Item 2.02Results of Operations and Financial Condition.
Receipt of Quarterly Royalty Report and Royalty Payment from Cleveland-Cliffs Inc.
On October 30, 2023, Mesabi Trust received the quarterly royalty report of iron ore production and shipments out of Silver Bay, Minnesota during the quarter ended September 30, 2023 (the “Quarterly Royalty Report”) from Cleveland-Cliffs Inc. (“Cliffs”), the parent company of Northshore Mining Company (“Northshore”). As further explained under Item 7.01 below, the Quarterly Royalty Report indicated that the Mesabi Trust received a royalty payment on October 30, 2023, as summarized below.
Item 7.01Regulation FD.
Quarterly Royalty Report and Royalty Payment
On October 30, 2023, the Trustees of Mesabi Trust received the Quarterly Royalty Report from Cliffs, the parent company of Northshore.
As reported to Mesabi Trust by Cliffs in the Quarterly Royalty Report, based on production and shipments of iron ore products by Northshore during the three months ended September 30, 2023, Mesabi Trust was credited with a base royalty of $2,892,169. Also for the three months ended September 30, 2023, Mesabi Trust was credited with a bonus royalty in the amount of $2,560,609. After applying $8,840 for positive adjustments related to changes in estimates from prior quarters, on October 30, 2023, Cliffs paid Mesabi Trust a royalty of $5,461,618. In addition, a royalty payment of $204,636 was paid to the Mesabi Land Trust. Accordingly, the total royalty payments from Cliffs received on October 30, 2023 by Mesabi Trust for the three months ended September 30, 2023 were $5,666,254.
The royalties paid to Mesabi Trust are based on the volume of iron ore pellets produced for internal use or shipped for third party sales during 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 third calendar quarter of 2023, Cliffs credited Mesabi Trust with 1,019,311 tons shipped or produced during the quarter, as compared to zero tons shipped or produced during the third calendar quarter of 2022, when the Northshore operations were idled.
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 based on a number of factors, including, among others, Cliffs’ decisions to idle Northshore operations (which occurred from May 2022 through March 2023), the requested delivery schedules of customers (including affiliates), general economic conditions in the iron ore industry, production schedules and weather conditions on the Great Lakes. 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. 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.
Cliffs’ quarterly royalty reports normally present production and shipment volumes, as well as royalty calculations, that are based on documented transactions that are reviewed by the Trustees and are based on estimated iron ore prices that 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