Mesabi Trust — Form 10-Q Summary
Reporting period: Three months ended April 30, 2015, compared with the three months ended April 30, 2014. Mesabi Trust is a royalty trust whose income depends principally on iron ore production, shipments, and sales by Northshore Mining Company; the Trust does not operate the mine.
Financial performance and position
| Metric | Q1 2015 | Q1 2014 |
|---|---|---|
| Royalty income | $1,315,953 | $501,300 |
| Total revenue | $1,318,010 | $503,435 |
| Expenses | $377,744 | $366,217 |
| Net income | $940,266 | $137,218 |
| Net income per unit | $0.0717 | $0.0105 |
| Operating cash flow | $481,973 | $172,349 |
| Distributions declared per unit | None | None |
- Cash and cash equivalents were $802,802 at April 30, 2015, down from $8,717,943 at January 31, 2015. U.S. Government securities totaled $766,640, including current and noncurrent holdings.
- Accrued income receivable was $1,023,223, versus $558,385 at January 31. It includes royalties based on April activity and estimated price adjustments; it was not yet available for distribution until collected.
- Total assets were $2,648,542 and total liabilities were $97,149 at April 30. The filing reports no debt.
- Cash flow from financing included $8,396,806 of distributions paid to unitholders, declared previously. This explains much of the decline in cash during the quarter.
Changes and operating results
- Royalty income increased $814,653 and net income increased $803,048 year over year. Management attributed the improvement primarily to higher pellet shipments.
- Pellet production from Trust lands was 1,195,260 tons, compared with 1,178,206 tons. Shipments rose to 340,868 tons from 77,837 tons. Management cited stronger anticipated customer demand and actual orders for production growth, and more favorable weather for shipment growth.
- Base overriding royalties increased to $503,142 from $157,682 and bonus royalties to $668,471 from $183,455. Fee royalties declined to $144,340 from $160,163, reflecting less ore mined under the Peters Lease.
- The unallocated reserve was $2,551,390 at April 30, up from $1,611,124 at January 31. In April, Trustees changed their prior practice of generally targeting a $500,000–$1,000,000 reserve range; they will reassess prudent reserve levels quarterly.
Outlook, risks, and other matters
- No numerical production, shipment, revenue, or distribution guidance is provided. Future distributions are expected to depend on royalty cash received, expenses, and the reserve level set by Trustees.
- Trustees declared no distribution for the quarter, citing the need to provide for expenses, potential negative pricing adjustments, and adequate reserves. Reported net income and cash available for distribution differ because income is accrued while distributions depend on royalty payments received.
- Royalties depend on Northshore’s operations and iron ore shipments, which the Trust does not control. Winter shipping is reduced, and steel-market conditions may affect shipments and sales.
- Contract prices and royalty calculations include estimated prices subject to interim and final adjustments tied to market and inflation indices. Negative adjustments could reduce or eliminate royalties otherwise payable in a quarter or year.
- The filing reports no material change in risk factors from the prior Form 10-K. Trustees concluded disclosure controls were effective, while noting reliance on Northshore-provided operating and royalty information and related third-party reviews.
Key facts for investors to verify
- Subsequent Northshore shipments and royalty cash receipts, including any final pricing adjustments to estimated prices.
- Trustees’ future reserve decisions and distribution declarations; quarterly net income is not a proxy for distributions.
- Northshore’s production, shipment plans, and exposure to iron ore and steel-market conditions, which the Trust does not control.
- Whether accrued income receivable is collected and whether it includes material positive or negative adjustments.