Mesabi Trust's Q3 Income Plunges 96% Without Arbitration Windfall

TL;DR

**MSB's Q3 earnings are a harsh reality check, showing just how much last year's arbitration award propped up their numbers; expect lower distributions moving forward.**

AI Summary

Mesabi Trust (MSB) experienced a significant decline in revenue and net income for the three and nine months ended October 31, 2025, primarily due to the absence of a non-recurring arbitration award received in the prior year. Total revenues for the three months ended October 31, 2025, plummeted to $3,590,450 from $79,001,840 in the same period of 2024, a decrease of 95.4%. Net income followed suit, dropping from $78,325,525 to $2,767,463, a 96.5% reduction. For the nine-month period, total revenues decreased by 84.8% to $13,931,747 from $91,742,322, and net income fell by 87.2% to $11,142,554 from $87,207,203. This substantial decline is largely attributable to the $71,185,029 arbitration award recognized in October 2024. Royalty income also saw a decrease, with base overriding royalties down to $2,263,892 from $4,150,083 for the three months, and bonus royalties falling to $902,047 from $3,027,705. Cash and cash equivalents decreased significantly from $100,204,531 at January 31, 2025, to $23,191,923 at October 31, 2025, primarily due to $86,985,668 in distributions to unitholders.

Why It Matters

Mesabi Trust's substantial drop in net income and cash reserves, largely due to the absence of the prior year's $71 million arbitration award, signals a return to more normalized, albeit lower, royalty-driven earnings. For investors, this means a significant reduction in potential distributions, as evidenced by the declared distribution of $0.34 per unit compared to $0.39 in the prior year's quarter. Employees and customers of Northshore Mining Company, the lessee/operator, are indirectly affected by the underlying iron ore market conditions that dictate royalty income. In a competitive context, the trust's reliance on iron ore prices and production volumes from a single operator, Cleveland Cliffs Inc., exposes it to market volatility and operational decisions of that entity, making its financial performance highly sensitive to the broader steel and iron ore industry.

Risk Assessment

Risk Level: high — The Trust's financial performance is highly dependent on volatile iron ore and steel prices, market supply and demand, and decisions by mine operators like Cleveland Cliffs Inc. regarding production. The significant 95.4% drop in total revenues for the three months ended October 31, 2025, to $3,590,450, compared to $79,001,840 in the prior year, highlights this extreme sensitivity, especially given the non-recurring nature of the 2024 arbitration award.

Analyst Insight

Investors should re-evaluate Mesabi Trust's long-term distribution potential, recognizing that the extraordinary arbitration award from 2024 will not recur. Focus on the core royalty income trends and the underlying iron ore market, and consider if the current unit price adequately reflects a future without such one-time windfalls.

Financial Highlights

debt To Equity

N/A

revenue

$3,590,450

operating Margin

N/A

total Assets

$25,999,204

total Debt

$4,911,341

net Income

$2,767,463

eps

$0.2109

gross Margin

N/A

cash Position

$23,191,923

revenue Growth

-95.4%

Revenue Breakdown

Key Numbers

• $3,590,450 — Total revenues for three months ended Oct 31, 2025 (95.4% decrease from $79,001,840 in Oct 2024)
• $2,767,463 — Net income for three months ended Oct 31, 2025 (96.5% decrease from $78,325,525 in Oct 2024)
• $13,156,985 — Royalty income for nine months ended Oct 31, 2025 (Decreased from $19,613,693 in Oct 2024)
• $71,185,029 — Arbitration award received Oct 4, 2024 (Non-recurring revenue that significantly boosted 2024 figures)
• $23,191,923 — Cash and cash equivalents as of Oct 31, 2025 (Decreased from $100,204,531 as of Jan 31, 2025)
• $86,985,668 — Distributions to unitholders for nine months ended Oct 31, 2025 (Increased from $12,595,210 in Oct 2024, contributing to cash reduction)
• $0.34 — Distributions declared per unit on Oct 10, 2025 (Decreased from $0.39 per unit in the prior year's quarter)
• 13,120,010 — Units of Beneficial Interest outstanding (Consistent across all periods presented)
• $69.41 — Threshold price per ton for bonus royalties in calendar year 2025 (Adjusted annually for inflation, up from $67.75 in 2024)
• $1,055,605 — Net contract asset as of Oct 31, 2025 (Increased from $240,642 as of Jan 31, 2025, representing additional earned revenue not yet received)

