Mesabi Trust

Notes to Condensed Financial Statements

October 31, 20152016 (Unaudited)

Note 1.  The financial statements included herein have been prepared without audit (except for the balance sheet at January 31, 2015)2016) in accordance with the instructions to Form 10-Q pursuant to the rules and regulations of the Securities and Exchange Commission.  Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations.  In the opinion of the Trustees, all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of (a) the results of operations for the three months and nine months ended October 31, 20152016 and 2014,2015, (b) the financial position at October 31, 20152016 and (c) the cash flows for the nine months ended October 31, 20152016 and 2014,2015, have been made.  For further information, refer to the financial statements and footnotes included in Mesabi Trust’s Annual Report on Form 10-K for the year ended January 31, 2015.2016.

Note 2.  Net income per unit includes accrued income receivable.  For the three months ended October 31, 2015,2016 the Trust recorded $355,567$3,056,198 of accrued income receivable as reflected on the Condensed Balance Sheet as of October 31, 20152016 (unaudited). Accrued income receivable is accounted for and reported for the Trust’s third fiscal quarter based on shipments during the month of October, even though such accrued income receivable is not available for distribution to Unitholdersthe holders of Certificates of Beneficial Interest in Mesabi Trust (“Unitholders”) until the applicable royalties are actually received by the Trust. Accrued income receivable also includes accruals for anticipated pricing adjustments, which can be positive or negative. Net income per unit is based on 13,120,010 units outstanding during the period.

Note 3.  The Trust declares distributions (if any) each year in April, July, October and January.  Distributions are declared after receiving notification from Northshore Mining Company (“Northshore”) as to the amount of royalties expected to be paid to the Trust in cash based on shipments through the end of each calendar quarter.  The Trust’s financial statements are prepared on an accrual basis and present the Trust’s results of operations based on each fiscal quarter which ends one month after the close of each calendar quarter.  Because (i) distributions, if any, are declared by the Trustees based on, among other considerations, the royalty payment that is payable asamount of royalties actually paid to the Trust through the end of each calendar quarter prior to April, July, October and January of each year, the Trustees’ evaluation of known and projected Trust expenses in the current and future quarters, the then-current level of Unallocated Reserve and general economic conditions, and (ii) the Trust’s Net Income is calculated as of the end of each fiscal quarter, the distributions declared by the Trust are not equivalent to the Trust’s Net Income during the periods reported in this quarterly report on Form 10-Q.

Note 4.                           During recent periods,  On October 27, 2016, the Trustees had determined that Mesabi Trust’s unallocated reserve should usually be withinreceived the rangequarterly royalty report of $500,000 to $1,000,000. In April 2015,iron ore product shipments from Silver Bay, Minnesota during the quarter ended September 30, 2016 from Cliffs Natural Resources Inc. (“Cliffs”), the parent company of Northshore Mining Company (“Northshore”). On October 14, 2016, the Trustees determined thatdeclared a distribution of ten cents ($0.10) per Unit of Beneficial Interest payable on November 20, 2016 to Mesabi Trust Unitholders of record at the unallocated reserve will no longer necessarily be within such range.  Rather, eachclose of business on October 30, 2016.

Each quarter, as authorized by the Agreement of Trust, the Trustees will reevaluateevaluate all relevant factors including all costs, expenses, obligations, and present and future liabilities of the Trust (whether known or contingent) in determining athe prudent level of unallocated reserve in light of the unpredictable nature of the iron ore industry and current economic conditions.

Accordingly, although the actual amount of the Unallocated Reserve will fluctuate from time to time, and may increase or decrease from its current level, it is currently expected that future distributions will be highly dependent upon royalty payments, if any, received quarterlyin the prior quarter, and the level of Trust expenses that the Trustees anticipate occurringwill occur in subsequent quarters.  Pursuant to the Agreement of Trust, the Trust makesTrustees make decisions about cash distributions to Unitholders based on the royalty payments it receives from Northshore when received, rather than as royalty income is recorded in accordance with the Trust’s revenue recognition policy.  Refer to Note 3 for further information.

