Mesabi Trust Declares Distribution
07/16/2007 - Trustees of Mesabi Trust declare a distribution of thirty-one cents per Unit of Beneficial Interest, which compares to a distribution of forty cents ($0.40) per Unit for the same period last year.
Trustees of Mesabi Trust have declared a distribution of thirty-one cents ($0.31) per Unit of Beneficial Interest payable on August 20, 2007. This compares to a distribution of forty cents ($0.40) per Unit for the same period last year.
The company attributes the nine cents ($0.09) per Unit decrease in the current distribution (as compared to the same quarter last year) primarily to lower iron ore pellet prices and lower pellet shipments during the most recent quarter as reported by Northshore Mining Co., the lessee/operator of the mine on Mesabi Trust lands. These lower prices and shipments resulted in decreased base royalties and a lower bonus royalty payment for iron ore shipments from Silver Bay, Minn., during the most recent quarter.
Based on iron ore shipments during the second calendar quarter of 2007, Mesabi Trust is expecting to receive a base royalty of $2,086,296 (representing actual shipments of iron ore mined from Mesabi Trust lands of 1,294,389 tons). Mesabi Trust is also expecting to receive a bonus royalty in the amount of $2,197,079 with respect to shipments during the second calendar quarter of 2007. These base royalty and bonus royalty amounts will be reduced by $191,627, which is the amount of the base minimum quarterly royalty advanced to the Trust in the first quarter of 2007. The total royalty payment expected to be received by Mesabi Trust on July 31, 2007 from Northshore is $4,210,410 (including a royalty payment of $118,662 payable to the Mesabi Land Trust).
Northshore’s shipments of iron ore pellet varies based on a number of factors, including weather conditions on the Great Lakes, customers’ requested delivery schedules, and general economic conditions in the iron ore industry. The resulting royalties paid to Mesabi Trust are dependent on the volume of iron ore pellet shipments for the quarter and year-to-date, pricing of the iron ore product sales, and the percentage of iron ore pellet shipments from Mesabi Trust lands rather than from other lands.
Prices under term contracts between Northshore, Cleveland-Cliffs Inc (CCI, Northshore’s parent), and certain of their customers (CCI Pellet Agreements) are subject to interim and final pricing adjustments that are not known until after the end of a contract year. This can result in possibly 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 2005, 2006 and 2007 continue to reflect pricing estimates for shipments of iron ore products that may be subject to further adjustment (upward or downward) pursuant to the CCI Pellet Agreements.
With respect to the balance of 2007, Northshore has not advised Mesabi Trust as to its expected 2007 shipments of iron ore products or what percentage of 2007 shipments will be from Mesabi Trust iron ore. CCI has previously reported that it estimates scheduled 2007 pellet production at Northshore (using iron ore mined from both Mesabi Trust lands and from other lands) will be approximately 5.1 million tons. CCI has not provided the Mesabi Trustees with any projections about possible pricing (and resulting royalty) adjustments that might impact future distributions, although CCI did indicate that the current royalty payments are based on estimated iron ore pellet prices under CCI Pellet Agreements that are subject to change. In its most recent quarterly report, CCI reported that it reinitiated construction activity to restart an idled pellet furnace line at the Northshore facility that, upon completion, will increase pellet production capacity by 0.8 million tons of pellets annually, beginning in the first quarter of 2008.
