Mesabi Trust (MSB) Comprehensive Analysis

Origins and History

Formation: Mesabi Trust was established on July 18, 1961, under New York law, as a royalty trust created during the liquidation of Mesabi Iron Company (MIC) (ref). The sole purpose of the trust (per the 1961 Agreement of Trust) is to “conserve and protect” the trust estate (iron ore interests) and collect royalties and income for distribution to unitholders (ref). The trust is prohibited from engaging in any active business – it simply collects royalties and pays expenses, then distributes the net income to its unit holders (ref). Mesabi Trust’s duration is defined as 21 years after the death of the last survivor of 25 named individuals who were alive at its inception (a common legal provision to satisfy the rule against perpetuities) (ref), meaning the trust can endure for many decades.

Purpose and Assets: The trust was formed to take over MIC’s interests in iron ore leases and lands on Minnesota’s Mesabi Iron Range. Upon formation, MIC transferred to Mesabi Trust all its rights in two key mineral leases – the Peters Lease (original 1915 indenture) and the Cloquet Lease (1916 indenture) – via amended assignments, as well as the beneficial interest in Mesabi Land Trust (which holds the fee lands) (ref) (ref). These agreements gave Mesabi Trust the right to royalties from iron ore (taconite) mined at the Peter Mitchell Mine near Babbitt, Minnesota (Mesabi Trust). The trust’s sole function is to passively hold these mineral interests and distribute royalty income from them. It does not operate mines or sell ore itself, thus maintaining its tax-advantaged status as a grantor trust (Mesabi Trust).

Original Stakeholders: When Mesabi Trust was created in 1961, 100% of its beneficial units were issued to the shareholders of Mesabi Iron Company as part of MIC’s liquidation (ref). A total of 13,120,010 units of beneficial interest were distributed on July 27, 1961 to MIC’s shareholders (ref), making them the initial beneficiaries of the trust. The initial trustees (as signatories to the trust agreement) managed the trust estate on behalf of these unit holders. Over time the units became publicly traded (NYSE: MSB) (Mesabi Trust). Thus, the founding stakeholders were MIC (as grantor of the assets), the appointed trustees, and MIC’s shareholders who became Mesabi Trust unitholders. The trust agreement (as amended in 1982) and related documents outline the trustees’ duties and the rights of the certificate holders (Mesabi Trust).

Relationship with Cleveland-Cliffs

Operational Role of Cleveland-Cliffs: Mesabi Trust itself does not mine iron ore – the mining and pelletizing operations at the Peter Mitchell Mine are conducted by Northshore Mining Company, a lessee/operator. Northshore is a wholly-owned subsidiary of Cleveland-Cliffs Inc. (“Cliffs”), which has been the operator since it acquired Northshore in 1994 (ref). In essence, Cleveland-Cliffs (through Northshore) controls all day-to-day mining activities, pellet production, and sales from Mesabi Trust lands. The trust remains a passive royalty owner and is not involved in operational decisions. Importantly, Cliffs decides if, when, and how much ore to extract and ship, and even whether to source ore from Mesabi Trust land or from other properties in the area that Cliffs controls (www.sec.gov). Mesabi Trust has no influence over these mine planning and production decisions (www.sec.gov). This dynamic means Cliffs can significantly influence the trust’s income – for example, by idling the mine or blending ore from non-trust lands, which can reduce royalties paid to Mesabi Trust.

Royalty Agreements and Payment Structure: The legal relationship between Mesabi Trust and Cleveland-Cliffs is defined by long-standing contracts. The most significant is the Amendment of Assignment, Assumption and Further Assignment of Peters Lease (dated August 17, 1989), which, along with a similar agreement for the Cloquet Lease, governs Northshore’s rights and obligations to mine the trust’s ore and pay royalties (Mesabi Trust). Under these agreements, Northshore (Cliffs) must pay Mesabi Trust a base royalty on each ton of iron ore pellets shipped from the Silver Bay pellet plant, plus a bonus royalty tied to the realized selling price of those pellets (Mesabi Trust). In simplified terms, the base royalty is a fixed rate per ton (with a schedule that increases the rate once annual shipment volume exceeds certain thresholds), and the bonus royalty is a percentage of gross sales when pellet prices exceed a defined “threshold price” per ton (www.sec.gov) (www.sec.gov). There is also provision for a minimum advance royalty in periods of little or no production (Mesabi Trust) – for example, early in the year when Great Lakes shipping is frozen, the trust may receive a minimum payment (Mesabi Trust Announces First Quarter Royalty - Association for Iron & Steel Technology).

The royalty formula is detailed. Notably, to incentivize Cliffs to use Mesabi Trust lands, the trust earns royalties even on ore that Cliffs mines from other lands and processes through Silver Bay. Specifically, Mesabi Trust is entitled to royalties on the greater of (a) the tonnage actually mined from trust lands, or (b) a percentage of total pellet tonnage from any source (90% of the first 4 million tons, 85% of the next 2 million, and 25% beyond 6 million tons annually) (www.sec.gov). This means if Cliffs substitutes non-trust ore, the trust still gets a partial royalty on those shipments, though at a reduced rate. Even so, Cleveland-Cliffs retains substantial control: it can choose to mine other properties or curtail output, thereby limiting Mesabi’s royalty income (the trust cannot compel any minimum production beyond what the lease agreements require in advance royalties).