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Note 4. (continued)

As of October 31, 20152016 and January 31, 2015,2016, the unallocated cash and U.S. Government securities portion of the Trust’s Unallocated Reserve was comprised of the following components:

factors, including without limitation, those that could materially and adversely affect Mesabi Trust’s actual results and performance, see “Risk Factors” set forth on pages 3 through 119 of Mesabi Trust’s Annual Report on Form 10-K for the year ended January 31, 2015,2016, as updated by Part II, Item 1A of this Quarterly Report on Form 10-Q.  Mesabi Trust undertakes no obligation, other than that imposed by law, to make any revisions to the forward-looking statements contained in this filing or to update them to reflect circumstances occurring after the date of this filing.

This discussion should be read in conjunction with the condensed financial statements and notes presented in this Quarterly Report on Form 10-Q and the financial statements and notes in the last filed Annual Report on Form 10-K filed for the period ended January 31, 20152016 for a full understanding of Mesabi Trust’s financial position and results of operations for the nine month period ended October 31, 2015.2016.

Background

Mesabi Trust (“Mesabi Trust” or the “Trust”), formed pursuant to an Agreement of Trust dated July 18, 1961 (the “Agreement of Trust”), is a trust organized under the laws of the State of New York.  Mesabi Trust holds all of the interests formerly owned by Mesabi Iron Company (“MIC”), including all right, title and interest in the Amendment of Assignment, Assumption and Further Assignment of Peters Lease (the “Amended Assignment of Peters Lease”), the Amendment of Assignment, Assumption and Further Assignment of Cloquet Lease (the “Amended Assignment of Cloquet Lease” and together with the Amended Assignment of Peters Lease, the “Amended Assignment Agreements”), the beneficial interest in a trust organized under the laws of the State of Minnesota to administer the Mesabi Fee Lands (as defined below) as the trust corpus in compliance with the laws of the State of Minnesota on July 18, 1961 (the “Mesabi Land Trust”) and all other assets and property identified in the Agreement of Trust. The Amended Assignment of Peters Lease relates to an Indenture made as of April 30, 1915 among East Mesaba Iron Company (“East Mesaba”), Dunka River Iron Company (“Dunka River”) and Claude W. Peters (the “Peters Lease”) and the Amended Assignment of Cloquet Lease relates to an Indenture made May 1, 1916 between Cloquet Lumber Company and Claude W. Peters (the “Cloquet Lease”).

The Agreement of Trust specifically prohibits the Trustees from entering into or engaging in any business.  This prohibition applies even to business activities the Trustees may deem necessary or proper for the preservation and protection of the Trust Estate.  Accordingly, the Trustees’ activities in connection with the administration of Trust assets are limited to collecting income, paying expenses and liabilities, distributing net income to the holders of Certificates of Beneficial Interest in Mesabi Trust (“Unitholders”) after the payment of, or provision for, such expenses and liabilities, and protecting and conserving the assets held.held by the Trust.

The Trustees do not intend to expand their responsibilities beyond those permitted or required by the Agreement of Trust, the Amendment to the Agreement of Trust dated October 25, 1982 (the “Amendment”), and those required under applicable law.  Mesabi Trust has no employees, but it engages independent consultants to assist the Trustees in, among other things, monitoring the volume and sales prices of iron ore products shipped from Silver Bay, Minnesota, based on information supplied to the Trustees by Northshore, the lessee/operator of the lands leased under the Peters Lease and Cloquet Lease (the “Peters Lease Lands” and “Cloquet Lease Lands,” respectively) and the 20% fee interest of certain lands that are particularly described in, and subject to a mining lease under, the Peters Lease (the “Mesabi Fee Lands,” and together with the Peters Lease Lands and Cloquet Lease Lands, the “Mesabi Trust lands”),, and its parent company Cliffs Natural Resources Inc. (“Cliffs”).Cliffs.  References to Northshore in this quarterly report, unless the context requires otherwise, are applicable to Cliffs as well.

