MESABI TRUST (MSB) stock intrinsic value fair value estimate & owner earnings analysis

Mesabi Trust is a passive royalty trust. It owns no mine and runs no business. It collects royalties on iron ore pellets made from ore mined on its lands at the Peter Mitchell Mine near Babbitt, Minnesota, and shipped from Silver Bay, Minnesota. Cleveland-Cliffs' subsidiary Northshore Mining is the sole lessee and operator. The Trust receives a base royalty that rises with volume and is set as a percentage of the pellet price. It also receives a bonus royalty when the price is above an inflation-adjusted threshold ($71.70 per ton for 2026), plus its share of fee royalties through Mesabi Land Trust. The Trust pays out almost everything it earns, so its cash earnings are simply net income. It has no capital spending, no debt and no stock compensation. What changed. Over the ten fiscal years to January 2026, earnings ranged from $0.40 per unit (fiscal 2023, when Cliffs idled Northshore from May 2022 to April 2023) to $5.24 (fiscal 2022). Fiscal 2025 reported $7.11, but that includes a one-time $71.2 million arbitration award; without it, fiscal 2025 earned $1.68. Fiscal 2026 earned $1.06, down 37% from fiscal 2025 excluding the award. The more important change is how the ore is priced. Cliffs now sends most Northshore pellets to its own steel and HBI plants. For those shipments, the royalty agreement sets the price from Northshore's arm's-length sales to outside buyers in the prior four calendar quarters. Cliffs reported only three small sales, all to a single outside customer in September and December 2025, and all were priced below the bonus threshold. As a result, the royalty payments received in April 2026 ($1.63 million) and July 2026 ($1.81 million) included no bonus royalty. The second quarter of fiscal 2027 (May to July 2026) ended in a small loss. Legal costs from a new arbitration, which the Trust started against Northshore and Cliffs on September 26, 2025, are running far above normal. The claim seeks damages for the 2022-23 idling and for underpaid royalties on Cliffs' internal shipments since 2023. The quarterly distribution was cut to $0.05 per unit in July 2026. We therefore value the Trust on the royalties it is actually receiving, not on its ten-year average. Our previous analysis started from about $1.75 per unit of normal earnings and allowed for growth. We now start from the current royalty rate, give no credit for growth, and add the Trust's cash reserve to the value. The net effect is a much lower estimate. How we value it. We value the royalty stream after normal trust expenses of about $2.3 million a year (about $1.7 to $2.7 million a year in fiscal 2019 to 2022, before the arbitrations). We value the cash reserve separately, after deducting the expected remaining arbitration costs. The reserve was $20.4 million at January 31, 2026, and we estimate about $17.6 million by July 31, 2026 after the April and July distributions. The Trust has no debt, so in every case the reserve adds to value rather than reducing it. Cliffs' reported reserves at Northshore are 783 million long tons of crude ore at 29% recovery. That is enough for several decades at recent shipping rates, so each case runs for about 50 years, roughly as long as the Trust can last under its own terms. No growth is credited in any case: volume and price depend on Cliffs, and Cliffs has run Northshore as a swing mine. Bear case ($5.35 per unit). The 2025 pricing method stays in place permanently, so the price used for royalties never again clears the bonus threshold. Royalty income stays near $7.3 million a year. Cliffs idles the mine often enough to cost about 15% of that over time, which fits its stated policy of running Northshore as a swing operation and the year-long idling in 2022-23. That leaves about $3.9 million a year ($0.30 per unit), which is worth $4.69 per unit. The reserve adds $0.66 per unit after allowing $9 million for arbitration costs, with nothing recovered. Base case ($9.28 per unit). Royalties stay near $7.3 million a year until the pricing set by the 2025 sales runs off in mid-2027. After that, we assume the outside-sale prices that set the royalty match the higher, bonus-paying level of fiscal 2024 to 2026 one year in three and stay at today's level the other two. That averages about $10.4 million a year. We allow 7.5% for occasional idling. This gives about $4.5 million a year now and $7.3 million a year ($0.56 per unit) from year three. The stream is worth $8.39 per unit, and the reserve adds $0.88 per unit after $6 million of arbitration costs. We do not count any arbitration recovery, because the outcome has not happened. Bull case ($15.98 per unit). Royalty pricing returns to the fiscal 2026 level of about $16.6 million a year from year three. That could come from the pending arbitration or from Cliffs resuming normal outside sales. The Trust has won earlier arbitrations against Cliffs: one in 2021, and a unanimous award in September 2024 of $59.8 million plus interest for royalties underpaid from 2020 to early 2022. Idling costs 5%. The stream is worth $14.95 per unit, and the reserve adds $1.04 per unit. No lump-sum damages are counted. What could make this wrong. Everything depends on decisions made by one company whose chief executive has publicly called the royalty structure 'ridiculous' and has said Northshore will be idled whenever Cliffs chooses. If Cliffs closes the mine permanently, only the minimum advance royalty of about $1.2 million a year would remain. That is only about half of what the Trust spends to run itself, so value would fall to roughly the cash reserve. On the other side, if the arbitration awards back pay, as the 2024 case did, the reserve and distributions could jump well above our figures. Our estimates of the July 2026 reserve and of future arbitration costs come from the filings and the declared distributions. They are not reported figures.