Key Players & Entities

• MESABI TRUST (company) — registrant
• Northshore Mining Company (company) — lessee/operator of leased lands
• Cleveland Cliffs Inc. (company) — parent company of Northshore Mining Company
• Deutsche Bank Trust Company Americas (company) — c/o address for Mesabi Trust
• U.S. Bank N.A. (company) — corporate trustee for Mesabi Land Trust
• American Arbitration Association (regulator) — arbitration body for dispute with Northshore and Cliffs
• Bruce D. Sherling (person) — Trustee in Bankruptcy for the Estate of Reserve Mining Company
• Cypress Northshore Mining Corporation (company) — predecessor to Northshore Mining Company
• Mesabi Iron Company (company) — formerly owned interests now held by Mesabi Trust
• SEC (regulator) — Securities and Exchange Commission

FAQ

Risk Factors

• Dependence on Iron Ore Market [high — market]: Mesabi Trust's revenue is directly tied to the production and sale of iron ore by Cleveland-Cliffs Inc. (Cliffs). Fluctuations in iron ore prices and demand, driven by global economic conditions and steel production levels, can significantly impact royalty income. For the nine months ended October 31, 2025, total revenues were $13,931,747, a substantial decrease from $91,742,322 in the same period of 2024, largely due to the absence of a one-time arbitration award.
• Arbitration and Litigation Risks [high — legal]: The Trust's financial performance can be heavily influenced by legal proceedings, such as the arbitration award received in October 2024 for $71,185,029. Future arbitration outcomes or ongoing litigation could lead to material impacts on revenue and cash flows. The absence of such an award in the current period led to a 95.4% decrease in total revenues for the three months ended October 31, 2025.
• Distributions and Cash Position [medium — financial]: The Trust's cash position has significantly decreased from $100,204,531 as of January 31, 2025, to $23,191,923 as of October 31, 2025. This reduction is primarily due to substantial distributions to unitholders totaling $86,985,668 for the nine months ended October 31, 2025. While distributions are a key benefit to unitholders, a declining cash balance could limit future distributions if operating revenues do not recover.
• Reliance on Single Lessee (Cliffs) [high — operational]: The Trust's operations are entirely dependent on Cleveland-Cliffs Inc. (Cliffs) as its sole lessee. Any operational issues, financial difficulties, or strategic changes at Cliffs could directly and severely impact Mesabi Trust's royalty revenues and overall financial health. The Trust's revenue is derived from royalties paid by Cliffs on iron ore production.
• Environmental and Mining Regulations [low — regulatory]: While not explicitly detailed in the provided text, mining operations are subject to stringent environmental and safety regulations. Changes in these regulations, or increased compliance costs for the lessee (Cliffs), could indirectly affect royalty payments or production levels, thereby impacting Mesabi Trust's revenues.

Industry Context

Mesabi Trust operates within the iron ore mining sector, which is highly cyclical and dependent on global steel demand. The primary lessee, Cleveland-Cliffs Inc. (Cliffs), is a major North American producer. Industry trends include fluctuating commodity prices, increasing focus on environmental regulations, and consolidation among producers. The trust's revenue is directly tied to the operational success and market position of its lessee.

Regulatory Implications

Mesabi Trust is indirectly affected by mining and environmental regulations that govern its lessee, Cleveland-Cliffs Inc. Stricter regulations or increased compliance costs for Cliffs could impact their production levels and, consequently, the royalty payments made to Mesabi Trust. The trust itself, as a royalty trust, faces specific disclosure and reporting requirements.

What Investors Should Do

1. Monitor Iron Ore Market Dynamics
2. Analyze Distribution Sustainability
3. Evaluate Impact of Non-Recurring Items
4. Assess Lessee's (Cliffs) Financial Health

Key Dates

• 2024-10-04: Arbitration award received — Provided a significant non-recurring revenue boost of $71,185,029 in the prior year, distorting year-over-year comparisons.
• 2025-10-31: Quarter end for reporting — Marks the end of the three and nine-month periods for the current financial statements, showing a sharp decline in revenue and net income compared to the prior year.
• 2025-01-31: Prior fiscal year end — The balance sheet shows cash and cash equivalents of $100,204,531 at this date, highlighting the significant cash reduction by October 31, 2025.