Contractual Obligations: Cleveland-Cliffs (via Northshore) is obligated to report production and sales figures and pay quarterly royalties per the lease agreements. These obligations are overseen by the trustees, who rely on Cliffs’ reported data. Mesabi Trust is not a party to Cliffs’ sales contracts with steel customers, and thus must accept estimated pricing and later adjustments in royalties when Cliffs’ pellet sales are repriced (e.g. due to index-based contract adjustments) (www.sec.gov). This has caused significant variability in quarter-to-quarter royalties. Cliffs’ control over sales and accounting means it effectively controls the timing and magnitude of trust distributions (subject to the contract’s formulas). In SEC filings, Mesabi Trust emphasizes that it is dependent on a single operator (Cliffs) and that royalty income can fluctuate with Cliffs’ operational decisions and pricing factors outside the trust’s control (www.sec.gov) (www.sec.gov). In summary, while Mesabi Trust owns the royalty rights, Cleveland-Cliffs holds the operational leverage in the relationship.

Recent Settlement with Cleveland-Cliffs

Background of the Dispute: In 2022, tensions between Mesabi Trust and Cleveland-Cliffs came to a head over how royalties were being calculated. Mesabi Trust suspected that Cliffs had been underpaying royalties during 2020–2022 by not adhering to the pricing terms in the royalty agreement (MESABI TRUST Announces Arbitration Final Award). Specifically, the trust alleged that when determining the royalty on certain pellet shipments, Cliffs/Northshore failed to use the highest priced arm’s-length sale from the previous four quarters as required (presumably in cases where pellets were not sold to third parties but transferred internally or sold at lower contractual prices) (MESABI TRUST Announces Arbitration Final Award). This led to Mesabi Trust initiating an arbitration proceeding on October 14, 2022 against Northshore and Cleveland-Cliffs, pursuant to the dispute resolution provisions of their agreements (MESABI TRUST Announces Arbitration Final Award). The trust sought recovery of unpaid royalties for 2020, 2021, and the first part of 2022, as well as clarification of its rights to information and the timing of royalty accruals (MESABI TRUST Announces Arbitration Final Award).

Settlement/Arbitration Outcome: The dispute was resolved through binding arbitration in 2024. After hearings and submissions, a panel of the American Arbitration Association issued a final award on September 6, 2024 in favor of Mesabi Trust (MESABI TRUST Announces Arbitration Final Award). The arbitrators unanimously found that Cleveland-Cliffs and Northshore had underpaid and ordered them to pay $59,799,977 in additional royalties, covering the period of 2020 through April 2022 (MESABI TRUST Announces Arbitration Final Award). In addition, $11,288,269 in pre-award interest was awarded, calculated at 10% per annum (MESABI TRUST Announces Arbitration Final Award). Cliffs was directed to pay the total (around $71 million) by October 6, 2024 (MESABI TRUST Announces Arbitration Final Award). The arbitration award also included a consent award requiring Cliffs to provide Mesabi Trust certain documentation going forward to verify royalty calculations (improving transparency for the trust) (MESABI TRUST Announces Arbitration Final Award). However, the panel denied the trust’s request for a declaratory ruling on when exactly royalty obligations accrue (the timing issue) (MESABI TRUST Announces Arbitration Final Award).

Implications Going Forward: This outcome is essentially a legal settlement in that Cliffs must make the trust whole for past underpayments and abide by clarified terms. The immediate impact was a huge one-time influx of cash to Mesabi Trust. In fact, following receipt of the arbitration payment, the trust declared an exceptionally large distribution of $5.95 per unit (ex-date January 30, 2025) to pass most of that recovery on to unitholders (Mesabi Trust (MSB) Dividend History, Dates & Yield). Going forward, the resolution should enforce better compliance by Cleveland-Cliffs with the royalty pricing formula – notably, using the highest recent market price for pellets when appropriate – which could enhance Mesabi’s royalty income in future quarters. The trust now also has access to more documentation to audit Cliffs’ calculations (MESABI TRUST Announces Arbitration Final Award), which should help prevent disputes or detect any underpayment sooner. That said, Cleveland-Cliffs retains the ability to control mining output. Indeed, during the dispute, Cliffs idled the Northshore mine for an extended period in 2022–2023 (citing market conditions and perhaps the pending arbitration), which led to very low royalties in 2023. The settlement puts the pricing disagreement to rest, potentially improving relations in the near term. However, investors should be aware that Mesabi Trust’s fortunes remain tied to Cliffs’ operational decisions. If iron ore demand or Cliffs’ strategy changes, the mine could be slowed or closed irrespective of the arbitration outcome. In summary, the 2024 arbitration award secures past due royalties and reinforces the contract terms, providing Mesabi Trust and its unitholders a fairer share of revenue and more insight into Cliffs’ reporting moving forward (MESABI TRUST Announces Arbitration Final Award) (MESABI TRUST Announces Arbitration Final Award).