Three types of royalties, as well as royalty bonuses, comprise the Trust’s leasehold royalty income:

Under the relevant documents, Northshore may mine and ship iron ore products from lands other than Mesabi Trust lands.  Northshore is obligated to make quarterly royalty payments to the Trust in January, April, July and October of each year based on shipments of iron ore products from Silver Bay,

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Minnesota during each calendar quarter.  In the case of base overriding royalties and royalty bonuses, these quarterly royalty payments are to be made whether or not the related proceeds of sale have been received by Northshore by the time such payments become due.  Northshore alone determines whether to mine off Trust and/or such other lands, based on its current mining and engineering plan.  The Trustees do not exert any influence over mining operational decisions.  To encourage the mining of iron ore products from Mesabi Trust lands, Mesabi Trust receives royalties, in part, based on the greater of the following two methods of calculating royalty payments, (i) the aggregate quantity of iron ore products shipped that were produced using iron ore mined from Mesabi Trust lands, and (ii) a portion of the aggregate quantity of all iron ore products shipped from Silver Bay that were mined from any lands, such portion being 90% of the first four million tons shipped from Silver Bay during the calendar year, 85% of the next two million tons shipped during the calendar year, and 25% of all tonnage shipped from Silver Bay during such year in excess of six million tons.  The royalty percentage paid to the Trust increases as the aggregate tonnage of iron ore products shipped, attributable to the Trust, in any calendar year increases past each of the first four one-million ton volume thresholds.  Assuming a consistent sales price per ton throughout a calendar year, shipments of iron ore product attributable to the Trust later in the year generate a higher royalty to the Trust, as total shipments for the year exceed increasing levels of royalty percentages and pass each of the first four one-million ton volume thresholds.

As shown in the table below, during the nine months ended October 31, 2015,2016, production of iron ore pellets at Northshore from Mesabi Trust lands totaled 3,143,0192,350,880 tons, and shipments over the same period totaled 2,815,2571,887,675 tons.  By comparison, pellet production and shipments for the comparable period in 20142015 were 3,474,1553,143,019 tons and 3,723,5062,815,257 tons, respectively.  The decreasesdecrease in production and shipments at Northshore foris attributable to a decrease in demand from Northshore’s customers as compared to the nine months ended October 31, 2015 are the result of decreases in anticipated demand and actual orders from Cliff’s customers.prior comparable period.  For the nine months ended October 31, 2015,2016, approximately 89%99.4% of shipments from Silver Bay, Minnesota originated from Mesabi Trust lands. Similarly,lands, whereas during the same period in 20142015 approximately 89%89.1% of shipments originated from Mesabi Trust lands.

Comparison of Royalty Income for the Three and Nine Months Ended October 31, 20152016 and October 31, 20142015

The Trust’s totalTotal royalty income for the fiscal quarter ended October 31, 2015 decreased2016 increased by $9,161,405$822,431 to $2,619,097,$3,441,528 as compared to the fiscal quarter ended October 31, 2014.2015.  The decreaseincrease in total royalty income is due to the decreasesincrease in shipments during the volume of iron ore shippedfiscal quarter ended October 31, 2016, as compared to the fiscal quarter ended October 31, 2015.

The table below shows that the base overriding royalties decreased $143,994 and the lower average sales price per ton of iron ore products sold duringbonus royalties increased $948,460 for the three months ended October 31, 2015, each2016, as compared to the three months ended October 31, 2014.

