Mesabi Trust Faces DOJ Investigation into Royalty Payments

TL;DR

DOJ is looking into Mesabi Trust's royalty payments from Cleveland-Cliffs. Cooperation underway.

AI Summary

Mesabi Trust announced on July 30, 2024, that it has received a notice from the United States Department of Justice (DOJ) regarding an investigation into the iron ore royalty payments made by Cleveland-Cliffs Inc. to Mesabi Trust. The DOJ is seeking information related to these payments, and Mesabi Trust is cooperating with the investigation.

Why It Matters

This DOJ investigation could potentially impact Mesabi Trust's future royalty income and its relationship with its primary lessee, Cleveland-Cliffs Inc.

Risk Assessment

Risk Level: medium — A DOJ investigation introduces uncertainty regarding future royalty payments and potential legal ramifications for Mesabi Trust.

Key Players & Entities

• Mesabi Trust (company) — Registrant
• United States Department of Justice (DOJ) (company) — Investigating body
• Cleveland-Cliffs Inc. (company) — Lessee making royalty payments
• July 30, 2024 (date) — Date of the notice and earliest event reported

FAQ

Key Financial Figures

• $5,325,522 — rust received total royalty payments of $5,325,522 on July 30, 2024. Item 7.01 Regulation
• $2,783,747 — ust was credited with a base royalty of $2,783,747. For the three months ended June 30, 20
• $2,386,069 — d with a bonus royalty in the amount of $2,386,069. Cliffs reported that no adjustments we
• $155,706 — rter. In addition, a royalty payment of $155,706 was paid to the Mesabi Land Trust. Acco

Filing Documents

• msb-20240730x8k.htm (8-K) — 43KB
• 0001558370-24-010610.txt ( ) — 164KB
• msb-20240730.xsd (EX-101.SCH) — 3KB
• msb-20240730_lab.xml (EX-101.LAB) — 16KB
• msb-20240730_pre.xml (EX-101.PRE) — 11KB
• msb-20240730x8k_htm.xml (XML) — 5KB

02 Results of Operations and Financial Condition

Item 2.02 Results of Operations and Financial Condition. Announcement of Receipt of Quarterly Royalty Report and Royalty Payment On July 30, 2024, Mesabi Trust received the quarterly royalty report of iron ore shipments out of Silver Bay, Minnesota during the quarter ended June 30, 2024 (the "Royalty Report") from Cleveland-Cliffs Inc. ("Cliffs"), the parent company of Northshore Mining Company ("Northshore"). As further explained under Item 7.01 below, the Royalty Report indicated that the Mesabi Trust received total royalty payments of $5,325,522 on July 30, 2024.

01 Regulation FD

Item 7.01 Regulation FD. Quarterly Royalty Report and Royalty Payment On July 30, 2024, the Trustees of Mesabi Trust received the Royalty Report from Cliffs, the parent company of Northshore. As reported to Mesabi Trust by Cliffs in the Royalty Report, based on shipments of iron ore products by Northshore during the three months ended June 30, 2024, Mesabi Trust was credited with a base royalty of $2,783,747. For the three months ended June 30, 2024, Mesabi Trust was also credited with a bonus royalty in the amount of $2,386,069. Cliffs reported that no adjustments were made in the second quarter. In addition, a royalty payment of $155,706 was paid to the Mesabi Land Trust. Accordingly, the total royalty payments received by Mesabi Trust on July 30, 2024 from Cliffs were $5,325,522. The royalties paid to Mesabi Trust are based on the volume of iron ore pellets and other products produced or shipped during the quarter and the year to date, the pricing of iron ore product sales, and the percentage of iron ore pellet production and shipments from Mesabi Trust lands rather than from non-Mesabi Trust lands. In the second calendar quarter of 2024, Cliffs credited Mesabi Trust with 949,718 tons of iron ore shipped, as compared to 886,301 tons shipped or produced during the second calendar quarter of 2023. The current Royalty Report reported two low volume sale transactions of iron ore pellets to a single third party customer, one in May 2024 and one in June 2024. These two sale transactions are the only reported sales of third party pellet sales transactions since Cliffs' July 28, 2023 quarterly royalty report when it reported two low volume sales transactions to a single third party customer in June 2023. The Trust is continuing to review and evaluate whether such transactions meet the requirements of the royalty agreement. The volume of iron ore pellets (and other iron ore products) produced or shipped by Northshore varies from quarter to quarter and year to year

Forward-looking Statements

Forward-looking Statements This report contains certain forward-looking statements with respect to iron ore pellet production, iron ore pricing and adjustments to pricing, shipments by Northshore during 2024, royalty (including bonus royalty) amounts, and other matters, which statements are intended to be made under the safe harbor protections of the Private Securities Litigation Reform Act of 1995, as amended. Actual production, prices, price adjustments, and shipments of iron ore pellets, as well as actual royalty payments (including bonus royalties) could differ materially from current expectations due to inherent risks and uncertainties such as general adverse business and industry economic trends, uncertainties arising from war, terrorist events, the impact of the coronavirus (COVID-19) pandemic and other global events, higher or lower customer demand for steel and iron ore, decisions by mine operators regarding curtailments or idling production lines or entire plants, environmental compliance uncertainties, difficulties in obtaining and renewing necessary operating permits, higher imports of steel and iron ore substitutes, processing difficulties, consolidation and restructuring in the domestic steel market, market inputs tied to indexed price adjustment factors found in some pellet supply agreements between Cliffs and some of its customers, resulting in future adjustments to royalties payable to Mesabi Trust and other factors. In addition, any future production curtailments or idling of Northshore operations, about which the Trust may have little or no prior notice, could materially adversely affect the royalty income of the Trust, as well as the resulting cash available for distribution by the Trust to Unitholders. Further, such developments could have a material adverse impact on the market price of the Trust's Units. Although the Mesabi Trustees believe that any such forward-looking statements are based on reasonable assumptions, such statements are subj

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