MESABI TRUST (NYSE:MSB) Files An 8-K Regulation FD DisclosureItem 7.01Regulation FD.
On April 27, 2017, the Trustees of Mesabi Trust (NYSE: MSB) received the quarterly royalty report of iron ore product shipments from Silver Bay, Minnesota during the quarter ended March 31, 2017 from Cliffs Natural Resources Inc. (“Cliffs”), the parent company of Northshore Mining Company (“Northshore”). As previously reported, on April 12, 2017, the Trustees declared a distribution of fifty-five cents ($0.55) per Unit of Beneficial Interest payable on May 20, 2017 to Mesabi Trust Unitholders of record at the close of business on April 30, 2017.
As reported to the Trust by Cliffs in the quarterly royalty report, based on shipments of iron ore products by Northshore during the three months ended March 31, 2017, Mesabi Trust was credited with a base royalty of $585,858. Mesabi Trust also was credited with a bonus royalty in the amount of $703,029. Royalties paid to Mesabi Trust, however, reflected a reduction of $1,060,705 as a result of negative pricing adjustments to base and bonus royalty calculations related to changes in price estimates made in the previous calendar quarters of 2016 and the first calendar quarter of 2017. Accordingly, the total royalty payments received on April 28, 2017 by Mesabi Trust from Northshore were $366,840 (which includes a royalty payment of $138,659 paid to the Mesabi Land Trust).
Mesabi Trust was also notified that additional negative pricing adjustments of approximately $1.48 million would be made against future royalties payable to Mesabi Trust. 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 first calendar quarter of 2017, Northshore credited Mesabi Trust with 283,537 tons of iron ore shipped, as compared to 20,910 tons during the first calendar quarter of 2016.
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 contracts between Northshore, Cliffs, and certain of their customers (the “Cliffs Pellet Agreements”), to which Mesabi Trust is not a party, are subject to both interim (quarter to quarter) and final (after year end) 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. 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 received in fiscal 2018 and prior years continue to reflect pricing estimates for shipments of iron ore products that are 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 for a full year.
With respect to calendar year 2017, Northshore has not advised Mesabi Trust of its expected shipments of iron ore products or what percentage of 2017 shipments will be from Mesabi Trust iron ore. Cliffs indicated that the royalty payments being reported today are based on estimated iron ore pellet prices under the Cliffs Pellet Agreements, which are subject to change during the remainder of this year and after year end. 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.