The table below shows that the base overriding royalties and the bonus royalties decreased by $4,763,679 and $4,361,961, respectively, for the three months ended October 31, 2015, as compared to the three months ended October 31, 2014.2015.  Fee royalties decreasedincreased by $35,765$17,965 over the same period.  The decrease in the base overriding royalties is attributable to base royalties being paid at a lower royalty rate as compared to the decreases in the volume and the selling price of iron ore products shipped asprior comparable period.  As discussed under “Base overriding royalties” on page 8, the base overriding royalty rate is based on the total volume of this report.shipments which is significantly lower in 2016 as compared to 2015.  The decreaseincrease in bonus royalties is attributable to the decreases in the volume of iron ore products shipped and in the selling price of iron ore products shippedhigher sales prices per ton as compared to the Adjusted Threshold Price asprior comparable period.  As discussed under “Royalty bonuses” on page 8, of this report, including negative pricing adjustments relatingthe royalty bonuses are based on the sales price as compared to iron ore products shipped in the first two quarters of this fiscaladjusted threshold price for the calendar year.

$6,132,898 and $7,260,944 to $5,262,282 and $1,024,162, respectively, and the fee royalties decreased by $78,121 to $381,498 $1,214,351 for the nine months ended October 31, 2015, from2016, as compared to the comparable period in 2014.nine months ended October 31, 2015. Fee royalties decreased by $104,529 over the same period.  The decreasesdecrease in the base overriding royalties and the bonus royalties areis attributable to the decreasesa decrease in the volume and selling price of iron ore products shipped, and also due decreases in the volume of iron ore products shipped and in the selling price of iron ore products shippeddemand from Northshore’s customers as compared to the Adjusted Threshold Priceprior comparable period. The increase in bonus royalties is attributable to both higher sales prices per ton as discussed under “Royalty bonuses” on page 8 of this report, including negativecompared to the prior comparable period and to anticipated positive pricing adjustments relating toon unconsumed iron ore products shippedpellets at January 31, 2016 for the quarter ending October 31, 2016 related to shipments during the calendar year 2015. These price adjustments will not be finalized until after the end of the calendar year in which the pellets are consumed. The decrease in the first two quartersfee royalty amount is due to a decrease in the amount of this fiscal year.iron ore mined under the Peters Lease.

The table below summarizes the components of Mesabi Trust’s total royalty income for the nine months ended October 31, 20152016 and October 31, 2014:2015:

Comparison of Net Income, Expenses and Distributions for the Three and Nine Months Ended October 31, 20152016 and October 31, 20142015

Net income for the fiscal quarter ended October 31, 20152016 was $2,402,067, a decrease$3,208,151, an increase of $9,137,539$806,084 compared to the fiscal quarter ended October 31, 2014.2015.  The decreaseincrease in net income for the fiscal quarter ended October 31, 20152016 was the result of bothan increase in bonus royalties over the decreasecomparable period as discussed in the volume of iron ore products shipped and the decrease in the selling price of iron ore products sold during the fiscal quarter ended October 31, 2015.  The Trust’s expenses decreased by $23,654 to $219,498 for the fiscal quarter ended October 31, 2015, as compared to the fiscal quarter ended October 31, 2014, as a result of a minimal decrease in fees charged to the Trust.section above.  The table below summarizes the Trust’s income and expenses for the fiscal quarter ended October 31, 20152016 and October 31, 2014,2015, respectively.

As presented on the Trust’s Condensed Statements of Income on page 2 of this quarterly report, the Trust’s net income per unit decreased by $0.6964increased $0.0614 per unit to $0.1831$0.2445 per unit for the fiscal quarter ended October 31, 2015, as compared to that during the comparable period in 2014.2016.  For the nine months ended October 31, 2015,2016, the Trust’s net income per unit decreased by $1.0112$0.0479 per unit to $0.4441$0.3962 per unit, as compared to that during the comparable period in 2014.prior year period. On October 19, 2015,14, 2016, the Trust announced that it was unable to consider the declaration ofdeclared a distribution using anticipated royalty revenues earned during the quarter ended Septemberof $0.10 per unit payable to Unitholders of record on October 30, 2015.2016.  Comparatively, the Trust declared a distribution of $0.88$0.00 per unit to Unitholders in October 2014.2015.  During the nine months ended October 31, 20152016 and October 31, 2014,2015, the Trust had declared total distributions per unit of $0.040$0.50 and $1.200,$0.04, respectively.

