Mesabi Trust (MSB), a passive, grantor trust in the United States with interests in iron ore mining, recently released its Q1 2023 results revealing a notable decrease in both production and shipments of iron ore pellets compared to the previous year. Northshore Mining Company in Babbitt and Silver Bay, Minnesota, a subsidiary of parent company Cleveland-Cliffs Inc. (Cliffs), operates these activities on Mesabi Trust Lands.
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Production and shipments decline
According to the report, for the three months ended April 30, 2023, a total of 155,300 tons of iron ore pellets were produced and shipped from Mesabi Trust Lands, compared to a higher figure of 906,952 tons in the same period in 2022. A significant factor behind this decline is the idling of Northshore’s facilities during this period.
Royalty income and net income decrease
Total royalty income of Mesabi Trust decreased by $12,484,173 to $1,711,316 as of April 30, 2023, compared to the previous year. This decline is also attributed to Northshore’s idling facilities. Meanwhile, net income for the most recent quarter was $1,023,139, a decrease of $12,572,046 compared to the same period of the previous year. Additionally, the Trust’s expenses increased by $224,647, totaling $825,710, primarily due to higher legal fees and expenses.
Partial restart of Northshore operations
Cliffs recently announced a partial restart of Northshore operations in response to increased steel production. However, the company stated that they do not expect Northshore to operate at full capacity at any time in 2023.
Challenges for Mesabi Trust
Considering the unpredictable nature of the iron ore and steel industries, the Trust’s decision to balance between distributions to its Unitholders and maintaining adequate reserves at a prudent level remains a challenge. The economic conditions affecting the iron ore and steel industry, particularly those arising from the COVID-19 pandemic, could further impact the amount and timing of future shipments and sales, as well as the production rate and recovery of market prices.
No royalty payments due
In this light, the quarterly royalty report from Cliffs for the quarter ended March 31, 2023, showed Mesabi Trust with no base royalty, no bonus royalty, and no royalty payments due from Cliffs due to negative adjustments related to changes in estimates from prior quarters.
Future operations and distributions
As the future of the iron ore and steel industries remains uncertain, Mesabi Trust’s forthcoming operations and distributions will rely heavily on royalty income as it is received and contingent upon the level of Trust expenses. As previously disclosed, Cliffs plans to use the Northshore facility in Babbitt and Silver Bay as a “swing operation,” a variable production strategy reflecting changing market conditions.
Note that we may hold securities mentioned in this article. The source of this article are the SEC filings available at https://www.sec.gov/Archives/edgar/data/65172/000155837023011040/msb-20230430x10q.htm that we extracted with the help of various software tools. Even though we have implemented various fact-checking processes, some incorrect information may have remained in the article (false positive). Let us know if you find any inconsistencies!