Production and Shipments - For the three months ended July 31, 2024, production and shipments of iron ore pellets totaled 974,532 tons, a decrease from 1,049,281 tons in the same period of 2023, attributed to lower demand from Northshore's customers [49]. - Iron ore pellet production and shipments for the six months ended July 31, 2024 totaled 1,953,030 tons, an increase of 62.0% from 1,204,581 tons in the same period of 2023 [51]. - The volume of iron ore shipped by Northshore in Q2 2024 was 949,718 tons, an increase from 886,301 tons in Q2 2023, reflecting a year-over-year growth of approximately 7.1% [68]. Revenue and Income - The Trust's revenue is highly dependent on Northshore's activities, with leasehold royalty income being the principal source of revenue [36]. - For the three months ended July 31, 2024, total royalty income decreased by $3,475,877 to $6,254,719 compared to the same period in 2023, primarily due to a decrease in pricing and shipments of iron ore [51]. - Net income for the three months ended July 31, 2024 was $5,397,894, a decrease of $3,785,446 compared to $9,183,340 in the same period of 2023 [55]. - Total revenues for the six months ended July 31, 2024 increased to $12,740,480, up from $11,738,090 in the same period of 2023, reflecting a growth of 8.6% [56]. - The Trust's expenses for the six months ended July 31, 2024 were $3,858,802, an increase of $2,327,191 compared to $1,531,611 in the same period of 2023 [56]. - The base overriding royalties for the six months ended July 31, 2024 increased by $646,245 to $6,981,711 compared to $6,335,466 in the same period of 2023 [54]. Royalty Structure - The minimum advance royalty for calendar year 2024 is set at $1,129,615, an increase from $1,100,498 in 2023 [39]. - The Adjusted Threshold Price for royalty bonuses in 2024 is $67.75 per ton, up from $66.00 per ton in 2023 [37]. - 97.4% of all iron ore products shipped during calendar 2023 were sold at prices above the Adjusted Threshold Price, indicating strong pricing performance [44]. - The royalty rates for base overriding royalties range from 2.5% for the first one million tons shipped annually to 6% for all tons exceeding four million tons [36]. - The royalty bonus percentage ranges from 0.5% for sales between the Adjusted Threshold Price and $2.00 above it, to 3% for sales $10.00 or more above the Adjusted Threshold Price [37]. - The current royalty rate schedule has been effective since August 17, 1989, and is based on both the volume and selling price of iron ore products shipped [40]. Trust Operations and Distributions - The Trust declared a distribution of $0.30 per unit on July 12, 2024, payable on August 20, 2024, compared to no distribution in the same quarter of 2023 [57]. - Unallocated Reserve increased from $21,644,693 as of July 31, 2023 to $22,116,015 as of July 31, 2024, reflecting a growth of 2.2% [61]. - Accrued Income Receivable increased by 42.6% to $2,584,690 as of July 31, 2024, compared to $1,812,600 as of July 31, 2023 [62]. - The Trust's net income per unit decreased by $0.2885 to $0.4114 per unit for the fiscal quarter ended July 31, 2024 compared to the same quarter in 2023 [56]. - The Trust's distributions can vary significantly from quarter to quarter, influenced by factors such as production schedules, customer demand, and market conditions [80]. Operational Challenges and Legal Matters - Northshore's operations were idled from May 1, 2022, until April 2023, with a partial restart announced on April 25, 2023 [45]. - Cliffs has indicated that Northshore will continue to operate at less than full capacity for the remainder of 2023, with no specific updates on expected shipments for 2024 [70]. - The Trust's royalty income is highly dependent on the volume of iron ore shipments and sales by Northshore, which can fluctuate significantly due to various operational and market factors [69]. - The Trustees are focused on maintaining adequate reserves while balancing distributions to Unitholders, given the unpredictable nature of the iron ore and steel industry [66]. - Cliffs has shifted its focus away from marketing and selling iron ore pellets to third-party customers, impacting the royalty structure and potential income for the Trust [78]. - The Trust initiated arbitration against Northshore and Cliffs for underpayment of royalties from 2020 to 2022, seeking damages [93]. Internal Controls and Compliance - The Trust's disclosure controls and procedures are deemed effective based on the Trustees' evaluation [91]. - There were no changes in the Trust's internal control over financial reporting that materially affected its operations during the last fiscal quarter [91]. - The Trust continues to evaluate whether transactions meet the Royalty Agreement requirements, which could affect royalty calculations [98].
Mesabi Trust(MSB) - 2025 Q2 - Quarterly Report