Distributions are declared after receiving notification from Northshore as to the amount of royalty income that is expected to be paid to the Trust based on shipments through the end of each calendar quarter and such royalty payments may include pricing adjustments with respect to shipments during prior periods.  The Trust accounts for and reports accrued income receivable based on shipments during the last month of each of the Trust’s fiscal quarters (April, July, October and January) and price adjustments under the Cliffs Pellet Agreements (which can be positive or negative and can result in significant variations in royalties received by Mesabi Trust and cash available for distribution to Unitholders) as reported to the Trust by Northshore.  The Trust accounts for these amounts by using estimated prices and reports such amounts even though accrued income receivable is not available for distribution to Unitholders until it is received by the Trust.  Accordingly, distributions declared by the Trust are not equivalent to the Trust’s Net Income during the periods reported in this quarterly report on Form 10-Q.

Comparison of Unallocated Reserve as of October 31, 2015,2016, October 31, 20142015 and January 31, 20152016

As set forth in the table below, Unallocated Reserve, which is comprised of accrued income receivable, unallocated cash and U.S. Government securities for potential fixed or contingent future liabilities, and prepaid expenses and accrued expenses increased from $4,333,448 as of October 31, 2014 to $6,912,301 as of October 31, 2015.2015 to $7,627,304 as of October 31, 2016. The increase in Unallocated Reserve as of October 31, 2015,2016, as compared to October 31, 2014,2015, is primarily the result of thea significant increase in the unallocated cash and U.S government securities held byaccrued income receivable portion of the Trust.Unallocated Reserve.  The decreaseincrease in the accrued income receivable portion of the Unallocated Reserve is the result of lower average sales prices per tona higher volume of iron ore pellets sold and decreased shipments for the month endedin October 31, 2015,2016 as compared to October 2015 as well as an increase in the month ended October 31, 2014, which in turn drove lower royalties payable to Mesabi Trust.average sales price per ton. The increasedecrease in the unallocated cash and U.S. Government securities is a result of the Trustees’ decision to decrease the Trust’s reserve for unexpected obligations.

These distribution determinations to not make a distribution in November 2015 (announced in October) due to a delay untilby the endTrustees during the last three quarters resulted from several factors, including the Trustee’s evaluation of October 2015known and projected Trust expenses in the receipt of the quarterly royalty report for shipments of iron ore products from Silver Bay, Minnesota during Northshore’s quarter ended September 30, 2015. Because NYSE rules require 10 days advance notice of a record date for declarations of distributions,current and the governing Agreement of Trust fixes a record date of October 30th, the Trustees were unable to consider the declaration of a distribution using anticipatedfuture quarters.

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royalty revenues during the calendar quarter ended September 30, 2015. Accordingly, no distribution was paid in November 2015.

It is possible that future negative price adjustments could offset, or even eliminate, future royalties or royalty income that would otherwise be payable to the Trust in any particular quarter, or at year end, thereby potentially reducing cash available for distribution to the Trust’s Unitholders in future quarters.  See the discussion under the heading “Risk Factors” beginning on page 3 of the Trust’s Annual Report on Form 10-K for the fiscal year ended January 31, 2015.2016.

The Trust’s Unallocated Reserve as of October 31, 2015 increased2016 decreased by $5,301,177$1,361,860 to $6,912,301,$7,627,304, as compared to the fiscal year ended January 31, 2015.2016.  The increasedecrease in the Unallocated Reserve is due primarily to an increase in the unallocated cash and U.S. Government securities held byTrustee’s decision to decrease the Trust as a result of the Trustees’ determination to not make a distribution in November 2015 (announced in October) due to a delay until the end of October 2015 in the receipt of the quarterly royalty reportTrust’s reserve for shipments of iron ore products from Silver Bay, Minnesota for Northshore’s quarter ended September 30, 2015. Because the NYSE rules require 10 days advance notice of a record date for declarations of distributions, and the Agreement of Trust fixes a record date of October 30th, the Trustees were unable to consider the declaration of a distribution using anticipated royalty revenues during the calendar quarter ended September 30, 2015. Accordingly, no distribution was paid in November 2015.unexpected obligations.  As of October 31, 2015,2016, the Trust’s Unallocated Reserve consisted of $6,551,542$4,528,624 of unallocated cash and U.S. Government securities and $355,567$ 3,056,198 of accrued income receivable.  At January 31, 2015,2016, the Trust’s Unallocated Reserve consisted of $1,087,469$8,127,881 in unallocated cash and U.S. Government securities and $558,385$978,146 of accrued income receivable.

