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Mesabi Trust Declares Distribution
07/21/2008 - Trustees of Mesabi Trust declare a distribution of one dollar per Unit of Beneficial Interest for the second quarter, which compares to a distribution of thirty-one cents per Unit for the same period last year.
The Trustees of Mesabi Trust have declared a distribution of one dollar ($1.00) per Unit of Beneficial Interest payable on August 20, 2008 to Mesabi Trust unitholders of record at the close of business on July 30, 2008. This compares to a distribution of thirty-one cents ($0.31) per Unit for the same period last year.
The increase in the distribution is attributed to a significant increase in the average sales price per ton of iron ore pellets, and a substantial increase in the volume of shipments of iron ore pellets during the most recent quarter as reported by Northshore Mining Co., the lessee/operator of the mine on Mesabi Trust lands. The substantial increase in the volume of shipments from Silver Bay, Minn., resulted in the shipment of additional tons at higher royalty rates, thereby adding to the amount of the base royalty payment. The increase in the volume of shipments from Silver Bay, together with the higher average sales price per ton of iron ore pellets, contributed to the increase in the bonus royalty payment.
Based on the shipments of iron ore reported by Northshore during the second calendar quarter of 2008, Mesabi Trust is expecting to receive a base royalty of $7,506,959 (based on actual shipments of 2,494,369 tons of iron ore mined from Mesabi Trust lands). Mesabi Trust is also expecting to receive a bonus royalty in the amount of $5,787,487 based on the average sales price per ton of iron ore pellets and the volume of shipments during the second calendar quarter of 2008. The total royalty payment expected to be received by Mesabi Trust from Northshore is $13,448,166 (including a royalty payment of $153,720 payable to the Mesabi Land Trust).
The Trust receives royalties based on the volume of shipments of iron ore pellets, 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 over time based on a number of factors, including requested delivery schedules, 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 Cleveland-Cliffs Inc, and certain of their customers 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). These variations, which can be positive or negative, cannot be predicted by the Trustees of Mesabi Trust. Royalty payments received in 2006, 2007 and 2008 continue to reflect pricing estimates for shipments of iron ore products that may be subject to further adjustment (upward or downward). However, there were no price adjustments reflected in the second-quarter 2008 royalty payment.
With respect to the balance of 2008, Northshore has not advised Mesabi Trust as to its expected 2008 shipments of iron ore products or what percentage of 2008 shipments will be from Mesabi Trust iron ore. Cliffs has previously reported that it estimates scheduled 2008 pellet production at Northshore (using iron ore mined from both Mesabi Trust lands and from other than Mesabi Trust lands) will be approximately 5.7 million tons. However, 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 current royalty payments, which are based on estimated iron ore pellet prices, are subject to change. In addition, because of price adjustment provisions, the average sales prices received by Mesabi Trust may not match international iron ore pellet prices.
