Item 7.01 Regulation FD.
Quarterly Royalty Report
On October 29, 2021, the Trustees of Mesabi Trust received the Royalty Report from Cliffs, the parent company of Northshore.
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 September 30, 2021, Mesabi Trust was credited with a base royalty of $12,553,161. For the three months ended September 30, 2021, Mesabi Trust was also credited with a bonus royalty in the amount of $7,245,537. The royalty also included a reduction of $6,078,357 as a result of negative pricing adjustments to base and bonus royalty calculations related to changes in price estimates made in prior quarters. The October 29, 2021 royalty amount also included an additional payment of $2,314,114 related to pellets and sinter volumes identified by Cliffs as 2020 deemed shipped adjustments. In addition, a royalty payment of $185,017 was paid to the Mesabi Land Trust. Accordingly, the total third quarter 2021 royalty payments received by Mesabi Trust on October 29, 2021 from Cliffs were $16,219,472.
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 third calendar quarter of 2021, Cliffs credited Mesabi Trust with 1,169,461 tons of iron ore shipped, as compared to 916,364 tons shipped during the third calendar quarter of 2020.
Separately, on October 29, 2021, Cliffs/Northshore also paid Mesabi Trust $2,833,687 for past underpaid royalties on DR grade pellets in 2019 and 2020, including interest, pursuant to the AAA final award decision which was received by the Trust October 1, 2021.
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. In addition, Cliffs’ recently announced plans to shift production of DR grade pellets away from Northshore to Minorca, to no longer sell pellets to third parties in the coming years and to keep idle the Northshore plant from time to time, when and if implemented, would likely impact the volume of shipments of iron ore products from Silver Bay, Minnesota. Further, the prices under some 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 Prices, 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.
