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Mesabi Trust Declares Distribution
01/19/2009 - Trustees of the Mesabi Trust declare a distribution of eleven cents per Unit of Beneficial Interest for the fourth quarter of 2008, which compares to a distribution of fifty-one and one-half cents per Unit for the same period last year.
Trustees of the Mesabi Trust have declared a distribution of eleven cents ($0.11) per Unit of Beneficial Interest payable on February 20, 2009 to Mesabi Trust Unitholders of record at the close of business on January 30, 2009. This compares to a distribution of fifty-one and one-half cents ($0.515) per Unit for the same period last year.
The forty and one-half cents ($0.405) per Unit decrease as compared to the same quarter last year is attributed to significantly lower shipments of iron ore pellets during the fourth calendar quarter of 2008. The Trust receives royalties based on the volume of shipments and the selling prices of iron ore pellets shipped by Northshore Mining Co., the lessee/operator of the Mesabi Trust lands. Although iron ore pellet prices realized by Northshore with respect to pellets shipped from Mesabi Trust lands were, on average, approximately 40% higher during the Q4 2008, total shipments of iron ore pellets credited to the Trust in that quarter decreased 82% (from 1,330,068 gross tons in Q4 2007 to 238,240 gross tons in Q4 2008). The announced distribution also reflects certain negative and positive adjustments to royalties paid to the Trust in Q2 and Q3 2008.
The total royalty payment expected to be received by Mesabi Trust on January 31, 2009 is $2,000,251 (which includes the fee royalty expected to be received by the Mesabi Land Trust). With respect to shipments of iron ore during Q4 2008, Mesabi Trust was credited with a base royalty of $1,232,322 and a bonus royalty of $616,161. These royalty amounts were increased by an aggregate of $11,776, representing a negative adjustment of $4,372 to royalty amounts credited to the Trust during Q2 2008 and a positive adjustment of $16,148, to royalty amounts credited to the Trust during Q3 2008. These adjustments resulted primarily from changes in the prices of iron ore pellets shipped under pellet supply agreements between Northshore, Cliffs Natural Resources Inc. (Northshore’s parent), and certain of their customers.
As previously disclosed by Mesabi Trust, prices under the pellet supply agreements are subject to interim and final pricing adjustments, dependent in part on a number of factors that are not known until after the end of a contract year. This can result in significant and frequent variations in royalties received by Mesabi Trust (and in turn the resulting amount available for distribution to Unitholders by the Trust). The royalty payment attributable to Q4 2008 (and the current distribution) was slightly increased as a result of a net positive adjustment to royalty payments previously received by Mesabi Trust (due to changes in the estimated selling prices of iron ore pellets under the supply agreements and Northshore’s previous estimate of shipments attributed to Mesabi Trust).
Royalty payments received by the Trust in 2007 and 2008 continue to reflect pricing estimates for shipments of iron ore products that may be subject to further adjustment (upward or downward) in accordance with the pellet supply agreements. Cliffs has not provided the Mesabi Trustees with any projections about possible pricing (and resulting royalty) adjustments that might impact future distributions, although Cliffs did indicate that the current royalty payments are based on estimated iron ore pellet prices under pellet supply agreements, which are subject to change.
The volume of iron ore pellet shipments by Northshore varies based on a number of factors, including weather conditions on the Great Lakes, the requested delivery schedules of customers and general economic conditions in the iron ore industry. Royalties paid to the Trust are dependent on the volume of iron ore pellet shipments 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 actual shipments of iron ore products in any particular quarter is not necessarily indicative of the level of shipments in subsequent quarters.
Although neither Cliffs nor Northshore has provided the Trust with a forecast of the volume of shipments of iron ore pellets in 2009, based on Cliffs’ recent public announcements regarding reduced production in its North American iron ore business (due to decreasing demand for iron ore), the Trust believes that the volume of production at Northshore and shipments of iron ore pellets from Silver Bay, Minn., will likely be lower than the volume of production and shipments in calendar 2008. Accordingly, the Trust anticipates that the total royalty income expected to be received in 2009 will likely be lower than the total royalty income the Trust received in 2008.
