Item 7.01Regulation FD.
Quarterly Royalty Report and
Royalty Payment
On July 30, 2020, the Trustees of Mesabi Trust received the
quarterly royalty report of iron ore shipments out of Silver Bay,
Minnesota during the quarter ended June 30, 2020 (“Royalty
Report”) from Cleveland-Cliffs Inc. (“Cliffs”), the parent
company of Northshore Mining Company (“Northshore”), as well as the
royalty payment from Cliffs, as summarized below.
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, 2020, Mesabi Trust was
credited with a base royalty of $2,792,731. Also for the
three months ended June 30, 2020, Mesabi Trust was
credited with a bonus royalty in the amount of $2,932,348. After
applying a reduction of $1,477,192 resulting from negative pricing
adjustments carried over from the first quarter 2020 and netted
against positive pricing adjustments of $71,957 to base and bonus
royalty calculations related to changes in price estimates made in
prior quarters, Cliffs paid Mesabi Trust a royalty of $4,319,844
for shipments during the quarter ended June 30, 2020. In
addition, a royalty payment of $29,986 was paid to the Mesabi Land
Trust. Accordingly, the total royalty payments received by Mesabi
Trust on July 30, 2020 from Cliffs were $4,349,830.
The royalties paid to Mesabi Trust are based on the volume of
shipments of iron ore pellets for the quarter and the year to
date, the pricing of iron ore product sales, and
the percentage of iron ore pellet shipments from Mesabi Trust
lands rather than from non-Mesabi Trust lands. In the second
calendar quarter of 2020, Cliffs credited Mesabi Trust with
1,073,446 tons of iron ore shipped, as compared to 1,545,242 tons
shipped during the second calendar quarter of 2019.
The volume of shipments of iron ore pellets (and other iron ore
products) by Northshore varies from quarter to quarter
and year to year based on a number of factors, including
the requested delivery schedules of customers, general economic
conditions in the iron ore industry, and weather conditions on the
Great Lakes. Further, the prices under the term contracts among
Northshore, Cliffs, and certain of their customers (the “Cliffs
Pellet Agreements”), to which Mesabi Trust is not a party, are
subject to interim and final pricing adjustments, dependent in part
on multiple price and inflation index factors, some of which are
not known until after the end of a contract year. The factors
that could result in price adjustments under Cliffs’ customer
contracts include changes in the Platts 62% Price, hot-rolled coil
steel price, the Atlantic Basin pellet premium, published Platts
international indexed freight rates and changes in specified
producer price indices, including those for industrial commodities,
fuel and steel. These multiple factors can result in significant
variations in royalties received by Mesabi Trust (and in turn, the
resulting funds available for distribution to Unitholders by Mesabi
Trust) from quarter to quarter and from year to year.
These variations, which can be positive or negative, cannot be
predicted by the Trustees of Mesabi Trust. Royalty payments
anticipated to be received during fiscal 2021 will continue to
reflect pricing estimates for shipments of iron ore products that
will be subject to positive or negative pricing adjustments
pursuant to the Cliffs Pellet Agreements. Based on the above
factors, and as indicated by Mesabi Trust’s historical distribution
payments, the royalties received by Mesabi Trust, and the
distributions paid to Unitholders, if any, in any particular
quarter are not necessarily indicative of royalties that will be
received, or distributions that will be paid, if any, in any
subsequent quarter or full year.
With respect to calendar year 2020, Northshore has not advised
Mesabi Trust of its expected shipments of iron ore products or
what percentage of 2020 shipments will be from Mesabi Trust
iron ore. In the Cliffs’ Royalty Report, Cliffs stated that the
royalty payments being reported were based on estimated iron ore
pellet prices under the Cliffs Pellet Agreements, which are subject
to change. It is possible that future negative price adjustments
could offset, or even eliminate, royalties or royalty income that
would otherwise be payable to Mesabi Trust in any particular
quarter, or at year end, thereby potentially reducing cash
available for distribution to Mesabi Trust’s Unitholders in future
quarters.
Other Recent Developments
In its Quarterly Report on Form 10-Q for the quarter ended
June 30, 2020 (filed July 30, 2020), Cliffs disclosed
that it plans to restart the previously idled Northshore mine in
early August 2020.
In the same quarterly report, Cliffs also disclosed that in
response to the COVID-19 pandemic, it made various operational
changes to adjust to the demand for its products. Although steel and iron ore production have been
considered “essential” by the states in which Cliffs operates,
certain of its facilities and construction activities were
temporarily idled during the second quarter of 2020. Nearly
all of these temporarily idled facilities were restarted as of
June 30, 2020, with the