Mesabi Trust(MSB) - 2024 Q3 - Quarterly Report

Revenue and Income - Royalty income for the three months ended October 31, 2023, was $4,664,092, compared to $0 in the same period of 2022, while for the nine months, it increased to $16,106,008 from $9,794,440, representing a 64.5% year-over-year growth[13] - Total revenues for the three months ended October 31, 2023, were $4,896,066, significantly up from $84,681 in the same period of 2022, and for the nine months, total revenues reached $16,634,160, up from $9,914,118, marking a 77.5% increase[13] - Net income for the three months ended October 31, 2023, was $4,086,066, compared to a loss of $413,692 in 2022, while for the nine months, net income rose to $14,292,545 from $8,324,122, reflecting a 71.8% increase[13] - The weighted average number of units outstanding remained constant at 13,120,010 for all periods presented, resulting in a net income per unit of $0.3114 for the three months and $1.0894 for the nine months[13] - Net income for the nine months ended October 31, 2023, was $14,292,545, an increase of $5,968,423, or 71.8%, compared to the same period in 2022[73] - Total royalty income for the nine months ended October 31, 2023, was $16,106,008, a 64.5% increase from $9,794,440 in 2022[73] Cash Flow and Assets - Cash and cash equivalents increased to $22,912,715 as of October 31, 2023, from $13,966,500 at the beginning of the period, indicating a positive cash flow trend[15] - The Trust's total assets as of October 31, 2023, were $26,013,002, up from $14,117,298 as of January 31, 2023, reflecting strong asset growth[15] - The unallocated cash and cash equivalents increased to $22,912,715 as of October 31, 2023, compared to $13,966,500 as of January 31, 2023[38] - The Trust's total balances as of October 31, 2023, reached $21,138,759, up from $11,438,217 as of January 31, 2023[41] Distributions - The Trust declared distributions of $0.3500 per unit for the nine months ended October 31, 2023, compared to $1.8800 per unit in the same period of 2022[13] - The Trust declared a distribution of $0.35 per Unit of Beneficial Interest, totaling $4,592,003, payable on November 20, 2023[39] - The Trust declared a distribution of $0.35 per unit on October 13, 2023, payable on November 20, 2023, compared to no distribution in the same quarter of 2022[88] Royalties and Operations - The royalty income is primarily derived from base overriding royalties, which are calculated based on the volume and selling price of iron ore products shipped[48] - The royalty rates range from 2.5% for the first million tons shipped annually to 6% for all tons exceeding four million tons[48] - The Trust's revenue recognition is influenced by estimated prices for certain iron ore products, which may lead to significant variations in royalties payable[53] - The Trust's operations are highly dependent on Northshore's activities, with royalty payments determined by the terms of the leases[47] - For the three months ended October 31, 2023, production and shipments of iron ore pellets at Northshore totaled 918,482 tons, compared to zero tons in the same period of 2022[61] - Total royalty income for the three months ended October 31, 2023, increased by $4,664,092 to $4,664,092, attributed to the operations of Northshore's facilities[65] - Base overriding royalties increased by $2,214,651 and bonus royalties increased by $2,252,620 for the three months ended October 31, 2023, compared to the same period in 2022[66] - The increase in base overriding royalties, bonus royalties, and fee royalties is due to a higher volume of shipments in 2023 compared to the prior period when Northshore was idled[68] Expenses - The Trust's expenses for the three months ended October 31, 2023, were $810,000, an increase of $311,627 compared to the same period in 2022, primarily due to increased legal fees[71] - The Trust's expenses for the nine months ended October 31, 2023, were $2,341,615, an increase of 47.2% from $1,589,996 in 2022[73] - The increase in expenses was primarily due to higher legal fees related to pending arbitration[72] Accounts Receivable and Liabilities - The accrued income receivable increased significantly to $1,885,432 as of October 31, 2023, from $23,562 as of January 31, 2023, indicating a rise in royalty income earned but not yet received[31] - Total liabilities increased to $4,874,243 as of October 31, 2023, from $2,679,081 at the beginning of the year, primarily due to the distribution payable[15] - As of October 31, 2023, the net contract asset is $1,002,095, consisting of a contract asset of $1,525,140 and a contract liability of $523,045[33] Governance and Compliance - The Trust is a publicly traded pass-through royalty trust, exempt from many corporate governance requirements, and has no employees or board of directors[101] - The Trust relies on independent consultants for production and shipment reports, ensuring accuracy in royalty calculations and financial reporting[96] - The Trustees concluded that the Trust's disclosure controls and procedures are effective, ensuring compliance with SEC regulations[111] - The Trust's critical accounting policies have not changed materially during the last fiscal quarter, maintaining consistency in financial reporting[104] Market Conditions and Future Outlook - Cliffs plans to operate Northshore at less than full capacity for the remainder of the year, treating it as a swing operation, which may affect future royalty payments[92] - The Trust's royalty payments are subject to pricing adjustments based on various market indices, which can lead to significant variations in royalties received from quarter to quarter[99] - An arbitration proceeding was initiated against Northshore and Cliffs regarding underpayment of royalties for the years 2020 to 2022, seeking damages and declaratory relief[115] - Northshore has increased the proportion of iron ore sold to Cliffs' corporate affiliates, decreasing sales to third parties in arm's-length transactions since Cliffs' acquisition of ArcelorMittal USA in late 2020[117] - The Trust is evaluating whether the transactions meet the requirements of the royalty agreement, as consistent arm's-length sales are necessary for accurate royalty calculations[117] - Without consistent arm's-length sales, the calculation of royalties owed to the Trust could be uncertain, potentially leading to disputes[117]