MESABI TRUST (NYSE:MSB) Files An 8-K Regulation FD Disclosure
Item 7.01 Regulation FD.
Quarterly Royalty Report
On July 30, 2019, the Trustees of Mesabi Trust (NYSE: MSB) received the quarterly royalty report of iron ore shipments from Silver Bay, Minnesota during the quarter ended June 30, 2019 (the “Royalty Report”) from Cleveland-Cliffs Inc. (“Cliffs”), the parent company of Northshore Mining Company (“Northshore”).
As reported to the Trust by Cliffs in the Royalty Report, based on shipments of iron ore products by Northshore during the three months ended June 30, 2019, Mesabi Trust was credited with a base royalty of $ 5,799,695. Mesabi Trust also was credited with a bonus royalty in the amount of $ 5,928,622. Royalties paid to Mesabi Trust reflected the reduction of $ 8,840 as a result of negative pricing adjustments to base and bonus royalty calculations related to changes in price estimates made in prior quarters. In addition, a royalty payment of $156,041 was paid to the Mesabi Land Trust. Accordingly, the total royalty payments received by Mesabi Trust on July 30, 2019 from Cliffs were $ 11,875,518.
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 2019, Northshore credited Mesabi Trust with 1,545,242 tons of iron ore shipped, as compared to 1,764,175 tons shipped during the second calendar quarter of 2018.
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 Unit holders 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 2020 will continue to reflect pricing estimates for shipments of iron ore products that will be subject to positive or negative pricing adjustments to the Cliffs Pellet Agreements. Based on the above factors, and as indicated by the Trust’s historical distribution payments, the royalties received by the Trust, and the distributions paid to Unit holders, 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 2019, Northshore has not advised Mesabi Trust of its expected shipments of iron ore products (except as noted below with regard to DR-grade pellets) or what percentage of 2019 shipments will be from Mesabi Trust iron ore. In the Cliffs’ Royalty Report, Cliffs stated that the royalty payments being reported today 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 Unit holders in future quarters.
Other Recent Developments
In its Quarterly Report on Form 10-Q for the quarter ended June 30, 2019, Cliffs disclosed that it is continuing construction of its HBI plant in Toledo, Ohio, and it expects to complete construction and begin commercial production ahead of schedule, in the first half of 2020.
In its June 19, 2019 earnings release, Cliffs further disclosed that due to the earlier than expected completion of the Northshore plant upgrade, production of DR-grade pellets at Northshore began ahead of schedule and 40,000 tons of intercompany sales to Cliffs’ Toledo HBI plant were recognized in Cliffs’ second quarter 2019.