MSB

Mesabi Trust 10-Q Summary: Period Ended October 31, 2003

Business Context and Reporting Period

Mesabi Trust is a passive land trust deriving its primary revenue from leasehold royalties on iron ore products shipped by Northshore Mining Company (a subsidiary of Cleveland-Cliffs Inc.) from Silver Bay, Minnesota. The Trust has no employees and relies on the lessee for operational data. This report covers the quarterly period ended October 31, 2003, and the nine-month period ended on that date. As of November 30, 2003, there were 13,120,010 Units of Beneficial Interest outstanding.

Key Financial Metrics

Note: The Trust holds no debt. Expenses for the nine months ended October 31, 2003, were $386,305.

Material Changes vs. Prior Period

• Revenue Growth: Net income increased 22.2% for the three months ended October 31, 2003, compared to the same period in 2002 ($2.28M vs. $1.87M). For the nine-month period, net income increased 30.1% ($3.50M vs. $2.69M).
• Drivers: The increase in royalty income is attributed to higher pellet shipments and increased sales prices compared to the prior year.
• Expense Increase: Expenses rose to $386,305 for the nine months ended October 31, 2003, from $294,077 in the prior year, primarily due to higher legal, insurance, and stock exchange listing costs.
• Reserve Growth: The Unallocated Reserve increased to $2,073,278 from $1,554,922 at October 31, 2002, reflecting the net effect of increased shipments and prices.

Outlook, Risks, and Management Commentary

Operational Outlook: Cleveland-Cliffs Inc. (CCI) forecasted total 2003 production for Northshore at 4.8 million tons, a decrease from initial estimates due to power interruptions from flooding and lower plant throughput at other CCI mines. CCI also reported a kiln outage at its Tilden Mine in late November 2003, which is expected to adversely affect Q4 results and may impact 2004 production.

Market Risks:

• Customer Bankruptcies: Three major CCI customers filed for Chapter 11 bankruptcy in 2003. WCI Steel, a Northshore customer, remains in bankruptcy but continues to purchase pellets. The Trust cannot determine the long-term impact on royalties.
• Steel Tariffs: U.S. steel tariffs were terminated in December 2003 following a WTO ruling. The Trust cannot determine the ultimate effect of the tariffs' enactment and repeal on future royalties.
• Shipping Seasonality: Results are heavily influenced by Great Lakes shipping conditions, which typically freeze in January and reopen in late March/April.

Strategic Projects: The "Mesabi Nugget Project," a pilot plant testing new iron-making technology, completed its first test run in May 2003. A second operating campaign is underway. Commercial viability remains uncertain, and it is unclear if a commercial facility will be built at Northshore or utilize Mesabi Trust ore.

Controls Limitation: The Trust relies entirely on Northshore for operational data. Northshore has declined to provide written certification regarding the accuracy of the data furnished to the Trust, creating a potential weakness in disclosure controls.

Investor Verification Checklist

• Verify the impact of the Tilden Mine kiln outage (Nov 2003) on Q4 2003 and 2004 shipment volumes.
• Monitor the reorganization status of WCI Steel and its continued purchasing of Northshore pellets.
• Confirm the percentage of total iron ore shipments originating from Mesabi Trust lands versus other CCI lands for the full year 2003.
• Assess the commercial viability and potential location of the Mesabi Nugget Project commercial plant.
• Review the Trust's ability to maintain the $1,000,000 Unallocated Reserve given the uncertainty of future royalty income.