Glossary

Base Overriding Royalties

A type of royalty payment typically based on a percentage of the gross sales or value of the mineral produced. (A primary source of revenue for Mesabi Trust, directly impacted by iron ore production and sales.)

Bonus Royalties

Additional royalty payments that may be triggered when certain conditions are met, such as exceeding a specific production volume or price threshold. (Contributes to royalty income, with payments dependent on market conditions and production levels exceeding a threshold price of $69.41 per ton for bonus royalties in calendar year 2025.)

Arbitration award

A decision made by an arbitrator or panel of arbitrators in a dispute, which can result in a financial settlement or judgment. (A significant non-recurring revenue source in the prior year ($71,185,029), the absence of which heavily impacts current period revenue comparisons.)

Unallocated reserve

A portion of the trust's assets set aside for specific purposes, such as future expenses or contingencies, not yet distributed to unitholders. (Represents a buffer within the trust's liabilities and equity, decreasing from $23,327,717 to $21,087,860.)

Contract asset

Represents revenue earned by the Trust but not yet billed or received from the lessee, often related to accruals for royalties. (Increased from $240,642 to $1,055,605, indicating more earned revenue not yet collected, potentially due to accrual adjustments or timing differences.)

Year-Over-Year Comparison

Mesabi Trust experienced a dramatic decline in financial performance compared to the prior year's period, primarily due to the absence of a significant non-recurring arbitration award of $71,185,029 received in October 2024. Total revenues for the three months ended October 31, 2025, fell by 95.4% to $3,590,450 from $79,001,840 in the prior year. Net income saw a corresponding 96.5% decrease. Cash and cash equivalents have also significantly reduced from $100,204,531 to $23,191,923, largely driven by increased distributions to unitholders ($86,985,668 vs. $12,595,210). Distributions per unit also decreased to $0.34 from $0.39.

Filing Documents

• msb-20251031x10q.htm (10-Q) — 778KB
• msb-20251031xex31.htm (EX-31) — 16KB
• msb-20251031xex32.htm (EX-32) — 7KB
• msb-20251031xex99d1.htm (EX-99.1) — 4KB
• 0001104659-25-120673.txt ( ) — 2824KB
• msb-20251031.xsd (EX-101.SCH) — 26KB
• msb-20251031_cal.xml (EX-101.CAL) — 19KB
• msb-20251031_def.xml (EX-101.DEF) — 32KB
• msb-20251031_lab.xml (EX-101.LAB) — 150KB
• msb-20251031_pre.xml (EX-101.PRE) — 93KB
• msb-20251031x10q_htm.xml (XML) — 454KB

– FINANCIAL INFORMATION

PART I – FINANCIAL INFORMATION 3

Financial Statements. (Note 1)

Item 1. Financial Statements. (Note 1) 3 Condensed Statements of Income Three and Nine Months Ended October 31, 2025 and 2024 3 Condensed Balance Sheets October 31, 2025 and January 31, 2025 4 Condensed Statements of Cash Flows Nine Months Ended October 31, 2025 and 2024 5 Notes to Condensed Financial Statements 6

Trustees' Discussion and Analysis of Financial Condition and Results of Operations

Item 2. Trustees' Discussion and Analysis of Financial Condition and Results of Operations. 9

