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Introduction
In its latest quarterly report, the Mesabi Trust (MSB), a New York-based trust focused on collecting income from iron ore royalties, has reported its financial results for the three months ending April 30, 2023. The report highlights a decrease in net income for Q1 2023, as well as various factors that could affect future royalty payments and the unpredictability of the iron ore industry.
Decreased Net Income in Q1 2023
For the quarter ended April 30, 2023, Mesabi Trust reported a net income of $1,023,139. This is a considerable decrease compared to the same period in 2022 when the net income was $13,595,185. It’s important to note that this income doesn’t directly translate to distributions for unitholders, which are determined by the Trustees’ evaluation of various factors, such as royalty payments, expenses, and economic conditions.
Trustees Declare No Distribution per Unit of Beneficial Interest
On April 14, 2023, the Trustees of Mesabi Trust declared no distribution per Unit of Beneficial Interest. This decision stands despite the decrease in the trust’s net income. The reason for this can be attributed to the variable nature of royalty revenue and the unpredictable iron ore industry, along with the trust’s revenue recognition policy and the evaluation of known and projected expenses.
Components of the Trust’s Unallocated Reserve
The unallocated cash and U.S. Government securities portion of Mesabi Trust’s Unallocated Reserve as of April 30, 2023, was $13,102,857, marking a decrease from the January 31, 2023 figure of $13,966,500. The Unallocated Reserve is used to cover the trust’s costs, expenses, obligations, and present and future liabilities.
Possible Impact on Future Royalties
Mesabi Trust’s future royalties may be affected by adjustments in the pricing of iron ore products, which are subject to interim and final price adjustments under some of Cliffs’ Customer Contracts. Price adjustments can result in significant variations in royalties payable to Mesabi Trust, but these variations cannot be predicted by the Trust.
Another factor that may impact future royalties is the sales price of iron ore products. The trust is entitled to a bonus royalty if iron ore products are sold above the Adjusted Threshold Price. However, it is uncertain whether Cliffs will be able to continue selling iron ore products at prices above the applicable Adjusted Threshold Price.
Partial Restart of Northshore Facility
On April 25, 2023, Cliffs announced a partial restart at its Northshore iron ore mining and pelletizing swing facility, which had been idle since May 1, 2022. Cliffs does not expect to operate the facility in full any time this year, leading to potential fluctuations in iron ore production, stockpiling, and shipment volumes.
Conclusion
While Mesabi Trust reported a decrease in net income for Q1 2023, the trustees’ decision not to distribute any benefits to unitholders highlights the unpredictable nature of the iron ore industry. Future royalty payments may be affected by fluctuations in the pricing of iron ore products and the uncertain sales price of these products, as well as the partial restart of the Northshore facility. With the many factors at play, only time will reveal how Mesabi Trust’s financial landscape will continue to evolve.
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!