volume of iron ore product shipments and the dollar level of sales by Northshore.  Shipping activity is greatly reduced during the winter months.  Economic conditions, particularly those affecting the iron ore and steel industry, may adversely affect the amount and timing of such future shipments and sales.  The Trustees will continue to monitor the economic circumstances of the Trust to strike a responsible balance between distributions to Unitholders and the need to maintain adequate reserves at a prudent level, given the unpredictable nature of the iron ore and steel industry, the Trust’s dependence on the actions of the lessee/operator, and the fact that the Trust essentially has no other liquid assets.

Recent Developments

Delayed Delivery of Cliffs’ Quarterly Royalty Report

On October 16, 2015, Cliffs informed14, 2016, the Trustees that, unlike historical practice,of Mesabi Trust declared a distribution of ten cents ($0.10) per Unit of Beneficial Interest payable on November 20, 2016 to Mesabi Trust Unitholders of record at the close of business on October 30, 2016. This compares to no distribution (zero per Unit) for the same period last year.

On October 27, 2016, the Trustees received the quarterly royalty report forof iron ore product shipments from Silver Bay, Minnesota during the quarter ended September 30, 2016 from Cliffs Natural Resources Inc. (“Cliffs”), the parent company of Northshore Mining Company (“Northshore”). As reported to the Trust by Cliffs in the quarterly royalty report, based on shipments of iron ore products from Silver Bay, Minnesotaby Northshore during Northshore’s quarterthe three months ended September 30, 2015 would not be provided2016, Mesabi Trust was credited with a base royalty of $1,643,276.  Mesabi Trust also was credited with a bonus royalty in the amount of $571,691.  Royalties paid to Mesabi Trust, untilhowever, reflected a reduction of $468,190 as a result of negative pricing adjustments to base and bonus royalty calculations related to changes in price estimates made in the endprevious calendar quarters of 2016.  Accordingly, the total royalty payments received by October 2015. As previously reported, because NYSE rules require 10 days advance notice of a record date for declarations of distributions, and the Agreement of Trust fixes a record date of October 30th, the Trustees were unable to timely consider the declaration of a distribution in October 2015. Therefore, no distribution was paid in November 2015.

Neither Cliffs nor Northshore has provided30, 2016 by Mesabi Trust with any projections about whether or not it will furnish future quarterlyfrom Northshore were $1,880,334 (which includes a royalty reports on a timeline that will permitpayment of $133,557 paid to the Trustees to consider declarations of distributions from royalty revenues anticipated to be received by the 30th day of the month following each calendar quarter end.

Cliffs Disclosure regarding Risks associated with Obtaining and Maintaining Permits and Additional Financial Assurance

In its latest Form 10-Q filed on October 29, 2015, Cliffs disclosed as one of its risk factors that it may be unable to obtain and renew permits necessary for its operations or be required to provide additional financial assurance, which could reduce its production, cash flows, profitability and available liquidity.

Cliffs also added that it could also face significant permit and approval requirements that could delay its commencement or continuation of existing or new production operations which, in turn, could affect materially its cash flows, profitability and available liquidity.