Quantitative and Qualitative Disclosures About Market Risk

Item 3. Quantitative and Qualitative Disclosures About Market Risk. 19

Controls and Procedures

Item 4. Controls and Procedures. 20

- OTHER INFORMATION

PART II - OTHER INFORMATION 21

Legal Proceedings

Item 1. Legal Proceedings 21

Risk Factors

Item 1A. Risk Factors 21

Unregistered Sales of Equity Securities and Use of Proceeds

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 21

Defaults upon Senior Securities

Item 3. Defaults upon Senior Securities 21

Mine Safety Disclosures

Item 4. Mine Safety Disclosures 21

Other Information

Item 5. Other Information 21

Exhibits

Item 6. Exhibits. 22

Forward-Looking Statements

Forward-Looking Statements Certain information included in this Quarterly Report on Form 10-Q contains, or incorporates by reference, not only historical information, but also "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934. All such forward-looking statements, including those statements regarding estimation of iron ore pellet production, shipments, pricing, royalties and other matters, are based on information from the lessee/operator (and its parent corporation) of the mine located on the lands owned and held in trust for the benefit of the holders of units of beneficial interest of Mesabi Trust ("Mesabi Trust" or the "Trust"). These statements may be identified by the use of forward-looking words, such as "may," "will," "could," "project," "predict," "intend," "believe," "anticipate," "expect," "estimate," "continue," "potential," "plan," "should," "assume," "forecast" and other similar words. Such forward-looking statements are inherently subject to known and unknown risks and uncertainties. Actual results and future developments could differ materially from the results or developments expressed in or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, volatility of iron ore and steel prices, market supply and demand, competition, environmental hazards, health and safety conditions, regulation or government action, litigation, uncertainties about estimates of reserves, general adverse business and industry economic trends, uncertainties arising from war, terrorist events 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 restructur

– FINANCIAL INFORMATION

PART I – FINANCIAL INFORMATION

Financial Statements. (Note 1)

Item 1. Financial Statements. (Note 1) Mesabi Trust Condensed Statements of Income Three and Nine Months Ended October 31, 2025 and 2024 Three Months Ended Nine Months Ended October 31, October 31, 2025 2024 2025 2024 (unaudited) (unaudited) (unaudited) (unaudited) A. Condensed Statements of Income Revenues Royalty income $ 3,390,609 $ 7,348,366 $ 13,156,985 $ 19,613,693 Arbitration award — 71,185,029 — 71,185,029 Interest 199,841 468,445 774,762 943,600 Total revenues 3,590,450 79,001,840 13,931,747 91,742,322 Expenses 822,987 676,315 2,789,193 4,535,119 Net income $ 2,767,463 $ 78,325,525 $ 11,142,554 $ 87,207,203 WEIGHTED AVERAGE NUMBER OF UNITS OUTSTANDING Number of units outstanding 13,120,010 13,120,010 13,120,010 13,120,010 Net income per unit (Note 2) $ 0.2109 $ 5.9699 $ 0.8493 $ 6.6469 Distributions declared per unit (Note 4) $ 0.3400 $ 0.3900 $ 1.0200 $ 0.9800 See Notes to Condensed Financial Statements. 3 Table of Contents Mesabi Trust Condensed Balance Sheets October 31, 2025 and January 31, 2025 October 31, 2025 January 31, 2025 (unaudited) B. Condensed Balance Sheets Assets Cash and cash equivalents $ 23,191,923 $ 100,204,531 Accrued income receivable 1,522,367 1,160,761 Contract asset 1,055,605 240,642 Prepaid expenses 229,306 122,518 Current assets 25,999,201 101,728,452 Fixed property, including intangibles, at nominal values Assignments of leased property Amended assignment of Peters Lease 1 1 Assignment of Cloquet Leases 1 1 Certificate of beneficial interest for 13,120,010 units of Land Trust 1 1 3 3 Total assets $ 25,999,204 $ 101,728,455 Liabilities, Unallocated Reserve And Trust Corpus Liabilities Distribution payable $ 4,460,803 $ 78,064,060 Accrued expenses 450,538 336,675 Total liabilities 4,911,341 78,400,735 Unal

Trustees' Discussion and Analysis of Financial Condition and Results of Operations

Item 2. Trustees' Discussion and Analysis of Financial Condition and Results of Operations. This discussion should be read in conjunction with the condensed financial statements and notes presented in this Quarterly Report on Form 10-Q and the financial statements and notes in the last filed Annual Report on Form 10-K for the year ended January 31, 2025 for a full understanding of Mesabi Trust's financial position and results of operations for the three and nine months ended October 31, 2025. All references in this discussion and in this Quarterly Report on Form 10-Q to iron ore products "shipped" or "shipments" shall include iron ore products that are actually shipped from Silver Bay, Minnesota and/or stockpiled for intercompany use that Cleveland Cliffs Inc. ("Cliffs") has deemed shipped, as referenced by the parties to, and in accordance with, the Amended Assignment 9 Table of Contents of Peters Lease. Following the outcome of the 2019 arbitration, Cliffs began accruing royalty payments to the Trust for both DR pellets and standard pellets to be sold for internal use at facilities owned by Cliffs or its subsidiaries. This accrual method was upheld in the September 6, 2024 award. As a result, the Trust recognizes revenue for internal use pellets upon production of those pellets, regardless of pellet grade. Pellets produced by Northshore Mining Company ("Northshore" or "NMC") that are not designated for internal use by Cliffs, or its subsidiar

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