Mesabi Trust also expects to be credited with a bonus royalty in the amount of $640,273 based on the average sales price per ton of iron ore pellets and the volume of shipments during the first calendar quarter of 2011. Northshore’s $576,625 negative price adjustment to royalties previously received by the Trust for shipments by Northshore in 2009 and 2010 reduced the total royalty payment expected to be received by Mesabi Trust from Northshore to $742,086 (including a royalty payment of $144,877 payable to the Mesabi Land Trust).
Royalties paid to Mesabi Trust are based on the volume of shipments of iron ore pellets, the pricing of iron ore product sales, and the percentage of iron ore pellet shipments from Mesabi Trust lands rather than from non-Trust lands. The prices under the term contracts between Northshore, Northshore’s parent Cliffs Natural Resources Inc. 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).
Royalty payments received in 2011 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 and the recently announced negotiated settlement between Cliffs and ArcelorMittal USA, Inc.
With respect to calendar year 2011, Northshore has not advised Mesabi Trust of its expected 2011 shipments or what percentage of 2011 shipments will be from Mesabi Trust iron ore. Cliffs has not provided Mesabi Trust with any projections about possible pricing (and resulting royalty) adjustments that might impact future distributions, although Cliffs did indicate that the royalty payments being reported here are based on estimated iron ore pellet prices under the Cliffs Pellet Agreements, which are subject to change. Because the Cliffs Pellet Agreements contain various pricing formulas and price adjustment provisions, the average sales prices received by Mesabi Trust may not match international iron ore pellet prices.