Mining companies must obtain numerous permits that impose strict conditions on various environmental and safety matters in connection with iron ore mining. These include permits issued by various federal, state and provincial agencies and regulatory bodies.Mesabi Land Trust). The permitting rules are complex and may change over time, making Cliffs’ ability to comply with the applicable requirements more difficult or impractical and costly, possibly precluding the continuance of ongoing operations or the development of future mining operations. Interpretations of rules may also change over time and may lead to requirements, such as additional financial assurance, making it more costly to comply. The public, including special interest groups and individuals, have certain rights under various statutes to comment upon, submit objections to, and otherwise engage in the permitting process, including bringing citizens’ lawsuits to challenge such permits or mining activities. Accordingly, required permits may not be issued or renewed in a timely fashion (or at all), or permits issued or renewed may be conditioned in a manner that may restrict Cliffs’ ability to efficiently conduct its mining activities. Such inefficiencies could reduce its production, cash flows, profitability and available liquidity, which could adversely affect the royalties payablepaid to Mesabi Trust.

Temporary IdlingTrust are based on the volume of Northshore Iron Ore Pellet Production

As previously reported, Cliffs announced on November 17, 2015 that it is temporarily idling iron ore pellet production at its Northshore mining operation in Minnesota by December 1, 2015. Cliffs disclosed that until its domestic customers’ blast furnace capacity utilization rates improve, existing customer demand will be satisfied from its current pellet inventory. The Trustees have been informed that both crude ore production and pellet production at Northshore have been idled. In its news release, Cliffs anticipated that both Northshore and the previously idled United Taconite operations “will be temporarily idled through the

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first quarter of 2016.” With respect to the remainder of calendar year 2015, neither Cliffs nor Northshore has advised Mesabi Trust of its expected 2015 shipments of iron ore products or whatpellets for the quarter and the year to date, the pricing of iron ore product sales, and the percentage of 2015iron ore pellet shipments will be from Mesabi Trust lands rather than from non-Mesabi Trust lands.  In the third calendar quarter of 2016, Northshore credited Mesabi Trust with 1,020,796 tons of iron ore. Cliffs also announced that it would maintain minimal staffingore, as compared to 1,231,310 tons during the temporary idle for basic maintenance duties and for on-going work to support the DR-grade pellet trials.third calendar quarter of 2015.

Mesabi Trust has no additional information on exactly when Cliffs will restart its Northshore iron ore pellet production.

Important Factors Affecting Mesabi Trust

The Agreement of Trust specifically prohibits the Trustees from entering into or engaging in any business.  This prohibition seemingly applies even to business activities the Trustees deem necessary or proper for the preservation and protection of the Trust’s assets.  Accordingly, the Trustees’ activities in connection with the administration of Trust assets are limited to collecting income, paying expenses and liabilities, distributing net income to Mesabi Trust’s Unitholders after the payment of, or provision for, such expenses and liabilities, and protecting and conserving the Trust’sheld assets.

Neither Mesabi Trust nor the Trustees have any control over the operations and activities of Northshore, except within the framework of the Amended Assignment Agreements.  Cliffs alone controls (i) historical operating data, including iron ore production volumes, marketing of iron ore products, operating and capital expenditures as they relate to Northshore, environmental and other liabilities and the effects of regulatory changes; (ii) decisions about whether and when to restart, or continue to idle, Northshore’s iron ore pellet production, (iii) plans for Northshore’s future operating and capital expenditures; (iv)(iii) geological data relating to ore reserves (v)(iv) projected production of iron ore products; (vi)(v) contracts between Cliffs and Northshore with their customers; and (vii)(vi) the decision to mine off Mesabi Trust and/or state lands, based on Cliffs’ current mining and engineering plan.  The Trustees do not exert any influence over mining operational decisions at Northshore, nor do the Trustees provide any input regarding the ore reserve estimated at Northshore as reported by Cliffs.  While the Trustees request materialrelevant information from Cliffs and Northshore for use in periodic reports as part of their evaluation of Mesabi Trust’s disclosure controls and procedures, the Trustees do not control this information and they rely on this information provided by Cliffs and the information in Cliffs’ periodic and current filings with the SEC to provide accurate and timely information in Mesabi Trust’s reports filed with the SEC.