Long-Term Performance (20-Year Stock and Dividend Trends)

Over the past two decades, Mesabi Trust’s stock price and distributions have been highly cyclical, reflecting the volatility of iron ore markets and the trust’s unique royalty structure. The trust has no fixed dividend – it passes through whatever royalties it receives – so both the unit price and the payout can swing dramatically year to year. Below are the year-end stock prices and annual distributions for Mesabi Trust from 2005 through 2024, illustrating its long-term performance:

Mesabi Trust Year-End Stock Price (2005–2024) (Mesabi Trust - 38 Year Stock Price History | MSB | MacroTrends) (Mesabi Trust - 38 Year Stock Price History | MSB | MacroTrends)
(Prices are the closing share price at the end of each calendar year.)

As shown above, MSB’s unit price was only around $3–6 in the mid-2000s, then surged during the 2010 commodities boom (closing ~$12.78 in 2010) (Mesabi Trust - 38 Year Stock Price History | MSB | MacroTrends). It crashed to ~$2 by end of 2015 amid a global iron ore glut, then rebounded sharply in 2016–2017. By 2021, the stock was back above $20, and it closed 2024 at $28.11, near multi-year highs (Mesabi Trust - 38 Year Stock Price History | MSB | MacroTrends). These swings correspond to changes in royalty income – investors bid the price up when iron ore prices and volumes are strong (anticipating big payouts), and sell off when conditions weaken. Notably, even after the 2022–2023 dip (due to Cliffs’ mine idling and lower payouts), the huge arbitration award and restart of mining saw the stock rally in 2024. Overall, MSB’s price trend over 20 years is upward (reflecting growth in iron ore value and cumulative distributions), but with high volatility and long periods of sideways or declining performance during industry downturns.

Mesabi Trust Annual Distribution per Unit (2005–2024) (Mesabi Trust dividends | Digrin) (Mesabi Trust (MSB) Dividend History, Dates & Yield)
(Total dividends paid per unit each year. Figures are summed from the trust’s quarterly distributions in each calendar year.)

Mesabi Trust’s payouts have fluctuated in a wide range, mirroring iron ore market cycles and operational factors. For example, in 2008 the trust distributed nearly $2.89 per unit, but this collapsed to just $0.71 in 2009 when the Great Recession hit steel demand (Mesabi Trust dividends | Digrin) (Mesabi Trust dividends | Digrin). Another steep drop occurred in 2015–2016: after paying $1.77 in 2014, the trust distributed only $0.68 in 2015 and $0.55 in 2016 as iron ore prices fell to multiyear lows. Conversely, boom times have produced rich payouts – notably 2019–2022 saw very high distributions. In 2019 the trust paid out $3.36, and in 2022 it reached about $3.63 per unit (benefiting from strong pellet prices that year) (Mesabi Trust (MSB) Dividend History, Dates & Yield). The leanest year was 2023, with only $0.35 for the whole year, reflecting the Northshore mine being largely idled (virtually no royalties were generated for several quarters). It’s important to note that these figures exclude the extraordinary $5.95 per unit special distribution declared in January 2025, which was tied to the arbitration back-payment (that windfall is outside the regular annual mining operations).

Over 20 years, Mesabi Trust has delivered substantial cumulative dividends to unitholders, but in a very non-linear fashion. Investors have experienced periods of high yield (often double-digit percentages in boom years) followed by sudden droughts. The trust’s policy of passing through income means dividend yield on the stock can be extremely high when commodity conditions are favorable – for instance, based on the 2022 payout the yield was well over 20%. However, during downturns (like 2015 or 2023) the yield shrinks to a few percent or effectively zero if distributions pause. This volatility underscores that Mesabi Trust’s performance is fundamentally tied to the iron ore cycle and Cleveland-Cliffs’ mining activity. Long-term, an investor in 2005 who held through 2024 would have seen the stock appreciate roughly eight-fold in price and also received dozens of dollars per unit in cumulative distributions. But achieving that required patience through gut-wrenching downturns. In summary, Mesabi Trust has proven capable of generating significant value for unitholders over the long run, provided the iron ore market cooperates – its royalties (and thus stock and dividend performance) soar in good times and shrink in bad times, with Cleveland-Cliffs’ operational decisions amplifying these effects.

Sources: Public SEC filings (e.g. Annual Reports on Form 10-K), Mesabi Trust press releases, and Yahoo! Finance historical data (ref) (Mesabi Trust) (MESABI TRUST Announces Arbitration Final Award) (Mesabi Trust - 38 Year Stock Price History | MSB | MacroTrends). These publicly available sources provide the legal background of the trust’s formation and agreements, details of the arbitration settlement, and the financial history (stock prices and distributions) over the past two decades. All information and figures above are drawn from those sources and reflect the trust’s reported results and market data.