MSB

Mesabi Trust 10-Q Summary: Quarter Ended April 30, 2005

Business Context and Reporting Period

Mesabi Trust is a New York land trust organized to collect leasehold royalties from iron ore mining operations conducted by Northshore Mining Company (a subsidiary of Cleveland-Cliffs Inc.) on Trust lands. The Trust has no employees and does not engage in business operations; its activities are limited to collecting income, paying expenses, and distributing net income to unitholders. This report covers the quarterly period ended April 30, 2005. As of June 6, 2005, there were 13,120,010 Units of Beneficial Interest outstanding.

Key Financial Metrics

Note: The Trust holds no debt. Expenses for the quarter were $218,922.

Material Changes vs. Prior Period

• Revenue Surge: Total royalty income increased by approximately 153% compared to the prior year quarter. This was driven primarily by the receipt of royalty bonuses ($1,323,270) and increased pellet pricing, whereas no bonus was received in the comparable 2004 period.
• Production vs. Shipments: While pellet production from Trust lands decreased slightly (1.16 million tons in 2005 vs. 1.21 million tons in 2004) and shipments decreased (0.54 million tons vs. 0.74 million tons), revenue increased due to higher prices and bonuses.
• Reserve Growth: The Unallocated Reserve increased by 34% to $2.13 million, largely due to accrued royalty revenue expected to be received in July 2005.
• Expense Increase: Operating expenses rose to $218,922 from $101,742, primarily due to higher general and administrative costs.

Outlook, Risks, and Management Commentary

Guidance and Outlook: The Trust provides no specific financial guidance as it has no control over the lessee's operations. Cleveland-Cliffs Inc. (CCI) revised its 2005 production forecast for Northshore downward to 4.9 million tons (from 5.2 million) due to permitting delays on an 800,000-ton capacity expansion. However, CCI stated projected 2005 pellet sales remain unchanged.

Key Risks and Contingencies:

• Dependency on Lessee: The Trust relies entirely on Northshore for production data and royalty payments. The Trustees have no influence over mining decisions or operational plans.
• Pricing Volatility: Royalties are subject to adjustments based on the "CCI Pellet Agreements," which involve complex pricing formulas and lag-year adjustments that can result in significant quarter-to-quarter variations.
• Market Conditions: Future royalties depend on global steel demand, Great Lakes shipping conditions (seasonal freezes), and the percentage of shipments derived from Trust lands versus other lands.
• Regulatory Compliance: As a pass-through trust, Mesabi Trust cannot literally comply with certain Sarbanes-Oxley corporate governance rules (e.g., audit committees) due to its structure, though it attempts to comply where possible.

Unusual Items: The Trust received royalty bonuses for the first time in several years, triggered by pellet prices exceeding the Adjusted Threshold Price of $42.89 per ton for 2005.

Investor Verification Checklist

• Verify the timing of the expected $1.39 million accrued royalty payment anticipated in July 2005.
• Monitor CCI's progress on the delayed capacity expansion and its impact on 2005 shipment volumes.
• Track international iron ore pricing trends and their effect on the "Adjusted Threshold Price" for royalty bonuses.
• Confirm the percentage of total shipments derived from Mesabi Trust lands versus other lands, as this impacts the royalty rate tier.
• Review future CCI filings for updates on the Mesabi Nugget Project, which could alter future royalty structures if commercialized.