Mesabi Trust Swings to a Loss as Bonus Royalties Vanish
Total royalty income was $2,328,523 in the three months ended July 31, 2026, and bonus royalties were zero.
Mesabi Trust (MSB), a New York trust that collects leasehold royalties on iron ore pellets mined at Northshore Mining Company, swung to a net loss of $95,013 for the three months ended July 31, 2026, from net income of $4,743,882 a year earlier.
The loss followed a second consecutive quarter with no bonus royalty revenue. Bonus royalties were zero in the July quarter, down $2,018,440 from $2,018,440 in the year-ago period. Base overriding royalties fell $1,119,651 to $2,096,377 from $3,216,028. Fee royalties rose $49,710 to $232,146 from $182,436 on higher crude ore mined.
The decline in total royalty income was attributable to lower prices received on iron ore pellets, which eliminated bonus royalty revenue. Bonus royalties accrue only when shipped product is sold above the Adjusted Threshold Price, $71.70 a ton for calendar 2026. Cliffs reported no such sales in the six months ended July 31, 2026. The Trust did not record any bonus royalty revenue for that period.
The zero-bonus result extended the outcome already reported for the quarter ended April 30, 2026. Cliffs reported three pellet sales to a single third-party customer in September and December 2025 at volumes lower than historically typical and priced below the 2026 threshold. The Trustees said they are unable to project whether Cliffs will continue to sell iron ore products above the applicable threshold.
Volume moved the other way. Pellet production and shipments from Trust lands totaled 975,722 tons in the three months ended July 31, 2026, up from 943,955 tons a year earlier. The increase was attributed to higher demand from Northshore’s customers. One hundred percent of shipments originated from Trust lands in both periods.
Expenses were the other swing. Expenses for the three months ended July 31, 2026, were $2,575,369, up $1,712,496 from $862,873 a year earlier. The increase was primarily attributable to higher legal fees and expenses, with the AAA arbitration described in its legal proceedings cited as the cause. Interest income was $151,833.
Net loss per unit was $0.0072, down $0.3688 a share from the fiscal quarter ended July 31, 2025.
Sequentially, total royalty income rose to $2,328,523 from $2,077,811 in the three months ended April 30, 2026. The Trust swung from net income of $1,087,463 in that April quarter to the July loss as expenses jumped to $2,575,369 from $1,158,425. Pellet production and shipments were 975,722 tons in the July quarter, up from 906,131 tons in the April quarter.
The royalty structure still requires Northshore to pay a minimum advance royalty of $1,195,452 for calendar 2026, recouped later against base overriding royalties and any bonus royalties earned in the year. Base overriding rates run from 2-1/2% of gross proceeds on the first million tons shipped annually to 6% above four million tons. Bonus percentages run from 1/2 of 1% of gross proceeds on tonnage priced between the threshold and $2.00 above it to 3% on tonnage priced $10.00 or more above it.
The Trust has no employees and does not influence mining decisions. Northshore alone determines whether to mine on Mesabi Trust Lands. Since Cliffs’ acquisition of ArcelorMittal USA in late 2020, and accelerating after its Toledo HBI plant came online in mid-2021, Northshore has increased the share of Mesabi Trust iron ore sold to Cliffs’ affiliates and decreased the share sold to unaffiliated third parties. Cliffs’ public statements beginning in October 2021 indicated it would limit third-party pellet tonnage from all of its mines, particularly Northshore.
Without consistent arms’-length third-party sales, the calculation of royalties on pellets shipped to Cliffs’ affiliates could be uncertain under the Royalty Agreement, potentially resulting in disputes over the amount of royalties owed. Historically, Cliffs has not fully responded to the Trust’s inquiries on those matters.
The Trust declared a distribution of $0.24 a unit on April 14, 2026, payable May 20, 2026, versus $0.56 a unit in the quarter ended April 30, 2025. Distributions are not equivalent to net income in the periods reported.