In accordance with the Agreement of Trust and the Amendment, the Trustees are entitled to, and in fact do, rely upon certain experts in good faith, including (i) the independent consultants with respect to monthly production and shipment reports, which include figures on crude ore production and iron ore pellet shipments, and discussions concerning the condition and accuracy of the

various Producer Price Indexes.  Although Northshore makes interim adjustments to the royalty payments on a quarterly basis, these price adjustments cannot be finalized until after the end of a contract year.  This may result in significant and frequent variations in royalties received by Mesabi Trust (and in turn the resulting amount of funds available for distribution to Unitholders by the Trust) from quarter to quarter and on a comparative historical basis, and these variations, which can be positive or negative, cannot be predicted by Mesabi Trust.  It is possible that future negative price adjustments could partially or even completely offset royalties or royalty income that would otherwise be payable to the Trust in any particular quarter, or at year-end, thereby potentially reducing cash available for distribution to the Trust’s Unitholders in future quarters.

Effects of Securities Regulation

The Trust is a publicly-traded trust with Units of Beneficial Interest that are listed on the New York Stock Exchange (“NYSE”) and is therefore subject to extensive regulations under, among others, the Securities Act of 1933, the Securities Exchange Act of 1934, the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”) and the rules and regulations of the NYSE, each as amended.  Issuers failing to comply with such regulations risk serious consequences, including criminal as well as civil and administrative penalties.  In most instances, these laws, rules and regulations do not specifically address their applicability to publicly-traded trusts such as Mesabi Trust.  In particular, Sarbanes-Oxley and the Dodd-Frank Wall Street Reform and Consumer Protection Act have mandated the adoption by the Securities and Exchange Commission (the “SEC”) and, in some instances, the NYSE of certain rules and regulations that are impossible for the Trust to satisfy because of its nature as a pass-through trust that has no officers or employees.  Pursuant to NYSE rules currently in effect the Trust is exempt from many of the corporate governance requirements that apply to publicly traded corporations listed on the NYSE.  The Trust does not have, nor does the Agreement of Trust provide for, a board of directors, an audit committee, a corporate governance committee or a compensation committee.  The Trustees intend to closely monitor the SEC’s and the NYSE’s rulemaking activity and will attempt to comply with such rules and regulations where applicable.

The Trust’s website is located at www.mesabi-trust.com.

Critical Accounting Policies and Estimates

This “Trustees’ Discussion and Analysis of Financial Condition and Results of Operations” is based upon the Trust’s financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States.  The preparation of these financial statements requires the Trustees to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities.  Critical accounting policies are those that have meaningful impact on the reporting of the Trust’s financial condition and results, and that require significant judgment and estimates.  During the preparation of financial statements, the Trust makes estimates, assumptions and judgments that affect reported amounts.  These estimates, assumptions and judgments include those related to revenue recognition and accrued expenses.  The Trust bases its estimates on various assumptions and historical experience, which are believed to be reasonable; however, due to the inherent nature of estimates, actual results may differ significantly due to changed conditions or assumptions.  On a regular basis, the Trust reviews the accounting policies, assumptions, estimates and judgments to ensure that the financial statements are fairly presented in accordance with accounting principles generally accepted in the United States.  However, because future events and their effects cannot be determined with certainty, actual results could differ from assumptions and estimates, and such differences could be material.

The Trust did not have any changes in critical accounting policies or in significant accounting estimates during the three months ended October 31, 2015.2016.  For a complete description of the Trust’s significant accounting policies, please see Note 2 to the financial statements included in the Trust’s Annual Report on Form 10-K for the year ended January 31, 2015.2016.

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PART II - OTHER INFORMATION

Item 1A.Risk Factors

There have been no material changes in the Trust’s risk factors as described in “Risk Factors” set forth on pages 3 through 119 of Mesabi Trust’s Annual Report on Form 10-K for the year-ended January 31, 2015.2016.

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3.  Defaults upon Senior Securities

None.